Go online to access The Sage Group plc
2008 Annual Report and forPDFdownloads.
www.investors.sage.com
www.investors.sage.com
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www.sage.com
www.sage.com
The Sage Group plc
North Park
Newcastle upon Tyne
NE13 9AA
Annual Report
and Accounts 2008
The Sage Group plc
Annual Report and Accounts 2008
Sage is one ofthe leading global suppliers of
business management software and services to
small and medium-sized enterprises (“SMEs”).
Operating in 26 countriesworldwide,we help
ourcustomers manage theirbusinesses more
efficientlythrough the provision of locally
tailored products and qualitycustomersupport.
Keyperformance indicators (“KPIs”)
Adjusted EPS** growth
EBITA† margin
Organic revenue growth
Excluding Sage Healthcare Division
+3%
2007: +13%
23%
2007: 24%*
+6%*
2007: +7%*
Cash generation from operations
Renewal rates on maintenance
and support contracts
114%
2007: 112%
81%
2007: 81%
For more information about this year’s
KPIs go to page 28
Designed and produced by Radley Yeldar. www.ry.com
Board photography by Andy Wilson
Printed in England by CTD
This report is printed on Take 2 Silk which is FSC certified and contains
75% recycled and de-inked pulp from post consumer waste and 25% ECF
(Elemental Chlorine Free) virgin pulp. This report was printed by an FSC and
ISO 14001 certified printer using vegetable oil and soya based inks.
FSC – Forest Stewardship Council. This ensures that there is an audited
chain of custody from the tree in the well-managed forest through to the
finished document in the printing factory.
ISO 14001 – A pattern of control for an environmental management system
against which an organisation can be credited by a third party.
The CO2 emissions from the production and distribution of this report
have been neutralised through investment in the Sichuan Province Hydro
Power Project in western China. The project displaces electricity generated by
fossil-fuel power plants and will generate emission reductions of an estimated
360,000 tCO2 equivalent between 2006 and 2012, verified and certified to the
Voluntary Carbon Standard.
Contents
About Sage
01 Financial highlights
Business review
06 Group strategy and performance
10 Our business and markets
10 What we do, who we are, how we work
12 Marketplace overview
16 Business structure
18 Customer experience
20 Distribution channels
22 Acquisition strategy
24 Corporate responsibility
28 Key performance indicators
02 Chairman’s welcome
04 Group overview
30 Regional review
30 UK & Ireland
32 Mainland Europe
34 North America
36 Rest of World
38 Financial review
42 Risk
Governance
44 Board of Directors and advisers
46 Directors’ report
49 Corporate governance statement
54 Remuneration report
Financial statements
66 Financial statements – Group
112 Additional information
69 Notes to the accounts – Group
106 Independent auditors’ report – Group
107 Financial statements – Company
108 Notes to the accounts – Company
111 Independent auditors’ report – Company
112 Shareholder information
www.investors.sage.com
Go online to access The Sage Group plc
2008 Annual Report and forPDFdownloads.
www.investors.sage.com
www.investors.sage.com
A
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8
www.sage.com
www.sage.com
The Sage Group plc
North Park
Newcastle upon Tyne
NE13 9AA
Annual Report
and Accounts 2008
The Sage Group plc
Annual Report and Accounts 2008
Sage is one ofthe leading global suppliers of
business management software and services to
small and medium-sized enterprises (“SMEs”).
Operating in 26 countriesworldwide,we help
ourcustomers manage theirbusinesses more
efficientlythrough the provision of locally
tailored products and qualitycustomersupport.
Keyperformance indicators (“KPIs”)
Adjusted EPS** growth
EBITA† margin
Organic revenue growth
Excluding Sage Healthcare Division
+3%
2007: +13%
23%
2007: 24%*
+6%*
2007: +7%*
Cash generation from operations
Renewal rates on maintenance
and support contracts
114%
2007: 112%
81%
2007: 81%
For more information about this year’s
KPIs go to page 28
Designed and produced by Radley Yeldar. www.ry.com
Board photography by Andy Wilson
Printed in England by CTD
This report is printed on Take 2 Silk which is FSC certified and contains
75% recycled and de-inked pulp from post consumer waste and 25% ECF
(Elemental Chlorine Free) virgin pulp. This report was printed by an FSC and
ISO 14001 certified printer using vegetable oil and soya based inks.
FSC – Forest Stewardship Council. This ensures that there is an audited
chain of custody from the tree in the well-managed forest through to the
finished document in the printing factory.
ISO 14001 – A pattern of control for an environmental management system
against which an organisation can be credited by a third party.
The CO2 emissions from the production and distribution of this report
have been neutralised through investment in the Sichuan Province Hydro
Power Project in western China. The project displaces electricity generated by
fossil-fuel power plants and will generate emission reductions of an estimated
360,000 tCO2 equivalent between 2006 and 2012, verified and certified to the
Voluntary Carbon Standard.
Contents
About Sage
01 Financial highlights
Business review
06 Group strategy and performance
10 Our business and markets
10 What we do, who we are, how we work
12 Marketplace overview
16 Business structure
18 Customer experience
20 Distribution channels
22 Acquisition strategy
24 Corporate responsibility
28 Key performance indicators
02 Chairman’s welcome
04 Group overview
30 Regional review
30 UK & Ireland
32 Mainland Europe
34 North America
36 Rest of World
38 Financial review
42 Risk
Governance
44 Board of Directors and advisers
46 Directors’ report
49 Corporate governance statement
54 Remuneration report
Financial statements
66 Financial statements – Group
112 Additional information
69 Notes to the accounts – Group
106 Independent auditors’ report – Group
107 Financial statements – Company
108 Notes to the accounts – Company
111 Independent auditors’ report – Company
112 Shareholder information
www.investors.sage.com
01
About Sage
01–05
Business review
06–43
Governance
44–65
Financial statements
66–112
Financial highlights
Revenue
Adjusted pre-tax profit**
£1,295.0m
+7%*
(2007: £1,214.1m*)
£273.4m
+3%
(2007: £265.1m)
Total dividend
EBITA†
7.21p
+3%
(2007: 7.00p)
£299.8m
+1%*
(2007: £297.0m*)
* Foreign currency results for the year ended 30 September 2007 have been retranslated based on the average
exchange rates for the year ended 30 September 2008 of $1.97/£1 and B1.31/£1 to facilitate the comparison
of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
** Pre-tax profit and earnings per share figures stated prior to amortisation of intangible fixed assets and after
neutralisation of foreign exchange movements.
For a five year comparison of these financial highlights go to page 06
For a five year comparison of the total dividend go to page 02
02
“Our large and international customer base, the
flexibilityof our business model and our consistently
strong cash flows position us favourablyto manage
the current market conditions.”
To see Tony’s biography please go to page 44
Total dividend
7.21p
+3%
2008
2007
2006
2005
2004
3.59
2.88
2.33
pence
7.21
7.00
0.000
1.442
2.884
4.326
5.768
7.210
“The UKand North America recorded
respectable growth, and ourbusinesses
in Mainland Europe and Rest of World
reported another yearofstrong growth.”
03
DearShareholder
This has been a challenging year with volatile and difficult
market conditions. After a resilient performance in the first
half of the year, the Group saw softening customer
demand in the second half, most notably in software
and software-related services.
Despite these market conditions, the Group reported a
solid performance for the year. The UK and North America
recorded respectable growth, and our businesses in
Mainland Europe and Rest of World reported another
year of strong growth.
Subscription revenues, including combined software/
support contracts, performed strongly in all our markets,
driving growth in established markets such as the UK,
France, South Africa and Australia, as well as in our newer
markets of Poland, Spain, China and Malaysia. Software
and software-related services reported modest growth,
affected by both the macro-economic conditions and the
trend for customers increasingly to purchase combined
software/support contracts.
Financial strength
The Group remains highly cash generative and our balance
sheet is strong. In addition, we have committed facilities of
£850m, of which £750m is committed until 2011. In these
market conditions, this positions the Group very well.
This financial year saw major movements in foreign
exchange rates and a major weakening of Sterling which
continued after the year end. More than 70% of the
Group’s profits are earned outside the UK and recent
exchange rate trends will have a favourable effect on
our reported earnings going forward.
Dividend
The Board is strongly committed to enhancing shareholder
value. We believe that our consistently strong cash flows,
robust balance sheet and recurring revenue streams
provide a sustainable basis for a progressive dividend
policy, whilst ensuring that the Board can continue
to maintain the appropriate levels of organic and
acquisition-led investment.
As a result, we are increasing the full year dividend by
3% to 7.21p per share (2007: 7.00p per share), with a
proposed final dividend of 4.78p per share (2007: 5.73p
per share, following the rebasing of our dividend policy
which was reflected in our final dividend in the second
half of the prior year).
Management changes
David Clayton joined the Board on 1 October 2007 as
Group Strategy and Mergers and Acquisitions Director.
On 1 November 2007, Ian Mason, Chief Executive of
Electrocomponents plc, joined the Board as a non-
executive director. Mark Rolfe, formerly Finance Director of
Gallaher Group plc, joined the Board on 1 December 2007
and became chair of the Audit Committee on 1 April 2008.
We were also very pleased to welcome Sue Swenson to
the Group as CEO, North America. Sue joined us in March
2008 and brings a formidable record of achievements to
our North American business.
People
We now employ over 14,500 people (2007: 13,900),
and our employees are at the heart of our strategy
continuously to improve our customers’ experience.
As markets become more challenging over the coming
year, we rely on our employees to enhance our competitive
advantage in all our markets. Our loyal, dedicated and
customer-focused employees have greatly contributed to
our results in this challenging year, and we thank them for
their continuing efforts.
Outlook
We will continue to strive to create value for our
shareholders by focusing on tight cost control, improved
operational efficiency and leveraging our strong geographic
market positions. It is uncertain as to how long these
difficult market conditions will continue and, therefore, we
remain cautious in our outlook. However, our large and
international customer base, the flexibility of our business
model and our consistently strong cash flows position us
favourably to manage the current market conditions.
Tony Hobson
Chairman
Awards
Sage prides itself on providing high quality
software and customer support tailored to a
customer’s country and industry. We constantly
strive to provide outstanding customer service
and this year we have won many awards in
recognition of this.
UK & Ireland
Business Software Supplier of the Year
at Computing Magazine’s Awards for
Excellence 2008.
Payroll Software Provider of the Year
for medium to large companies at the Irish
Payroll Association awards.
Payroll Software Provider of the Year
at Pay Magazine’s annual Pay Awards.
Product of the Year award for Sage SalesLogix
v7.2 at the SearchCRM.com awards.
Mainland Europe
Customer Service Golden Laurel and
the Golden BIT award for Best HR Software
in Poland.
Preferred Vendor 2008 award from Channel
Partner Magazine and ERP System of the
Year from the Centre of Enterprise Research
in Germany.
Golden Customer Relation Centre award
in Spain.
North America
Product of the Year award for ACT! by Sage
2008 from Communication Solutions magazine.
SMB Software Suites Channel Champion
at CRN Channel Champion Awards.
Gold and silver medals for Best Contact Centre
Agent and Best Contact Centre, respectively,
at the World Contact Centre Awards.
Rest of World
Best Customer Service Award in the Business
Process Enabling South Africa Awards.
For further details on our awards please visit
www.sage.com/ourbusiness/newsroom
04
Global presence
Sage is a global company with 5.8 million customers, over 14,500
employees and more than 25 years’ experience working with small and
medium-sized businesses. We have direct operations in 26 countries
and a presence in many more countries through our indirect network
of 30,000 business partners and 40,000 accountancy practices.
Despite our global reach, we have built our success on understanding
and meeting the needs of customers in their local markets.
We are the third largest provider of business management solutions
in the world with a 7% market share1. Software and software-related
services revenues account for 39% of our total revenues. Subscription
revenues account for 61% of our total revenues and include recurring
revenues arising from combined software/support contracts,
maintenance and support, hosted products and other recurring
services revenues.
To capitalise on our local expertise we operate through a decentralised
business structure whereby each country has substantial autonomy in
terms of local business strategy.
Our local management teams report into the CEO of their region –
UK & Ireland, Mainland Europe, North America and Rest of World.
For more information about our regional businesses and our business structure
please go to page 17
Direct presence
Revenue by region
Revenue by sector
4
1
2
D E
A
C
3
1
2
3
4
UK & Ireland
Mainland Europe
North America
Rest of World
Total
B
%
19
35
39
7
100
A
B
C
D
E
%
55
Accounting
25
Industry-specific
HR and payroll
11
Customer Relationship Management (“CRM”) 5
4
Payment processing
100
Total
1 Source: Gartner, August 2007, Worldwide ERP
licence and maintenance revenue by vendor.
05
Corporate responsibility
Ourstrengths
Sage is committed to acting as a responsible
corporate citizen. We have chosen to focus our
corporate responsibility efforts on four areas that
are meaningful to our organisation’s strategy and
where we believe we can make a difference.
These are: our people; the environment;
supporting industry; and working with our local
communities and charities. We aim to achieve
best practice in the local context of every country
in which we operate with standards established by
local legislation applying as a minimum. We also
aim to share best practice across the Group so
that we implement continuous improvement.
For more information on our corporate
responsibility please go to page 24
Brand leadership
We have built our business around our market-
leading brands which are widely recognised and
trusted in their local markets. Combined with the
global Sage brand, our local brands give us a key
point of competitive differentiation.
Business structure
Our decentralised business means Sage has an
unrivalled understanding of local customer needs,
provides a choice of locally developed and locally
supported solutions and the agility to respond
quickly to changes in local market conditions.
For more information on our brand leadership
please go to page 12
For more information on our business structure
please go to page 16
Customer experience
We set ourselves apart through the superior
experience we deliver to customers. We help
them run their businesses more efficiently through
the provision of high quality software, services
and support. This has enabled us to build a
large, loyal and diverse customer base. Many of
our customers have support contracts through
which we provide not only advice on how to get
the most from their software but also guidance
on business critical topics.
For more information on our customer experience
please go to page 18
Distribution channels
Sage has strong routes to market, including retail
stores, web retailers, direct from Sage or indirect
through our worldwide network of over 40,000
accountants and 30,000 business partners who
provide additional support, implementation,
customisation and specialist sector knowledge.
For more information on our distribution channels
please go to page 20
Ourregional businesses
UK& Ireland
Including: United Kingdom and
Republic of Ireland.
Mainland Europe
Including: Austria, Belgium, France
(including subsidiaries in Brazil and
Morocco), Germany, Poland, Portugal,
Spain and Switzerland.
North America
Including: Canada and United States.
Rest of World
Including: Australia, Bahrain, Botswana,
China, Dubai, India, Malaysia, Namibia,
Saudi Arabia, South Africa, Singapore
and Thailand.
Sectors:
• Accounting
• Industry-specific
• HR and payroll
• CRM
• Payment processing
Sectors:
• Accounting
• Industry-specific
• HR and payroll
• CRM
Sectors:
• Accounting
• Industry-specific
• HR and payroll
• CRM
• Payment processing
Sectors:
• Accounting
• Industry-specific
• HR and payroll
• CRM
Revenue
Revenue
Revenue
Revenue
£245.7m
+10%
2008
2007
£457.3m
+15%*
2008
2007
£m
245.7
224.1
£m
457.3
395.9*
£500.9m
-3%*
2008
2007
£91.1m
+16%*
£m
500.9
2008
515.6*
2007
£m
91.1
78.5*
0.000000
49.139999 98.279999 147.419998 196.559998 245.699997
0.000000
91.459998 182.919995 274.379993 365.839990 457.299988
0.000000 103.119995 206.239990 309.359985 412.479980 515.599976
0.000000
18.220000 36.439999 54.659999 72.879999 91.099998
EBITA†
EBITA†
EBITA†
EBITA†
£88.5m
EBITA† margin 36%
2008
2007
£100.2m
EBITA† margin 22%
2008
2007
£m
88.5
82.6
£m
100.2
91.5*
£87.7m
£
EBITA† margin 18%
£23.4m
EBITA† margin 26%
£m
2008
2007
87.7
102.2*
2008
2007
£m
23.4
20.7*
0.000000
17.700001 35.400002 53.100002 70.800003
0.000000
20.040001 40.080002 60.120003 80.160004
0.000000
20.439999 40.879999 61.319998 81.759998 102.199997
0.00
4.68
9.36
14.04
18.72
23.40
For more information on the UK &
Ireland region please go to page 30
For more information on the Mainland
Europe region please go to page 32
For more information on the North
America region please go to page 34
For more information on the Rest of
World region please go to page 36
+
* Foreign currency results for the year ended 30 September 2007 have been retranslated based on the average exchange rates for the year ended 30 September 2008 of $1.97/£1 and B1.31/£1 to facilitate
the comparison of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
£
£
06
“The continued growth in subscription revenues
underpinsouroverallgrowthandcompensatedforthe
morechallengingmarketconditionsweexperiencedin
software and software-related services.”
“Innovation is at the heart ofourstrategy.
We continue to adapt and evolve ourproducts
and services offering to meet the changing
needs ofour 5.8 million customers.”
To see Paul’s biography please go to page 44
Revenue
Adjusted pre-tax profit^
EBITA†
£1,295.0m
+7%*
2008
2007
2006
2005
935.6
759.6
£m
1,295.0
1,157.6
£273.4m
+3%*
2008
2007
2006
2005
£299.8m
+1%*
2008
2007
2006
2005
£m
273.4
251.3
234.7
196.4
£m
299.8
283.2
249.3
202.1
2004
0
Note: Figures included in the graphs above for 2004 are reported under UK GAAP and the results of all comparative years have not been retranslated to current year exchange rates.
181.1
54.679999 109.359998 164.039996 218.719995 273.399994
2004
0.000000
2004
0.000000
185.6
687.6
1295
1036
777
518
259
59.959998 119.919995 179.879993 239.839990 299.799988
07
Over the year we successfully extended our support
offerings with Sage Accountants’ Club Priority Link
in the UK, Contrat Platine for Ciel! customers in France
and the Premier and Avanzado support contracts
in Spain. Customer support continues to drive growth
in Spain, South Africa, Poland and Portugal, while our
newer markets in China, India, Malaysia and Singapore
successfully leveraged their existing solutions, adapting
best practice solutions from our more established regions.
The growth in customer demand for quality support
confirms that customers want to improve their business
performance through the innovative and well-designed
products and services that Sage offers.
We are also seeing a growing trend for larger companies
in the SME sector to extend their businesses beyond their
home territories. Our mid-market customers increasingly
need solutions that are robust enough to cope with
multiple government legislation, multiple currencies and
multiple languages, yet can offer rapid integration and
local customisation. Our international products such as
CRM (ACT!, SalesLogix, SageCRM), Sage ERP X3 and
Sage Accpac ERP broaden our portfolio of localised
solutions and are growing well in our emerging markets,
helping us expand into new territories. We anticipate that
the trends in the SME sector will increasingly facilitate the
development of new products and services aimed at the
emerging international SME sector that will complement
our current portfolio of locally focused solutions. With
our long experience with SMEs, we understand these
emerging challenges and are developing solutions that
meet the international demands of medium-sized
companies, yet still offer the flexibility and localisation
that is our competitive advantage.
Overview of Group results
This has been a challenging year with volatile market
conditions in two of our key geographic regions. After
a good performance in the first half of the year, the Group
saw softening customer demand in the UK and North
America, although Mainland Europe and Rest of World
continued to perform strongly. This resulted in organic
revenue growth excluding Sage Healthcare Division for
the Group of 6%* (3%* organic revenue growth overall).
Subscription revenues, representing the 61% of our
revenues which are recurring in nature, grew by 10%*
and were less affected by market conditions in the UK
and North America. The continued growth in subscription
revenues compensated for the more challenging market
conditions we experienced in software and software-
related services. Combined software/support contracts,
the largest component of subscription revenues,
represented 39% of our total revenues and grew by 14%*
over the year. This demonstrates the resilience of our
business model, with our customers continuing to use
our products and services to increase their operational
efficiency in difficult markets. Software and software-
related services revenues grew by 2%*, reflecting
the market slowdown in North America and the UK,
beginning in the second half of the year.
Product and service strategy
Innovation is at the heart of our strategy. We continue
to adapt and evolve our products and services offering
to meet the changing needs of our 5.8 million customers,
with an increasing range of customer support contracts,
as well as tiered subscription offerings tailored to the
varying requirements of our customer base. Our integrated
product suites, launched last year, have been well received
by our customers and business partners and are beginning
to contribute to organic growth. Software as a Service
(“SaaS”) and hosted products such as Sage 50 Accounts
Professional Online, SageCRM.com, Sage Accpac ERP
and Billing Boss continue to show strong demand,
although they remain a modest contributor to Group
revenues overall.
Subscription revenue
£785.7m
+10%*
+
2008
2007
£m
785.7
714.3*
S
Software and software-related
services revenue
£509.3m
+2%*
+
2008
2007
£m
509.3
499.8*
* Foreign currency results for the year ended 30 September 2007 have been retranslated based on the average exchange rates for the
year ended 30 September 2008 of $1.97/£1 and B1.31/£1 to facilitate the comparison of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
^ Pre-tax profit stated prior to amortisation of intangible fixed assets.
08
Acquisition strategy
Relative to previous years, this has been a quiet year
for acquisitions. We continue to evaluate a number of
opportunities in both new and existing markets, although
in many cases vendor price expectations have not as yet
adjusted to current market conditions. During the year,
we completed three principal acquisitions, for an enterprise
value of £51.2m. KCS, a leading supplier of HR and
payroll services in the UK, was completed in October
2007 for an enterprise value of £20.2m. Tekton, a supplier
of construction solutions for UK mid-market companies,
was completed in March 2008 for an enterprise value of
£19.8m. Eurowin, acquired in July 2008 for an enterprise
value of £11.2m, strengthened our market position at the
entry-level in Spain. These acquisitions were all strategic
investments in broadening our product offering.
We remain committed to our acquisition strategy of
expanding our product and service offering to SMEs in
both new and existing territories. As we expand the scope
of our businesses worldwide, we are increasingly focused
on leveraging our scale and exploiting global synergies
between our businesses. Our strong balance sheet and
cash conversion put us in an advantageous position to
pursue opportunities when asset prices fall. However,
our acquisition methodology remains robust and highly
disciplined in determining valuation parameters.
Distribution strength
Our distribution strength remains one of our key
competitive advantages, with over 30,000 business
partners and 40,000 accountancy practices
recommending and marketing Sage products worldwide.
The role of our business partners in promoting our
products and services and providing local expertise
continues to evolve as customers demand increasing
levels of tailored products and specialised services. Our
business partners are a key component in building and
maintaining on-going relationships with our customers.
Customer base
Over the year, we added 341,000 new customers
(37,000 resulting from acquisitions made this year).
New customers are an important component in our
long-term growth strategy as customers tend to remain
loyal to their original software supplier as they grow,
purchasing upgrades and additional products and driving
future organic revenue growth.
North America management team
This has been a transitional year for our North American
business and a period of organisational change. In March
2008, we appointed Sue Swenson as President and
CEO to lead our North American business. She was
joined in June 2008 by Marc Loupé as Chief Financial
Officer of North America. Lindy Benton, who brings
extensive experience in healthcare industry management,
joined in September 2008 as Chief Operating Officer
of Sage Healthcare Division. Greg Hammermaster joined
in November 2008, after the end of the financial year, as
President of Sage Payment Solutions Division. Greg has
long-term experience of the payments industry. The new
executive management team is focusing on driving
operational improvements and earnings growth.
Environment
We are aware of the current debate around climate
change, and our corporate policy is to minimise our
carbon footprint where possible. This year, our focus
has been on developing a globally consistent template
for measuring our carbon emissions and waste generation
across our businesses in all our major locations as an initial
step in our strategy to reduce our long-term impact on the
global environment. We encourage our employees to think
and act in an environmentally positive manner to help us
realise this strategy.
Outlook
The strength and flexibility of our business model
has helped us achieve solid results in difficult market
conditions. As markets weakened in the UK and North
America, we were rapidly able to adapt to the changing
markets and proactively refocus our businesses in
these regions. Our businesses in Mainland Europe
and Rest of World recorded strong results through a
combination of favourable market conditions and good
commercial execution.
We anticipate that the broader economic climate will
remain uncertain for the near future. However, our
business model, together with consistently strong cash
flows, robust balance sheet and high level of recurring
revenue streams, provides a solid foundation for our
operations. Our large and geographically diverse
customer base of over 5 million customers also provides
many opportunities to meet future demand for business
critical solutions designed to help SMEs run their
businesses more efficiently in difficult market conditions.
Whilst we are still early in our new financial year, growth
in subscription revenues has continued to offset weakness
in software revenues. Although we remain cautious in our
outlook, we expect demand for our customer support to
continue, which combined with tight cost control and our
strong geographic market positions, will allow us to
weather these turbulent times.
Paul Walker
Chief Executive
09
Corporate strategy
While we are locally focused in serving our customers, we work
together as one organisation towards one future. Our strategy sets
out a clear vision supported by a set of goals towards which all of
our operating companies around the world are working.
Our vision is to be the most admired and respected software provider
in the world. Our business will grow as we help our customers
manage their businesses more efficiently. Our products will be easy
to install, customise and maintain. The services and support provided
by our people and our partners will help to take the complexity out of
managing business processes. Our business model and the way in
which we operate will make it easy to deal with Sage.
Objective
Strategy
Progress
• Be a key leader in all markets of
the world
• Supply business management
software and services that help
our customers run their businesses
more efficiently
• Leading market positions enhanced
in several key markets in all our
major markets
• Develop products and services which
• Maintain high levels of quality
• Contract renewal rates maintained
are the most compelling fit with a
customer’s country and industry
service support that feed back into
the product and services
development cycle
at 81%
• Have the most trusted brands
• Invest in a strong brand identity
consistent with our corporate values
• Global brand development project
to identify and apply Sage’s core
corporate values across our
businesses
• Have the most satisfied and active
customers in our industry
• Focus on product innovation
• Focus on value-added services
• Fulfilment of the changing needs
of our customers
• Migration revenue increased by 9%
• Combined software/support contract
revenue increased by 14%
• New integrated product suites
well received
• Experience superior organic revenue
growth versus our peer group
• Anticipate market developments and
develop products and services to
meet changing customer needs
• Subscription revenue grew
by 10% driven by combined
software/support contracts
• Be recognised as one of the most
admired employers
• Build organisational leadership
to drive business performance
• Continued investment in talent
management, succession planning,
people development and HR
processes
10
“Our principles of Simplicity, Trust,
Integrity, Innovation and Agility drive
everything we do – howwe think, how
we plan, how we make decisions.”
11
Whatwe do,whowe are, how wework
Sage provides a choice of high quality business software,
services and support to small and medium-sized
businesses. Whilst our heritage is in the small business
market and most of our customers employ less than
500 employees, we also have the experience and
expertise to meet the needs of specific industries
and larger organisations.
At Sage we nurture a unique culture and regardless of
where we are in the world, our people are guided by five
key principles of simplicity, trust, integrity, innovation and
agility. These attributes will enable us to serve all our
customers well and continue to deliver our success.
Our corporate principles underpin everything we do – how
we think, how we plan and how we make decisions.
The majority of our products and services are developed,
sold and supported locally to meet local customer needs
and comply with local legislation and regulations. This
ensures our products and services are relevant to our
customers and makes it easier for them to manage their
business processes. Whether it is our financial software
enabling better cash flow management, our CRM software
helping to build profitable customer relationships or our
HR and payroll offerings being used to improve employee
performance and ensure legislative compliance, our
software and services equip our customers to run their
businesses more effectively and manage the challenges
of today’s business environment.
