The Sage Group plc
Annual Report
and Accounts 2009
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www.sage.com
The Sage Group plc
North Park
Newcastle upon Tyne
NE13 9AA
Business software
and services for the
world’s entrepreneurs
Introduction to Sage
What we do
Across the world Sage supports our customers –
mainly small and medium-sized enterprises (“SMEs”) –
in their everyday endeavours. We provide software,
services and support to help them better manage the tasks
and processes that are at the core of their business.
How we’ve performed
Sage has performed well in a difficult market. Our business
model has proved strong and agile and we have outperformed
many of our competitors. We quickly adjusted our business
to the economic environment and focused on delivering the
software and services most needed by our customers to help
them through the recession.
Revenue
£1,439.3m -4%*
EBITA†
£320.7m -6%*
Adjusted pre-tax profit^
£307.5m -2%
Total dividend
7.43p +3%
+
More analysis of financial highlights and our key performance indicators | Pages 06–07
Longer term opportunities
Our large, loyal customer base, our focus on delivering
solutions that businesses value, trust and rely on,
alongside the efficiencies we have driven in our business
position us well for future growth.
+
More on supporting customers through the downturn and preparing
our business for growth | Pages 02–05
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange rates
for the year ended 30 September 2009 of $1.54/£1 and €1.14/£1
to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and amortisation
of intangible assets.
^ Adjusted pre-tax profit stated prior to amortisation of intangible fixed
assets and after neutralisation of foreign exchange movements.
Note: A reconciliation of operating to statutory results is provided
on page 14.
The Sage Group plc
Annual Report
and Accounts 2009
T
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e
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G
r
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p
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u
a
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p
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r
t
a
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A
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2
0
0
9
www.sage.com
The Sage Group plc
North Park
Newcastle upon Tyne
NE13 9AA
Business software
and services for the
world’s entrepreneurs
Introduction to Sage
What we do
Across the world Sage supports our customers –
mainly small and medium-sized enterprises (“SMEs”) –
in their everyday endeavours. We provide software,
services and support to help them better manage the tasks
and processes that are at the core of their business.
How we’ve performed
Sage has performed well in a difficult market. Our business
model has proved strong and agile and we have outperformed
many of our competitors. We quickly adjusted our business
to the economic environment and focused on delivering the
software and services most needed by our customers to help
them through the recession.
Revenue
£1,439.3m -4%*
EBITA†
£320.7m -6%*
Adjusted pre-tax profit^
£307.5m -2%
Total dividend
7.43p +3%
+
More analysis of financial highlights and our key performance indicators | Pages 06–07
Longer term opportunities
Our large, loyal customer base, our focus on delivering
solutions that businesses value, trust and rely on,
alongside the efficiencies we have driven in our business
position us well for future growth.
+
More on supporting customers through the downturn and preparing
our business for growth | Pages 02–05
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange rates
for the year ended 30 September 2009 of $1.54/£1 and €1.14/£1
to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and amortisation
of intangible assets.
^ Adjusted pre-tax profit stated prior to amortisation of intangible fixed
assets and after neutralisation of foreign exchange movements.
Note: A reconciliation of operating to statutory results is provided
on page 14.
What we do and how we work
Our
business
We are a market-leading,
global company with
offices in 24 countries
and products and services
available in more than 160.
Yet we complement our size by
staying in touch with customers
through our localised business model.
Products and services are developed
wherever our customers are and they
can talk to someone who speaks
their language and understands
their situation.
Our products
and sectors
We combine our affinity for
SMEs with our technological
expertise to deliver high
quality, easy to use, relevant
and cost-effective solutions
across a range of sectors.
From accounts and payroll through
to payment processing, customer
relationship management (“CRM”)
and solutions for specific industries
we anticipate customers needs,
offer choice and advice on the best
fit for each individual business.
Our
customers
Our customers are principally
small and medium-sized
businesses, though we also
serve larger organisations.
They remain at the centre of our
thinking. We share their passion for
entrepreneurialism and we respect that
they invest much more than money in
their business. We strive to help them
manage their businesses more efficiently
allowing them to pursue their ambitions.
Our
partners
Sage has a powerful
ecosystem designed to
enable customers to get
what they want from us,
when and how they want it.
We constantly seek innovative ways
to make ourselves accessible to
customers. This can be through
providing software and support direct
from Sage or their local business
partner; working with our developer
community to provide add-on solutions;
integrating our software with their
accountant’s system or ensuring our
products can easily be found online,
in their local bank or retail store.
Our guiding
principles
In the same way our
customers rely on the skills
and talent of their employees
to operate their businesses,
we rely on our 13,400 people
to do the right thing for our
customers, day in day out.
To help them deliver consistently
wherever they are in the world we
live by five principles which guide
our thinking and decision making.
Our strategy
and goals
Our strategy is to provide
the most effective solutions,
developed and supported
locally to meet our customers’
specific market needs.
We encourage innovation to flourish locally,
utilising the most appropriate technology
to bring real benefits for customers.
Many of our customers are resource
constrained and look to Sage for support
and advice, not only to ensure they get the
most out of their software and services but
also for guidance on key business issues.
We place great emphasis on providing
this customer support, which is a key
differentiator in the marketplace.