What makes Sage different is our people, our dedication to
doing the right thing by the customer and our commitment
to support them to the very best of our ability.
• Whether it is software which is easy to use or support
that is easy to access, simplicity is a key driver in
our business.
• Our customers place important, confidential information
in our hands so it is imperative they fully trust us to deliver.
• Whether providing reliable, high quality products or giving
advice on business critical topics, integrity is critical to
us when building long-term customer relationships.
• We need to think ahead, to anticipate our customers’
needs and be creative in how we develop our software
and services, continually innovating to improve the
customer experience we deliver.
• We have to be responsive to customer needs and
market changes and ensure we are agile enough to
adapt our products and services to meet these demands.
Simplicity
Trust
Integrity
Innovation
Agility
12
Business review | Our business and markets
Marketplace overview
Brand leadership
Sage is one of the leading global suppliers of business
management software and services for SMEs. We are
the third largest provider of business management
solutions in the world with a 7% market share1.
We have built our market-leading position around our
decentralised business model, the customer experience
we provide, the strength of our distribution channels and
our local brands. These brands, such as Ciel! in France,
Contaplus (SP) in Spain, Sage 50 in the UK, Softline Pastel
in South Africa or Simply in Canada, are widely recognised
and trusted in their local markets.
Above and beyond the strength of our local brands,
Sage is an internationally recognised brand in its own
right. The Sage brand is much more than our logo.
It represents our energy and commitment to doing what’s
right for our customers, going the extra mile and exceeding
expectations. To capitalise on our brand position we have
made a substantial investment in a global initiative to
leverage the strengths of the Sage brand more consistently
and effectively alongside those of our local brands.
This combination of our global and local brands provides
us with a key point of differentiation.
Products and services
We provide a choice of high quality products and
services which are relevant to our customers, use the most
appropriate technology and deployment methods and are
supported by local experts. The mix of products and
services we deliver in each of our regions is tailored
according to the needs of our customers in that market.
These products and services are broadly classified into
the following groups:
• Accounting
• Financial forecasting
• Job costing
• Business intelligence
• Taxation and other products for accountants
• Business stationery
• Development platforms
• E-business
• Enterprise Resource Planning (“ERP”)
• Payroll
• Human Resources
• CRM
• Payment processing
Market leading brands
Business management
solutions providers1
A
B
F
CDE
A
B
C
D
E
F
SAP
Oracle
Sage
Infor
Microsoft
Others
Competitive profile
Global consistency
Product
driven
2
3
4
>
5
>
1
>
Customer
led
Sage
>
%
27.5
13.9
7.0
6.4
4.1
41.1
Key
1 SAP
2 Oracle
3 Microsoft
Local market solutions
4 Salesforce.com
5 Intuit
1 Source: Gartner, August 2007, Worldwide ERP
licence and maintenance revenue by vendor.
13
In addition to this broad range of solutions, we also
recognise that businesses in different industries have
specialised needs. Consistent with our approach of
staying close to our customers and delivering relevant
solutions, many of our operating companies have,
alongside our worldwide community of software
developers, developed solutions for specific industries.
In regions where the market for business software is more
established, such as in the UK & Ireland, Mainland Europe
and North America, much of our growth is driven by the
demand for value-added support as well as integrated
suites of software. These suites integrate front and back
office business processes and simplify workflow across
an entire company. We have also developed tiered levels
of support contracts to meet differing customer needs.
These include software/support contracts which combine
software, annual upgrades, support and services such
as electronic back-up, access to training resources and
compliance services.
In emerging markets, such as Africa and Asia, growth
is driven by demand for support contracts, payroll
solutions, upgrades and migrations, as well as our
international product offerings.
Industry-specific and specialised solutions
UK & Mainland
North Rest of
Europe America World
Ireland
Healthcare
HR and payroll
Construction/real estate
Transport/distribution
Payment processing
Accountancy
Not-for-profit
Manufacturing
Retail
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
International solutions
We are seeing growing demand from existing and potential
customers who increasingly operate internationally
and need a solution that works in all of their locations.
These solutions must be robust enough to cope with
multiple government legislation, currencies and languages
yet be flexible, lean and offer local customisation. As a
global business with extensive experience of working
with growing SMEs, we understand these challenges
and have developed ERP and CRM solutions that
meet the demands international businesses generate.
The provision of these international solutions demonstrates
our commitment to offer our customers a choice of high
quality, relevant, flexible and scalable solutions which meet
their evolving needs.
14
Business review | Our business and markets
Technology developments
Technology continues to move at a fast pace, with the
growth of SaaS as well as the emerging influence of web
2.0 technologies. These developments present exciting
opportunities to enhance further the value we provide to
customers, particularly in the areas of collaboration,
integration and mobility. We take a pragmatic, impartial
approach, harnessing the most appropriate technologies
for the benefits they can bring to our customers.
Whilst the market for SaaS is growing, we anticipate
that adoption will be gradual and will vary widely between
markets. We believe that customers will gradually
incorporate new technologies into their existing solutions
and adopt a “hybrid” approach to their business software
and services. Our focus is on making the integration
process easier for our customers, integrating desktop
software with supplementary business services delivered
as SaaS applications. As a Group, we continue to
introduce SaaS applications where appropriate for our
customers. These include Billing Boss, a SaaS invoicing
service in Canada, Sage 50 Accounts Professional Online
software integrated with online payment processing
services in the UK and Sage Douane Delta, a SaaS
application which enables French customers to file
their tax returns online.
In CRM, we are creating new interoperability among
our CRM solutions, ACT!, SageCRM and SalesLogix.
We are incorporating open web standards to enable
integration between the front and back office.
Our CRM strategy also embraces SaaS capabilities and
web 2.0 technologies which will provide users, such as
mobile salespeople, with an interactive experience from
a wide range of devices. Whether mobile, on-demand
or on-premise, our CRM solutions will provide sales
teams with a more complete picture of their customers
and enabling them to work more efficiently.
15
Cross company collaboration
Even though we take a predominantly local approach
we also place a great emphasis on collaboration across
our businesses. We work to leverage our accumulated
knowledge, innovation, technologies and resources which
enables us to continually improve the products and services
we deliver to our customers. This collaboration is on-going
and this year has included:
• Sharing innovation around our premium support models.
For example, the Sage Accountants’ Club Priority Link
in the UK, which provides priority access and dedicated
account management for its customers, benefited
from collaboration with our French and Spanish
businesses, which also have experience of offering
premium support contracts.
• The introduction of Sage ERP X3, acquired through
our French business in 2005, into the product portfolios
of our German and South African businesses.
• The roll-out of our global CRM strategy and its
interoperability platform across multiple geographies.
• The leveraging of the knowledge gained by our UK
business, when they developed the Sage 50 and Sage
200 suites, by our North American business to launch
the Sage Accpac ERP and Sage MAS Extended
Enterprise Suites.
Sage Douane Delta
Sage Douane Delta, is a SaaS application developed
by Sage in France to assist customers with online
filing of their tax returns. It has processed one million
returns since its launch in March 2007. The application
enables import/export businesses in France to ease
their transactions with French Customs (Douanes
Françaises) by giving them the ability to complete
their Customs returns online without generating
further paperwork or having to invest in sizeable IT
infrastructure. Customers are billed per transaction,
with no licence or maintenance fee, making Sage
Doaune Delta a cost effective solution.
“We take a pragmatic, impartial approach,
harnessing the most appropriate technologies
for the benefits they can bring to our customers.”
16
Entrepreneurship in action
An example of the benefits of our decentralised
business structure was demonstrated in Spain,
where new financial legislation aimed at improving
the standard of accounting procedures within SMEs
came into effect on 1 January 2008.
More than 98% of businesses in Spain are SMEs,
therefore, the legislation affected a large majority of the
country’s business population and Sage customers.
Research showed that 75% of employers were not
aware of the effects of this legislation on their
businesses. Consequently Sage Spain, along with
other key SME technology providers, conducted
a road show across the country designed to help
Spanish SMEs understand more about how the
new legislation impacts their businesses.
More than 31,000 people attended the road shows in
40 cities to find out, not only about the legislation, but
also how using software can improve their business
processes and help run their business more effectively.
Business structure
We have built our success on understanding and meeting
the needs of customers in their local markets. To capitalise
on our local expertise we operate through a decentralised
business structure whereby each country has substantial
autonomy in terms of local business strategy and operational
activities such as sales, marketing, support and research
and development.
Our decentralised business model provides local focus
alongside our global scale. This approach has a number
of benefits, including:
• An excellent understanding and accumulated knowledge
of local business environments and customer needs;
• The provision of local support which provides added value
for our customers, helps them run their businesses more
effectively and provides us with valuable feedback to
develop and improve our products and services;
• The ability to offer a choice of relevant, flexible and
scalable solutions, including those for specific industries,
incorporating local fiscal, legal and regulatory requirements;
• The agility to respond quickly to local market changes;
• A global scale and collaborative culture which enables
us to leverage and share knowledge, innovation,
technologies and resources across the Group;
• Devolved accountability and decision-making which
maintains an environment in which entrepreneurship
is encouraged; and
• Experience of working with growing SMEs across many
regions which means we understand the challenges
faced by larger businesses and can develop solutions
to meet their needs.
17
Our local management teams report into the CEO of their
region – UK & Ireland, Mainland Europe, North America
and Rest of World. The Executive Committee oversees
the management of all Sage operations and comprises
the regional CEOs and other senior leaders from across
the Group.
The Executive Committee is responsible for the
development and implementation of strategy, operational
plans, policies, procedures and budgets; the monitoring
of operating and financial performance; the assessment
and control of risk; the prioritisation and allocation of
resources and the monitoring of competitive forces in
each area of operation. It is supported by a Group team
which plays a key role in facilitating collaboration and the
leveraging of knowledge, innovation, technologies and
resources across the business.
Executive Committee
Karen Geary
Group Director of
Human Resources
and Corporate
Communications
Klaus-Michael
Vogelberg
Group Chief
Technology Officer
Paul Harrison
Group Finance
Director
David Clayton
Group Strategy
and Mergers and
Acquisitions Director
Paul Walker
Group Chief
Executive
Paul Stobart
CEO, UK & Ireland
Michael Robinson
Company Secretary
and Group Legal
Director
Ivan Epstein
CEO, South Africa
and Australia
Guy Berruyer
CEO, Mainland Europe
and Asia
Sue Swenson
CEO, North America
18
Business review | Our business and markets
Customerexperience
We differentiate ourselves through the superior experience
we deliver to our customers. Customers and their needs
and expectations lead our strategy. We aim to provide
our customers with an outstanding experience at every
level and in all their dealings with Sage. Understanding
their needs and the provision of specific and relevant
solutions are two key factors in providing a positive
customer experience. Building secure customer
relationships for the long-term is absolutely essential
for us to provide this outstanding experience.
Our partnerships are built on the on-going dialogue we
have with our customers, the provision of high quality
support and advice and the loyalty and trust that results
from it. We have 1.7 million support contracts with average
renewal rates of over 80%. Our emphasis on support is
reinforced by the resources we put behind it. More than
40% of our people work in technical support, customer
service or customer training roles and we receive over
36,000 calls a day from customers working in all sizes
and types of business.
We develop these relationships by providing customers
not only with support and advice on how to get the most
out of their software to enable better business
performance but also with guidance on business critical
topics. Many of our customers have limited sources
of advice and, very often, limited IT support. As such,
we believe we are not just a software supplier but a partner
in our customers’ businesses, helping them to manage
their businesses more effectively.
We will continue to provide support locally because we
believe that outstanding service has to be provided by
highly trained individuals who understand their customers,
their products, the local legislation and other local market
issues that affect them. By supporting, connecting and
building relationships with our customers in this way,
we aim to deliver an extraordinary experience which
is unmatched in our industry.
“Our emphasis on support is reinforced by the
resources we put behind it. Across the business
as a whole, more than 40% of our people work
in technical support, customer service or
customer training roles.”
19
20
“Our distribution channels include retail stores, web
retailers, direct from Sage, or indirect through our
worldwide network of over 40,000 accountants and
30,000 business partners and resellers.”
21
Distribution channels
Sage has strong routes to market which are tailored to
match customer needs. Our distribution channels include
retail stores, web retailers, direct from Sage or indirect
through our worldwide network of over 40,000
accountants and 30,000 business partners and resellers.
We constantly seek innovative ways to reach our
customers and, as a result, have also developed
partnerships with leading banks to package our software
and services as part of their wider offerings to SMEs.
Although retail sales account for a small part of our total
revenues, it is an important component in acquiring new
customers. As these new businesses grow, they upgrade
and extend their software solutions, leading to future
revenue streams.
Many of our products and services are sold direct by our
telesales teams through new customer contact and
customer enquiry follow-up, especially at the entry-level
where product implementation is relatively straightforward.
For our larger mid-market customers who require a greater
degree of customisation, our business partners play a
valuable role in our sales process.
Our business partners are very much an extension
of the Sage ecosystem and provide additional local
expertise, implementation, training and support as
well as customisation and specialist sector knowledge.
Our leading position in the small business market also
provides our partners with a strong source of leads
and migration opportunities.
Sage’s network of accountants and small business
advisors also play an important role as recommenders
and resellers of Sage products.
This diversity of distribution channels is one of our key
business strengths, reflecting our understanding of the
SME marketplace.
Sage Asia’s annual business
partner conference.
22 Business review | Our business and markets
Acquisition strategy
Acquisitions have always been an important component
in our growth strategy and are an effective method of
entering new geographic markets through an established
customer base and proven product distribution. We have
successfully entered many new geographic territories over
time, including North America in 1991, Mainland Europe in
1992, South Africa and Australia in 2004 and the Far East
in 2006.
In markets where we have established businesses, we
look for acquisitions that add new products and services
to our portfolio that we can offer our customers. This
includes industry-specific solutions such as our acquisitions
of Timberline in North America and Tekton in the UK which
offered solutions for construction companies and XRT
in Europe which complemented our existing solution in
treasury management. The acquisition of Verus (Sage
Payment Solutions Division) in the US and Protx in the
UK brought us new capability in payment processing to
offer SMEs as they increasingly sell to remote customers
through the internet and telesales. We also use acquisitions
to enter new industry segments, such as healthcare, which
we entered in 2006 with Emdeon (Sage Healthcare Division).
We integrate new acquisitions into our corporate structure
at a local level under the supervision of our regional
management teams. This allows us to preserve local
market expertise, whilst overlaying the synergies of a larger
global company. Early on, we apply the Sage business
model by developing effective migration strategies from
entry-level solutions to mid-market and industry-specific
solutions and from legacy systems to more efficient,
integrated solutions.
An important step in improving margins and driving
revenue growth in new acquisitions is to develop the
Sage customer support concept which offers high quality
business support to our customers. We also share best
practice from around our global businesses which we
apply as appropriate, such as combined software/support
contracts, which are growing well in most of our markets.
Acquisitions will remain an important part of our corporate
strategy, particularly in the newer economies of China,
India, Eastern Europe and South America where large
numbers of SMEs are beginning to automate their
business processes. Our acquisition valuation model is
financially robust, based on conservative assumptions and
a discounted cash flow model. We remain committed to
financial prudence in our acquisitions. Over the past year,
this has led to a decline in the number of acquisitions we
have completed, as asset prices have remained inflated.
We remain active in evaluating potential acquisitions and
are well placed to benefit from future opportunities when
asset prices approach realistic valuations.
The common denominator linking all our acquisitions
is our focus on the SME market, where our corporate
expertise lies.
Softline (South Africa), acquired
in 2004 opens new offices in
Johannesburg in 2008.
Significant acquisition history*
Year
2007
2006
2005
2004
2003
2001
2000
1999
1998
1997
1994/1995
1992
1991
Company
Industry specialism
XRT
Emdeon
Verus
Adonix
Elit
UBS
Logic Control
Symfonia
Softline
Grupo SP
ACCPAC
Timberline
Interact
Best
Peachtree
Tetra
Sesam
State of the Art
KHK
Saari & Sybel
Ciel
DacEasy
Treasury
Healthcare vertical
Payment processing
Accounting: Mid-market
Transport and food distribution vertical
Accounting: Entry-level (new territory)
Accounting: Mid-market
Accounting: Entry-level (new territory)
Accounting: Entry-level (new territory)
Payroll, Accountants vertical (new territory)
Accounting: Entry-level (new territory)
Accounting, CRM: Mid-market
Construction vertical
CRM
Fixed Asset, Payroll, HR
Accounting: Entry-level
Accounting: Mid-market
Accounting: Mid-market (new territory)
Accounting: Mid-market
Accounting: Mid-market (new territory)
Accounting: Mid-market, becoming Sage France
Accounting: Entry-level (new territory)
Accounting: Entry-level (new territory)
Country
France
US
US
France
France
Malaysia
Spain
Poland
South Africa
Australia
Spain
US & Canada
US
US
US
US
UK
Switzerland
US
Germany
France
France
US
* Acquisitions of a value more than £25m (other than the entry into a new territory).
23
Value
£53m
£315m
£174m
£98m
£31m
£12m
£56m
£10m
£53m
{
£55m
£76m
£54m
£227m
£270m
£88m
£81m
£11m
£131m
£46m
£46m
£5m
£15m
24
Business review | Our business and markets
Corporate responsibility(“CR”)
Sage is committed to acting as a responsible corporate
citizen. We take a pragmatic approach to CR which
enables us to focus our commitment on areas that are the
most relevant to Sage, our people and where we believe
we can make a difference.
We aim to measure our progress and whilst any standards
established by local legislation will apply as a minimum, we
intend to achieve best practice in the local context of every
country in which we operate and to share this across the
Group for continuous improvement. Our approach also
builds in flexibility for our businesses to enable them to
focus on the areas of strategic importance to them locally.
This is the basis for a new policy which we have embedded
throughout the business during the financial year. The policy
has four areas of focus – our people, the environment,
supporting industry and working with our local communities
and charities.
People
Our strategic goal is to be an admired employer.
This means that people will want to join Sage as
a place of choice, achievement and opportunity, and
one where they can be genuinely successful and fulfilled
in their careers. People who work with us will recognise
that the environment we create maximises their potential
and is a place where innovation and creativity can
flourish. All of our operating companies are working
towards these aims.
We continue to adopt a consultative approach with our
employees through many means including focus groups,
employee committees and employee surveys. This work
is locally-led to ensure it is meaningful and relevant to
our people.
In terms of furthering our people agenda, this year we have
encouraged our businesses to focus on talent, equity and
engagement. Targets for improvement are set locally and
approved at Group level.
Sage UK employees travelled to Tanzania to
help renovate a nursery and build playground
facilities for children in the village of Mahida.
25
Talent
As talent is critical to the future growth and success of
Sage, we have worked at a global level to introduce new
processes to identify and nurture emerging talent during
the year. This process includes a review of talent at both a
regional and a global level as well as succession planning
for senior roles.
Equity
Diversity and fairness has always been a part of the way
Sage does business. This year we introduced a global
“code of ethics” into the business as part of our
compliance framework. This sets out the standards
which all operating companies are expected to meet
regarding diversity and fairness amongst other things and
communicates to employees our stance. Our operating
companies have been working on embedding this into
their businesses.
Engagement
One of our strategic goals is to be an employer of choice.
Many of our operating companies chose to focus on
employee engagement levels and how to improve
employee satisfaction and thus improve the customer
experience and ultimately business performance.
Leaders who inspire an
extraordinary customer experience
Sage aspires to be the most admired and respected
business software and services provider in the world
and we have to deliver this in an environment of
increasing customer expectations and strong
competition. As we continue to shape our strategy
and look to our future needs, the time is right to focus
on leadership in Sage and define the leadership
qualities we need to be successful in the future.
Over the course of 2008 a team of global leaders has
developed an aspirational leadership standard against
which all of our current leaders and emerging talent will
be benchmarked. The new standard sets out our vision
for what successful leadership will be in Sage and
defines the behavioural and cultural attributes we need
and expect. Roll-out and integration at a local level has
begun and will continue into 2009 with the launch of a
global educational programme for senior leaders.
26 Business review | Our business and markets
Environment
Sage is an office-based organisation and as such our
environmental impacts are less than those of some
industries. Our role in automating business processes
helps organisations reduce their environmental impacts
for example through reduced use of paper. An example
of this is shown in commercial context on page 15,
Sage Douane Delta, a tool for electronic filing of tax
returns. Our businesses are reducing the inclusion
of paper documentation with software and maximising
electronic downloads.
We are introducing carbon emissions reporting and waste
measurement across our businesses. Our goal is to reduce
our impacts. However, first we must understand what
these are. This year we have put in place a process to
begin measuring the carbon impact of our major offices.
Our aim has been to:
• Understand better our impact in terms of carbon
emissions and waste;
• Create a benchmark set of data for our business;
• Require operating companies to begin measurement;
• Build awareness inside the organisation of environmental
impact; and
• Identify opportunities for reduction and cost-savings.
UK carbon footprint
Reflecting our focus on better understanding our impact
in terms of carbon and waste, during 2008 our UK
business undertook a carbon footprint estimation
exercise. This included emissions produced as a result of:
• Energy consumption (gas and electricity);
• Air conditioning use;
• Business travel (including hotel stays
and fleet vehicles);
• Commuting; and
• Waste.
The exercise included all five main office locations in
the UK. he overall footprint for the UK business for the
12 months from April 2007 to March 2008 was 9,874
tonnes of CO2. The sources of CO2 were broken down
as follows:
Data
Data collection took place over a six month period in order
to get a benchmark set of data. We have based our
calculations on UK Defra conversion factors or local
government published carbon conversion factors where
these were available within that country.
The data collected was for a six month period.
From 1 August 2008 we will collect on an annual cycle.
Operating
company
UK & Ireland
France
Spain
Germany
Poland
North America
South Africa
China
Total carbon
emissions from
energy
(tonnes)
2,965
3,771
866
621
99
5,433
1,270
12
Wholly owned or wholly leased buildings for which energy data
is available.
Energy awareness
Our operating companies are encouraged to seek ways
to minimise impact through employee education and
awareness. This year one of the principal means of doing
this was through Sage Day, our annual event which enables
our employees to spend time connecting with one another
and with their local community in meaningful ways. Our
theme this year was “being green” and our offices took
part in a variety of local activities to educate and enthuse
people about making changes at work and at home.
Emissions CO2 by category
Waste in tonnes to landfill
C
A
B
F
D
E
A
B
C
D
E
F
Air conditioning
Waste
Gas
Business travel
Commuting
Electricity
Total
%
1
1
11
18
20
49
100
A
B
C
D
E
A
B
C
D
E
London, Protx
Winnersh
Manchester
Newcastle,
Benton Park
Newcastle,
North Park
Total
tonnes
4.5
31.5
15.8
25.1
136.2
213.1
27
Community and charity
Our people have a long history of actively supporting a
wide range of charities and community organisations that
are most meaningful to them. Activities like fundraising,
sponsorship and volunteering are very common in Sage
offices around the globe. These are entirely locally-led with
each business setting its own direction on community and
charity activity. As a result, the support we give is extremely
diverse and manifests itself in numerous ways many of
which cannot be valued in monetary terms.
In addition to these efforts, Sage donated £285,000
to charitable causes (2007: £220,000) in the year.
Examples of community and charity work we do are featured
in each of our regional reviews on pages 30 to 37
As part of the Sage Day celebrations
in Portugal, children of Sage employees
came to the office to take part in the
community activities.
Supporting industry
Our role in supporting commerce and industry is easy to
underestimate. With products and services that enable
businesses to manage their processes, what we do every
day enables businesses to make decisions, grow and
operate more effectively. Our goal is to be a partner with
our customers, delivering an outstanding experience which
enables them to achieve their business ambitions. This can
be evidenced through our programmes to improve the
customer experience and encourage entrepreneurship
and start-ups. Operating companies can take a proactive
stance and develop their approach according to what is
relevant in their local markets and supports the Sage brand.
Examples of Sage getting closer to its customers
and supporting entrepreneurs:
• Creation of an online ACT! community enabling
customers to collaborate with each other and with
Sage helping them get the most from their software;
• A joint working initiative with the Portuguese government
to make it easier for Sage customers to submit accurate
tax returns and decrease tax avoidance;
• Work to reduce software piracy in Spain;
• Support of the development of the not-for-profit sector
in North America through an association with TechSoup,
an organisation which provides free business software
to eligible charitable entities;
• Sage in South Africa (Softline) co-sponsored with a major
radio station an awards programme for small start-ups
and entrepreneurs which enables customers to nominate
SMEs for high quality customer service;
• Sage Switzerland sponsored start-up initiatives;
• Sage in North America launched a “family owned and
operated support programme” which offers free software
to family owned and operated businesses that may be
struggling in the current volatile economic climate.
“Our role in supporting commerce and industry
is easy to underestimate. With products and
services that enable businesses to manage
their processes, what we do every day enables
businesses to make decisions, grow and operate
more effectively.”
28
KPIs
As summarised on page 9, our corporate strategy
is focused on creating value and building a strong,
sustainable business with high levels of customer
satisfaction. We monitor our performance against
a number of different benchmarks which allow us
to measure the value we are creating for both our
customers and our shareholders.
In selecting these KPIs, we have incorporated our
strategic goals set out on page 9.
Consistent and sustainable earnings growth, organic
revenue growth and strong cash generation from our
businesses are KPIs. Over the year, we performed well
against these financial benchmarks and in line with our
forecasts at the beginning of the financial year.
We also closely monitor the degree of customer
satisfaction relating to our products and services.
We take over 9 million calls a year, or over 36,000 calls a
day, from all over the world. This customer feedback helps
us improve our products and services as well as providing
a rich source of input on customer satisfaction levels.
A KPI of customer satisfaction is the level of renewal rates
on our service support contracts. Customers who choose
to renew their service contracts, upgrade their software or
migrate to new Sage products, by definition must have a
high degree of satisfaction with Sage. Our renewal rates
historically have been over 80% and in 2008 we again
achieved this high rate of customer renewal.
Adjusted EPS growth
EBITA margin
+3%
2008
2007
2006
2005
23%
pence
14.44
2008
14.07
12.36
10.53
2007
2006
2005
Organic revenue growth
Excluding Sage Healthcare Division
+6%
%
23
24
26
2008
2007
2006
27
2005
29
%
7
7
6
6
0.000
8.664
2.888
11.552
5.776
Adjusted EPS 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. All figures provided above are
restated to reflect the neutralisation of foreign
exchange movements.
5.4
16.2
10.8
21.6
0.0
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.
7.0
1.4
2.8
5.6
4.2
0.0
Organic revenues are derived from our core
business operations, excluding the contribution
from acquisitions and disposals 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.
Cash generation from operations
Renewal rate on maintenance
and support contracts
114%
81%
2008
2007
2006
%
114
112
107
2008
2007
2006
2005
0.0
119
2005
119.00.000000
23.8
47.6
71.4
95.2
Cash flows from operating activities 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.
16.200001 32.400002 48.600002 64.800003
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.
%
81
81
80
78
30
“The UK business delivered solid revenue growth for the year. Total
revenues grew by 10% overall to £245.7m (2007: £224.1m) with
organic revenue growth of 3% for the year. Sage50, our flagship UK
product, grew by 8%, despite a difficult market. Our fully integrated
product suite solutions, Sage200and Sage1000, launched last
year, continue to be well received by our customers and business
partners alike.”
UK& Ireland
Including: United Kingdom and Republic of Ireland
CEO: Paul Stobart
Performance
Revenue
£245.7m
+10%
2008
2008
2007
EBITA†
Customers
Contracts
£88.5m
EBITA† margin36%
2008
2008
2007
2007
772,000
+31,000
2008
2008
2007
2007
£m
88.5
88.5
82.7
82.6
£m
£m
245.7
245.7
224.1
224.1
363,000
’000
772
772
741
741
2008
2008
2007
2007
’000
363
363
363
363
0.000000
49.139999
98.279999
147.419998
196.559998
245.699997
0.0
154.4
308.8
463.2
617.6
772.0
0.0
0.0
72.6
72.6
145.2
145.2
217.8
217.8
290.4
290.4
363.0
363.0
Software and software-related
services revenue
Revenue by sector
D E
A
C
B
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
Total
%
52
9
30
6
3
100
Subscription revenue
£160.5m
+13%
2008
2008
2007
2007
£85.2m
+4%
2008
2008
2007
2007
£m
£m
160.5
161
142.3
142
£m
85.2
85
81.8
82
0.0
32.2
64.4
96.6
128.8
161.0
0
0
17
17
34
34
51
51
68
68
85
85
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
Regional results
Total UK & Ireland revenues grew by 10% to £245.7m
(2007: £224.1m). Organic revenue growth was 3% for
the year, as the deteriorating macroeconomic environment
in the second half of the year affected growth in software
and software-related services. Sage 50, our flagship
UK product, grew by 8%, driven by our combined
software/support contract, SageCover Extra. Our fully
integrated product suite solutions, Sage 200 and Sage
1000, launched last year, continue to be well received by
our customers and business partners alike. Sage 200
performed strongly over the year, although Sage 1000,
in the upper mid-market, was more affected by the
challenging market conditions. Protx, the payment
services solution, also performed strongly. HR and
payroll reported modest growth in the absence
of legislative stimulus.
The EBITA† margin decreased to 36% (2007: 37%),
due to the dilutive effects of acquisitions.
Acquisitions
Two acquisitions were made in the UK over the year. KCS,
a leading supplier of HR and payroll services in the UK,
was completed in October 2007 for an enterprise value
of £20.2m. KCS extended our payroll offering into the
mid-market and complemented our prior year acquisition
in this area, Snowdrop. The acquisition of Tekton, a leading
supplier to mid-market construction companies, was
completed in March 2008 for an enterprise value of
£19.8m. Tekton complements our existing construction
solution, Sage 50 CIS, which targets smaller construction
companies. Both acquisitions are important strategic steps
in broadening our UK product offering.
Marketplace
The UK & Ireland are our original markets where Sage was
founded in 1981. We have, over time, established a strong
market position to become one of the leading suppliers of
software solutions in the UK and the Sage brand enjoys
high customer awareness.
We sell over two thirds of our products and services direct
to our customers through our own telesales and direct
marketing teams. We also have a strong distribution
network of business partners who resell our products
and services, along with banks and accountancy practices
recommending our products and services, to mid-market
customers. Our business partners offer additional services
such as integration, training and specialist industry
knowledge, helping us build a long-term relationship with
our customers. Our customer support model also fosters
strong customer loyalty, which is one of our key
competitive advantages.
Our business
Over the past year, we added 31,000 new customers in
the UK & Ireland, an increase of 4% over the prior year.
Sage 50 remains the market leading product since its
launch in 1986, and it remains our UK & Ireland business’s
most popular product. Over the years, we have expanded
31
our product offering to include CRM, HR and payroll,
business intelligence, payment solutions and industry-
specific solutions for construction, manufacturing and retail
industries. Our product offering has also extended into
solutions for start-up businesses, such as TAS and
Instant, and solutions for larger enterprise customers,
including Sage 200 and Sage 1000.
Our product development has more recently been focused
on helping our customers run their businesses more
efficiently through easier integration and implementation
of new product modules. Sage 200 and Sage 1000,
launched in spring 2007, are the UK & Ireland’s first fully
integrated product suites, offering financial accounting,
CRM, payroll and business intelligence all in one package.
Customers can choose which modules they wish to
integrate, allowing them a fully customised solution with
minimal integration obstacles. This year we have also
launched tailored solutions for specific business functions,
such as financial controller and human resources, which
include specialist modules. These packaged solutions
have proven to be very popular with our customers.
We continue to innovate our products and improve the
quality of our customers’ experience. Combined software/
support contracts, which offer customers an update to
their software each year as part of their support contract,
remain one of our most popular packages. Demand for
high quality support continues to grow, and we have
extended and broadened our range of support offerings
from basic support to new services, such as HR and
payroll and Sage Accountants’ Club Priority Link,
a combined software/support contract designed for
multi-seat professional practices.
We also offer various tiers of support for each product so
that customers can select the level of support they need.
Our objective is to offer our customers an exceptional
customer experience and to become a true partner in
running their businesses more efficiently.
Sage in the community
Our people in Sage’s Newcastle office donated
their time and energy by volunteering for Sport
Relief, a UK wide initiative to raise money for
charity through encouraging people to participate
in sport.
Part of the North Park headquarters became
a charity call centre for the evening of the
14 March 2008 and over 100 volunteers from
Sage gave up their time to receive telephone
donations from members of the public on behalf
of Sport Relief. Sport Relief took place over the
whole weekend, starting with a live televised
entertainment show on the Friday night and
culminating in a series of charity runs across
the country on the Sunday.
32
“Our businesses in Mainland Europe had a good year. Total revenues
grew by 15%* overall to £457.3m (2007: £395.9m*) with strong
organic revenue growth of 9%*. France reported 7%* organic revenue
growth for the full year. Germany, as forecast, recovered in the second
half of the year and Spain recorded another year of excellent organic
revenue growth of 25%*, with growth across most of its product
range, stimulated by changes in accounting legislation. Poland
enjoyed strong organic revenue growth of 18%* driven by its mid-
market solutions and the continued extension of customer support.”
Mainland Europe
Including: Austria, Belgium, France (including subsidiaries in Brazil
and Morocco), Germany, Poland, Portugal, Spain and Switzerland.
CEO: Guy Berruyer
Performance
Revenue
£457.3m
+15%*
2008
2007
£m
457.3
395.9*
EBITA†
Customers
Contracts
£100.2m
EBITA† margin 22%
2008
2007
1,629,000
+127,000
2008
2007
’000
1,629
1,502
628,000
+59,000
2008
2007
’000
628
569
£m
100.2
91.5*
0.000000
91.459998
182.919995
274.379993
365.839990
457.2999880.000000
20.039999
40.079999
60.119998
80.159998
100.199997 0.0
325.8
651.6
977.4
1303.2
1629.0
0.0
125.6
251.2
376.8
502.4
628.0
A
B
C
D
Accounting
Industry-specific
HR and payroll
CRM
Total
%
79
17
2
2
100
Subscription revenue
Software and software-related
services revenue
£237.5m
+19%*
2008
2007
£m
237.5
198.7*
£219.8m
+12%*
2008
2007
B
£m
219.8
197.2*
Revenue by sector
C
A
D
0.0
47.4
94.8
142.2
189.6
237.0 0.000000
43.960001
87.920001
131.880002
175.840002
219.800003
* Foreign currency results for the year ended 30 September 2007 have been retranslated
based on the average exchange rates for the year ended 30 September 2008 of $1.97/£1
and B1.31/£1 to facilitate the comparison of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
£
Regional results
Our businesses in Mainland Europe experienced strong
growth throughout the year. Total revenues in Mainland
Europe grew by 15%* overall to £457.3m (2007:
£395.9m*) with strong organic revenue growth of 9%*.
France reported 7%* organic revenue growth for the full
year. Excellent performances from our entry-level business,
Ciel! and mid-market solutions contributed to France’s
strong growth. Germany, as forecast, recovered in the
second half of the year, although a muted performance in
Switzerland held back combined organic revenue growth
in Germany/Switzerland to 1%*. Office Line, CRM and
mid-market solutions all performed well. Spain recorded
another year of excellent organic revenue growth of 25%*,
with growth across most of its product range, stimulated
by changes in accounting legislation. Poland enjoyed
strong organic revenue growth of 18%* driven by its
mid-market solutions and the continued extension of
customer support.
The EBITA† margin reduced to 22% (2007: 23%*), primarily
as a result of restructuring charges associated with our
French logistics business and the integration of a lower
margin Swiss acquisition completed in the prior year.
Acquisitions
In Spain this year we acquired Eurowin for an enterprise
value of £11.2m. Eurowin supplies software to Spanish
small businesses through a dedicated partner channel.
The acquisition extends our leading market position at the
entry-level and adds to our business partner distribution
network in Spain.
Marketplace
We entered the European market in 1992 and are now
one of the leading suppliers of business software to
SMEs in Mainland Europe. In France, our Ciel! brand is a
well-established market leader at the entry-level. Sage 100
and industry-specific solutions for manufacturing, services
and financial institutions also lead their respective markets
in France for medium and larger enterprises. Our French
business has also been a fast-growing division supplying
Sage products and services to French-speaking African
countries where small businesses are rapidly automating
their business processes.
In Germany, we enjoy a strong position with our entry-level
and mid-market solutions, Office Line as well as Baürer
and Sage ERP X3 supplying the upper mid-market.
Spain has enjoyed rapid growth and established a market-
leading position through application of the Sage business
model, including customer support and migration
strategies from SP products at the entry-level to Logic
Class in the mid-market.
33
Poland, Portugal and Belgium are smaller markets which
also enjoyed good growth as SMEs automate their
business processes.
In Mainland Europe, direct sales to our customers account
for 71% of our revenues. Retail sales, primarily at the entry-
level, account for 1% of total sales. Business partners,
who provide installation and integration of our mid-market
solutions, account for 28% of sales.
Our business
Our businesses in Mainland Europe cover a wide range of
markets, from established SME markets in Germany and
France to the dynamic newer markets of Spain, Poland
and Portugal where SMEs are rapidly using technology
to enhance business efficiency. All have grown steadily
through the application of the Sage business model to
our various markets, including strong migration strategies,
good distribution coverage and extension of our customer
support concept. We continue to develop our customer
support model in all our markets in Mainland Europe,
adding new tiers of support and added features. As in the
UK, customer demand for high quality customer support
remains strong and is driving growth across our markets.
Over the year, we added 127,000 new customers in
Mainland Europe (37,000 through acquisitions), an
increase of 8%.
We are also expanding our portfolio of products and
services into newer areas such as CRM, HR and payroll
and customer support. We have also developed industry-
specific solutions in treasury management, distribution
and logistics in France and Spain and international
products in France, Spain and Germany and for SMEs
working across national borders but still demanding
the local customisation and flexibility of traditional
Sage solutions.
Sage in the community
At Sage France the team invited customers
to participate in a survey about their business
and for each completed survey Sage made a
donation to Ashoka, a charity which supports
social entrepreneurship. More than 5,000
surveys were completed generating in excess
of 50,000 euros for the charity. Sage’s donation
will be used to help the organisation “Signes
de Sens”, a social enterprise which works on
awareness of inclusiveness for the hard-of-
hearing/non-hearing in France. Signes de
Sens is also a Sage customer, so Sage offered
them an updated version of their software
along with support and strategic advice to
aid business planning.
34
“This has been a transitional year for our North American business
and a period of organisational change. In March 2008 we appointed
Sue Swenson as President and CEO to lead our North American
business. Over the year she has assembled a strong and experienced
executive management team and is focusing on driving operational
improvements and earnings growth.”
North America
Including: Canada and United States.
CEO: Sue Swenson
Performance
Revenue
EBITA†
Customers
Contracts
£500.9m
-3%*
2008
2007
£87.7m
EBITA† margin 18%
2,995,000
+124,000
£m
£m
601,000
+3,000
’000
500.9
515.6*
2008
2007
87.7
102.2*
2008
2007
2,995
2,871
2008
2007
’000
601
598
0.000000
103.119995
206.239990
309.359985
412.479980
515.5999760.000000
20.439999
40.879999
61.319998
81.759998
102.199997 0
599
1198
1797
2396
2995
0.0
120.2
240.4
360.6
480.8
601.0
Subscription revenue
£351.3m
+3%*
Software and software-related
services revenue
Revenue by sector
£149.6m
-14%*
£m
A
E
D
C
£m
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
Total
B
%
37
41
4
9
9
100
2008
2007
351.3
342.3*
2008
2007
149.6
173.3*
0.000000
70.259998
140.519995
210.779993
281.039990
351.2999880.000000
34.660001
69.320001
103.980002
138.640002
173.300003
* Foreign currency results for the year ended 30 September 2007 have been retranslated
based on the average exchange rates for the year ended 30 September 2008 of $1.97/£1
and B1.31/£1 to facilitate the comparison of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
£
35
Regional results
This has been a transitional year for our North American
business and a period of organisational change. In March
2008, we appointed Sue Swenson as President and CEO
to lead our North American business. She was joined in
June 2008 by Marc Loupé as Chief Financial Officer of
North America. Lindy Benton, who brings extensive
experience in healthcare industry management, joined
in September 2008 as Chief Operating Officer of Sage
Healthcare Division. Greg Hammermaster joined in
November 2008, after the end of the financial year, as
President of Sage Payment Solutions Division. Greg has
long-term experience of the payments industry. The new
executive management team is focusing on driving
operational improvements and earnings growth.
Excluding Sage Healthcare Division, total revenues in
North America grew by 1%* to £361.8m (2007: £358.9m*),
which also represented organic revenue growth of 1%*.
Including Sage Healthcare Division organic revenues
contracted by 3%*. The Business Management Division
(“BMD”) reported flat revenues for the year, as did its key
products, Peachtree and the MAS range. Simply, the
market leader in Canada recorded good growth, as did
specialist solutions such as FAS and the accountants’
club. Organic revenue growth in the Industry & Specialised
Solutions Division (“ISSD”) was 3%*. Sage Timberline
Office/Master Builder reported modest growth despite
challenging conditions in the US construction industry.
Non Profit Solutions continued to show good growth.
Sage Payment Solutions Division (“PSD”) grew by 5%*
for the full year, reflecting the slowing US economy and
turmoil in the credit markets towards the end of the year.
Revenues at Sage Healthcare Division contracted 11%*,
as, over the course of the year, management concentrated
on improving operational efficiency within the business and
increasing margins, after a significant restructuring of the
business. Good progress is being made in stabilising the
support operations and network services.
Similar to the UK, our North American business
experienced an economic slowdown as the year
progressed. This affected the second half performance
of PSD, whilst BMD and ISSD both saw softening late
in the second half of the year.
The EBITA† margin decreased, in line with our guidance
last year, to 18% (2007: 20%*) as a result of investment
made in our support operations in BMD.
Marketplace
North America is our largest business with over 70% of
our solutions sold direct to our customers, 2% of revenues
through retail and 28% through our large network of
business partners. We entered the American market in
1991, and over time have established a strong market
position in both the United States and Canada. We are the
market leader in Canada with our Simply brand, and in the
United States, our Peachtree brand is the second largest
brand at the entry-level. Our mid-market products,
MAS 90/200/500 and Accpac products are amongst
some of the most popular solutions for companies
requiring deeper functionality and customisation to
manage their business processes. North America has
always been our largest market for CRM solutions.
We have three CRM solutions in our product portfolio,
ACT!, SageCRM and SalesLogix, which all enjoy high
market awareness and strong customer satisfaction.
Our business
Over the year, we added 124,000 new customers, an
increase of 4%. Our strong portfolio of products and
services offers our customers a wide range of solutions
to meet their specific requirements, such as Peachtree
and Peachtree Quantum which offer flexibility and good
functionality to smaller and medium-sized businesses.
MAS 90/200/500 are our mid-market products offering
larger companies a high degree of customisation and
deeper functionality. We also have a number of specialised
solutions to manage fixed asset registers (FAS) and human
resources functions (ABRA) as well as products for
specialised industries, including not-for-profit, construction
and real estate (Timberline/Master Builder) and doctors
practices (Sage Healthcare Division). Sage Payment
Solutions is one of our newer services, which is being
integrated into our Peachtree and MAS product ranges to
offer our customers a payment system that feeds directly
into the sales and finance functions.
North America is also collaborating with our UK and
Mainland Europe businesses on introducing a number
of best practice initiatives. Combined software/support
contracts were introduced last year as Peachtree Business
Care and Simply Care and have experienced strong
customer demand. These programmes will gradually
be extended and are expected to drive future growth.
North America has also adopted the integrated product
suite concept, called Extended Enterprise Suites.
Both Peachtree and MAS can now be fully integrated
with CRM, FAS and Payment Solutions in Extended
Enterprise Suites.
Sage in the community
Our North American employees have always
strongly supported charitable activities at a
local level. This year they introduced payroll
giving with a matching employer contribution,
initiated a charitable Volunteer Day allowing
employees a paid day off to volunteer at a
charity and volunteered in local health centres
as part of a week-long focus on community
health. As part of “Sage Day 2008”, in which
over 50 charities benefited, our people
distributed environmentally friendly shopping
bags, promoted car pool programmes,
planted trees and removed waste from
parks and beaches.
36
“Our businesses in Rest of World enjoyed another excellent
year, with total revenues growing by 16%* to £91.1m (2007:
£78.5m*) and organic revenue growth of 14%*. Our businesses
in Rest of World cover a diverse geographic area with differing
market conditions.”
Rest of World – Asia
and Southern Hemisphere
CEO Asia: Guy Berruyer (pictured left), including: Bahrain,
China, Dubai, India, Malaysia, Saudi Arabia, Singapore,
and Thailand.
CEO Southern Hemisphere: Ivan Epstein (pictured right),
including: Australia, Botswana, Namibia, and South Africa.
Performance
Revenue
£91.1m
+16%*
2008
2007
£m
91.1
78.5*
EBITA†
Customers
Contracts
£23.4m
EBITA† margin 26%
501,000
+59,000
2008
2007
154,000
+35,000
2008
2007
’000
501
442
’000
154
2
119
£m
23.4
20.7*
2008
2007
0.000000
18.220001
36.440003
54.660004
72.880006
0.000000
4.680000
9.360000
14.039999
18.719999
23.399999 0.0
100.2
200.4
300.6
400.8
501.0
0.0
30.8
61.6
92.4
123.2
154.0
Subscription revenue
Software and software-related
services revenue
Revenue by sector
£36.5m
+19%*
2008
2007
£54.6m
+15%*
2008
2007
£m
36.5
30.8*
£m
54.6
47.7*
0.0
7.3
14.6
21.9
29.2
36.5
0.000000
10.920000
21.839999
32.759999
43.679999
54.599998
D
A
C
B
A
B
C
D
Accounting
Industry-specific
HR and payroll
CRM
Total
%
41
10
44
5
100
* Foreign currency results for the year ended 30 September 2007 have been retranslated
based on the average exchange rates for the year ended 30 September 2008 of $1.97/£1
and B1.31/£1 to facilitate the comparison of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
£
37
Regional results
Total revenues in Rest of World grew by 16%* to £91.1m
(2007: £78.5m*). Organic revenue growth was 14%*.
South Africa had another impressive year, with a strong
finish to the year and excellent growth in support,
payroll and international products. Australia experienced
good revenue growth in the first half, with only a slight
moderation to growth in the second half. India, China
and the Middle East all grew strongly, successfully
leveraging our existing solutions such as Sage ERP X3,
CRM products and Sage Accpac ERP to build their
market positions.
The EBITA† margin was maintained at 26% (2007: 26%*).
Marketplace
Our businesses in Rest of World cover a diverse
geographic area with differing market conditions.
South Africa is one of our fastest growing businesses,
driven by the rapid development of the SME community
automating their business processes and implementing
Pastel Accounting, the market leader in South Africa.
Through South Africa, we are expanding into other
businesses in African countries.
In Australia, we are the leading supplier of payroll solutions
to SMEs. We also have a strong position in the Far East,
where we are the market leader in Malaysia and
Singapore, and have small, rapidly growing businesses
in China, India and the Middle East which are supplying
the emerging SME community.
Many of our solutions in Rest of World are mid-market
products and services. Consequently, 34% of our sales are
through our business partner network. Direct sales through
our own sales teams comprise 64% and retail contributes 2%.
Our business
Over the year, we added 59,000 new customers, an
increase of 13%. South Africa’s Pastel Accounting and
VIP Payroll continues to expand through migration and
strong customer support offerings. Through innovation
and a close customer relationship, Australia has
maintained its market leadership and developed new
solutions in construction. We have well-established and
fast-growing businesses in newer markets such as China,
India, Malaysia, Singapore, Dubai and Saudi Arabia.
SMEs in these emerging markets are increasingly
automating their business process using financial
accounting software. Our products and services are
particularly well suited to these types of markets with
large numbers of emerging SMEs.
The market for CRM solutions is less developed in
emerging markets. Our CRM products are enjoying
rapid growth off a still nascent base, providing a platform
for future growth.
“South Africa hadanother impressiveyear,
with strong growth in support, payroll and
international products. Australiaexperienced
good revenue growth.”
Ivan Epstein
Sage in the community
The Pastel Schools Programme aims to
introduce computerised accounting to every
Grade 10, 11 and 12 pupil in South Africa to
better educate young people in financial
management skills that can increase job
opportunities and benefit industry and
commerce as more financially skilled young
people enter the workforce. The programme
requires an investment of R1m per year to
support the 200 educators and 100 schools
involved across the country. Pastel developed
a computerised training programme which fits
with the schooling curriculum and is approved
by the South African Government.
“India, China, Malaysia, Singapore
and the Middle East all successfully
leveraging our existing solutions
such as SageERPX3, CRM products
and SageAccpacERPto build their
market positions.”
Guy Berruyer
38
“The Group remains highly cash generativewith
operating cash flowof £342.0m, representing
114% ofEBITA† (2007: 112%).”
To see Paul’s biography please go to page 44
Profit measures
EBITA† to EBITA† to
operating operating
profit
2007
£m
297.0
profit
2008
£m
299.8
Growth
%
1%
Pre-tax
profit
2008
£m
273.4
–
Pre-tax
profit
2007
£m
265.1
(13.8)
251.3
(28.0)
223.3
Growth
%
3%
EPS
2008
pence
14.44
–
9%
14.44
(1.71)
12.73
8%
EPS
2007
pence
14.07
(0.73)
13.34
(1.49)
11.85
Growth
%
3%
8%
7%
–
299.8
(32.4)
267.4
(13.8)
283.2
(28.0)
255.2
6%
273.4
(32.4)
241.0
5%
Disclosed measure
Impact of movements in foreign
currency exchange rates
Amortisation of acquired intangible
assets and net development
Statutory measure
39
Overview
In the year ended 30 September 2008, revenue increased
by 12% to £1,295.0m (2007: £1,157.6m). Operating profit
increased by 5% to £267.4m (2007: £255.2m). Profit
before taxation increased by 8% to £241.0m (2007:
£223.3m). EPS increased 7% to 12.73p (2007: 11.85p).
In order to assess like-for-like performance, regional and
Group growth trends are shown on a foreign currency
neutral basis where indicated. The impact of foreign
exchange movements on profit is shown on page 38.
It is Sage’s policy to hedge currency exposure to cash
flows by broadly aligning the currency denominations of
our debt with the currency of the cash flows arising from
our trading activities. We do not hedge pure translational
exposure resulting from conversion for accounting
purposes of overseas companies’ results into Sterling.
Over the year, we saw significant movement in foreign
currency exchange rates. The average rate for the Euro
strengthened 13% from £1 = a1.48 to £1 = a1.31, which
had a favourable translational impact on our financial
results. The US Dollar to Sterling average rate for the year
remained broadly unchanged at £1 = $1.97 (2007: $1.98).
However, the US Dollar appreciated rapidly near the end
of our financial year, closing at $1.78, an appreciation of
13% against the prior year end rate. This affected various
balance sheet items, including valuation of our net debt,
a substantial proportion of which is denominated in US
Dollars and Euros. At 30 September 2008, net debt stood
at £541.0m (2007: £509.7m).
Revenue analysis
Revenues increased 7%* to £1,295.0m (2007: £1,214.1m*).
Organic revenue growth for the year, excluding Sage
Healthcare Division, was 6%* (3%* including Sage
Healthcare Division). Organic revenue growth in the
first half of the year was 8%* excluding Sage Healthcare
Division and was 5%* including Sage Healthcare Division.
In the second half organic revenue growth was 4%*
excluding Sage Healthcare Division and was 2%*
including Sage Healthcare Division. Organic revenue
growth excludes the contributions of current year and
prior year acquisitions (together 5% of total revenues)
and non-core products (2% of total revenues).
Total revenues for software and software-related services
were £509.3m (2007: £499.8m*), with organic revenue
growth of 2%* excluding Sage Healthcare Division.
Total subscription revenues grew by 10%* to £785.7m
(2007: £714.3m*), benefiting from strong organic revenue
growth in combined software/support contracts.
Following the reclassification of our revenue categories
last year, software and software-related services include
stand-alone software licence sales (including new licences,
upgrades and migrations) and professional services,
hardware and business forms.
Subscription revenues are recurring in nature and include
maintenance and support (13% of total revenues),
combined software/support contracts (39% of total
revenues), hosted products (1% of total revenues)
and transaction services (8% of total revenues).
EBITA†
EBITA† increased 1%* to £299.8m (2007: £297.0m*).
The Group’s EBITA† margin was reduced by 1% to
23% (2007: 24%*) due to the dilutive effects of recent
acquisitions and the announced investment in our
North America business over the year.
Finance expenses
Net finance expenses of £26.4m (2007: £31.9m) were
lower than the prior year. The average interest rate on
borrowings during the year was 4.5% (2007: 4.8%).
The 2007 interest was greater due to a higher level
of average borrowings during the year following the
acquisitions made during 2006 and higher average
interest rates. Interest cover was in excess of ten
times, increasing from eight times in the prior year.
Profit before taxation
Statutory profit before taxation increased by 8% to £241.0m
(2007: £223.3m) and was impacted by amortisation of
acquired intangible assets and net development expenditure
of £32.4m (2007: £28.0m). Adjusted pre-tax profit** rose
3% to £273.4m (2007: £265.1m).
Taxation
The tax charge of £74.7m (2007: £69.2m) was greater
than the prior year reflecting the additional profits and
gives an effective rate of 31% (2007: 31%).
EPS
Basic earnings (after amortisation) per share for the year
ended 30 September 2008 increased by 7% to 12.73p
(2007: 11.85p). Diluted earnings per share increased by
8% to 12.69p (2007: 11.79p). Adjusted earnings per
share** grew 3% to 14.44p (2007: 14.07p).
Dividend
Our full year dividend is increased by 3% to 7.21p per
share (2007: 7.00p per share), with a proposed final
dividend of 4.78p per share (2007: 5.73p per share,
following the rebasing of our dividend policy which
was reflected in our final dividend in the second half
of the prior year).
The final dividend will be payable on 6 March 2009
to shareholders on the register at close of business
on 6 February 2009.
* Foreign currency results for the year ended 30 September 2007 have been retranslated based on the average exchange rates for the year
ended 30 September 2008 of $1.97/£1 and B1.31/£1 to facilitate the comparison of results.
† Earnings before interest, tax and amortisation of intangible fixed assets (“EBITA”).
** Pre-tax profit and earnings per share figures stated prior to amortisation of intangible fixed assets and after neutralisation of foreign exchange movements.
40
R&D and capex
The Group spent £139.7m in the year ended
30 September 2008 on research and development
(2007: £111.4m). No expenditure was capitalised and
£0.6m was amortised to the income statement relating
to prior years’ expenditure which had been capitalised.