24
Countries with direct operations –
a presence in many more
6.1 million
Customers
8%#
Third largest provider of business management
solutions in the world with 8% market share
30,000
Business partners
40,000
Accountants
40%+
Sage people dedicated to technical support,
customer service and training
1.7 million
Support contracts
Revenue by region
Revenue by sector
Customer profile
Our brands
Our principles
Our long-term goals
A
B
C
D
UK & Ireland
Mainland Europe
North America
Rest of World
17%
36%
40%
7%
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
55%
26%
10%
4%
5%
A
D
E
A
D
B
C
These brands, such as ACT!, Ciel! in France,
Sage 50 in the UK, Softline Pastel in South Africa,
Peachtree in the US 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.
Enterprise
Upper
mid-market
<5,000
employees
Lower
mid-market
Entry-level
500
25
C
B
80%
of our customer base
17%
of our customer base
3%
of our customer base
1
2
Be a key leader in all markets
of the world.
Develop products and services
which are the most compelling
fit with a customer’s country
and industry.
3
Have the most trusted brands.
4
5
Have the most satisfied and
active customers in our industry.
Experience superior organic
revenue growth versus our
peer group.
6
Be recognised as one of the
most admired employers.
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 think ahead, to anticipate our
customers’ needs and are 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.
# Gartner, June 2009. Worldwide Total ERP Software Revenue
Market share by Vendor, 2008.
+
More on our people | Pages 34 and 35
Design and production
Radley Yeldar | www.ry.com
Board photography
Andy Wilson
Print
CTD
This Report has been printed on Cocoon Silk which
is 100% recycled and FSC certified. This report was
printed by an FSC and ISO 14001 accredited 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 offset through
the purchase of carbon credits in the Candelaria
Hydroelectric Project in Guatemala. The project
involves the generation of renewable energy
through the installation of a run-of-river hydropower
plant. The project is verified and certified to the
Voluntary Carbon Standard.
What we do and how we work
Our
business
We are a market-leading,
global company with
offices in 24 countries
and products and services
available in more than 160.
Yet we complement our size by
staying in touch with customers
through our localised business model.
Products and services are developed
wherever our customers are and they
can talk to someone who speaks
their language and understands
their situation.
Our products
and sectors
We combine our affinity for
SMEs with our technological
expertise to deliver high
quality, easy to use, relevant
and cost-effective solutions
across a range of sectors.
From accounts and payroll through
to payment processing, customer
relationship management (“CRM”)
and solutions for specific industries
we anticipate customers needs,
offer choice and advice on the best
fit for each individual business.
Our
customers
Our customers are principally
small and medium-sized
businesses, though we also
serve larger organisations.
They remain at the centre of our
thinking. We share their passion for
entrepreneurialism and we respect that
they invest much more than money in
their business. We strive to help them
manage their businesses more efficiently
allowing them to pursue their ambitions.
Our
partners
Sage has a powerful
ecosystem designed to
enable customers to get
what they want from us,
when and how they want it.
We constantly seek innovative ways
to make ourselves accessible to
customers. This can be through
providing software and support direct
from Sage or their local business
partner; working with our developer
community to provide add-on solutions;
integrating our software with their
accountant’s system or ensuring our
products can easily be found online,
in their local bank or retail store.
Our guiding
principles
In the same way our
customers rely on the skills
and talent of their employees
to operate their businesses,
we rely on our 13,400 people
to do the right thing for our
customers, day in day out.
To help them deliver consistently
wherever they are in the world we
live by five principles which guide
our thinking and decision making.
Our strategy
and goals
Our strategy is to provide
the most effective solutions,
developed and supported
locally to meet our customers’
specific market needs.
We encourage innovation to flourish locally,
utilising the most appropriate technology
to bring real benefits for customers.
Many of our customers are resource
constrained and look to Sage for support
and advice, not only to ensure they get the
most out of their software and services but
also for guidance on key business issues.
We place great emphasis on providing
this customer support, which is a key
differentiator in the marketplace.
24
Countries with direct operations –
a presence in many more
6.1 million
Customers
8%#
Third largest provider of business management
solutions in the world with 8% market share
30,000
Business partners
40,000
Accountants
40%+
Sage people dedicated to technical support,
customer service and training
1.7 million
Support contracts
Revenue by region
Revenue by sector
Customer profile
Our brands
Our principles
Our long-term goals
A
B
C
D
UK & Ireland
Mainland Europe
North America
Rest of World
17%
36%
40%
7%
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
55%
26%
10%
4%
5%
A
D
E
A
D
B
C
These brands, such as ACT!, Ciel! in France,
Sage 50 in the UK, Softline Pastel in South Africa,
Peachtree in the US 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.
Enterprise
Upper
mid-market
<5,000
employees
Lower
mid-market
Entry-level
500
25
C
B
80%
of our customer base
17%
of our customer base
3%
of our customer base
1
2
Be a key leader in all markets
of the world.
Develop products and services
which are the most compelling
fit with a customer’s country
and industry.
3
Have the most trusted brands.
4
5
Have the most satisfied and
active customers in our industry.
Experience superior organic
revenue growth versus our
peer group.
6
Be recognised as one of the
most admired employers.
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 think ahead, to anticipate our
customers’ needs and are 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.
# Gartner, June 2009. Worldwide Total ERP Software Revenue
Market share by Vendor, 2008.
+
More on our people | Pages 34 and 35
Design and production
Radley Yeldar | www.ry.com
Board photography
Andy Wilson
Print
CTD
This Report has been printed on Cocoon Silk which
is 100% recycled and FSC certified. This report was
printed by an FSC and ISO 14001 accredited 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 offset through
the purchase of carbon credits in the Candelaria
Hydroelectric Project in Guatemala. The project
involves the generation of renewable energy
through the installation of a run-of-river hydropower
plant. The project is verified and certified to the
Voluntary Carbon Standard.
Contents
The Sage Group plc
Annual Report and Accounts 2009
www.ar2009.sage.com
The online version of this report
offers a richer experience, as well
as providing PDFs of the report.
About Sage
ifc What we do and how we work
Supporting customers
02
through the downturn
Preparing our business
for growth
04
Business review
06 Performance overview
08 Chairman’s statement
10 Chief Executive’s review
14
18 Principal risks and uncertainties
20 Regional reviews
32 Corporate responsibility
Financial review
– Industry
– People
– Community
– Environment
Governance
38 Board of directors and advisers
40 Directors’ report
43 Corporate governance statement
49 Remuneration report
Financial statements
Group
61
64 Notes to the accounts
105
Financial statements
Independent auditors’ report
Company
106 Financial statements
107 Notes to the accounts
111
Independent auditors’ report
Additional information
112 Shareholder information
01
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A proven business
model and diversified
customer base
Our performance has been driven
by the continued growth in subscription
revenues. This recurring revenue
accounts for 65% of our business
and underpins our strong cash flow.
We operate across diverse sectors and
broad regions, meaning we are not
overly exposed to one particular industry
or geographic market. Moreover this
positions us well to exploit opportunities
for growth wherever they exist.
65%
Contribution to Group revenue
from recurring subscription revenues
“ These initiatives have
helped our customers
through the downturn,
maintained loyalty
and enhanced our
position as one of their
trusted partners.”
The Sage Group plc
Annual Report and Accounts 2009
03
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Supporting
customers through
the downturn
Our business model has proved
robust, allowing us to take
appropriate action to continue
to thrive, whilst at the same time
giving us the agility to invest in
the software and services most
needed by our customers.
Anticipating customer needs
Access to credit and managing cash
flow have been critical issues for SMEs
over the past year. Our local presence
meant we were uniquely placed to
identify this at an early stage and quickly
introduced a range of options tailored
to help customers wherever they are.
These included flexible payment and
financing options such as quarterly
and monthly payment plans and free
offerings, for example free downloadable
accounts and invoicing software,
credit card processing modules and
online invoicing services. On top of this
our businesses conducted road shows
to advise customers on business
legislation and launched online business
health check services. These initiatives
have helped our customers through
the downturn, maintained loyalty and
enhanced our position as one of their
trusted partners.
Investment for the future
The Sage brand has been refreshed
and rolled out across the Group to
bring greater consistency and meaning
to what we offer locally; to help us
stand out from our competitors; and
to raise our profile. Our brand has been
re-energised to reflect the commitment
we have to our customers and that we
aspire to a level of performance that is
truly exceptional.
Our people are fundamental to our
success and investment in them remains
a priority. Learning and development
initiatives are run at all levels of the
business, including our senior leadership.
We actively seek the involvement of our
people, for example through employee
forums and engagement surveys.
Experienced and
responsible management
We made difficult but necessary
decisions in the long-term interests of all
of our stakeholders – our shareholders,
our people, our partners and our
customers. We successfully reduced
cost to offset the decline in revenues
as a consequence of the changing
economic conditions, whilst at the same
time maintaining prudent investment
ensuring we are well positioned for
the future. Additionally, we used the
opportunity to restructure some parts of
the business to improve our processes
and become more streamlined and agile.
04
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The Sage Group plc
Annual Report and Accounts 2009
Preparing
our business
for growth
We are well positioned to take
advantage of new opportunities
and to exploit emerging trends
in our marketplace.
Helping customers get
the most out of Sage
Whilst businesses will remain
cautious in the short term, SMEs are
still willing to purchase software and
services where they deliver value.
With continued investment and
innovative thinking we have significant
opportunities to provide this value
to both new and existing customers.
Whether it is through the integration
of desktop software with online
services, such as payment processing,
product upgrades as customers
expand internationally or the continued
expansion of our support services,
Sage will help grow our customers’
as well as our own businesses.
Acquisitions
During this downturn we have not
completed any significant acquisitions.
However, acquisitions remain part of
our growth strategy. We continually
assess the marketplace and maintain
dialogue with various potential targets.
Of particular interest are higher growth
segments of the SME market and
emerging markets. Our strong cash
flow and balance sheet mean we are
well positioned to move quickly when
opportunities are identified.
“ We judge technological
innovations by how
much easier they make
it for customers to run
their businesses.”
Technology and
market trends
Sage understands technology and
understands SMEs. Consequently,
we judge technological innovations
by how much easier they make it for
customers to run their businesses.
We generate new ways to apply
technologies but do not get seduced by
them unless they have a clear customer
benefit. Similarly, we anticipate and take
advantage of market trends, balancing
the need to innovate without disrupting
existing customers. Key developments
include the progression of web and
mobile technologies which are driving
demand for more flexible solutions.