Capital expenditure in the year ended 30 September 2008
(including the purchase of third-party software systems for
internal use) was £40.4m (2007: £38.0m). The majority of
this expenditure relates to IT infrastructure, both in new
and replacement systems.
Capital structure
Our balance sheet at 30 September 2008 is summarised
as set out in the table below.
Net assets increased by 19% to £1,247.0m (2007:
£1,050.8m) and net assets per share by 17% to 95p
(2007: 81p). The main movements in the balance sheet
items were in goodwill and intangible fixed assets
(relating mainly to investment in acquisitions and the
impact of foreign currency retranslation) and the
associated change in net debt (see further “Net debt”
and “Cash flow” below).
Debt and facilities
Net debt
The Group has net debt of £541.0m at 30 September
2008 (2007: £509.7m). The balance sheet remains strong
with net debt to EBITA of 1.8 times. There has been
a significant change in the closing exchange rates used
to translate the debt at 30 September 2008 compared
to 30 September 2007, which has resulted in a foreign
exchange translation movement of £71.9m on the
debt drawings.
The Group continues to be able to borrow at competitive
rates and currently deems this to be the most effective
means of raising finance. Cash outflows to fund
acquisitions of £81.1m have therefore been funded
by debt financing.
Cash flow
The Group remains highly cash generative with operating
cash flow of £342.0m, representing 114% of EBITA
(2007: 112%). After interest, tax and net capital
expenditure, free cash flow was £215.5m. The net cost
of acquisitions completed in the period was £81.1m.
After dividends of £106.2m and other movements of
(£59.5m), including exchange movements, net debt stood
at £541.0m at 30 September 2008 (30 September 2007:
£509.7m).
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 by 13 January 2011
(with £100m amortising a year earlier) and £650m expire
on 4 August 2011. At 30 September 2008, £575.4m
had been drawn under these facilities, leaving £274.6m
undrawn. Group cash balances are invested with
institutions and in instruments with high credit ratings.
Treasury and risk management
The Group’s Treasury function seeks to reduce exposures
to interest rate, foreign exchange and other financial risks,
to ensure liquidity is available to meet the foreseeable
needs of the Group and to invest cash assets safely and
profitably. The Group does not engage in speculative
trading in financial instruments and transacts only in
relation to underlying business requirements. The Group’s
Treasury policies and procedures are periodically reviewed
and approved by the Audit Committee and are subject to
regular Group Internal Audit review.
The Group’s exposure to and management of capital,
liquidity, credit, interest rate and foreign currency risk are
summarised below. Further detail can be found in note 16
of the accounts.
Capital risk
The Group’s objectives when managing capital (defined
as net debt plus equity) are to safeguard the Group’s ability
to continue as a going concern in order to provide returns
to shareholders and benefits for other stakeholders, while
optimising return to shareholders through an appropriate
balance of debt and equity funding. The Group manages
its capital structure and makes adjustments with respect
to changes in economic conditions and the strategic
objectives of the Group.
Capital structure
Goodwill and intangible assets
Property, plant and equipment
Current assets and liabilities
Retirement benefit obligations
Deferred tax
Total before net debt
Net debt
Total as at 30 September 2008
Total as at 30 September 2007
Assets
£m
2,049.2
140.5
272.3
–
5.2
2,467.2
70.8
2,538.0
2,207.8
Liabilities
£m
–
–
(648.5)
(3.9)
(26.8)
(679.2)
(611.8)
(1,291.0)
(1,157.0)
Net assets
£m
2,049.2
140.5
(376.2)
(3.9)
(21.6)
1,788.0
(541.0)
1,247.0
1,050.8
41
Liquidity risk
The Group manages its exposure to liquidity risk by
reviewing the cash resources required to meet its business
objectives through both short and long-term cash flow
forecasts. The Group has committed bank facilities which
are available to be drawn for general corporate purposes
including working capital.
The Group’s Treasury function has a policy of reducing the
level of cash in the businesses in order to minimise external
borrowings.
Credit risk
The Group’s credit risk primarily arises from trade and
other receivables. The Group has a very low credit risk due
to the transactions being principally of a high volume, low
value and short maturity. The Group has no significant
concentration of credit risk, with the exposure spread over
a large number of counterparties and customers.
The credit risk on liquid funds is considered to be low,
as the Audit Committee approved Group Treasury Policy
limits the value that can be invested with each approved
counterparty to minimise the risk of loss.
Interest rate risk
The Group is exposed to cash flow interest rate risk on
floating rate bank loans and overdrafts. At 30 September
2008, the Group had drawn down £575.4m (2007:
£562.3m) from its committed revolving credit facility.
The Group regularly reviews the interest rates to mitigate
this risk, which are rebased on a monthly basis and seeks
to fix interest rates on a portion of its debt when market
conditions make this desirable. At 30 September 2008,
all outstanding debt was held at variable rates.
Foreign currency risk
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 derivative financial instruments.
Foreign exchange rate risk is the risk that the fair value
of future cash flows will fluctuate because of the changes
in foreign exchange rates. The Group’s foreign currency
exposures are principally to the US Dollar and Euro.
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 foreign
exchange on translation of the borrowings into Sterling
has been recognised in exchange reserves.
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 2008 and 30 September 2007,
these exposures were immaterial to the Group.
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.
Paul Harrison
Finance Director
Analysis of borrowings bymaturityand currency
Due within one year:
Sterling
Euro
Other
Due within one and two years:
Euro
Due in more than two years but not more than five years:
Sterling
Euro
US Dollar
Swiss Franc
Other
Total
2008
£m
8.4
5.3
0.2
13.9
0.2
66.9
203.4
290.6
13.9
0.2
575.0
589.1
2007
£m
–
0.2
0.1
0.3
0.1
–
235.9
314.2
11.8
–
561.9
562.3
42
Highlighted are some of the risks that
we face, particularly focusing on those
that are considered to be specific to the
provision of business management
software and services.
Group risk factors
As with all businesses, Sage is affected by certain risks,
not wholly within our control, which could have a material
impact on our long-term performance and could cause
actual results to differ materially from forecast and historic
results. Risks also impact on non-financial aspects of
Sage, such as reputation, employees and security.
Many of the risk factors affecting Sage are considered to
be business risks which can be effectively mitigated by
ensuring appropriate controls are in place. However, some
of the risk factors affecting Sage are inherent risks based
on our location, type of business and other external factors
predominately beyond our control. Noted below are the
principal inherent risks that we face. This section of the
report should be read in conjunction with the Internal
control and risk management section of the report, found
on pages 51 and 52.
International factors
As an international company, we face potential challenges
from economic, political, legal, accounting and business
factors across the globe. In the current economic
environment, this situation has intensified. We have
operations in many international markets which leads
to various risks inherent in administering the complexities
of a global business. A variety of international regulatory
requirements and unexpected changes to economic
and market conditions are examples of specific risks
associated with managing an international business.
Any failure to maintain compliance with foreign laws or
changes in local regulations or any failure to adapt to
international market changes or local business conditions
could have a material, adverse impact on our business.
In current economic conditions, our defensive business
model and the significant percentage of our revenue which
is recurring give comfort and support against economic
exposure. As we grow through acquisitions and expand
our geographical coverage, we continually review all
relevant requirements to ensure appropriate policies and
controls are developed. By acquiring businesses which
are well established in their own region, we rely on the
experience of local management to understand the local
regulatory environment. In addition, our group-wide
compliance programme seeks to ensure that local
operating companies continually manage and review
local rules and regulations.
43
Competitive environment
The market for business management solutions is
highly competitive. This competition continues to grow,
particularly in the SME market where barriers to entry are
relatively low, attracting more companies to enter the
market. Many companies with which we compete, or
which may enter into competition with us, have greater
financial, marketing and technical resources than we do.
We continue to build strong customer relationships, to
develop and expand our product and service offering to
meet customer needs and to seek organic and acquisitive
growth opportunities to mitigate this ever present risk.
We also seek to develop appropriate strategic direction
and maintain a knowledge of industry developments to
ensure, where possible, a proactive response to changing
customer requirements.
Intellectual property
We rely on intellectual property laws, including laws
on copyright, patents, trade secrets and trademarks,
to protect our products. However, despite laws and
regulations being in place, unauthorised copies of software
still exist. In addition, the internet increases and provides
new methods for illegal copying of the technology used
in our products and services.
While relying, as other companies do, on the laws
and regulations in existence, we continually police the
unauthorised use of our products. We also ensure secure
storage of our source code throughout the Group.
Foreign exchange and treasury
Although a substantial proportion of Sage’s revenue and
profit is earned outside the UK, subsidiaries generally only
trade in their own currency. Sage is not subject to any
significant foreign exchange transactional exposure.
Sage’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 borrowing in the same currency. In light
of this limited exposure to foreign exchange risk, Sage
does not hold any derivative financial instruments.
Sage 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. All outstanding
debt is currently held at variable interest rates.
Through the provision of outstanding customer support,
we continue to build strong customer relationships.
Our strategy to develop our product and service offering
to meet local customer needs further strengthens
customer loyalty.
Systems and networks
Our business operations rely significantly on systems
and networks. Any external and malicious incident on
the systems and networks could lead to misappropriation
of or damage to our proprietary information or could cause
disruption to the delivery of our products and services.
Critical information used in our business operations, such
as customer orders, customer support and accounts
receivable and payable, could be disabled. Our reliance
on systems and networks includes internally managed
and externally provided systems and networks.
We continue to invest in our internal systems and networks
and build and develop relevant recovery plans. We also
continue to review our security, system and network
infrastructure to ensure that, wherever possible, these
risks are kept to an acceptable level. Any externally
provided systems and networks are subject to intensive
contract negotiations and performance ability reviews to
ensure that an appropriate level of service will be
continually maintained.
Technology changes
Technology in the software industry is constantly changing.
In order to be successful within the software sector,
companies must be able to adapt to changing
technologies. This ability to adapt is vital in maintaining
current products, attracting new customers and retaining
existing customers. Changing technology places demands
on employees, particularly research and development
teams, to stay up to date with technology changes and
customer demands. Continued success in developing new
products and services, anticipating and reacting to
customer needs and satisfying market demand, depends
on Sage’s ability to adapt to changing technologies.
44
Tony Hobson, 61
Chairman, non-executive director
Tony is the Chairman of Northern Foods plc and a non-
executive director of Glas Cymru and HBOS plc. He was
previously Group Finance Director of Legal and General
Group plc for 14 years, retiring in 2001. He is a graduate
of the Darden Graduate School of Business, University
of Virginia. He joined the Board in June 2004, becoming
Chairman in May 2007.
Paul Walker, 51
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.
Paul Harrison, 44
Finance Director
A chartered accountant, Paul joined Sage 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 in 1997. He joined the Board as Group Finance
Director in April 2000. In May 2007, Paul was appointed
to the Board of Hays plc as a non-executive director.
Paul Stobart, 51
CEO, UK & 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 & Ireland in June
2003. In July 2003, Paul was appointed to the Board
of Capital & Regional plc as a non-executive director.
Tony Hobson
Tamara Ingram
Paul Walker
Tim Ingram
Paul Harrison
Ruth Markland
Paul Stobart
Ian Mason
Guy Berruyer
Mark Rolfe
David Clayton
45
Guy Berruyer, 57
CEO, 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 to run its French business and
was appointed to the Board in January 2000. As well
as Mainland Europe, Guy is also responsible for our
operations in Asia.
David Clayton, 51
Group Strategy and Mergers
and Acquisitions 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 as a non-executive director before taking
up his current executive role on 1 October 2007.
Tamara Ingram, 48
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 Executive Vice President, Executive
Managing Director of Grey Global, Chairman of Visit
London and sits on 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 Chairman and Chief
Executive Officer of Saatchi and Saatchi UK.
Tim Ingram, 61
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 of ANZ Bank
(Europe) Ltd and was appointed to the Group Board
in March 2002, becoming Senior Independent Director
on 25 July 2007.
Ruth Markland, 55
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 in September 2006.
Ian Mason, 46
Independent non-executive director
Ian joined the Board on 1 November 2007. After working
with Mckinsey & Co. and Boston Consulting Group, he
joined Electrocomponents plc in 1995 as Director of
Business Development, becoming Group Chief Executive
in July 2001. He holds an MBA from INSEAD.
Mark Rolfe, 50
Independent non-executive director
After qualifying as a chartered accountant with Coopers
and Lybrand, Mark joined Gallaher Group plc in 1986,
where he was Finance Director for seven years before
retiring in 2007. He is also a non-executive director of
Hornby plc and Barratt Developments plc and joined
the Board on 1 December 2007.
Contact details
Registered Office
North Park, Newcastle upon Tyne
NE13 9AA
The Sage Group plc
Registered number: 2231246
www.sage.com
Advisers
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
Solicitors
Allen & Overy LLP
One Bishops Square, London E1 6AD
Principal Bankers
Lloyds TSB Bank plc
Corporate Banking, 1st Floor,
31/32 Park Row, Leeds LS1 5JT
Independent Chartered Accountants
and Registered Auditors
PricewaterhouseCoopers LLP
89 Sandyford Road,
Newcastle upon Tyne NE1 8HW
Registrars
Equiniti
The Causeway, Worthing,
West Sussex BN99 6DA
46
Directors’ report
For the year ended 30 September 2008
The directors present their report and the audited financial statements for
the year ended 30 September 2008.
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 before taxation of £241.0m on revenue
of £1,295.0m.
The Business review, including key performance indicators, can be found
on pages 6 to 43 and is incorporated in this Directors’ report by reference.
Disclaimer
The purpose of this Annual Report is to provide information to the
members of the Company. This Annual Report has been prepared for,
and only for, the members of the Company, as a body, and no other
persons. The Company, its directors and employees, agents or advisers
do not accept or assume responsibility to any other person to whom this
document is shown or into whose hands it may come and any such
responsibility or liability is expressly disclaimed. 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 results for the year and the amount transferred to reserves are set
out on page 66. Dividends paid and proposed are set out on page 78.
The Board proposes a final dividend of 4.78p per share (2007: 5.73p
per share) taking the proposed full year dividend to 7.21p per share
(2007: 7.00p per share).
Research and development
During the year, the Group invested £139.7m (2007: £111.4m) in
research and development. This has resulted in the release of a number
of new and updated products and features as referred to in the Business
review on pages 6 to 43.
Charitable contributions and political donations
During the year, within the UK, charitable contributions totalling
£148,000 were made, which included £60,000 to The Tyne and Wear
Community Foundation, £20,000 to The Community Foundation for
Greater Manchester, £20,000 to The Berkshire Community Foundation,
and a total of £48,000 smaller contributions to numerous charities.
The rest of the Group made charitable contributions totalling £137,000.
No political donations were made in the year.
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 54 to 65.
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 of the Company and
the former directors of the Company who held office during the year
ended 30 September 2008, 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 24 and 25.
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
(2007: 40 days).
Substantial shareholdings
At 17 December 2008, the Company had been notified, in accordance
with the Disclosure and Transparency Rules, of the following interests in
the ordinary share capital of the Company:
Name
Invesco plc
Baillie
Gifford & Co
Aviva plc
Direct
shares %
–
Indirect
shares %
shares %
– 129,837,372 9.92 129,837,372 9.92
Total
–
– 124,221,242 9.52 124,221,242 9.52
65,471,319 5.00 25,990,149 1.98 91,461,468 6.98
47
Future developments
The Group’s future developments are described in the Business review
on pages 6 to 43.
Additional information for shareholders
Following the implementation of the EU Takeover Directive into UK
law, the following description provides the required information for
shareholders where not already provided elsewhere in this report.
This summary is based on the Company’s current articles of association
(the “Current Articles”), but please note that it is proposed that the
Company will adopt new articles of association (the “New Articles”) with
effect from the conclusion of the Annual General Meeting on Tuesday
3 March 2009, brief details of which are set out in the circular containing
the Notice of Annual General Meeting.
Share capital
The Company has a single class of share capital which is divided into
ordinary shares of 1p each.
Rights and obligations attaching to shares
Voting In a general meeting of the Company, subject to the provisions of
the Current Articles and to any special rights or restrictions as to voting
attached to any class of shares in the Company (of which there are none):
• On a show of hands, a qualifying person (being an individual who
is a member of the Company, a person authorised to act as the
representative of a corporation or a person appointed as a proxy
of a member) shall have one vote; and
• On a poll, every member who is present in person or by proxy shall
have one vote for every share of which he or she is the holder.
No member shall be entitled to vote at any general meeting or class
meeting in respect of any shares held by him or her if any call or other
sum then payable by him or her in respect of that share remains unpaid.
Currently, all issued shares are fully paid.
Deadlines for voting rights Full details of the deadlines for exercising
voting rights in respect of the resolutions to be considered at the Annual
General Meeting to be held on 3 March 2009 are set out in the Notice of
Annual General Meeting.
Dividends and distributions Subject to the provisions of the
Companies Act 1985 and the Companies Act 2006 (the “Companies
Acts”), the Company may, by ordinary resolution, declare a dividend
to be paid to the members, but no dividend shall exceed the amount
recommended by the Board.
The Board may pay interim dividends, and also any fixed rate dividend,
whenever the financial position of the Company, in the opinion of the
Board, justifies its payment. All dividends shall be apportioned and paid
pro rata according to the amounts paid up on the shares.
Liquidation If the Company is in liquidation, the liquidator may, with the
authority of a special resolution of the Company and any other authority
required by the Statutes (as defined in the Current Articles):
• Divide among the members in specie the whole or any part of the
assets of the Company; or
• Vest the whole or any part of the assets in trustees upon such trusts
for the benefit of members as the liquidator, with the like authority,
shall think fit.
Transfer of shares
Subject to the Current Articles, any member may transfer all or any of
his or her certificated shares by an instrument of transfer in any usual
form or in any other form which the Board may approve. The Board may,
in its absolute discretion, decline to register any instrument of transfer
of a certificated share which is not a fully paid share or on which the
Company has a lien. The Board may also decline to register a transfer of
a certificated share unless the instrument of transfer is: (i) left at the office,
or at such other place as the Board may decide, for registration; and
(ii) accompanied by the certificate for the shares to be transferred and
such other evidence (if any) as the Board may reasonably require to prove
the title of the intending transferor or his or her right to transfer the shares.
The Board may permit any class of shares in the Company to be
held in uncertificated form and, subject to the Current Articles, title to
uncertificated shares to be transferred by means of a relevant system
and may revoke any such permission. Registration of a transfer of an
uncertificated share may be refused where permitted by the Statutes
(as defined in the Current Articles).
Repurchase of shares
The Company obtained shareholder authority at the last Annual General
Meeting (held on 28 February 2008) to buy-back up to 130,416,015
ordinary shares, which remains outstanding until the conclusion of the
next Annual General Meeting on 3 March 2009. The minimum price
which must be paid for such shares is 1p and the maximum price
payable is 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 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).
Amendment of the Company’s articles of association
Any amendments to the Company’s articles of association may be made
in accordance with the provisions of the Companies Act 1985 by way of
special resolution.
Appointment and replacement of directors
Directors shall be no less than two and no more than 15 in number.
Directors may be appointed by the Company by ordinary resolution or by
the Board. A director appointed by the Board holds office only until the
next following Annual General Meeting and is then eligible for election by
the shareholders. The Board may from time to time appoint one or more
directors to hold employment or executive office for such period (subject
to the Companies Acts) and on such terms as they may determine and
may revoke or terminate any such appointment.
At every Annual General Meeting of the Company, any director in office
who (a) has been appointed by the Board since the previous Annual
General Meeting or (b) at the start of business on the date which is
30 clear days prior to the date of the notice convening the Annual General
Meeting had held office for more than 30 months since he or she was
elected or last re-elected shall in either case retire from office (but shall be
eligible for election or re-election by the shareholders). The Company may
by special resolution (or by ordinary resolution of which special notice has
been given) remove and the Board by unanimous decision may remove
any director before the expiration of his term of office. The office of
director shall be vacated if: (i) he or she resigns (ii) he or she is or may
be suffering from a mental disorder; (iii) he or she is absent without
permission of the Board from meetings of the Board for six consecutive
months and the Board resolves that his or her office is vacated; (iv) he or
she becomes bankrupt or compounds with his or her creditors generally;
(v) he or she is prohibited by law from being a director; or (vi) he or she is
removed from office pursuant to the Current Articles.
48
Powers of the directors
The business of the Company will be managed by the Board who
may exercise all the powers of the Company, subject to the provisions
of the Company’s memorandum of association, the Current Articles,
the Companies Acts and any ordinary resolution of the Company.
Shares held in the Employee Benefit Trust
The trustee of the Sage Group plc Employee Benefit Trust (“EBT”) has
agreed not to vote any shares held in the EBT at any general meeting.
If any offer is made to shareholders to acquire their shares the trustee will
not be obliged to accept or reject the offer in respect of any shares which
are at that time subject to subsisting awards, but will have regard to the
interests of the award holders and will have power to consult them to
obtain their views on the offer. Subject to the above the trustee may take
the action with respect to the offer it thinks fair.
Significant agreements
The following significant agreements contain provisions entitling the
counterparties to exercise termination or other rights in the event of
a change of control of the Company:
• Under a £200,000,000 bilateral credit facility agreement dated
18 January 2006 between, amongst others, the Company and Lloyds
TSB Bank plc (as facility agent), on a change of control, if the majority
lenders so require and after having consulted with the Company in
good faith for not less than 30 days following the change of control,
the facility agent shall, by not less than 10 business days notice to
the Company, cancel the facility and declare all outstanding loans,
together with accrued interest, and all other amounts accrued under
the finance documents immediately due and payable; and
• Under a £650,000,000 multi-currency revolving credit facility
agreement dated 4 August 2006 between, amongst others, the
Company and Lloyds TSB Bank plc (as facility agent), on a change
of control, if the majority lenders so require and after having consulted
with the Company in good faith for not less than 20 days following the
change of control, the facility agent shall, by not less than 10 business
days notice to the Company, cancel the facility and declare all
outstanding loans, together with the accrued interest, and all other
amounts accrued under the finance documents immediately due
and payable.
Under the terms of both credit facility agreements, a “change of control”
occurs if any person or group of persons acting in concert gains control
of the Company.
The Business review does not contain any information about persons with
whom the Company has contractual or other arrangements which are
essential to the business of the Company as, in the directors view, there
are no such arrangements.
By Order of the Board
M J Robinson
Secretary
17 December 2008
Corporate governance statement
49
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 (2006) 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 C.3.1 relating to the composition of the Audit Committee
of the Board.
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 resignation of Sir Julian Horn-Smith
and the appointment of Mr A J Hobson to the role of acting Chairman
of the Board on 27 April 2007, to the appointment to the Board of
Mr M E Rolfe on 1 December 2007 this ratio was not maintained.
There were a number of changes to the Board during the year which
made compliance difficult to achieve for a short period. However, the
Board took steps to mitigate this non-compliance by immediately
appointing executive search consultants to identify new non-executive
candidates. With the appointment of Mr Rolfe on 1 December 2007 the
Company was again fully compliant with the rule.
Rule C.3.1 requires the Audit Committee of the Board to comprise
all independent non-executive directors. From his appointment on
27 April 2007 to the role of acting Chairman of the Board, Mr A J Hobson,
who was Chairman of the Audit Committee at that time, ceased to be
independent for the purposes of that rule and the Company therefore
ceased to comply. During this period the Company considered it
appropriate for Mr Hobson to continue to chair the Committee whilst the
search for a successor was undertaken. Mr M E Rolfe was appointed
to the Board on 1 December 2007 and joined its Audit Committee.
Mr Rolfe, whose biography appears on page 45, took over the role of
chair of the Audit Committee on 1 April 2008 and Mr Hobson retired
from the Committee at that time. The Company, therefore, is again fully
compliant with Rule C.3.1.
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 44 and 45. 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 pages 52 and 53.
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 ten
occasions, six such meetings being formal Board meetings with a further
four meetings of the Board called at short notice and held by telephone.
All directors in office at the time attended all of these Board meetings
other than Ms R Markland, who was unable to attend one meeting, and
each of Messrs Stobart and Walker and Ms Ingram and Markland, who
were unable to attend meetings called on short notice on one occasion.
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 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. Mr I Mason and Mr M E Rolfe, who were appointed to the
Board on 1 November 2007 and 1 December 2007 respectively, have
undertaken such an induction 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 T C W Ingram 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 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.
50
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.
Meetings
The Committee invites executive directors, management, external and
internal auditors to attend meetings as it considers appropriate for the
matters being discussed.
Remuneration Committee
The Group’s Remuneration Committee is chaired by Mr T C W Ingram
and its other members are the Chairman of the Board, Mr A J Hobson,
and the other independent non-executive directors, Ms T Ingram,
Ms R Markland, Mr I Mason (who joined the Committee on 1 November
2007) and Mr M E Rolfe (who joined the Committee on 1 December
2007). Under its terms of reference, the Committee meets at least twice a
year. In the year under review, five meetings of the Committee were held
on full notice with a further meeting held at short notice. All members
in office at the time attended all the meetings other than Ms Markland
who was unable to attend one meeting held on short notice. The Chief
Executive may, by invitation of the Committee, attend meetings (except
when his own performance and remuneration are under review) but he
is not 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 54 to 65, together with further details
of the Remuneration Committee.
Audit Committee
The Audit Committee was chaired by Mr A J Hobson until 1 April 2008
when Mr M E Rolfe (who joined the Committee on 1 December 2007)
became its chair and Mr Hobson retired from the Committee. Its other
members are independent non-executive directors, Mr T C W Ingram,
Ms R Markland and Mr I Mason (who joined the Committee on
1 November 2007). Ms T Ingram joined the Committee on 1 October
2008. Mr Hobson and Mr Rolfe are both Fellows of the Institute of
Chartered Accountants in England and Wales and are 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 pages 44 and 45. 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.
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 and independence;
• 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.
Work of the Committee
In the financial year, the Audit Committee met on four occasions with
all members present on each occasion 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.
•
•
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 monitors 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
Director 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. An Internal Audit charter
is also in place which outlines the objectives, authority, scope and
responsibilities of Internal Audit. Performance against this charter is
reviewed on an ongoing basis.
It is the role of Internal Audit to advise management and the Board
on the extent to which systems of internal control are effective.
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.
51
The current external auditors were appointed to that role in 1988.
The Committee has determined that formal consideration of a tender
process will be undertaken every five years, with the next such review
taking place in the financial year ending in September 2009. There are
no contractual restrictions on the choice of the Committee as to external
audit and, having considered the services provided by the current
external auditors, their independence and knowledge of the Group,
the Committee has determined to recommend to the Board the
reappointment of the auditors at the Annual General Meeting in
March 2009. In reaching this decision, the Committee also had
regard to the likelihood of a withdrawal of the auditor from the market.
The scope, fee, performance and independence of the external auditor
is considered annually by the Audit Committee.
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 and has adopted controls to ensure that this independence is not
compromised. These controls include the continued monitoring of the
independence and effectiveness of the audit process.
the external audit. The fees in relation to these services were £2,025,000
of which £1,819,000 was attributable to tax services and tax compliance
work and £206,000 to other non-tax compliance services. Further details
of fees paid to auditors are set out on page 77.
The Audit Committee has recommended to the Board that the external
auditors are re-appointed.
Nomination Committee
The Nomination Committee is chaired by the Chairman of the Board,
Mr A J Hobson and consists of the Chairman and five independent
non-executive directors, Mr T C W Ingram, Ms T Ingram, Ms R Markland,
Mr I Mason (who joined the Committee on 1 November 2007) and
Mr M E Rolfe (who joined the Committee on 1 December 2007). 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 once a year. Four 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 other than on one occasion when Ms Markland was
unable to attend.