We are responding to this in a number
of ways – “cloud” and “software as a
service” offerings, mobile applications,
online customer communities,
integration of social media tools into
our software – to ensure our customers
have the tools they need to prosper.
The Sage Group plc
Annual Report and Accounts 2009
05
05
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“ Substantial funding
set aside for adoption
of electronic health
records in the American
Recovery and
Reinvestment Act.”
Sage Healthcare
The US Healthcare market represents
a significant opportunity for growth.
Our market-leading, industry-accredited
products, position us well to leverage
future demand for electronic health
record (“EHR”) solutions. This is primarily
being driven by funding for adoption of
EHR in the American Recovery and
Reinvestment Act. We are actively
pursuing opportunities presented by
the Act, concentrating on building brand
awareness, sales effectiveness and the
development of strategic relationships
with purchasing organisations and
government agencies.
The Sage Group plc
Annual Report and Accounts 2009
06 Performance overview
i
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B
i
2009 performance
in context
As summarised on pages 10 to 13,
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 earlier on the inside front cover.
Consistent and sustainable earnings
growth, organic revenue growth
and strong cash generation from
our businesses are our KPIs. Over the
year, in the context of challenging market
conditions, we performed well against
these financial benchmarks.
We also closely monitor the degree
of customer satisfaction relating to
our products and services. We take
almost nine million calls a year, or over
35,000 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.
One 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 2009
we again achieved this high rate of
customer renewal.
These KPIs are the most appropriate
measurements of our business. Whilst
we do not include a KPI on people
or corporate responsibility, both of
these are discussed in depth on
pages 32 to 37.
Key performance indicators (“KPIs”)
Adjusted EPS growth
f lat
EBITA margin
22%
2005
2006
2007
2008
2009
12.07p
14.29p
16.34p
16.63p
16.63p
2005
2006
2007
2008
2009
27%
27%
24%
23%
22%
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.
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.
Organic revenue growth
Cash generation from operations
–5%
2005
2006
2007
2008
2009
112%
6%
7%
7%
2005
2006
2007
2008
2009
3%
–5%
119%
107%
112%
114%
112%
Cash flows from operating activities divided
by EBITA provide a measure of the ability
of the Group to yield cash from its ongoing
business to reinvest and fund liabilities.
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.
Renewal rates on maintenance
and support contracts
81%
2005
2006
2007
2008
2009
78%
80%
81%
81%
81%
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.
The Sage Group plc
Annual Report and Accounts 2009
07
Other financial highlights – five year history
Revenue
£1,439.3m –4%**
Adjusted pre-tax profit ^
£307.5m–2%**
2005
2006
2007
2008
2009
£759.6m
£935.6m
£1,157.6m
£1,295.0m
£1,439.3m
2005
2006
2007
2008
2009
£196.4m
£234.7m
£251.3m
£273.4m
£307.5m
EBITA†
£320.7m –6%**
Total dividend
7.43p +3%
2005
2006
2007
2008
2009
Notes:
£202.1m
£249.3m
£283.2m
£299.8m
£320.7m
2005
2006
2007
2008
2009
2.88p
3.59p
7.00p
7.21p
7.43p
1 A reconciliation of operating to statutory results is provided on page 14.
2 The results of all comparative years have not been retranslated to current year exchange rates.
** Growth has been calculated after the neutralisation of foreign exchange movements.
† EBITA is defined as earnings before interest, tax and amortisation of intangible assets.
^ Adjusted pre-tax profit stated prior to amortisation of intangible fixed assets.
Our results are in line
with expectations and
indicate the resilience
of our business model.
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The Sage Group plc
Annual Report and Accounts 2009
08 Chairman’s statement
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Dear Shareholder
Set against a backdrop of a recessionary environment, Sage has produced a
robust performance. The strength of our business model and our large, international,
customer base has helped us to navigate through these turbulent 12 months.
Our customers have continued to rely on us as a trusted partner in running their
businesses. The demand for high quality support remains strong and the growth
in recurring subscription revenues has compensated for reduced demand for
software and software-related services. However, 245,000 new customers
purchased software solutions during the year, demonstrating the value that our
products offer to SMEs. By working closely with our high quality business partners
and by supporting customers with locally based services and solutions, we have
continued to grow our customer base around the world.
Financial strength
More than 70% of the Group’s profits are earned outside of the UK and
exchange rate movements have had a favourable effect on our reported earnings.
Statutory pre-tax profit rose by 11% to £267.4m, benefiting from a resilient business
performance, currency movements and lower financing costs. We rapidly reduced
our cost base during the year to reflect the challenging business environment,
but we maintained our investment in R&D at £174.6m, as we continue to invest
in our products and customers.
The Group remains highly cash generative, with operating cash flow of £357.6m,
representing 112% of EBITA. With little acquisition activity, net debt fell by £167.4m
on a currency neutral basis. We have a strong balance sheet and, during the year,
we renegotiated and extended the term of our £200.0m bank facility converting it
to a US$264.0m facility, so that all of our £815.1m facilities now mature in 2011.
“ Set against a backdrop
of a recessionary
environment,
Sage has produced a
robust performance.”
The Sage Group plc
Annual Report and Accounts 2009
09
Dividend
Our reliable cash flows, robust balance sheet and recurring revenue streams provide
strong support for our progressive dividend policy, whilst ensuring that the Group can
continue to maintain the appropriate levels of organic and acquisition-led investment.
As a result the Board is increasing the full year dividend by 3% to 7.43p per share
(2008: 7.21p per share), with a proposed final dividend of 4.93p per share (2008:
4.78p per share).
People
This has been a difficult year for our people, as we have had to adjust the
business to reflect the tough economic environment. We reduced headcount by
11% during the year and we thank those employees who have left Sage for their
important contribution to the development of our business. More than any other
year, our employees have been remarkable in their steadfast commitment
to delivering the very best for our customers during these challenging times.
We thank them for all their dedication and professionalism.
We are proud of our reputation for the quality of our people and we continue to
develop programmes to provide opportunities for talent to flourish. Last year we
introduced The Sage Leadership Standard, a set of leadership values which
define clearly what we expect from our leaders globally. We continued to roll out
the Standard during 2009 and this is helping to provide a consistent approach in the
way our leaders operate. It is creating a new standard of leadership across Sage,
which continues to inspire the 13,400 people working to help our customers and
grow our business.
Outlook
Whilst demand for our products stabilised in the second half of the year, we are not
experiencing a general recovery in our markets. Thus, we continue to manage our
business prudently. Our large and international customer base, strong business model
and robust finances position us favourably for the eventual market upturn. We have
many opportunities to serve the changing needs of our dynamic SME customer
base using our expertise and insight into a wide range of industries and markets.
Anthony Hobson
Chairman
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The Sage Group plc
Annual Report and Accounts 2009
10 Chief Executive’s review
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Overview of the year
Our UK and North American customers felt the full impact of the economic
downturn in mid to late calendar year 2008. This was followed by Mainland Europe
and our other markets early in calendar year 2009. Our customers acted quickly
with their own businesses, managing their costs and working capital, and adapting
to an environment where credit became scarce. Despite these difficult conditions,
our customers continued to renew support contracts at normal rates and we
continued to attract a large number of first-time customers to Sage.
As market conditions deteriorated, we took swift action to realign our own cost
base and eliminated annualised costs of £53.9m, incurring one-off restructuring
charges of £26.4m. This saving represented 5%* of our 2008 cost base.
However, we balanced the need to reduce our cost base with that of investing
appropriately for the future, spending £174.6m on research and development
in the year, and increasing the headcount in customer support by 5%.
We have made good progress in our North American business with operational
improvements underway and an appropriate reduction in the cost base.
Organic revenues declined by 5%* in the year (2008: 3%* growth). Organic
subscription revenues grew by 2%* with demand for customer support remaining
resilient. In the UK and Mainland Europe, where the customer support model is
well established, subscription revenues grew 5%* on an organic basis and in the
emerging markets of Rest of World, subscription revenues showed strong organic
growth of 14%*. In North America, where the premium support model is less
well established, organic subscription revenues contracted 2%*. This represents
a key area of focus for our North American business in 2010. Support contract
renewals, a key measure of the underlying performance of our business model,
remained high at 81% in line with the long-term average renewal rates. Payment
processing, which represents 5% of total revenues and is included in subscription
revenues, grew by 2%* in the year. We believe that this area offers significant
potential for the Group as SMEs seek the benefits of linking payment processing
to their back office accounting systems.
As we anticipated at the start of the financial year, in these market conditions,
customer demand for software and software-related services was weak with an
organic contraction of 16%* in the year. Nevertheless, 245,000 new customers
purchased software solutions in the year demonstrating the value that our solutions
offer to SMEs, and bringing our total customer number to 6.1m.
Our business structure
We are focused 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. This model provides local focus alongside
our global scale. 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.
8%#
Market share in worldwide total ERP
software revenues
–5%*
Cost reduction achieved during 2009
# Gartner, June 2009. Worldwide Total ERP Software Revenue
Market share by Vendor, 2008.
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
The Sage Group plc
Annual Report and Accounts 2009
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Long-term opportunities
We have identified several longer term aspirational goals for the Group. From these goals,
we derive our products and services strategy, acquisition strategy, people development
programmes and operational objectives throughout the Group. These goals are to:
– Be a key leader in all markets of the world;
– Develop products and services that are the most compelling fit with a customer’s
country and industry;
– Have the most trusted brands;
– Have the most satisfied and active customers in our industry;
– Experience superior organic revenue growth versus our peer group; and
– Be recognised as one of the most admired employers.
Product and services strategy
The needs of SMEs continue to evolve. Increasingly, they want access to data via
the web or mobile devices. They seek the ability to deploy some software solutions
on the web, whilst still making extensive use of their desktop environment. We need
to be flexible in allowing customers to buy or rent software as their needs dictate.
Connectivity to third parties is an increasing requirement and we find SMEs trading
outside their domestic market more than ever before.
Our strategy is to address the needs of SMEs by developing solutions through our
in-country teams who best understand our customers’ specific requirements. We take
an open approach to the technology that we use, developing across a number of
platforms and leveraging a range of delivery models that best meet the needs of
our customers. Today, a number of services such as online payment processing,
invoicing, CRM, payroll and tax filing are delivered over the web by Sage.