Audit partners are rotated every five years and a formal statement
of independence from the external auditors is received each year.
In addition, the Audit Committee has adopted a specific policy on auditor
independence drawing together the various existing Group policies in this
area. This policy requires that there is full consideration of independence
issues before any appointment of an employee or former employee of the
auditor to a position with the Group. It expressly states that the Group will
not engage the auditors to undertake any work that could threaten the
independence of the auditors and prohibits the Group from engaging the
auditors to undertake certain types of service, such as, amongst others,
human resources services, legal and actuarial services.
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.
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 its very international nature. 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. Where these financial
limitations are exceeded, the approval of the Audit Committee is required
for such appointment. The Group also receives taxation advice from other
large accountancy practices as and when appropriate.
Non-audit services (other than in relation to taxation) may be undertaken
by the external auditors, subject to the rules referred to above, and 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 that acquisition due diligence
be undertaken by firms other than the auditors unless conflicts of interest
for comparable firms make this impractical.
At each meeting, the Committee receives a report from the external
auditors providing an update on the fees for non-audit services incurred
since the previous meeting. Where the cumulative non-audit fees
(excluding tax) in the year exceeds a certain sum the prior approval of the
Audit Committee is required before the external auditor undertakes any
non-audit work other than in relation to tax.
In the year to 30 September 2008 the audit fee was £1,651,000.
The Company’s auditors, PricewaterhouseCoopers LLP, also perform
non-audit services for the Group (principally tax advice) over and above
Relations with shareholders
Communication with shareholders is given high priority. The Chairman’s
welcome and Business review on pages 2 to 43 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. 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.
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.
52
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 Director,
the Secretary and certain other members of the Executive Committee.
The Committee reviews all business activities and strategic plans to
identify the nature and extent of the significant risks facing the Group
including those risks arising from social, environmental and ethical
issues and undertakes risk review audits. In identifying significant risks to
which the Group is exposed, it reviews the results of any relevant internal
audit reviews and agrees mitigating actions, when possible. 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. Processes for the confidential
reporting of concerns have been introduced in France and Germany and
the Group is considering the introduction of further telephone hotlines
where local legislation permits.
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 Committee 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.
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 49 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
The directors are responsible for preparing the Annual Report, the
Remuneration report and the Group and parent Company financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors have prepared the Group
financial statements in accordance with International Financial Reporting
Standards (“IFRSs”) as adopted by the European Union and the parent
Company financial statements in accordance with applicable law and
United Kingdom Accounting Standards (UK GAAP). In preparing the
Group financial statements, the directors have also elected to comply with
IFRSs, issued by the International Accounting Standards Board (“IASB”).
The Group and parent Company financial statements are required by law
to 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.
53
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 that the Group financial statements comply with IFRSs as
adopted by the European Union and IFRSs issued by the IASB,
and with regard to the parent Company financial statements that
applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
• Prepare the Group and parent Company financial statements on
the going concern basis, unless it is inappropriate to presume that
the Group will continue in business, in which case there should be
supporting assumptions or qualifications as necessary.
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 and the directors’ remuneration report comply with
the Companies Act 1985 and, as regards the Group financial statements,
Article 4 of the IAS Regulation. 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.
The directors are responsible for the maintenance and integrity of the
group website, www.sage.com. Legislation in the UK governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Each of the directors, whose names and functions are listed in the Board
of Directors and advisers section on pages 44 and 45, confirms that,
to the best of their knowledge:
• The Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair view
of the assets, liabilities, financial position and profit of the Group; and
• The directors’ report includes a fair review of the development and
performance of the business and the position of the Group, together
with a description of the principal risks and uncertainties that it faces.
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 section 234ZA of the Companies Act 1985.
By Order of the Board
M J Robinson
Secretary
17 December 2008
54
Remuneration report
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 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 of non-executive directors
considered by the Board to be independent, and the Chairman of
the Board (who was independent on appointment to the Board).
It 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 making recommendations to the Board
on remuneration policy for executive directors and the Chairman (who
does not participate in discussions relating to his own remuneration),
defining the remuneration packages of executive directors and the
Chairman together with any compensation payments to them 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 A J Hobson, Ms T Ingram, Ms R Markland, Mr I Mason and
Mr M E Rolfe.
All the members of the Committee have been members of the Committee
throughout the year other than Mr I Mason who joined the Committee
on 1 November 2007 and Mr M E Rolfe who joined the Committee on
1 December 2007.
1.2 Advisers to the Remuneration Committee
The Remuneration Committee keeps itself fully informed of developments
and best practice in the field of remuneration and it seeks advice from
external advisers when it considers it appropriate. In order to be aware
of market trends in remuneration and current best practice, the
Remuneration Committee considers market data for comparable
businesses. The Remuneration Committee has received advice from
Deloitte and Hewitt New Bridge Street Consultants LLP (“HNBSC”),
both independent firms of remuneration consultants appointed after
consultation with the Board. The terms of engagement of Deloitte
and HNBSC are available on request from the Secretary. Deloitte and
HNBSC were appointed by the Committee and provide no services to the
Group other than advice on executive remuneration to the Remuneration
Committee, and, in the case of Deloitte, advice to the Group’s North
American business on a software implementation programme and advice
in relation to the audit of its Polish subsidiary. Ms K Geary (Director of
Human Resources and Corporate Communications), Ms R Fyffe (Director
of Performance and Reward) 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. The Chief Executive, Ms K Geary,
Ms R Fyffe 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 directly 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 are base salary
(a fixed sum payable monthly which is reviewed annually), benefits
(including car allowance and non-contributory health insurance), an annual
bonus (with a deferred element to encourage director shareholdings),
long-term incentives (comprising performance share plan awards) 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 2008
comprise performance share plan awards, share options 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 package is performance-related. Policy on performance-
based incentives for the forthcoming year is discussed below.
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 FTSE 50–150 with more than 50% of revenue derived from
overseas), whilst also taking into account the executive directors’
individual performance and the performance of the Group. In the year
ending 30 September 2009 salaries of executive directors have been
increased by between 4% and 5% from those disclosed in this report,
in line with comparator information from the time of the review.
2.3 Policy on fees of non-executive directors
The fees of the non-executive directors are reviewed every two years.
For the two financial years ending on 30 September 2008, the basic
fee for directors was £40,000. An additional fee of £5,000 and £7,000
was paid for membership of the Remuneration and Audit Committees
respectively, and further payments were made to the chair of each of
these Committees (£6,000 and £8,000 for chairing the Remuneration
and Audit Committees respectively). A further payment of £4,000 was
made each year to the Senior Independent Director.
For the two financial years ending 30 September 2010, the basic fee
has been increased to £55,000, but Committee membership fees will
no longer be paid. The chairmanship fees will be increased to £13,000
and £17,000 for the Remuneration and Audit Committees respectively.
The payment to the Senior Independent Director will be increased
to £10,000.
In relation to the Chairman of the Board, 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.
The Chairman’s remuneration will next be reviewed in 2010.
Non-executive directors are not entitled to participate in any bonus,
long-term incentive 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.
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. The Committee considers the targets each
year and selects those which it considers to be drivers of shareholder
value. Bonus payable to executive directors for on-target performance
is 75% of salary with maximum bonus potential of 125% of salary.
Bonuses above on-target level represent superior performance against
one or more measures. At the end of each year the Remuneration
Committee assesses the degree to which the targets have been met.
The requirement to defer bonus into shares applies only to those
executive directors who have not yet met the shareholding policy of the
Board (see paragraph 2.7 below).
For the financial year to 30 September 2008, the cash multiplier which
had previously applied was removed, and individual strategic objectives
were introduced.
For the financial year to 30 September 2009, executive directors with no
specific divisional responsibility will have 75% of their bonus based on
Group profit before tax and amortisation. This replaces EPS as the main
earnings measure now that EPS growth will be the primary measure in
the long-term incentives (see paragraph 2.5 below). The remaining 25%
will be based on individual strategic objectives. For regional CEOs, 25%
of bonus is based on Group profit before tax and amortisation, 50%
on EBITA of the relevant operating company or companies, and the
remaining 25% on individual objectives.
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 if the
executive director has not yet achieved the target holding of shares
equivalent to 150% of annual salary referred to below. If this shareholding
target has been achieved the bonus will be paid entirely in cash.
These shares awarded in respect of bonus, (which will be market
purchased ordinary shares in the capital of the Company) will only be
released after three years to the relevant executive director and will be
generally at risk of forfeiture if the executive director 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.
55
2.5 Policy on long-term incentives
The Committee has undertaken a wide-reaching review of long-term
incentives to establish a motivational and performance-orientated
structure that focuses on the creation of shareholder value. It consulted
with major investors and representative bodies regarding the proposed
changes and had a constructive and positive dialogue with them.
Under the new arrangements for the financial year ending 30 September
2009 executive share options will not be granted under the 1999
Executive Share Option Scheme (“ESOS”).
The Performance Share Plan (“PSP”) will be the main long-term incentive
vehicle for the financial year to 30 September 2009. Currently PSP
awards vest depending on the Company’s Total Shareholder Return
(“TSR”) performance compared with a selected group of comparator
companies over a three-year period. However, to best recognise the
strengths of the performance conditions which have previously applied to
the ESOS and PSP, future PSP awards will vest on the following basis:
As has been the case with executive share options to date, a sliding scale
based on EPS will be used. 25% of the award will vest at the end of the
period if the increase in EPS exceeds RPI by 9% (an average of 3% per
year); 100% of the award will vest at that time only if RPI is exceeded in
that period by 27% (an average of 9% per year). Between those targets,
awards will vest on a straight-line basis, and if those targets are not met
there is no opportunity for re-testing.
Awards will then be subject to a TSR ‘multiplier’ whereby the level of
vesting based on EPS achievement will be adjusted according to TSR
performance over the same three-year period compared with a group of
international software and computer services companies (listed below).
•
If Sage’s TSR is ranked at lower quartile in the group, the multiplier
is 0.75;
If Sage’s TSR is ranked at median in the group, the multiplier is 1; and,
If Sage’s TSR is ranked at upper quartile in the group, then the
multiplier is 1.5.
•
•
Straight-line pro-rating applies between 0.75 and 1, and between 1 and
1.5, but the multiplier cannot be higher or lower than these figures.
The minimum EPS growth performance required has been set at RPI+3%
in light of business strategy and market expectations. The Committee
considers that this level of EPS growth would represent robust
performance in the market. The proportion of award that will vest for this
level of EPS growth is 25% (previously 30% in the ESOS), before TSR
performance is considered.
The Remuneration Committee considers that this matrix approach to
performance conditions is appropriately demanding at this time and
provides the best incentive for the generation of shareholder value.
EPS growth has been chosen because it requires executives to produce
sustained improvement in the underlying performance of the Group; TSR
has been chosen as it helps to align the interests of award holders with
shareholders and complements the focus on Group financial results in the
EPS condition and the annual bonus plan.
56
Wherever used in this Remuneration report, EPS refers to earnings
per share before amortisation or impairment of intangible assets,
exceptional items, amounts written off investments and is on a foreign
currency neutral basis. 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.
The neutralised foreign currency basis has been selected as the Board
considers this to be consistent with the presentation and assessment of
results by shareholders.
The comparator group for awards to be made in the year to
30 September 2009 for TSR purposes will comprise the
following companies:
(cid:129) Adobe Systems
(cid:129) ARM Holdings
(cid:129) Autonomy
(cid:129) Blackbaud
(cid:129) Cap Gemini
(cid:129) Cegid
(cid:129) Dassault Systemes
(cid:129) Exact
(cid:129) Intuit
(cid:129) Lawson Software
(cid:129) LogicaCMG
(cid:129) Micro Focus International
(cid:129) Microsoft
(cid:129) Misys
(cid:129) MYOB
(cid:129) Oracle
(cid:129) Salesforce.com
(cid:129) SAP
(cid:129) Software AG
The Committee will keep under review the comparator group to ensure
that it remains appropriate.
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.
Grant policy under long-term incentive plans
The grant of awards under the PSP is currently limited to shares worth up
to 150% of base salary. However, shareholder approval is being sought
at the Annual General Meeting in March 2009 to amend the rules of the
PSP to increase this limit to 300% of salary. The reason for the increase
is to reflect the fact that, going forward, long-term share incentives will be
granted under the PSP only and not under the ESOS. It will therefore be
necessary to have an increased individual limit under the PSP. Although
300% would be the permitted maximum, in practice awards would be
granted below this level.
For instance, to recognise the loss of share options in the overall package,
and the need to reward superior performance with commensurate
reward, PSP awards to executive directors for the year to 30 September
2009 will have a maximum value on award of 210% of salary.
This represents a “core” award to the value of 140% of salary, which if
maximum EPS growth is attained, and TSR performance is ranked
upper quartile against the comparator group, could rise to 210% of salary
(ignoring share price movements), subject to shareholder approval to the
PSP rule amendment. The Remuneration Committee considers that this
grant level is appropriate, taking account of the interaction of the
challenging performance criteria and recognising the increased
competition for senior executives. If, in due course, it were to become
appropriate routinely to make awards higher than the 210% of salary
maximum currently planned, then the Company will consult with its major
investors accordingly, and prior to making such awards. There are
currently no plans to increase the 210% award level.
Awards under the PSP will normally be made to executive directors and
senior executives across the Group after the preliminary declaration of the
annual results. For the financial year to 30 September 2009, they will be
made following the AGM in March 2009.
For the year to 30 September 2009 and onwards, there are no intentions
to grant options to executive directors under the ESOS, which ceases in
December 2009.
In the financial year to 30 September 2008 market value options were
granted under the ESOS 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. Grants to executive
directors were limited to shares under option worth 100% of base salary.
57
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 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.
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 defined contribution.
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 25% of base salary subject, where appropriate, to
limits set by HMRC. No components of remuneration, other than base
salary, are 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 PSP.
In assessing whether the target of 150% of salary is met, vested but
unexercised 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 one or three
years, during which period the appointment may be terminated by the
Board on notice, ranging from six to 12 months (in the case of the
Chairman of the Board). There are no provisions on payment for early
termination in their letters of appointment. The Remuneration Committee
reviews the contracts of executives on an annual basis to ensure they
are in line with policy and market practice.
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.
Mr P S Harrison is a non-executive director of Hays 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 £70,000 in the case of
Mr P A Walker, £42,000 in the case of Mr P L Stobart and £57,000 in
the case of Mr P S Harrison.
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.
In the case of the Chairman prior approval of the Senior Independent
Director is required on behalf of the Board.
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.
58
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.
The service agreement with Mr R Verni was terminated on 11 October 2007. Mr Verni received payments in lieu of 12 months notice under the contract
at the times when salary would have been paid under his service agreement. Against these payments was set off the remuneration which Mr Verni
received from third parties during that time. All payments ceased on 11 October 2008. The tables relating to executive share options and the
performance share plan on page 61 onwards set out the treatment of his share awards.
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
D H Clayton
P S Harrison
P L Stobart
P A Walker
Non-executive directors
A J Hobson
T Ingram
T C W Ingram
R Markland
I Mason
M E Rolfe
Date of contract
Unexpired term
of contract on
30 September 2008
Notice period under contract
30 September 2004
12 months
25 July 2007
1 April 2000
26 September 2003
26 September 2003
Age 60 or 12 months
Age 60 or 12 months
Age 60 or 12 months
Age 60 or 12 months
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
24 May 2007
23 November 2007
1 year 8 months
2 years 3 months
14 March 2008
15 August 2006
6 months
1 year
31 October 2007
2 years 1 month
23 November 2007
2 years 2 months
12 months from the Company and/or individual
6 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
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 individual
The following director ceased to be a director during the course of the financial year
R Verni
8 July 2003
Nil (terminated on
11 October 2007)
Notes:
(cid:129) There are no other benefits in the contracts relevant to termination payment.
59
4 Performance graph
Total Shareholder Return (“TSR”) against FTSE 100
The Company is required to include a graph indicating its TSR performance (that is, share price assuming reinvestment of any dividends) over the
last five years relative to a recognised equity index. Accordingly the graph below shows the Company’s performance relative to the FTSE 100.
This graph shows the value, by 30 September 2008 of £100 invested in The Sage Group plc on 30 September 2003 compared with the value of £100
invested in the FTSE 100 index. The other points plotted are the values at intervening financial year ends.
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.
TSR performance to 30 September 2008 for PSP awards made to date was as follows:
(cid:129) 2006 awards – TSR ranking of 9.13 out of 11 comparators
(cid:129) 2007 awards – TSR ranking of 10.17 out of 13 comparators
(cid:129) 2008 awards – TSR ranking of 10.42 out of 19 comparators
60
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. The other elements of directors remuneration are referred to under
the heading “General remuneration policy” above.
Director
Executive directors
G S Berruyer
D H Clayton
P S Harrison
P L Stobart
R Verni1
P A Walker
Non-executive directors
A J Hobson
J M Horn-Smith2
T Ingram
T C W Ingram
R Markland
I Mason3
M E Rolfe4
Salary
and fees
’000
Bonus
deferred
into shares5
’000
Bonus
’000
Benefits
in kind6
’000
c625
£335
£335
£425
$632
£735
£250
–
£45
£62
£52
£48
£47
c546
£251
£251
£191
–
£551
–
–
–
–
–
–
–
c26
–
–
–
–
–
–
–
–
–
–
–
–
c7
£17
£18
£18
–
£21
–
–
–
–
–
–
–
2008
Total
’000
c1,204
£603
£604
£634
$632
£1,307
£250
–
£45
£62
£52
£48
£47
2008
Pension
contributions7
’000
2007
Pension
contributions
’000
2007
Total
’000
a1,216
£42
£676
£793
$933
£1,459
£127
£454
£45
£59
£52
–
–
–
£84
£84
£106
–
£184
–
–
–
–
–
–
–
–
–
£48
£60
$6
£105
–
–
–
–
–
–
–
Notes:
1 Ceased to be a member of the Board, and contract terminated on 11 October 2007. Therefore, the figure above represents the fees paid to him whilst a director ($23,356) and the
payment in lieu of notice due to him ($608,875).
2 Ceased to be a member of the Board on 26 April 2007.
3 Appointed 1 November 2007.
4 Appointed 1 December 2007.
5 An element of bonus has been deferred by the Company as an award under the Sage Group Deferred Bonus Plan. Awards under that plan, which were made on 10 December 2008
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 award will lapse unless the Remuneration Committee recommends 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 ending 30 September 2009.
6 Benefits in kind include the provision of car allowance and insurance.
7 Retirement benefits were accruing to four directors (2007: four). All pension contributions accrued under money purchase schemes.
(cid:129) Apart from the payment in lieu of notice to Mr R Verni referred to in note 1 above, no payments for compensation for loss of office or otherwise relating to termination of office or
employment were made during the year.
(cid:129) Total directors’ emoluments were £4,893,000 (2007: £5,001,000).
(cid:129) 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.
(cid:129) Including gains on share options, the total emoluments of the highest paid director were £1,307,000 (2007: £1,459,000).
(cid:129) In the table above exchange rates of $1.97/£1 and a1.31/£1 have been adopted.
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 employee share schemes in any
ten year period. The limits and the Group’s current position against those limits as at 17 December 2008 (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
5.4% used
5.9% used
The Company currently intends to satisfy awards under the Performance Share Plan through the market purchase of shares.
61
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 as follows:
Director
G S Berruyer
Exercise
price per
share
136.00p
329.75p
171.00p
198.00p
258.50p
270.00p
214.00p
D H Clayton
214.00p
P S Harrison
P L Stobart
R Verni
136.00p
721.00p
329.75p
134.00p
171.00p
198.00p
258.50p
270.00p
214.00p
329.75p
134.00p
171.00p
198.00p
258.50p
270.00p
214.00p
204.50p
329.75p
228.50p
134.00p
171.00p
198.00p
258.50p
270.00p
Shares under
option at
1 October
2007
number
350,000
121,304
175,438
189,082
147,748
147,639
–
1,131,211
–
–
60,000
30,000
65,595
186,567
128,654
133,838
116,054
118,519
–
839,227
121,304
223,880
175,438
181,818
146,228
148,889
–
997,557
150,000
121,304
89,031
298,507
182,158
178,062
151,975
140,846
1,311,883
Granted
during
the year
number
–
–
–
–
–
–
218,545
218,545
156,542
156,542
–
–
–
–
–
–
–
–
156,542
156,542
–
–
–
–
–
–
198,598
198,598
–
–
–
–
–
–
–
–
–
Exercised
during
the year
number
(350,000)
–
–
–
–
–
–
(350,000)
–
–
(60,000)
–
–
–
–
–
–
–
–
(60,000)
–
–
–
–
–
–
–
–
(150,000)
–
–
(298,507)
(182,158)
(178,062)
–
–
(808,727)
Lapsed
during
the year
number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(121,304)
(89,031)
–
–
–
(151,975)
(140,846)
(503,156)
Shares under
option at
30 September
2008
number
–
121,304
175,438
189,082
147,748
147,639
218,545
999,756
156,542
156,542
–
30,000
65,595
186,567
128,654
133,838
116,054
118,519
156,542
935,769
121,304
223,880
175,438
181,818
146,228
148,889
198,598
1,196,155
–
–
–
–
–
–
–
–
–
Date exercisable
16 December 2001 – 16 December 2008
17 January 2004 – 17 January 2011
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
10 January 2010 – 10 January 2017
10 January 2011 – 10 January 2018
10 January 2011 – 10 January 2018
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
10 January 2010 – 10 January 2017
10 January 2011 – 10 January 2018
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
10 January 2010 – 10 January 2017
10 January 2011 – 10 January 2018
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
10 January 2010 – 10 January 2017
62
Executive share options (continued)
Exercise
price per
share
136.00p
329.75p
134.00p
171.00p
198.00p
258.50p
270.00p
214.00p
Shares under
option at
1 October
2007
number
440,000
151,630
313,432
280,701
315,656
253,771
258,889
–
2,014,079
6,293,957
Granted
during
the year
number
–
–
–
–
–
–
–
343,457
343,457
1,073,684
Exercised
during
the year
number
–
–
–
–
–
–
–
–
–
(1,218,727)
Lapsed
during
the year
number
–
–
–
–
–
–
–
–
–
(503,156)
Shares under
option at
30 September
2008
number
440,000
151,630
313,432
280,701
315,656
253,771
258,889
343,457
2,357,536
5,645,758
Director
P A Walker
Total
Date exercisable
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
10 January 2010 – 10 January 2017
10 January 2011 – 10 January 2018
Notes:
(cid:129) No options were varied during the year.
(cid:129) 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.
(cid:129) For the options exercised in the year, the market price of the exercised shares at the date of exercise was as follows:
– G S Berruyer – 1 September 2008 was 208.64p.
– P S Harrison – 22 September 2008 was 214.91p.
– R Verni – 25 January 2008 was 215.75p (option price 134.00p).
– R Verni – 1 February 2008 was 230.50p (option price 134.00p).
– R Verni – 9 May 2008 was 214.75p (option prices 134.00p, 171.00p, 198.00p and 204.50p).
(cid:129) The market price of a share of the Company at 30 September 2008 was 195.30p and the lowest and highest market price during the year was 187.10p and 251.75p respectively.
(cid:129) Total gains on the exercise of share options were £684,275 (2007: £1,736,952), including £684,275 (2007: £1,736,952) on executive share options.
(cid:129) The table above does not show exercises of options after 30 September 2008 which are referred to in the notes to the table in paragraph 5.5 below.
(cid:129) On termination of his contract on 11 October 2007, the Committee permitted Mr R Verni to exercise any vested share options for a period of six months following the termination date.
(cid:129) Options which vested during the 12 months following the termination date of Mr R Verni, where the performance period for those options had ended prior to the termination date were
permitted to be exercised within six months of their vesting date.
All-employee share scheme
In relation to the SAYE Scheme, the outstanding options granted to each director of the Company are as follows:
Exercise
price per
share
184.00p
184.00p
Shares under
option at
1 October
2007
number
5,081
5,081
10,162
Granted
during
the year
number
–
–
–
Exercised
during
the year
number
–
–
–
Lapsed
during
the year
number
–
–
–
Shares under
option at
30 September
2008
number
5,081
5,081
10,162
Director
P S Harrison
P L Stobart
Total
Date exercisable
1 August 2009 – 31 January 2010
1 August 2009 – 31 January 2010
Notes:
(cid:129) These options are not subject to performance conditions since these do not apply to this type of all-employee share scheme.
(cid:129) 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 five years. On 30 September 2007
14,801.8 units were held by Mr G S Berruyer at a price of a3.89 per share. On 30 September 2008 16,566.38 units were held at a price of a2.668 per share. Units are valued on a
weekly basis.
5.3 Performance Share Plan (audited information)
The outstanding awards granted to each director of the Company under the Performance Share Plan are as follows:
Director
G S Berruyer
D H Clayton
P S Harrison
P L Stobart
R Verni
P A Walker
Total
Awarded
1 October
2007
number
178,903
147,748
147,639
–
474,290
–
–
128,329
116,054
118,519
–
362,902
174,334
146,228
148,889
–
469,451
166,118
151,975
140,846
458,939
302,663
253,771
258,889
–
815,323
2,580,905
Awarded
during
the year
number
–
–
–
361,647
361,647
253,787
253,787
–
–
–
253,787
253,787
–
–
–
321,969
321,969
–
–
–
–
–
–
–
556,818
556,818
1,748,008
Vested
during
the year
number
(77,956)
–
–
–
(77,956)
–
–
(55,918)
–
–
–
(55,918)
(75,965)
–
–
–
(75,965)
(72,386)
–
–
(72,386)
(131,885)
–
–
–
(131,885)
(414,110)
Lapsed
during
the year
number
(100,947)
–
–
–
(100,947)
–
–
(72,411)
–
–
–
(72,411)
(98,369)
–
–
–
(98,369)
(93,732)
(151,975)
(140,846)
(386,553)
(170,778)
–
–
–
(170,778)
(829,058)
Awarded
30 September
2008
number
–
147,748
147,639
361,647
657,034
253,787
253,787
–
116,054
118,519
253,787
488,360
–
146,228
148,889
321,969
617,086
–
–
–
–
–
253,771
258,889
556,818
1,069,478
3,085,745
63
Vesting date
18 March 2008
10 January 2009
10 January 2010
3 March 2011
3 March 2011
18 March 2008
10 January 2009
10 January 2010
3 March 2011
18 March 2008
10 January 2009
10 January 2010
3 March 2011
18 March 2008
10 January 2009
10 January 2010
18 March 2008
10 January 2009
10 January 2010
3 March 2011
Notes:
(cid:129) No variations were made in the terms of the awards in the year.
(cid:129) The market price of a share on 3 March 2008, the date of the awards made in the year ended 30 September 2008 was 198.00p.
(cid:129) For awards which vested in the year ended 30 September 2008, the market price on the date of award (18 March 2005) was 206.50p. The market price of a share on 18 March 2008,
the vesting date of these awards was 192.90p.
(cid:129) 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 (other than for awards in March 2008 where 25% 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. For awards made in 2005, TSR performance was such that 40.7% of shares originally
awarded vested to executive directors.
(cid:129) In respect of the awards vesting in 2008 and 2009 the comparator group for TSR comprised: Blackbaud, Business Objects, Cap Gemini, Cegid, Exact, Geac, Intuit, iSoft, Microsoft,
Misys, MYOB, Northgate Information Solutions, Oracle, Salesforce.com, SAP and Systems Union. For those vesting in 2010 the group comprised: Blackbaud, Business Objects, Cap
Gemini, Cegid, Exact, Intuit, iSoft, Lawson Software, LogicaCMG, Microsoft, Misys, MYOB, Northgate Information Solutions, Oracle, Salesforce.com and SAP. For those vesting in 2011
the group comprised: Adobe Systems, ARM Holdings, Autonomy, Blackbaud, Cap Gemini, Cegid, Dassault Systemes, Exact, Intuit, Lawson Software, LogicaCMG, Micro Focus
International, Microsoft, Misys, MYOB, Oracle, Salesforce.com, SAP and Software AG.
(cid:129) The Committee permitted only the 2005 PSP award to vest to Ron Verni following the termination of his contract on 11 October 2007 as the vesting would have occurred during the
12 months following termination and the performance period relevant to the award was complete. His award was subject to the same performance criteria as all other PSP awards
made to executive directors.
64
5.4 Deferred shares (audited information)
The outstanding awards granted to directors of the Company under the Sage Group Deferred Bonus Plan are as follows.
Director
G S Berruyer
P S Harrison
P L Stobart
R Verni
P A Walker
Total
Shares at
30 September
2007
number
11,736
10,815
–
Shares
awarded
during the year
number
–
–
14,714
22,551
8,418
10,187
–
18,605
3,524
3,878
–
7,402
17,693
10,715
28,408
19,853
22,275
–
42,128
119,094
14,714
–
–
11,495
11,495
–
–
8,401
8,401
–
–
–
–
–
25,111
25,111
59,721
Shares
vested
during the year
number
–
–
–
–
–
–
–
–
–
–
–
–
(17,693)
–
(17,693)
–
–
–
–
(17,693)
Shares
lapsed
during the year
number
–
–
–
Shares at
30 September
2008
number
11,736
10,815
14,714
–
–
–
–
–
–
–
–
–
–
(10,715)
(10,715)
–
–
–
–
(10,715)
37,265
8,418
10,187
11,495
30,100
3,524
3,878
8,401
15,803
–
–
–
19,853
22,275
25,111
67,239
150,407
Vesting date
10 January 2009
10 January 2010
10 January 2011
10 January 2009
10 January 2010
10 January 2011
10 January 2009
10 January 2010
10 January 2011
10 January 2009
10 January 2010
10 January 2009
10 January 2010
10 January 2011
Notes:
(cid:129) Following the termination of Mr R Verni’s contract on 11 October 2007, the Committee permitted the vesting of the 2006 Deferred Shares award only.
(cid:129) Awards of shares 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.
(cid:129) Awards are not subject to further performance conditions once granted.
(cid:129) No variations were made in the terms of the awards in the year.
(cid:129) The market price of a share on 10 January 2008, the date of the award, was 214.00p.
65
5.5 Interests in shares
The interests of each person who was a director of the Company as at 30 September 2008 (together with interests held by his or her connected
persons) were:
Director
G S Berruyer
D H Clayton
P S Harrison
A J Hobson
T Ingram
T C W Ingram
R Markland
I Mason
M E Rolfe
P L Stobart
P A Walker
Total
Ordinary
shares at
30 September
2008
number
301,836
31,000
41,065
24,126
3,600
33,552
5,000
10,000
10,000
67,803
6,201,657
6,729,639
Ordinary
shares at
30 September
2007
number
223,880
31,000
8,437
24,126
3,600
33,552
5,000
–
–
23,477
6,069,772
6,422,844
Notes:
(cid:129) There have been no changes in the directors’ holdings in the share capital of the Company between 30 September 2008 and 17 December 2008 other than those referred to in the
note below:
– On 10 December 2008 Mr P A Walker exercised options under the terms of The Sage Group (No. 2) Executive Share Option Scheme over 440,000 ordinary shares at an option price
of 136.00p per share. He subsequently sold on that day 440,000 ordinary shares at an average price of 179.90p 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
17 December 2008
66
Consolidated income statement
For the year ended 30 September 2008
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
EBITA*
Earnings per share (pence)
– Basic
– Diluted
Note
1
1,3
2
2
2
4
22,23
1
6
6
2008
£m
1,295.0
(94.0)
1,201.0
(933.6)
267.4
3.8
(30.2)
(26.4)
241.0
(74.7)
166.3
2007
£m
1,157.6
(103.7)
1,053.9
(798.7)
255.2
3.6
(35.5)
(31.9)
223.3
(69.2)
154.1
299.8
283.2
12.73p
12.69p
11.85p
11.79p
Consolidated statement of recognised income
and expense
For the year ended 30 September 2008
Profit for the year
Net exchange adjustments offset in reserves
Equity movement of deferred tax
Actuarial gain/(loss) on employment benefits
Net gains/(losses) not recognised in income statement
Total recognised income for the year – attributable to equity shareholders
*EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
(cid:129) Amortisation of acquired intangible assets; and
(cid:129) Net amortisation or capitalisation of software development expenditure.
Note
22,23
21,23
17,22,23
22,23
2008
£m
166.3
117.1
(0.2)
3.1
120.0
286.3
2007
£m
154.1
(51.6)
(3.3)
(1.2)
(56.1)
98.0
Consolidated balance sheet
As at 30 September 2008
67
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 equity
2008
£m
1,825.5
223.7
140.5
5.2
2,194.9
5.4
267.6
70.1
343.1
2007
Restated
£m
1,567.0
200.6
130.5
8.3
1,906.4
5.5
230.3
65.6
301.4
2,538.0
2,207.8
(247.2)
(69.2)
(13.9)
(2.6)
(352.2)
(685.1)
(575.2)
(3.9)
(26.8)
(605.9)
(210.2)
(56.3)
(0.3)
(8.5)
(300.2)
(575.5)
(562.0)
(5.3)
(14.2)
(581.5)
(1,291.0)
1,247.0
(1,157.0)
1,050.8
13.1
486.6
109.2
638.1
1,247.0
13.0
478.2
(7.9)
567.5
1,050.8
Note
7
8
9
17
10
11
12
13
15
14
15
28
17
18
20
21
22
23
The consolidated financial statements on pages 66 to 105 were approved by the Board of Directors on 17 December 2008 and are signed on their
behalf by:
P A Walker
Director
P S Harrison
Director
68
Consolidated cash flow statement
For the year ended 30 September 2008
Cash flows from operating activities
Cash generated from continuing operations
Interest received
Interest paid
Tax paid
Net cash generated 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
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of ordinary share capital
Finance lease principal payments
Issue costs on loans
Repayment of borrowings
New borrowings
Dividends paid to shareholders
Net cash used in financing activities
Net 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
2
26(g)
8
9
25
25
25
25
5
25
12
2008
£m
342.0
3.8
(29.2)
(62.5)
254.1
(81.1)
–
(15.4)
(25.0)
1.8
(119.7)
8.5
(0.1)
(0.3)
(233.5)
193.9
(106.2)
(137.7)
(3.3)
7.8
4.5
65.6
70.1
2007
£m
317.1
3.6
(34.4)
(66.1)
220.2
(96.2)
0.9
(15.9)
(22.1)
0.2
(133.1)
15.0
(0.2)
(0.2)
(189.0)
122.2
(49.0)
(101.2)
(14.1)
(2.3)
(16.4)
82.0
65.6
Notes to the accounts – Group
For the year ended 30 September 2008
69
Group accounting policies
General information
The Sage Group plc (“the Company”) and its subsidiaries (together
“the Group”) is one of the leading global suppliers of business
management software and services to small and medium-sized
enterprises. Operating in 26 countries worldwide in the UK & Ireland,
Mainland Europe, North America, Southern Hemisphere and Asia.
The Company is a limited liability Company incorporated and domiciled in
the UK. The address of its registered office is North Park, Newcastle upon
Tyne, NE13 9AA.
The Company is listed on the London Stock Exchange.
The Group consolidated financial statements were authorised for issue
by the Board of directors on 17 December 2008.
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.
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.
The financial statements are prepared on the historical cost convention
except where adopted IFRS require an alternative treatment. The principal
variations from the historical cost convention relates to IAS 19, “Employee
Benefits” and IFRS 2, “Share-based Payment”.
Balance sheet restatement
When the accounting for acquisitions is provisional at a year end date
and is then finalised within 12 months, the carrying amount of the assets
and associated goodwill is accounted for at the revised level from the
original acquisition date. Comparative information presented for the
periods before the accounting is complete, is presented as if the initial
accounting had been complete from the acquisition date. As a result the
Consolidated balance sheet as at 30 September 2007 has been restated
to reflect the final accounting. The impact of the restatement has been
to reduce goodwill by £5.1m, and increase other intangible assets by
£5.1m. There is no impact on the Consolidated income statement for
the year ended 30 September 2007.
Standards, amendment and interpretations effective in 2008
IFRS 7, “Financial instruments: Disclosures”, and the complementary
amendment to IAS 1, “Presentation of Financial Statements – Capital
Disclosures”, introduces new disclosures relating to financial instruments
and does not have any impact on the classification and valuation of the
Group financial instruments, or the disclosures relating to taxation.
The principal IFRS accounting policies of the Group are set out below:
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 control. They are de-consolidated from the date that
control ceases.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
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, “Business
Combinations” are recognised at their fair values at the acquisition date.
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 reports revenue under two revenue categories:
• Subscription revenues, which are recurring in nature and include
combined software/support contracts, maintenance and support,
transaction revenues (payment and health insurance claims
processing) and hosted products; and
• Software and software-related services revenue, which includes
software licences, sale of professional services, business forms,
hardware and training.
Subscriptions – revenue is recognised on a straight-line basis over
the term of the subscription contract. Revenue not recognised in the
income statement under this policy is classified as deferred income in
the balance sheet.
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.
70
Group accounting policies (continued)
d Revenue recognition (continued)
Where appropriate the Group provides a reserve for estimated returns
under the standard acceptance terms at the time the revenue is recorded.
Where software is sold with after-sales service, the consideration is
allocated between the different elements on fair value. The revenue
allocated to each element is recognised as outlined above.
Other products (which includes business forms and hardware) – revenue
is recognised as the products are shipped.
Other services (which includes the sale of professional services and
training) – 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:
• 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 is
carried at cost less accumulated impairment losses. 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. Gains and losses
on disposal of the entity includes the carrying amount of the foreign
exchange on the goodwill relating to the entity sold (except for goodwill
taken to reserves prior to the transition to IFRS on 1 October 2004).
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
Intangible assets are recognised when brands, technology and/or
customer related contractual cash flows exist, along with any other
intangibles acquired on a business combination, and their fair value
can therefore be measured reliably.
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
– 3 to 20 years
– 3 to 7 years
– 4 to 15 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
seven 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:
•
• The development costs can be measured reliably;
• Technical feasibility of completing the intangible asset can
It is probable that the asset will create future economic benefits;
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 – over period
– 50 years
• Plant and equipment
• Motor vehicles
• Office equipment
Freehold land is not depreciated.
of lease
– 2 to 7 years
– 4 years
– 5 to 7 years
Residual values and useful lives are reviewed and adjusted, if appropriate,
at each balance sheet date.
71
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.
m Financial assets
The Group classifies its financial assets in the category loans and
receivables. This classification is due to the purpose for which the financial
assets were acquired. Management determines the classification of its
financial assets at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months
after the balance sheet date. These are classified as non-current assets.
The Group’s loans and receivables comprise trade and other receivables
(excluding prepayments and accrued income) and cash and cash
equivalents in the balance sheet (note n).
n 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.
o 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 at 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 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 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.
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.
p Financial instruments and hedge accounting
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 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 hedging or trading purposes.
The only hedging undertaken by the Group are net investment hedges,
using foreign currency borrowings. 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.
The Group has certain investments in foreign operations, whose
net assets are exposed to foreign currency translation risk.
Currency exposure arising from the net assets of the Group’s foreign
operations is managed primarily through borrowings denominated in
the relevant foreign currencies.
72
Group accounting policies (continued)
q 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 Sterling, which is the functional currency of the
parent Company and the presentation currency for the Consolidated
financial statements.
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.
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, with the exception of
exchange differences recorded in equity prior to the transition to IFRS
on 1 October 2004, in accordance with IFRS 1, “First-time Adoption
of International Financial Reporting”.
r 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.
s Leasing
Assets held under finance leases are initially 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.
t Retirement benefit costs
The Group operates money purchase pension schemes (defined
contribution schemes) for certain of its employees. The contributions are
charged to the income statement as incurred.
There are two small defined benefit schemes operating within the Group.
The assets of the defined benefit schemes are held separately from the
assets of the Group. The costs of providing benefits under these schemes
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 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.
u 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.
73
Amendments to existing standards
• Amendment to IAS 23 – “Borrowing Costs”
• Amendment to IAS 32 – “Financial Instruments: Presentation –
Amendments relating to Puttable Financial Instruments and
Obligations Arising on Liquidation”
• Amendment to IFRS 1 and IAS 27 – “Cost of an Investment
in a Subsidiary, Jointly Controlled Entity or an Associate”
• Amendment to IAS 39 and IFRS 7 – “Reclassification of
Financial Assets”
• Amendment to IAS 39 – “Eligible Hedged Items”
• Amendment to IFRS 2 – “Vesting Conditions and Cancellations”
•
IFRS Annual Improvements
All the IFRSs, IFRIC interpretations and amendments to existing standards
are yet to be endorsed by the EU at the date of approval of these
consolidated financial statements with the exception of IFRS 8 and the
amendment to IAS 39 and IFRS 7.
The directors anticipate that the future adoption of those standards,
interpretations and amendments listed above will not have a material
impact on the Consolidated financial statements.
z 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:
(cid:129) 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 (note 7).
(cid:129) 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).
(cid:129) Income taxes
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the worldwide provision
for income taxes. There are 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
recorded, such differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
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.
At each Balance sheet date, the entity revises its estimates for the number
of options expected to vest. It recognises the impact of the revision to
original estimates, if any, in the Income statement, with a corresponding
adjustment to equity.
The proceeds received net of any directly attributable transaction costs
are credited to share capital (nominal value) and share premium when the
options are exercised.
v Dividends
Dividends on ordinary shares are recognised as a liability in the period in
which they are approved by the Company’s shareholders.
w 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.
x Segment reporting
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
sector: Accounting; industry-specific; HR and payroll; CRM and
payment processing.
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.
y Adoption of new and revised International Financial
Reporting Standards
At the date of approval of these financial statements, the following
standards, interpretations and amendments were issued but not
yet mandatory effective for the Group and early adoption has not
been applied.
International Financial Reporting Standards (“IFRS”)
•
•
•
•
IFRS 8, “Operating Segments” (this has been adopted by the EU)
IFRS 3 (Revised), “Business Combinations”
IAS 1 (Revised), “Presentation of Financial Statements”
IAS 27 (Revised), “Consolidated and Separate Financial Statements”
International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations
•
•
•
IFRIC 12, “Service Concession Arrangements”
IFRIC 13, “Customer Loyalty Programmes”
IFRIC 14, “IAS 19 – The Limit of a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction”
IFRIC 15, “Agreements for Construction of Real Estates”
IFRIC 16, “Hedges of a Net Investment in a Foreign Operation”
•
•
74
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.
Year ended 30 September 2008
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
UK & Ireland
£m
Note
Mainland
Europe
£m
North
America
£m
Rest of
World
£m
245.7
84.5
457.3
87.8
500.9
71.9
91.1
23.2
3
2
2
4
The primary segment assets and liabilities were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
– Corporate borrowings
Total net assets
419.0
(183.7)
235.3
655.7
(269.1)
386.6
1,347.0
(221.8)
1,125.2
116.3
(41.5)
74.8
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
9
8
9
8
19
7.8
0.1
7.2
4.2
2.8
7.4
3.2
4.5
13.6
2.2
7.8
12.1
5.1
18.7
2.1
2.0
–
1.7
0.2
0.5
Group
£m
1,295.0
267.4
3.8
(30.2)
241.0
(74.7)
166.3
2,538.0
(716.1)
1,821.9
(574.9)
1,247.0
25.0
15.4
18.5
36.7
7.6
75
Year ended 30 September 2007
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
Note
UK & Ireland
£m
Mainland
Europe
£m
North
America
£m
Rest of
World
£m
224.1
80.8
349.1
71.2
508.1
83.4
76.3
19.8
3
2
2
4
The primary segment assets and liabilities were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
– Corporate borrowings
Total net assets
369.1
(147.0)
222.1
541.1
(215.7)
325.4
1,190.6
(196.4)
994.2
107.0
(36.6)
70.4
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
9
8
9
8
19
6.4
0.1
6.9
2.0
2.8
3.7
3.4
3.6
11.7
2.0
7.9
12.3
4.6
19.5
3.5
4.1
0.1
1.1
0.3
0.5
Group
£m
1,157.6
255.2
3.6
(35.5)
223.3
(69.2)
154.1
2,207.8
(595.7)
1,612.1
(561.3)
1,050.8
22.1
15.9
16.2
33.5
8.8
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:
(cid:129) Amortisation of acquired intangible assets; and
(cid:129) Net amortisation or capitalisation of software development expenditure.
2008
£m
267.4
31.8
0.6
299.8
2007
£m
255.2
27.2
0.8
283.2
76
1 Segmental reporting (continued)
Secondary reporting format – business segment
The business segments identified are: Accounting; industry-specific; HR and payroll; CRM and payment processing.
Continuing operations
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
2008
£m
713.7
314.6
145.2
68.7
52.8
1,295.0
Revenue
2007
£m
561.7
342.5
139.4
66.4
47.6
1,157.6
Segment
assets
2007
£m
1,071.3
653.2
265.9
126.6
90.8
2,207.8
2008
£m
1,398.7
616.6
284.6
134.6
103.5
2,538.0
Analysis of revenue
Software and software-related services
Subscription
2 Net finance expenses
Finance income – interest income on short-term deposits
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)
Amortisation of development expenditure
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
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
8
Capital
expenditure
2007
£m
18.4
11.2
4.6
2.2
1.6
38.0
Revenue
2007
£m
476.6
681.0
1,157.6
2007
£m
3.6
(34.4)
(1.1)
(35.5)
(31.9)
2007
£m
511.5
35.9
16.1
0.1
32.7
0.8
1.3
0.5
3.4
17.6
3.0
111.4
2008
£m
22.3
9.8
4.5
2.1
1.7
40.4
2008
£m
509.3
785.7
1,295.0
2008
£m
3.8
(29.2)
(1.0)
(30.2)
(26.4)
2008
£m
595.5
39.9
18.3
0.2
36.1
0.6
–
–
0.7
27.5
5.6
139.7
77
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 the 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 non-tax compliance services
– Tax services and tax compliance work
2008
£m
1.5
0.2
0.2
1.8
3.7
2007
£m
1.3
0.2
0.2
1.3
3.0
The total audit fee for the Group, including the audit of overseas subsidiaries was £1.7m (2007: £1.5m). Other services include interim review costs and
are therefore closely associated with the audit.
The Board’s policy in respect of the procurement of non-audit services for the Group’s auditor is set out on pages 50 and 51.
4 Taxation
Analysis of charge in the year
Current tax
– Current year
– Adjustment in respect of prior year
Deferred tax (note 17)
Taxation
Tax on items (credited)/charged to equity
Deferred tax charge on share options
Current tax credit on exchange adjustments
Total tax on items (credited)/charged to equity
The tax for the year is higher (2007: higher) than the standard rate of corporation tax in the UK 29%
(2007: 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 29% (2007: 30%)
Effects of:
Adjustment in respect of prior year
Adjustment in respect of foreign tax rates
Expenses not deductible for tax purposes and other permanent differences
Other
Total taxation
2008
£m
74.9
0.5
75.4
(0.7)
74.7
2008
£m
0.2
(4.6)
(4.4)
2008
£m
241.0
69.9
0.5
5.8
(0.4)
(1.1)
74.7
2007
£m
60.3
(1.3)
59.0
10.2
69.2
2007
£m
3.3
–
3.3
2007
£m
223.3
67.0
(1.3)
7.1
(4.2)
0.6
69.2
78
5 Dividends
Final dividend paid for the year ended 30 September 2007 of 5.73p per share
(2007: final dividend paid for the year ended 30 September 2006 of 2.51p per share)
Interim dividend paid for the year ended 30 September 2008 of 2.43p per share
(2007: interim dividend paid for the year ended 30 September 2007 of 1.27p per share)
2008
£m
74.5
–
31.7
–
106.2
2007
£m
–
32.4
–
16.6
49.0
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2008 of 4.78p per share which will absorb
an estimated £62.6m of shareholders’ funds. It will be paid on 6 March 2009 to shareholders who are on the register of members on 6 February 2009.
These financial statements do not reflect this dividend payable.
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 2008, 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
2008
Weighted
average
number of
shares
millions
Earnings
£m
Per share
amount
pence
Earnings
£m
Weighted
average
number of
shares
millions
2007
Per share
amount
pence
166.3
1,306.5
12.73
154.1
1,299.9
11.85
–
3.8
(0.04)
–
7.1
(0.06)
Diluted EPS
166.3
1,310.3
12.69
154.1
1,307.0
11.79
79
Adjusted EPS – Non GAAP measure
Basic EPS
Earnings attributable to ordinary shareholders
Non GAAP items:
Intangible asset amortisation excluding
amortisation of computer software
Taxation
Net adjustments
2008
Weighted
average
number of
shares
millions
Earnings
£m
Per share
amount
pence
Earnings
£m
Weighted
average
number of
shares
millions
2007
Per share
amount
pence
166.3
1,306.5
12.73
154.1
1,299.9
11.85
32.4
(10.0)
22.4
28.0
(8.7)
19.3
1.71
1.49
Adjusted basic EPS
188.7
1,306.5
14.44
173.4
1,299.9
13.34
Exchange adjustments
Exchange adjustments
Taxation
Net exchange adjustments
Adjusted basic EPS
(after exchange adjustments)
Effect of dilutive securities
Options
Adjusted diluted EPS
(after exchange adjustments)
13.8
(4.3)
9.5
0.73
188.7
1,306.5
14.44
182.9
1,299.9
14.07
3.8
(0.04)
7.1
(0.08)
188.7
1,310.3
14.40
182.9
1,307.0
13.99
Exchange adjustments relate to the retranslation of prior year results to current year exchange rates as shown in the table on page 38 within the
Financial review.
7 Goodwill
Cost
At 1 October
Additions
Disposals
Exchange adjustments
At 30 September – as reported
Prior period restatement
At 30 September – as restated
Aggregate impairment at 1 October and 30 September
Net book amount at 30 September – as reported
Prior period restatement
Net book amount at 30 September – as restated
Note
26(h)
2008
£m
1,567.0
67.2
–
191.3
1,825.5
–
1,825.5
2007
Restated
£m
1,561.9
90.3
(0.9)
(79.2)
1,572.1
(5.1)
1,567.0
–
–
1,825.5
–
1,825.5
1,572.1
(5.1)
1,567.0
80
7 Goodwill (continued)
Details of acquisitions 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.
Details of the restatement are included in the Group accounting policies on page 69.
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.
The following table shows the allocation of the carrying value of goodwill at the balance sheet date
by geographic area:
UK & Ireland
France
Germany
Switzerland
Poland
Spain
North America
South Africa
Australia
Asia
2008
£m
213.2
251.9
24.8
32.1
8.0
116.1
1,103.7
34.1
24.7
16.9
1,825.5
2007
Restated
£m
181.1
198.1
22.0
26.9
6.4
94.5
969.4
31.3
22.7
14.6
1,567.0
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 the 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 5.9% (2007: 6.4%) to 11.4% (2007: 10.5%).
• 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 8% (2007: 18%) to 47% (2007: 45%).
• 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% (2007: 1.0%) to 5.0% (2007: 5.0%).
Goodwill impairment tests were conducted separately for each CGU.
8 Other intangible assets
Cost
At 1 October 2007
Additions
Acquisitions –
through business combinations
Transfers
Disposals
Exchange adjustments
At 30 September 2008
Aggregate amortisation
At 1 October 2007
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2008
Net book amount at
30 September 2008
Restated
Cost
At 1 October 2006
Additions
Acquisitions –
through business combinations
Transfers
Disposals
Exchange adjustments
At 30 September 2007 –
as reported
Prior period restatement
At 30 September 2007 –
as restated
Aggregate amortisation
At 1 October 2006
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2007
Net book amount at
30 September 2007 – as reported
Prior period restatement
Net book amount at
30 September 2007 – as restated
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
34.0
–
1.5
–
–
4.9
40.4
4.5
2.8
–
–
0.9
8.2
32.2
70.7
–
8.9
–
–
9.2
88.8
16.1
11.9
–
–
2.9
30.9
57.9
0.3
–
–
–
–
–
0.3
0.1
0.1
–
–
(0.1)
0.1
0.2
4.7
–
–
–
–
0.4
5.1
3.2
0.6
–
–
0.3
4.1
1.0
38.2
14.8
0.2
0.1
(0.4)
7.5
60.4
14.2
4.3
0.2
(0.4)
3.2
21.5
38.9
112.5
0.6
8.8
–
–
14.6
136.5
21.7
17.0
–
–
4.3
43.0
93.5
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
33.5
–
1.0
–
–
(0.5)
34.0
–
34.0
2.0
2.5
–
–
–
4.5
29.5
–
29.5
60.4
–
13.0
–
–
(0.5)
72.9
(2.2)
70.7
6.9
9.4
–
–
(0.2)
16.1
56.8
(2.2)
54.6
0.3
–
–
–
–
–
0.3
–
0.3
0.1
0.1
–
–
(0.1)
0.1
0.2
–
0.2
4.7
–
–
–
–
–
4.7
–
4.7
2.3
0.8
–
–
0.1
3.2
1.5
–
1.5
19.5
15.9
1.8
6.4
(3.6)
(1.8)
38.2
–
38.2
10.9
5.5
1.8
(3.1)
(0.9)
14.2
24.0
–
24.0
96.3
–
14.8
–
–
(5.9)
105.2
7.3
112.5
6.9
15.2
–
–
(0.4)
21.7
83.5
7.3
90.8
81
Total
£m
260.4
15.4
19.4
0.1
(0.4)
36.6
331.5
59.8
36.7
0.2
(0.4)
11.5
107.8
223.7
Total
£m
214.7
15.9
30.6
6.4
(3.6)
(8.7)
255.3
5.1
260.4
29.1
33.5
1.8
(3.1)
(1.5)
59.8
195.5
5.1
200.6
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. Details of the restatement are included in the Group accounting policies on page 69.
82
9 Property, plant and equipment
Cost
At 1 October 2007
Additions at cost
Acquisitions
Disposals
Transfers
Exchange adjustments
At 30 September 2008
Accumulated depreciation
At 1 October 2007
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2008
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
and office
equipment
£m
91.8
0.1
0.4
(1.2)
–
2.2
93.3
5.9
1.0
0.2
–
0.4
7.5
115.4
19.9
1.8
(4.6)
(0.1)
10.1
142.5
82.7
13.7
1.6
(4.4)
8.0
101.6
39.4
5.0
1.0
(1.5)
–
3.4
47.3
27.5
3.8
0.8
(1.1)
2.5
33.5
13.8
Total
£m
246.6
25.0
3.2
(7.3)
(0.1)
15.7
283.1
116.1
18.5
2.6
(5.5)
10.9
142.6
140.5
Total
£m
246.1
22.1
2.7
(14.0)
(6.4)
(3.9)
246.6
112.3
16.2
1.7
(12.5)
(1.6)
116.1
Net book amount at 30 September 2008
85.8
40.9
Cost
At 1 October 2006
Additions at cost
Acquisitions
Disposals
Transfers
Exchange adjustments
At 30 September 2007
Accumulated depreciation
At 1 October 2006
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2007
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
and office
equipment
£m
92.2
0.3
1.2
(1.0)
–
(0.9)
91.8
4.9
1.0
0.5
(0.4)
(0.1)
5.9
115.6
18.1
0.7
(10.1)
(6.4)
(2.5)
115.4
80.8
12.1
0.6
(9.7)
(1.1)
82.7
38.3
3.7
0.8
(2.9)
–
(0.5)
39.4
26.6
3.1
0.6
(2.4)
(0.4)
27.5
Net book amount at 30 September 2007
85.9
32.7
11.9
130.5
Depreciation expense of £18.5m (2007: £16.2m) have been charged through selling and administrative expenses (note 3).