“ We have made
significant progress
towards achieving our
key strategic goals –
ensuring we are able to
deliver value through
the cycle.”
The Sage Group plc
Annual Report and Accounts 2009
12 Chief Executive’s review
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For core accounting and ERP products, at present the significant majority
of demand remains for those products deployed on-premise. However, as a
new generation of entrepreneurs, instinctively web-centric, start businesses,
we expect the proportion of accounting software delivered via the web to
increase. We therefore believe that software as a service (“SaaS”) for accounting
will become more relevant to customers in the small and micro business
market segment over time. To that end, we have launched a number of offers
to address this emerging market and continue to develop products to meet
customer demand.
In the mid-market, we believe that the demand for pure SaaS ERP solutions is
currently limited. However, we see the opportunity to combine the advantages
of on-premise applications (such as data ownership, customisation flexibility
and upgrade control), with easy access to web services which complement and
add value to the core application. Such web services include payroll processing,
data hosting and online backup, remote access, payment services, and project
management. We have, and continue to develop, offerings in this space and are
in a strong position to meet this demand.
Whilst we continue to focus on local solutions and services, the trend of SMEs
conducting business internationally is increasing demand for the products
we sell in multiple countries. To be successful, these products must meet
local requirements in each country as well as having international capabilities.
Sage Accpac ERP, Sage ERP X3 and our CRM products are particularly focused
on meeting this demand. In the year, a number of our businesses have launched
Sage ERP X3 which has been well received by customers and industry analysts,
and demonstrated growth in the year Group-wide of 13%*.
As a Group we are focused on the overall customer experience and have
launched a number of initiatives to enhance this, including the use of web
technologies (such as automatic updates, information feeds and online diagnostic
services). Our premium support offers, including, for example, guaranteed response
times and dedicated support advisors, enhance the value we deliver to customers.
Our support continues to be relied upon by our customers to help them negotiate
changes in legislation and business regulation, and address market uncertainty.
This has reinforced our role as a trusted business partner to them.
1.7 million
Provide advice to customers through
1.7 million support contracts
35,000
Manage around 35,000 customer
calls every day
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
Executive Committee
Group responsibility
Paul Walker
Group Chief Executive
Paul Harrison
Group Finance Director
Paul is responsible for
developing Sage’s
overall business strategy
and ensuring we deliver
value to our shareholders.
He is accountable for
Sage’s senior leadership
team and for making sure
our global and regional
teams work together
to achieve our goals.
Paul has overall
responsibility for Sage’s
finances and financial
controls. He has direct
accountability to our
shareholders for
performance and
strategy and promoting
Sage’s investment case.
Paul plays a key role in
acquisitions and chairs
the Group committee of
Chief Information Officers.
Michael Robinson
Company Secretary and
Group Legal Director
As Company Secretary
Michael supports the
Board, supervises share
incentive schemes and
compliance with stock
exchange rules. As Legal
Director he is involved
in acquisitions, oversees
legal risks and makes
sure we are legally
compliant in the countries
in which we operate.
Klaus-Michael
Vogelberg
Group Chief
Technology Officer
Klaus-Michael represents
the engineering function
of Sage, overseeing the
direction of technology
within our business.
His role includes ensuring
best practice, advising our
R&D function, the Executive
Committee and the
Board on technology and
developing interoperability
between Sage products.
The Sage Group plc
Annual Report and Accounts 2009
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40,000 | 30,000
Worldwide network of over
40,000 accountancy practices
and 30,000 business partners
Acquisition strategy
Whilst we did not complete any significant acquisitions in the year, acquisitions
remain part of our growth strategy both for entering new markets and for
strengthening our position in existing markets. Our strong balance sheet and cash
conversion mean that we will be in a position to acquire attractive businesses when
such opportunities arise. We will continue to use financial hurdles when evaluating
acquisitions, and in particular the need to earn a return in excess of our weighted
average cost of capital using reasonable financial projections for potential targets.
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 ongoing
relationships with our customers.
Environment
As detailed in the Corporate Responsibility report on pages 32 to 37, we are
focused on understanding our environmental impacts, raising awareness of energy
consumption and reducing carbon emissions. We are also helped in this by the
trend in our industry towards electronic rather than printed data.
Outlook
We have a robust business model with a strong balance sheet underpinned by
reliable cash flows. Our customers continue to rely on us as a trusted partner in
running their businesses more efficiently.
Conditions stabilised in the second half of the year with SMEs still investing in
value-adding business management products and services. However, at this stage,
we are not yet seeing a general recovery in our markets. Therefore, we will continue
to manage our cost base prudently whilst ensuring the business is well positioned
to take advantage of the future economic upturn.
Paul Walker
Chief Executive
Regional responsibility
David Clayton
Group Strategy
and Mergers and
Acquisitions Director
David has overall
responsibility for Group
strategy and buying or
selling of businesses.
His remit is to provide an
overarching, Group-wide
strategy, fully leveraging
our global capabilities
whilst maintaining the
decentralised ethos
that has been key to
our success.
Karen Geary
Group Director of
Human Resources
and Corporate
Communications
Responsible for our People
Strategy, Karen works with
our operating companies
to ensure we have the right
talent in place to achieve
our goals. She is also
responsible for Corporate
Communications and
Corporate Responsibility.