Lease rentals amounting to £0.7m (2007: £3.4m) and £27.5m (2007: £17.6m) relating to the lease of plant and machinery and property respectively
are included in the income statement (note 3).
Assets held under finance leases have the following net book amount:
Cost
Accumulated depreciation
Net book amount
83
2008
£m
1.3
(0.5)
0.8
2007
£m
0.6
(0.3)
0.3
Included in assets held under finance leases are plant and equipment with a net book amount of £0.5m (2007: £0.3m) and vehicles £0.3m (2007: £nil).
10 Inventories
Materials
Finished goods
2008
£m
1.2
4.2
5.4
2007
£m
1.8
3.7
5.5
The Group consumed £39.9m (2007: £35.9m) of inventories, included in cost of sales, 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
2008
£m
255.0
(28.0)
227.0
23.2
17.4
267.6
2007
£m
226.5
(25.8)
200.7
15.5
14.1
230.3
The Group’s credit risk on trade and other receivables is primarily attributable to trade receivables. The Group has no significant concentrations of credit
risk since the risk is spread over a large number of unrelated counterparties. The directors estimate that the carrying value of financial assets within trade
and other receivables approximated their fair value.
The Group considers the credit quality of trade and other receivables by geographical location. The Group consider that the carrying value of the
trade and other receivables that is disclosed below gives a fair presentation of the credit quality of the assets. This is considered to be the case as
there is a low risk of default due to the high number of recurring customers and credit control policies, thus the carrying value is expected to be the
final value received.
Trade and other receivables by geographical location:
UK & Ireland
Mainland Europe
North America
Rest of World
Movements on the Group provision for impairment of trade receivables were as follows:
At 1 October
Acquisition of subsidiaries
Increase in provision for receivables impairment
Receivables written-off during the year as uncollectible
Unused amounts reversed
Exchange adjustments
At 30 September
2008
£m
77.0
96.8
62.0
14.4
250.2
2008
£m
25.8
0.4
7.7
(4.5)
(4.4)
3.0
28.0
2007
£m
76.7
69.4
57.8
12.3
216.2
2007
£m
23.0
0.3
7.7
(4.3)
(1.3)
0.4
25.8
84
11 Trade and other receivables (continued)
In determining the recoverability of a trade receivable, the Group considers the ageing of each receivable and any change in the circumstances of the
individual receivables. The directors believe that there is no further provision required in excess of the allowance for doubtful debts.
The creation and release of provision for impaired receivables have been included in selling and administrative expenses in the income statement.
Amounts charged to the allowance account are generally written-off when there is no expectation of recovering additional cash.
At 30 September 2008, trade receivables of £52.5m (2007: £38.9m) were either partially or fully impaired.
The ageing of these receivables was as follows:
Not due
Less than six months past due
More than six months past due
Trade receivables which were past their due date but not impaired at 30 September 2008 were £65.4m (2007: £53.8m).
The ageing of these receivables was as follows:
Less than six months past due
More than six months past due
2008
£m
7.5
25.0
20.0
52.5
2008
£m
60.8
4.6
65.4
2007
£m
7.8
14.2
16.9
38.9
2007
£m
49.4
4.4
53.8
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivables mentioned above, the Group held no collateral
as security. The directors estimate that the carrying value of trade receivables approximated their fair value.
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
2008
£m
69.8
0.3
70.1
2007
£m
64.3
1.3
65.6
The effective interest rate on short-term deposits was 3.2% (2007: 5.0%) and these deposits have an average maturity of 30 days (2007: 44 days).
Group’s credit risk on cash and cash equivalents is limited because the counterparties are well established banks with high credit ratings.
13 Trade and other payables – current
Trade payables
Other tax and social security payable
Accruals
14 Deferred income
Deferred income
2008
£m
66.5
71.6
109.1
247.2
2008
£m
352.2
2007
£m
54.9
60.7
94.6
210.2
2007
£m
300.2
Revenue not recognised in the income statement under the Group accounting policy for revenue recognition is classified as deferred income in the
balance sheet to be recognised in future periods.
15 Financial liabilities – borrowings
Current
Bank loans due within one year of demand:
Unsecured
Finance lease obligations
Non-current
Bank loans:
Secured (a)
Unsecured
Finance lease obligations
85
2008
£m
13.6
13.6
0.3
13.9
2008
£m
–
575.0
575.0
0.2
575.2
2007
£m
0.2
0.2
0.1
0.3
2007
£m
0.6
561.3
561.9
0.1
562.0
(a) The bank loans were 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 £575.0m (2007: £561.5m) 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 by 13 January
2011 (with £100.0m amortising a year earlier).
In the table above, loans are stated net of unamortised issue costs of £0.5m (2007: £1.0m). The Group has incurred total issue costs of £7.6m
(2007: £7.3m) in respect of these facilities. These costs are allocated to the income statement over the term of the facility using the effective
interest method.
Unsecured borrowings were drawn in the following currencies: Sterling £75.3m (2007: £nil); US Dollar £290.6m (2007: £314.2m), Euro £208.8m
(2007: £235.9m) and Swiss Franc £13.9m (2007: £11.4m) and bear interest at a rate of 0.45% (2007: 0.45%) above LIBOR.
16 Financial instruments
Numerical financial instruments disclosures are set out below and also in note 25.
Fair values of financial instruments
For the following financial assets and liabilities: long-term borrowings, short-term borrowings, trade and other payables excluding other tax and
social security, trade and other receivables excluding prepayments, short-term bank 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.
Long-term borrowings
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 excluding other tax and social security
Trade and other receivables excluding prepayments
Short-term bank deposits
Cash at bank and in hand
Note
15
Book value
£m
(575.2)
2008
Fair value
£m
(575.2)
Book value
£m
(562.0)
2007
Fair value
£m
(562.0)
15
13
11
12
12
(13.9)
(175.6)
250.2
0.3
69.8
(13.9)
(175.6)
250.2
0.3
69.8
(0.3)
(149.5)
216.2
1.3
64.3
(0.3)
(149.5)
216.2
1.3
64.3
86
16 Financial instruments (continued)
Risk management
The Group’s Treasury function seeks to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available to
meet the foreseeable needs of the Group and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial
instruments and transacts only in relation to underlying business requirements. The Group’s treasury policies and procedures are periodically reviewed
and approved by the Audit Committee and are subject to regular Group Internal Audit review.
Capital risk
The Group’s objectives when managing capital (defined as net debt (note 25) plus equity) are to safeguard the Group’s ability to continue as a going
concern in order to provide returns to shareholders and benefits for other stakeholders, while optimising return to shareholders through an appropriate
balance of debt and equity funding. The Group manages its capital structure and makes adjustments to it, with respect to changes in economic
conditions and the strategic objectives of the Group.
Liquidity risk
The Group manages its exposure to liquidity risk by reviewing the cash resources required to meet its business objectives through both short and long-
term cash flow forecasts. The Group has committed facilities which are available to be drawn for general corporate purposes including working capital
(see below).
The Group’s Treasury function has a policy of reducing the level of cash in the business in order to minimise external borrowings.
Maturity of financial liabilities
The maturity profile of the undiscounted contractual amount of the Group’s financial liabilities at 30 September was as follows:
In less than one year
In more than one year but not more than two years
In more than two years but not more than five years
Borrowings
£m
13.9
0.2
639.9
654.0
Trade and
other
payables
£m
247.2
–
–
247.2
2008
Total
£m
261.1
0.2
639.9
901.2
Borrowings
£m
0.3
0.1
666.2
666.6
Trade and
other
payables
£m
210.2
–
–
210.2
2007
Total
£m
210.5
0.1
666.2
876.8
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 one year
Expiring between one and two years
Expiring in more than two years
2008
Total
£m
–
–
274.6
274.6
2007
Total
£m
–
–
287.7
287.7
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.
Credit risk
Credit risk is the risk that a counterparty may default on their obligation to the Group in relation to lending, settlement and other financial activities.
The Group’s principal financial assets are trade and other receivables and bank balances and cash.
The Group’s credit risk primarily arises from trade and other receivables. The amounts included in the balance sheet are net of allowances for doubtful
receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a
reduction in the recoverability of cash flows. The Group has a very low credit risk due to the transactions being principally of a high volume, low
value and short maturity. The Group has no significant concentration of credit risk, with the exposure spread over a large number of counterparties
and customers.
The credit risk on liquid funds is considered to be low, as the Audit Committee approved Group Treasury Policy limits the value that can be invested
with each approved counterparty to minimise the risk of loss. The carrying amount of financial assets recorded in the financial statements represents
the Group’s maximum exposure to credit risk. The Group does not hold collateral over any of these financial assets.
87
Interest rate risk
The Group is exposed to cash flow interest rate risk on floating rate bank loans and overdrafts. At 30 September 2008, the Group had drawn down
£575.4m (2007: £562.3m) from its committed revolving credit facility. The Group regularly reviews the interest rates to mitigate this risk, which are
rebased on a monthly basis and seeks to fix interest rates on a portion of its debt when market conditions make this desirable. At 30 September 2008,
all outstanding debt was held at variable rates.
Foreign currency risk
Foreign exchange rate risk is the risk that the fair value of future cash flows will fluctuate because of the changes in foreign exchange rates. The Group’s
foreign currency exposures are principally to the US Dollar and Euro.
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 2008 was £290.6m (2007: £314.2m),
the Euro borrowings £203.5m (2007: £235.9m) and Swiss Franc borrowings £13.9m (2007: £11.4m). The foreign exchange loss of £71.7m (2007:
gain of £33.8m) on translation of the borrowings into Sterling has been recognised in exchange reserves.
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 2008 and 30 September 2007, these exposures were immaterial to the Group.
Sensitivity analysis as at 30 September 2008
Financial instruments affected by market risks include borrowings and deposits.
The following analysis, required by IFRS 7, “Financial Instruments: Disclosures”, is intended to illustrate the sensitivity to changes in market variables,
being UK, US Dollar and Euro interest rates, and US Dollar/Sterling and Euro/Sterling exchange rates.
The sensitivity analysis assumes reasonable movements in foreign exchange and interest rates before the effect of tax. The Group considers a
reasonable interest rate movement in LIBOR to be 1%, based on interest rate history. Similarly, sensitivity to movements in US Dollar/Sterling and
Euro/Sterling exchange rates of 10% are shown reflecting changes of reasonable proportion in the context of movement in those currency pairs
over the last year.
Using the above assumptions, the following table shows the illustrative effect on the Consolidated income statement and equity.
LIBOR rate interest rates 1% increase
LIBOR rate interest rates 1% decrease
US Dollar/Sterling exchange rates 10% increase
Euro/Sterling exchange rates 10% increase
US Dollar/Sterling exchange rates 10% decrease
Euro/Sterling exchange rates 10% decrease
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
Future finance charges on finance leases
Present value of finance lease liabilities
Income
gains/(losses)
£m
(6.0)
6.0
8.2
9.2
(8.9)
(10.1)
2008
Equity
gains/(losses)
£m
(6.0)
6.0
78.2
18.3
(86.0)
(20.1)
Income
gains/(losses)
£m
(6.1)
6.1
9.2
7.0
(10.2)
(7.7)
2007
Equity
gains/(losses)
£m
(6.1)
6.1
63.7
14.6
(70.0)
(16.1)
2008
Total
£m
0.3
0.2
0.5
–
0.5
2007
Total
£m
0.1
0.1
0.2
–
0.2
88
17 Deferred tax
Deferred tax has been calculated at 28% (2007: 28%) in respect of UK companies (being the prevailing corporation tax rate) 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 liabilities
Income statement credit
Exchange differences
Share options
At 30 September
2008
£m
(5.9)
(6.2)
(8.2)
0.7
(1.8)
(0.2)
(21.6)
2007
£m
16.3
(8.5)
–
(10.2)
(0.2)
(3.3)
(5.9)
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,“Income
Taxes”) 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 2007
Income statement credit
Reclassification from/(to) deferred tax liability
Exchange differences
At 30 September 2008
Liabilities
At 1 October 2007
Income statement (charge)/credit
Deferred tax on intangible assets
Reclassification (from)/to deferred tax asset
Acquisition of subsidiary
Exchange differences
Share options
Transfer to current tax
At 30 September 2008
Net deferred tax (liability)/asset
At 30 September 2008
At 30 September 2007
The deferred tax liability due after more than one year is £33.1m (2007: £23.5m).
Intangible
assets
£m
6.6
–
(6.9)
–
(0.3)
(23.5)
(5.9)
(7.4)
6.9
–
(3.2)
–
–
(33.1)
(33.4)
(16.9)
Other
£m
1.7
1.0
3.0
(0.2)
5.5
9.3
5.6
–
(3.0)
1.2
1.6
(0.2)
(8.2)
6.3
11.8
11.0
Total
£m
8.3
1.0
(3.9)
(0.2)
5.2
(14.2)
(0.3)
(7.4)
3.9
1.2
(1.6)
(0.2)
(8.2)
(26.8)
(21.6)
(5.9)
18 Share capital
Authorised
1,860,000,000 (2007: 1,860,000,000) ordinary shares of 1p each
Issued and fully paid
At 1 October
Allotted under share option schemes
At 30 September
2008
£m
18.6
2008
shares
1,304,160,154
5,397,403
1,309,557,557
2008
2007
£m
shares
13.0 1,294,280,944
9,879,210
13.1 1,304,160,154
0.1
89
2007
£m
18.6
2007
£m
12.9
0.1
13.0
Potential issues of ordinary shares
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 134.00p 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
17 December 1997
20 January 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
10 January 2007
20 June 2007
10 January 2008
17 June 2008
Exercise price
pence
81.10p
98.75p
140.00p
136.00p
204.50p
275.50p–467.60p
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
270.00p
248.00p
214.00p
219.25p
Exercise period
17 December 2000 – 17 December 2007
20 January 2001 – 20 January 2008
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
10 January 2010 – 10 January 2017
20 June 2010 – 20 June 2017
10 January 2011 – 10 January 2018
17 June 2011 – 17 June 2018
2008
number
–
–
–
614,370
766,500
62,987
31,250
19,037
2,220,944
459,833
1,588,503
3,191,187
2,293,237
772,578
6,701,339
252,051
3,769,565
1,830,784
5,047,073
6,986,236
195,530
9,668,002
246,209
46,717,215
2007
number
15,000
150,000
588,480
1,290,475
1,059,500
119,137
31,250
19,037
2,713,403
581,137
1,795,696
3,758,614
2,933,693
1,365,985
8,083,316
269,493
4,544,001
1,983,695
5,894,597
8,119,550
247,220
–
–
45,563,279
Under the above scheme, 4,955,415 1p ordinary shares were issued during the year for aggregate proceeds of £7,822,691.
90
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:
Date of award
18 March 2005
12 May 2005
10 January 2006
10 January 2007
20 June 2007
3 March 2008
17 June 2008
Vesting date
18 March 2008
12 May 2008
10 January 2009
10 January 2010
20 June 2010
3 March 2011
17 June 2011
2008
number
–
–
1,989,958
2,347,292
33,000
5,107,983
333,148
9,811,381
2007
number
1,808,170
210,588
2,348,990
2,793,003
33,000
–
–
7,193,751
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
1 March 2001
1 March 2002
1 March 2003
1 March 2003
1 March 2004
1 March 2004
1 March 2005
1 March 2005
1 March 2005
1 August 2006
1 August 2006
1 August 2006
1 August 2007
1 August 2007
1 August 2007
1 August 2008
1 August 2008
1 August 2008
Exercise price
pence
240.00p
180.40p
112.00p
112.00p
140.00p
140.00p
157.00p
157.00p
157.00p
184.00p
184.00p
184.00p
203.00p
203.00p
203.00p
177.00p
177.00p
177.00p
Exercise period
1 March 2008 – 31 August 2008
1 March 2009 – 31 August 2009
1 March 2008 – 31 August 2008
1 March 2010 – 31 August 2010
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
1 August 2010 – 31 January 2011
1 August 2012 – 31 January 2013
1 August 2014 – 31 January 2015
1 August 2011 – 31 January 2012
1 August 2013 – 31 January 2014
1 August 2015 – 31 January 2016
2008
number
–
6,575
–
13,312
101,937
34,744
965
102,970
18,284
769,091
201,098
33,450
446,269
126,097
33,588
785,306
339,268
15,571
3,028,525
2007
number
1,531
6,575
132,064
14,579
104,954
34,744
331,306
121,915
19,422
930,309
241,173
35,308
671,566
168,521
35,319
–
–
–
2,849,286
Under the above scheme, 441,988 1p ordinary shares were issued during the year for aggregate proceeds of £636,238.
The market price of the shares of the Company at 30 September 2008 was 195.30p and the highest and lowest prices during the year were 251.75p
and 187.10p respectively.
91
19 Share-based payments
The total charge for the year relating to employee share-based payment plans was £7.6m (2007: £8.8m), all of which related to equity-settled share-
based payment transactions. After deferred tax, the total charge was £5.2m (2007: £6.1m). 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 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
Fair value per option
December
2003
May
2004
January
2005
May
2005
January
2006
January
2007
June
2007
January
2008
June
2008
£1.75
£1.71
449
6,701,339
3
62%
10
4
4.5%
£1.72
£1.72
21
252,051
3
57%
10
4
5.1%
£1.90
£1.98
139
3,769,565
3
52%
10
4
4.4%
£2.07
£2.06
134
1,830,784
3
48%
10
4
4.3%
£2.53
£2.59
411
5,047,073
3
40%
10
4
4.1%
£2.72
£2.70
600
6,986,236
3
30%
10
4
5.0%
£2.49
£2.48
14
195,530
3
25%
10
4
5.7%
£2.13
£2.14
462
9,668,002
3
24%
10
4
4.2%
£2.21
£2.19
2
246,209
3
26%
10
4
5.3%
0.9%
£0.855
1.0%
£0.794
1.6%
£0.802
1.6%
£0.777
1.6%
£0.799
1.4%
£0.762
3.0%
£0.539
3.0%
£0.390
3.0%
£0.475
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
2008
Weighted
average
exercise
price
£
2.13
2.14
2.46
1.64
2.14
1.83
Number
’000s
33,442
10,376
(2,920)
(3,135)
37,763
16,543
2007
Weighted
average
exercise
price
£
1.88
2.69
2.27
1.59
2.13
1.62
Number
’000s
32,218
8,958
(2,093)
(5,641)
33,442
12,580
92
19 Share-based payments (continued)
Weighted
average
exercise
price
£
2.14
2008
Weighted average
remaining life years
Expected Contractual
7.3
0.8
Number
of shares
37,763
Weighted
average
exercise
price
£
2.13
2007
Weighted average
remaining life years
Contractual
7.5
Expected
0.8
Number
of shares
33,442
Range of
exercise prices
1.34 – 2.70
The weighted average share price during the period for options exercised over the year was 211.02p (2007: 261.21p).
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
currently 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 2008 comprised the following companies:
(cid:129) Adobe Systems
(cid:129) ARM Holdings
(cid:129) Autonomy
(cid:129) Blackbaud
(cid:129) Cap Gemini
(cid:129) Cegid
(cid:129) Dassault Systemes
(cid:129) Exact
(cid:129) Intuit
(cid:129) Lawson Software
(cid:129) LogicaCMG
(cid:129) Micro Focus International
(cid:129) Microsoft
(cid:129) Misys
(cid:129) MYOB
(cid:129) Oracle
(cid:129) Salesforce.com
(cid:129) SAP
(cid:129) Software AG
25% 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
Fair value per award
January
2006
£2.59
£0.00
81
1,989,958
3
32%
3
3
4.2%
0.0%
£1.401
January
2007
£2.72
£0.00
94
2,347,292
3
24%
3
3
5.1%
0.0%
£1.478
June
2007
£2.49
£0.00
2
33,000
3
22%
3
3
5.7%
0.0%
£1.041
March
2008
£2.00
£0.00
118
5,107,983
3
25%
3
3
4.0%
0.0%
£1.088
June
2008
£2.21
£0.00
2
333,148
3
27%
3
3
5.3%
0.0%
£1.254
93
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:
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Weighted
average
exercise
price
£
–
2008
Weighted average
remaining life years
Expected Contractual
1.7
1.7
Number
of shares
9,811
Range of
exercise prices
N/A
2008
Weighted
average
exercise
price
£
–
–
–
–
–
–
2007
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
4,554
3,028
(388)
–
7,194
–
2007
Weighted average
remaining life years
Contractual
1.5
Expected
1.5
Number
of shares
7,194
Number
’000s
7,194
5,568
(1,862)
(1,089)
9,811
–
Weighted
average
exercise
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 ten 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.
•
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.
94
19 Share-based payments (continued)
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
Fair value per option
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
Fair value per option
March
2003
£1.34
£1.12
1
13,312
7
52%
7
7
4.0%
1.1%
£0.746
August
2006
£2.28
£1.84
13
33,450
7
51%
7
7
4.6%
March
2004
£1.93
£1.40
35
101,937
5
59%
5
5
4.6%
0.9%
£1.135
August
2007
£2.28
£2.03
346
446,269
3
22%
3
3
5.4%
March
2004
£1.93
£1.40
10
34,744
7
54%
7
7
4.7%
0.9%
£1.192
August
2007
£2.28
£2.03
58
126,097
5
34%
5
5
5.3%
August
2006
£2.28
£1.84
71
201,098
5
42%
5
5
4.7%
1.6%
£1.028
1.6%
£1.255
3.0%
£0.503
3.0%
£0.750
March
2005
£2.06
£1.57
6
18,284
7
54%
7
7
4.7%
1.6%
£1.176
August
2008
£1.98
£1.77
95
339,268
5
27%
5
5
4.8%
March
2005
£2.06
£1.57
1
965
3
44%
3
3
4.7%
March
2005
£2.06
£1.57
32
102,970
5
55%
5
5
4.7%
1.6%
£0.847
1.6%
£1.092
August
2008
£1.98
£1.77
461
785,306
3
28%
3
3
4.8%
August
2007
£2.28
£2.03
9
33,588
7
45%
7
7
5.2%
3.0%
£0.965
3.0%
£0.476
3.0%
£0.543
August
2006
£2.28
£1.84
372
769,091
3
26%
3
3
4.7%
1.6%
£0.706
August
2008
£1.98
£1.77
10
15,571
7
39%
7
7
4.8%
3.0%
£0.746
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:
Outstanding at 1 October
Awarded
Forfeited
Surrendered
Exercised
Outstanding at 30 September
Exercisable at 30 September
2008
Weighted
average
price
£
1.79
1.77
1.84
1.93
1.44
1.82
1.57
Number
’000s
2,841
1,182
(175)
(384)
(442)
3,022
1
2007
Weighted
average
price
£
1.65
2.03
1.71
1.81
1.40
1.79
–
Number
’000s
2,552
914
(90)
(180)
(355)
2,841
–
95
Weighted
average
exercise
price
£
1.82
2008
Weighted average
remaining life years
Expected Contractual
2.4
2.4
Number
of shares
3,022
Weighted
average
exercise
price
£
1.79
2007
Weighted average
remaining life years
Contractual
2.4
Expected
2.4
Number
of shares
2,841
Range of
exercise prices
1.12 – 2.03
20 Share premium account
At 1 October 2006
Premium on shares issued during the year under share option schemes
At 1 October 2007
Premium on shares issued during the year under share option schemes
At 30 September 2008
21 Other reserves
At 1 October 2006
Exchange adjustments, net of tax
At 30 September 2007
Exchange adjustments, net of tax
At 30 September 2008
£m
462.8
15.4
478.2
8.4
486.6
Translation
reserve
£m
(17.4)
(51.6)
(69.0)
117.1
48.1
Other
reserve
£m
61.1
–
61.1
–
61.1
Total other
reserves
£m
43.7
(51.6)
(7.9)
117.1
109.2
Translation reserve
The translation reserve represents the accumulated exchange differences arising since the transition to IFRS from the following sources:
• The impact of the translation of subsidiaries with a functional currency other than Sterling; and
• Exchange differences arising on hedging instruments that are designated hedges of a net investment in foreign operations, net of tax
where applicable.
Exchange differences arising prior to the IFRS transition were offset against retained earnings.
Other reserve
Other reserves brought forward relate to the merger reserve which was present under UK GAAP and frozen on transition to IFRS.
22 Retained earnings
At 1 October
Profit for the year
Share-based payments
Dividends paid
Actuarial gain/(loss) on employment benefits
Equity movement of deferred tax
At 30 September
2008
£m
567.5
166.3
7.6
(106.2)
3.1
(0.2)
638.1
2007
£m
458.1
154.1
8.8
(49.0)
(1.2)
(3.3)
567.5
The actuarial gain of £3.1m (2007: loss (£1.2m)) is made up of net gains of £2.8m (2007: loss (£1.8m)) on post-employment benefits (note 28) and
a gain of £0.3m (2007: gain £0.6m) on other long-term employee benefits.
Cumulative goodwill relating to acquisitions made prior to 1998, which has been eliminated against reserves, amounts to £267.4m (2007: £236.4m).
96
22 Retained earnings (continued)
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 Trust holds 3,648,697 ordinary shares in the Company
(2007: 4,755,602) at a cost of £10,218,347 (2007: £13,272,933) and a nominal value of £36,487 (2007: £47,556). The Trust originally purchased
the shares in February 2006 with the cost being deducted from retained earnings.
These shares were originally acquired by the Trust in the open market using funds provided by the Company to meet obligations under the
Performance Share Plan. During the year, 1,106,905 shares were utilised to meet these obligations. 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 2008
was £7.1m (2007: £11.8m).