Paul Stobart
CEO, UK & Ireland
Paul is responsible for
the UK & Ireland region,
including strategy
development, business
planning activities, R&D
and front line and
support operations
ranging from sales and
marketing through to
human resources,
business development,
finance and legal.
Guy Berruyer
CEO, Mainland Europe
and Asia
Guy supervises our
activities in Mainland
Europe and Asia,
overseeing the
management teams in
the individual countries.
He is responsible for our
growth strategy in the
region, identifying
potential new acquisitions
and opportunities for
expansion.
Sue Swenson
CEO, North America
Sue oversees our North
American businesses
in the United States
and Canada. She is
responsible for
managing the business
whilst at the same time
establishing clear goals,
identifying and exploiting
areas for growth and
broadening our focus
on our customers.
Ivan Epstein
CEO, South Africa
and Australia
Ivan runs the Southern
Hemisphere region,
encompassing both
Softline in South Africa
and Sage in Australia.
With nine business units
over two continents Ivan
sets strategic direction,
identifies opportunities
for future growth and
coordinates activities
across the region.
The Sage Group plc
Annual Report and Accounts 2009
14 Financial review
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Reconciliation of operating to
statutory results
EBITA† to
operating profit
2009
£m
2008
£m
Change
%
EBITA†
320.7
341.2
–6%
Overview
In the year ended 30 September 2009, revenue increased by 11% to £1,439.3m
(2008: £1,295.0m). Operating profit increased by 5% to £280.6m (2008: £267.4m).
Profit before taxation increased by 11% to £267.4m (2008: £241.0m). EPS increased
14% to 14.46p (2008: 12.73p).
Impact of movements
in foreign currency
exchange rates
(41.4)
320.7
299.8
7%
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 the left.
Amortisation of
intangible assets
and net development
(40.1)
(32.4)
Operating profit
280.6
267.4
5%
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 Euro exchange rate used to translate the income statement strengthened
15% from £1 = €1.31 to £1 = €1.14, which had a favourable translational impact
on our financial results. The US Dollar to Sterling average rate used to translate
the income statement strengthened 28% from £1 = $1.97 to £1 = $1.54.
In addition, the closing exchange rates at the year end saw a significant appreciation.
The closing exchange rate on the Euro was £1 = €1.09 (2008: £1 = €1.27) an
appreciation of 14% against the prior year end rate. The closing exchange rate on the
US Dollar was £1 = $1.60 (2008: £1 = $1.78) an appreciation of 10% 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 2009, net debt stood at £439.4m (2008: £541.0m).
Revenue analysis
Revenues reduced 4%* to £1,439.3m (2008: £1,504.0m*). Organic revenue
for the year contracted 5%*. Organic revenue contracted in the first half of the year
by 4%*. In the second half organic revenue contracted by 6%*. Organic revenue
excludes the contributions of current year and prior year acquisitions (together
2% of total revenues) and non-core products (2% of total revenues).
Total revenues for software and software-related services were £502.5m (2008:
£586.9m*), which contracted organically by 16%*. Total subscription revenues
grew by 2%* to £936.8m (2008: £917.1m*), benefiting from organic revenue growth
in combined software/support contracts.
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 (12% of total revenues), combined software/support contracts
(43% of total revenues), hosted products (1% of total revenues) and transaction
services (9% of total revenues).
EBITA†
EBITA† decreased by 6%* to £320.7m (2008: £341.2m*). The Group’s EBITA† margin
reduced to 22% (2008: 23%*). EBITA† includes restructuring charges of £26.4m
incurred in the year ended 30 September 2009. Excluding restructuring charges,
EBITA† grew 2%* to £347.1m and EBITA† margin improved to 24%.
Pre-tax profit
2009
£m
2008
£m
Change
%
Adjusted pre-tax profit^ 307.5
314.8
–2%
Impact of movements
in foreign currency
exchange rates
(41.4)
307.5
273.4
12%
Amortisation of
intangible assets
and net development
(40.1)
(32.4)
Profit before taxation
267.4
241.0
11%
EPS
2009
pence
2008
pence
Change
%
Adjusted EPS^
16.63
16.63
0%
Impact of movements
in foreign currency
exchange rates
Amortisation of
intangible assets
and net development
Basic earnings
per share
(2.19)
16.63
14.44
15%
(2.17)
(1.71)
14.46
12.73
14%
–4%*
Revenues decreased by 4%*
to £1,439.3m during 2009
2008: £1,504.0m*
–1%
EBITA† margin reduced to 22%
(24% excluding restructuring costs)
2008: 23%*
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and amortisation
of intangible assets.
^ Adjusted pre-tax profit and earnings per share are stated prior to
amortisation of intangible fixed assets and after neutralisation of
foreign exchange movements.
The Sage Group plc
Annual Report and Accounts 2009
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20 times
Our interest cover increased due
to lower debt and interest rates
2008: 10 times
Flat
Adjusted EPS^ was flat on prior year
16.63p
2008: 16.63p
+3%
Our full year dividend increased
by 3% to 7.43p
2008: 7.21p
Finance expenses
Net finance expenses of £13.2m (2008: £26.4m) were lower than the prior year.
The average interest rate on borrowings during the year was 2.2% (2008: 4.5%).