23 Shareholders’ funds and reconciliation of changes in shareholders’ equity
At 1 October 2006
Exchange adjustments
New shares issued
Purchase of minority interest
Profit for the year
Equity movement of deferred tax
Share options
– proceeds from shares issued
– value of employee services
Actuarial loss on employment benefits
Dividends
At 30 September 2007
Exchange adjustments
New shares issued
Profit for the year
Equity movement of deferred tax
Share options
– proceeds from shares issued
– value of employee services
Actuarial gain on employment benefits
Dividends
At 30 September 2008
24 Minority interest
At 1 October
Purchase of minority interest
At 30 September
Share
capital
(note 18)
£m
12.9
–
0.1
–
–
–
Share
premium
(note 20)
£m
462.8
–
–
–
–
–
Retained
earnings
(note 22)
£m
458.1
–
–
–
154.1
(3.3)
Other
reserves
(note 21)
£m
43.7
(51.6)
–
–
–
–
–
–
–
–
13.0
–
0.1
–
–
–
–
–
–
13.1
15.4
–
–
–
478.2
–
–
–
–
8.4
–
–
–
486.6
–
8.8
(1.2)
(49.0)
567.5
–
–
166.3
(0.2)
–
7.6
3.1
(106.2)
638.1
–
–
–
–
(7.9)
117.1
–
–
–
–
–
–
–
109.2
Equity
funds
£m
977.5
(51.6)
0.1
–
154.1
(3.3)
15.4
8.8
(1.2)
(49.0)
1,050.8
117.1
0.1
166.3
(0.2)
8.4
7.6
3.1
(106.2)
1,247.0
Minority
interest
(note 24)
£m
0.1
–
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2008
£m
–
–
–
Total
equity
£m
977.6
(51.6)
0.1
(0.1)
154.1
(3.3)
15.4
8.8
(1.2)
(49.0)
1,050.8
117.1
0.1
166.3
(0.2)
8.4
7.6
3.1
(106.2)
1,247.0
2007
£m
0.1
(0.1)
–
25 Cash flow and net debt
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
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Equity-settled share-based transactions
Exchange movements
Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries)
(cid:129) Decrease/(increase) in inventories
(cid:129) Increase in trade and other receivables
(cid:129) Increase/(decrease) in payables
(cid:129) Increase in deferred income
Cash generated from continuing operations
Reconciliation of net cash flow to movement in net debt (inclusive of finance leases)
Decrease in cash in the year (pre-exchange movements)
Cash outflow from decrease in loans, finance leases and cash collected from customers
Change in net debt resulting from cash flows
Loans 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
97
2008
£m
166.3
74.7
(3.8)
30.2
36.7
18.5
–
–
7.6
2.3
1.1
(13.9)
3.5
18.8
342.0
2008
£m
(3.3)
40.0
36.7
(0.9)
(1.0)
(66.1)
(31.3)
(509.7)
(541.0)
2007
£m
154.1
69.2
(3.6)
35.5
33.5
16.2
1.3
0.5
8.8
(1.8)
(0.1)
(9.9)
(3.0)
16.4
317.1
2007
£m
(14.1)
67.2
53.1
(0.5)
0.3
31.0
83.9
(593.6)
(509.7)
Analysis of change in net debt
(inclusive of finance leases)
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
2007
£m
65.6
(0.2)
(0.1)
(561.1)
(0.1)
(13.8)
(509.7)
Cash flow
£m
(3.3)
(12.7)
0.1
59.5
–
(6.9)
36.7
Acquisitions
£m
–
(0.7)
–
–
(0.2)
–
(0.9)
Exchange
movements
£m
7.8
–
(0.3)
(71.7)
0.1
(2.0)
(66.1)
At
30 September
2008
£m
70.1
(13.6)
(0.3)
(574.3)
(0.2)
(22.7)
(541.0)
Other
£m
–
–
–
(1.0)
–
–
(1.0)
Included in cash above is £22.7m (2007: £13.8m) 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.
98
26 Acquisitions and disposals
a Acquisition of KCS Global Holdings Limited
On 26 October 2007 the Group completed the acquisition of KCS Global Holdings Limited (“KCS”), for a consideration of £20.4m (inclusive of £0.3m
related costs). Total goodwill arising on the acquisition is £16.2m.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2008 the acquisition contributed £5.6m
to revenue and £1.1m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill.
Details of net assets acquired and goodwill are as follows:
Purchase consideration:
– Cash paid
– Direct costs relating to the acquisition
– Deferred consideration
Total purchase consideration
– Fair value of net identifiable assets (see below)
Goodwill
£m
19.9
0.3
0.2
20.4
(4.2)
16.2
The value of goodwill represents anticipated synergies expected to result from integration of operations into our existing UK business and a previous
acquisition in this sector. This acquisition will enhance our existing product and services portfolio and add scale to our HR and Payroll operations
in the UK. Goodwill also includes the value of the acquired workforce.
KCS acquisition
Intangible fixed assets
Property, plant and equipment
Receivables
Payables
Deferred income
Taxation – Current
Taxation – Deferred
Cash and cash equivalents
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
Consideration
The outflow of cash and cash equivalents on the acquisition of KCS is calculated as follows:
Cash consideration
Cash acquired
Net cash outflow
The intangible assets acquired as part of the acquisition of KCS can be analysed as follows:
Brands
Customer relationships
Technology
Further details of these are given in note 8.
Carrying values
pre-acquisition
£m
7.3
0.2
1.3
(1.2)
(1.6)
(0.2)
–
0.2
6.0
Fair value
£m
7.8
0.2
1.3
(1.2)
(1.6)
(0.2)
(2.3)
0.2
4.2
16.2
20.4
20.2
0.2
20.4
£m
20.2
(0.2)
20.0
£m
0.5
4.5
2.8
7.8
99
b Acquisition of Hallco 1390 Ltd (trading as Tekton Group Ltd)
On 29 March 2008 the Group completed the acquisition of Hallco 1390 Ltd which trades under the name of Tekton Group Ltd (“Tekton”), for a
consideration of £21.1m (inclusive of £0.4m related costs). Total goodwill arising on the acquisition is £16.4m. 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 2008 the acquisition contributed £3.7m
to revenue and loss of £0.1m. Details of net assets acquired and goodwill are as follows:
Purchase consideration:
– Cash paid
– Direct costs relating to the acquisition
– Deferred consideration
Total purchase consideration
– Fair value of net identifiable assets (see below)
Goodwill
£m
19.7
0.4
1.0
21.1
(4.7)
16.4
Goodwill recognised represents the value of the assembled workforce at the time of acquisition with specific knowledge and expertise in the specialised
field of development, implementation and support services related to construction software. The value of goodwill also represents prospective future
economic benefits that are anticipated will be derived from enhancing the portfolio of products and services to our existing customer base with those
offered by Tekton.
The fair value adjustments contain some provisional amounts which will be finalised in the 2009 accounts.
Tekton acquisition
Intangible fixed assets
Property, plant and equipment
Receivables
Payables
Borrowings
Deferred income
Taxation – Current
Taxation – Deferred
Cash and cash equivalents
Net assets acquired
Goodwill
Consideration
Consideration satisfied by:
Cash
Deferred consideration
Consideration
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill.
The outflow of cash and cash equivalents on the acquisition of Tekton is calculated as follows:
Cash consideration
Cash acquired
Net cash outflow
The intangible assets acquired as part of the acquisition of Tekton can be analysed as follows:
Customer relationships
Technology
Further details of these are given in note 8.
Carrying values
pre-acquisition
£m
12.2
0.3
2.3
(1.4)
(0.9)
(1.7)
0.1
–
1.3
12.2
Provisional
fair value
£m
7.1
0.2
2.1
(1.4)
(0.9)
(1.7)
0.1
(2.1)
1.3
4.7
16.4
21.1
20.1
1.0
21.1
£m
20.1
(1.3)
18.8
£m
3.0
4.1
7.1
100
26 Acquisitions and disposals (continued)
c Acquisition of Eurowin (Millor Soft, S.L., Millor Soft Consulting, S.L., Millor Soft Imatge, S.L. and Millor Soft Internet, S.L.)
On 14 July 2008 the Group completed the acquisition of Eurowin, which comprises Millor Soft, S.L., Millor Soft Consulting, S.L., Millor Soft Imatge,
S.L. and Millor Soft Internet, S.L. for a consideration of £11.9m (inclusive of £0.1m related costs). Total goodwill arising on the acquisition is £9.0m.
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 2008 the acquisition contributed £1.8m
to revenue and £nil to profit.
Details of net assets acquired and goodwill are as follows:
Purchase consideration:
– Cash paid
– Direct costs relating to the acquisition
Total purchase consideration
– Fair value of net identifiable assets (see below)
Goodwill
£m
11.8
0.1
11.9
(2.9)
9.0
Goodwill represents the value of the potential synergies, workforce in place and anticipated future benefits from strengthening our market position in the
entry-level market space in Spain. The value of goodwill also represents benefit that is anticipated will be derived from enhancing the product portfolio
offered by Eurowin to their existing customer base.
The fair value adjustments contain some provisional amounts which will be finalised in the 2009 accounts.
Eurowin acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Receivables
Payables
Deferred income
Taxation – Deferred
Cash and cash equivalents
Net assets acquired
Goodwill
Consideration satisfied by: Cash
Carrying values
pre-acquisition
£m
–
0.2
0.4
0.8
(1.7)
(0.8)
0.3
0.7
(0.1)
Provisional
fair value
£m
4.3
0.2
0.4
0.8
(1.7)
(0.8)
(1.0)
0.7
2.9
9.0
11.9
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill.
The outflow of cash and cash equivalents on the acquisition of Eurowin is calculated as follows:
Cash consideration
Cash acquired
Net cash outflow
The intangible assets acquired as part of the acquisition of Eurowin can be analysed as follows:
Brands
Customer relationships
Technology
Further details of these are given in note 8.
£m
11.9
(0.7)
11.2
£m
1.0
1.3
2.0
4.3
101
d Other acquisitions made in the year
The following acquisitions, each of the entire share capital of the relevant company, were made during the year:
• EIG Maroc SARL was acquired on 7 November 2007 for a cash consideration of £1.0m (including costs). The fair value of assets acquired was
(£0.1m) resulting in goodwill of £1.1m.
• DCS Automative Ibérica, S.L. was acquired on 7 July 2008 for a cash consideration of £0.3m (including costs). The fair value of assets acquired
was (£0.1m) resulting in goodwill of £0.4m.
• Européenne Alliance Technologie SAS (API) was acquired on 10 September 2008 for a cash consideration of £12.0m (including costs). The fair
value of assets acquired was £2.1m resulting in goodwill of £9.9m.
Other acquisitions
Intangible fixed assets
Inventories
Receivables
Payables
Taxation – Current
Cash and cash equivalents
Deferred income
Net assets acquired
Goodwill
Consideration satisfied by: Cash
Carrying values
pre-acquisition
£m
1.0
0.1
0.3
(1.7)
0.1
3.2
(0.1)
2.9
Provisional
fair value
£m
–
0.1
0.3
(1.6)
–
3.2
(0.1)
1.9
11.4
13.3
The fair value adjustments contain some provisional amounts which will be finalised in the 2009 accounts.
Goodwill represents a combination of the acquired workforce, potential synergies and other probable future economic benefits that it is anticipated will
be derived from these acquisitions.
The outflow of cash and cash equivalents on the acquisition of the other acquisitions is calculated as follows:
Cash consideration
Cash acquired
Net cash outflow
£m
13.3
(3.2)
10.1
e 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.
f Other
During the year ended 30 September 2008 adjustments were made in respect of goodwill on prior year acquisitions of £14.2m, due to additional cash
acquisition payments of £16.2m, reduction in deferred consideration of £3.3m and decrease in net assets of £1.3m following the re-appraisal of the fair
value of assets and liabilities.
102
26 Acquisitions and disposals (continued)
g Analysis of net outflow of cash in respect of acquisitions
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
KCS
Tekton
Eurowin
Other acquisitions
Payments in relation to previous years’ acquisitions
Payment of deferred consideration
Net cash outflow in respect of acquisitions
h Analysis of goodwill
The total additions to goodwill are calculated as follows:
KCS
Tekton
Eurowin
Other acquisitions
Adjustments in relation to previous years’ acquisitions
Net movement in goodwill on acquisitions
27 Employees and directors
Average 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
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
The key management figures given above include directors.
Note
26a
26b
26c
26d
26f
Note
26a
26b
26c
26d
26f
£m
20.0
18.8
11.2
10.1
16.2
4.8
81.1
£m
16.2
16.4
9.0
11.4
14.2
67.2
2008
number
2007
number
2,695
5,653
4,939
1,752
15,039
2008
£m
492.6
86.5
7.6
8.8
595.5
2008
£m
6.3
0.6
2.1
9.0
2,200
4,703
5,158
1,470
13,531
2007
£m
425.7
69.0
8.8
8.0
511.5
2007
£m
5.7
0.2
1.6
7.5
Note
19
28
103
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 two small schemes in Switzerland.
Defined contribution schemes
Pension costs for defined contribution schemes are as follows:
Defined contribution schemes
Note
27
Defined benefit plan
The most recent actuarial valuations of the Swiss pension plans were performed by Expertisa AG in October 2008.
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-employment obligations
The amounts recognised in the balance sheet are determined as follows:
Present value of funded obligations
Fair value of plan assets
Net liability recognised in the balance sheet
2008
£m
7.4
2008
%
2.00
0.50
1.00
3.50
1.50
4.00
2008
£m
(20.0)
16.1
(3.9)
2007
£m
7.4
2007
%
2.00
0.50
1.00
3.00
1.00
4.00
2007
£m
(17.9)
12.6
(5.3)
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:
Bonds
Equities
Property
Other
£m
7.6
1.5
1.0
6.0
16.1
2008
%
47.2
9.3
6.2
37.3
100.0
£m
3.6
1.5
0.6
6.9
12.6
2007
%
28.5
11.9
4.8
54.8
100.0
The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy.
Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and
property investments reflect long-term real rates of return experienced in the respective markets.
Expected contributions to post-employment benefit plans for the year ending 30 September 2009 are £1.1m.
The amounts recognised in the income statement are as follows:
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.
Note
27
2008
£m
(0.6)
0.6
(1.4)
(1.4)
2007
£m
(0.5)
0.6
(0.7)
(0.6)
104
28 Pension commitments (continued)
Changes in the present value of the defined benefit obligation are as follows:
Present value of obligation – 1 October
Exchange movement
Business combinations
Service cost
Plan participant contributions
Interest cost
Benefits paid
Actuarial gain 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
Business combinations
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
Exchange movement
Business combinations
Total expense as recognised in the income statement
Contributions paid
Actuarial gain/(loss)
At 30 September
The actual return on plan assets was £0.1m (2007: £7.0m).
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 assets
Experience adjustments on plan assets
Total actuarial (gain)/loss
Cumulative actuarial gains and losses recognised in equity
At 1 October
Actuarial gains/(losses) recognised in the year (before tax)
At 30 September
2008
£m
(17.9)
(3.6)
–
(1.4)
(0.7)
(0.6)
0.7
3.5
(20.0)
2008
£m
12.6
2.5
–
0.6
1.1
0.7
(0.7)
(0.7)
16.1
2008
£m
(5.3)
(1.1)
–
(1.4)
1.1
2.8
(3.9)
2006
£m
(11.7)
9.6
(2.1)
(0.1)
–
0.1
–
2008
£m
(1.9)
2.8
0.9
2007
£m
(11.7)
0.3
(5.3)
(0.7)
(0.5)
(0.5)
(5.3)
5.8
(17.9)
2007
£m
9.6
(0.3)
3.9
0.6
0.5
0.6
5.3
(7.6)
12.6
2007
£m
(2.1)
–
(1.4)
(0.6)
0.6
(1.8)
(5.3)
2005
£m
(11.2)
8.8
(2.4)
(0.1)
0.3
(0.1)
0.1
2007
£m
(0.1)
(1.8)
(1.9)
2008
£m
(20.0)
16.1
(3.9)
(3.5)
–
0.7
(2.8)
2007
£m
(17.9)
12.6
(5.3)
(5.8)
–
7.6
1.8
105
29 Operating lease commitments – minimum lease payments
Total future commitments under non-cancellable operating leases expiring:
Within one year
Later than one year and less than five years
After five years
2008
Vehicles
plant and
equipment
£m
0.7
3.7
–
4.4
Property
£m
6.7
62.2
93.7
162.6
2007
Vehicles
plant and
equipment
£m
0.7
4.0
–
4.7
Property
£m
5.3
40.2
105.3
150.8
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 2008 (2007: 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 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 all of these subsidiaries 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.
Incorporated subsidiaries
Name
Sage (UK) Limited
Sage Hibernia Limited
Sage Software, Inc.
Sage Payment Solutions, Inc.
Sage Software Healthcare, Inc.
Sage Software Canada Ltd
Ciel SAS
Sage SAS
Adonix SAS
Sage Holding France SAS
XRT SAS
Sage Software GmbH
Sage bäurer GmbH
Sage Schweiz AG
Sage Simultan AG
Sage Pro-Concept S.A.
Sage SP, S.A.
Sage Logic Control, S.L.
Sage Symfonia SP z.o.o.
Micropay (Pty) Ltd
Handisoft Software (Pty) Ltd
Sage Business Solutions (Pty) Ltd
Softline (Pty) Ltd
Sage Software Asia Pte Ltd
UBS Corporation Sdn Bhd
Sage Software (Shanghai) Co. Ltd
Country of incorporation
UK
Ireland
US
US
US
Canada
France
France
France
France
France
Germany
Germany
Switzerland
Switzerland
Switzerland
Spain
Spain
Poland
Australia
Australia
Australia
South Africa
Singapore
Malaysia
China
106
Independent auditors’ report to
the members of The Sage Group plc
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 judgements
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 2008 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
17 December 2008
We have audited the Group financial statements of The Sage Group plc
for the year ended 30 September 2008 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 2008 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 also report
to you whether in our opinion the information given in the Directors’ report
is consistent with the Group financial statements. The information given
in the Directors’ report includes that specific information presented in the
Business review that is cross referred from the Business review section
of the Directors’ report.
In addition we 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 Combined Code
(2006) 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 welcome, the
Business review, the Directors’ report, the Corporate governance
statement, the non-audited information in the Remuneration report and
all of the other information listed on the contents page. 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.
Company balance sheet
At 30 September 2008
Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)
107
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Note
2008
£m
2007
£m
2
3
1,544.1
1,544.1
1,544.0
1,544.0
257.7
0.3
258.0
899.5
–
899.5
Creditors: amounts falling due within one year
4
(499.1)
(982.4)
Net current liabilities
Total assets less current liabilities
(241.1)
(82.9)
1,303.0
1,461.1
Creditors: amounts falling due in more than one year
5
(574.9)
(561.3)
Net assets
Capital and reserves
Called up share capital
Share premium account
Treasury shares
Merger reserve
Profit and loss account
Total shareholders’ funds
728.1
899.8
13.1
486.6
(10.2)
61.1
177.5
728.1
13.0
478.2
(13.3)
61.1
360.8
899.8
6
7
7
7
7
The financial statements on pages 107 to 110 were approved by the Board of Directors on 17 December 2008 and are signed on their behalf by:
P A Walker
Director
P S Harrison
Director
108
Notes to the accounts – Company
For the year ended 30 September 2008
Parent Company accounting policies
a Basis of accounting
These financial statements have been prepared under the historical cost convention with the exception of share-based payments which are measured
at fair value at the date of grant 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, “Deferred Tax”, 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 and cash flow statement
The amount of loss for the financial year before dividends within the accounts of the parent Company is £79.5m (2007: £52.4m). 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 or cash flow statement is presented for the Company as permitted by section 230 of the Companies Act 1985.
f Share-based payments
The Company 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 Company’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 Company also provides certain employees with the ability to purchase the Company’s ordinary shares at a discount to the current market value
at the date of the grant. The Company 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.
At each Balance sheet date, the entity revises its estimates for the number of options expected to vest. It recognises the impact of the revision to
original estimates, if any, in the profit and loss account, with a corresponding adjustment to equity.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the
options are exercised.
1 Dividends
Final dividend paid for the year ended 30 September 2007 of 5.73p per share
(2007: final dividend paid for the year ended 30 September 2006 of 2.51p per share)
Interim dividend paid for the year ended 30 September 2008 of 2.43p per share
(2007: interim dividend paid for the year ended 30 September 2007 of 1.27p per share)
2008
£m
74.5
–
31.7
–
106.2
2007
£m
–
32.4
–
16.6
49.0
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2008 of 4.78p per share which will absorb
an estimated £62.6m of shareholders’ funds. It will be paid on 6 March 2009 to shareholders who are on the register of members on 6 February 2009.
These financial statements do not reflect this dividend payable.
2 Investments
Equity interests in subsidiary undertakings are as follows:
Cost
At 1 October 2007
Additions in year
At 30 September 2008
Provision for diminution in value at 30 September 2007 and 2008
Net book value
At 30 September 2008
At 30 September 2007
109
£m
1,544.0
0.1
1,544.1
–
1,544.1
1,544.0
The additions in the year represent investments in existing subsidiary undertakings. The directors believe that the carrying value of the investments
is supported by their underlying net assets.
Principal trading subsidiary undertakings, included in the Group accounts at 30 September 2008, are shown in note 32 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.
3 Debtors
Amounts owed by Group undertakings
Other debtors
Taxation recoverable
4 Creditors: amounts falling due within one year
Bank overdraft
Amounts owed to Group undertakings
Accruals
5 Creditors: amounts falling due in more than one year
Loans
Amounts falling due:
In more than two years but not more than five years
2008
£m
256.8
0.9
–
257.7
2008
£m
–
498.3
0.8
499.1
2008
£m
574.9
574.9
2007
£m
893.2
1.1
5.2
899.5
2007
£m
1.3
980.2
0.9
982.4
2007
£m
561.3
561.3
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 £575.0m (2007: £561.5m) 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 by 13 January 2011 (with £100.0m amortising a year earlier). In the table above, loans are stated net of unamortised issue costs of £0.5m
(2007: £1.0m). The Company has incurred total issue costs of £7.6m (2007: £7.3m) in respect of these facilities. These costs are allocated to the
income statement over the term of the facility using the effective interest method.
6 Called up share capital
Authorised
1,860,000,000 (2007: 1,860,000,000) ordinary shares of 1p each
Issued and fully paid
At 1 October
Allotted under share option schemes
At 30 September
2008
£m
18.6
2008
shares
1,304,160,154
5,397,403
1,309,557,557
2008
2007
£m
shares
13.0 1,294,280,944
9,879,210
13.1 1,304,160,154
0.1
2007
£m
18.6
2007
£m
12.9
0.1
13.0
110
6 Called up share capital (continued)
Potential issues of ordinary shares
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 134.00p to 721.00p under the share option
schemes approved by shareholders. Details of 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 in note 18 of the Group financial statements.
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.
7 Reserves
At 1 October 2007
New shares issued
Utilisation of treasury shares
Retained loss for the year
Dividends
Equity-settled transactions
At 30 September 2008
Share
premium
account
£m
478.2
8.4
–
–
–
–
486.6
Treasury
shares
£m
(13.3)
–
3.1
–
–
–
(10.2)
Merger
reserve
£m
61.1
–
–
–
–
–
61.1
Profit and
loss account
£m
360.8
–
(3.1)
(79.5)
(106.2)
5.5
177.5
Total
£m
886.8
8.4
–
(79.5)
(106.2)
5.5
715.0
Treasury shares
The Company 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 Trust holds 3,648,697 ordinary shares in the Company
(2007: 4,755,602) at a cost of £10,218,347 (2007: £13,272,933) and a nominal value of £36,487 (2007: £47,556). The Trust originally purchased the
shares in February 2006 with the cost being reflected in the treasury shares reserve.
The amounts shown in the treasury shares reserve at 30 September each year would be deducted from the profit and loss account reserve
in determining the distributable profits of the Company at that date.
These shares were originally acquired by the Trust in the open market using funds provided by the Company to meet obligations under the Performance
Share Plan. During the year, 1,106,905 shares were utilised to meet these obligations. 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 2008 was £7.1m
(2007: £11.8m).
8 Operating lease commitments – minimum lease payments
The Company had no operating lease commitments during the year (2007: £nil).
9 Capital commitments and contingent liabilities
The Company had no capital commitments or contingent liabilities at 30 September 2008 (2007: 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.
111
Independent auditors’ report to
the members of The Sage Group plc
We have audited the parent Company financial statements of The Sage
Group plc for the year ended 30 September 2008 which comprise the
Company 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 2008.
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 also report to you whether in our opinion the information
given in the Directors’ report is consistent with the parent Company
financial statements. The information given in the Directors’ report
includes that specific information presented in the Business review that is
cross referred from the Business review section of the Directors’ report.
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 judgements 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 2008;
• 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.
In addition we 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.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Newcastle upon Tyne
17 December 2008
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 Chairman’s
welcome, the Business review, the Directors’ report, the Corporate
governance statement, the non-audited information in the Remuneration
report and all of the other information listed on the contents page.
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.
112
Shareholder information
Financial calendar
Annual General Meeting
Dividend payments
Final payable – year ended 30 September 2008
Interim payable – period ending 31 March 2009
Results announcements
Interim results – period ending 31 March 2009
Final results – year ending 30 September 2009
3 March 2009
6 March 2009
June 2009
6 May 2009
25 November 2009
Shareholder information online
The Sage Group plc’s registrars are able to notify shareholders by e-mail 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, Equiniti will notify you by
e-mail 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 eleven character shareholder reference
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
current format, there is no need to take any action.
Registrars
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
www.shareview.co.uk
Tel: 0871 384 2859
(from outside the UK: +44 (0)121 415 7047)
Fax: 0871 384 2125
(from outside the UK: +44 (0)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
The Sage Group plc
Annual Report and Accounts 2008
Sage is one ofthe leading global suppliers of
business management software and services to
small and medium-sized enterprises (“SMEs”).
Operating in 26 countriesworldwide,we help
ourcustomers manage theirbusinesses more
efficientlythrough the provision of locally
tailored products and qualitycustomersupport.
Keyperformance indicators (“KPIs”)
Adjusted EPS** growth
EBITA† margin
Organic revenue growth
Excluding Sage Healthcare Division
+3%
2007: +13%
23%
2007: 24%*
+6%*
2007: +7%*
Cash generation from operations
Renewal rates on maintenance
and support contracts
114%
2007: 112%
81%
2007: 81%
For more information about this year’s
KPIs go to page 28
Designed and produced by Radley Yeldar. www.ry.com
Board photography by Andy Wilson
Printed in England by CTD
This report is printed on Take 2 Silk which is FSC certified and contains
75% recycled and de-inked pulp from post consumer waste and 25% ECF
(Elemental Chlorine Free) virgin pulp. This report was printed by an FSC and
ISO 14001 certified printer using vegetable oil and soya based inks.
FSC – Forest Stewardship Council. This ensures that there is an audited
chain of custody from the tree in the well-managed forest through to the
finished document in the printing factory.
ISO 14001 – A pattern of control for an environmental management system
against which an organisation can be credited by a third party.
The CO2 emissions from the production and distribution of this report
have been neutralised through investment in the Sichuan Province Hydro
Power Project in western China. The project displaces electricity generated by
fossil-fuel power plants and will generate emission reductions of an estimated
360,000 tCO2 equivalent between 2006 and 2012, verified and certified to the
Voluntary Carbon Standard.
Contents
About Sage
01 Financial highlights
Business review
06 Group strategy and performance
10 Our business and markets
10 What we do, who we are, how we work
12 Marketplace overview
16 Business structure
18 Customer experience
20 Distribution channels
22 Acquisition strategy
24 Corporate responsibility
28 Key performance indicators
02 Chairman’s welcome
04 Group overview
30 Regional review
30 UK & Ireland
32 Mainland Europe
34 North America
36 Rest of World
38 Financial review
42 Risk
Governance
44 Board of Directors and advisers
46 Directors’ report
49 Corporate governance statement
54 Remuneration report
Financial statements
66 Financial statements – Group
112 Additional information
69 Notes to the accounts – Group
106 Independent auditors’ report – Group
107 Financial statements – Company
108 Notes to the accounts – Company
111 Independent auditors’ report – Company
112 Shareholder information
www.investors.sage.com
Go online to access The Sage Group plc
2008 Annual Report and forPDFdownloads.
www.investors.sage.com
www.investors.sage.com
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www.sage.com
www.sage.com
The Sage Group plc
North Park
Newcastle upon Tyne
NE13 9AA
Annual Report
and Accounts 2008