The 2008 interest was greater due to a higher level of average borrowings during
the year and higher average interest rates. Interest cover was in excess of 20 times,
increasing from 10 times in the prior year.
Profitbeforetaxation
Statutory profit before taxation increased by 11% to £267.4m (2008: £241.0m) and
was impacted by amortisation of acquired intangible assets and net development
expenditure of £40.1m (2008: £32.4m). Adjusted pre-tax profit^ declined by 2% to
£307.5m (2008: £314.8m).
Taxation
The tax charge of £77.9m (2008: £74.7m) was greater than the prior year reflecting
the additional profits and gives an effective rate of 29% (2008: 31%). This decrease
partly reflected a reduction in headline tax rates in a number of Sage territories.
EPS
Basic earnings (after amortisation) per share for the year ended 30 September 2009
increased by 14% to 14.46p (2008: 12.73p). Diluted earnings per share increased by
14% to 14.42p (2008: 12.69p). Adjusted earnings per share^ was maintained at 16.63p.
Dividend
Our full year dividend is increased by 3% to 7.43p per share (2008: 7.21p per share),
with a proposed final dividend of 4.93p per share (2008: 4.78p per share).
The final dividend will be payable on 5 March 2010 to shareholders on the register
at close of business on 5 February 2010.
R&D and capex
The Group spent £174.6m in the year ended 30 September 2009 on research
and development (2008: £175.2m*). No expenditure was capitalised and £0.6m
(2008: £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 2009 (including the purchase of
third party software systems for internal use) was £29.8m (2008: £40.4m). The majority
of this expenditure relates to IT infrastructure, both in new and replacement systems.
“Strongcashflow
primarily from recurring
service contracts,
continues to underpin
the Group’s robust
financialposition.”
The Sage Group plc
Annual Report and Accounts 2009
16 Financial review
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Capital structure
Assets
£m
Liabilities Net assets
£m
£m
Goodwill and
intangible assets
Property, plant
and equipment
Current assets and
liabilities
Retirement benefit
obligations
Deferred tax
Total before
net debt
Net debt
2,246.8
– 2,246.8
144.5
–
144.5
280.3
(689.2)
(408.9)
–
(11.8)
(11.8)
7.5
(41.2)
(33.7)
2,679.1
(742.2) 1,936.9
59.4
(498.8)
(439.4)
Goodwill
At 30 September 2009 goodwill was £2,030.8m (2008: £1,825.5m). As described
in note 7, the carrying value of goodwill has been subjected to testing for impairment.
The assumptions used for these purposes are described in note 7. Following this
assessment, the Board concluded that no impairment of goodwill had arisen in the year.
Capital structure
Our balance sheet at 30 September 2009 is summarised as set out in the table on the left.
Net assets increased by 20% to £1,497.5m (2008: £1,247.0m) and net assets per share by
20% to 114p (2008: 95p). The main movements in the balance sheet items were in goodwill
and intangible fixed assets (relating principally to the impact of foreign currency retranslation)
and the change in net debt (see further “Net debt” and “Cash flow” below).
Total as at
30 September 2009 2,738.5 (1,241.0) 1,497.5
Total as at
30 September 2008 2,538.0 (1,291.0) 1,247.0
Debt and facilities
Net debt
£439.4m
Net debt balance at
30 September 2009
2008: £541.0m
112%
Operating cash flow
represents 112% of EBITA†
2008: 114%
† EBITA is defined as earnings before interest, tax and amortisation
of intangible assets.
The Group has net debt of £439.4m at 30 September 2009 (2008: £541.0m or £606.8m
at constant exchange rates). The balance sheet remains strong with net debt to EBITDA
of 1.3 times. There has been a significant change in the closing exchange rates used to
translate the debt at 30 September 2009 compared to 30 September 2008 as explained
above, which has resulted in a foreign exchange translation movement of £72.1m on the
debt drawings. Over the year, strong cash generation reduced net debt by £167.4m on a
constant currency basis. 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 £13.8m have therefore been funded by debt financing.
Cash flow
The Group remains highly cash generative with operating cash flow of £357.6m, representing
112% of EBITA† (2008: 114%). After interest, tax and net capital expenditure, free cash flow
was £259.2m. The net cost of acquisitions and disposals completed in the period was £1.8m.
After dividends of £95.1m and other movements of (£60.7m), including exchange movements,
net debt stood at £439.4m at 30 September 2009 (2008: £541.0m).
Facilities, cash management and gearing
The Group is funded through retained earnings and multi-currency revolving credit
facilities totalling £815.1m, which expire in 2011. At 30 September 2009, £460.6m had
been drawn under these facilities. The Group continues to explore opportunities to
enhance and diversify its funding sources in the current capital market conditions.
A rigorous counterparty evaluation process is maintained.
Treasury and risk management
The Group’s Treasury function seeks to ensure liquidity is available to meet the foreseeable
needs of the Group, to invest cash assets safely and profitably and reduce exposures to interest
rate, foreign exchange and other financial risks. 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 with respect to changes in economic conditions and the strategic
objectives of the Group.
The Sage Group plc
Annual Report and Accounts 2009
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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
optimising 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. Continued strong
credit control ensured that in the year ended 30 September 2009 we did not see a
deterioration in days’ sales outstanding. 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. All counterparties
must meet minimum credit rating requirements.
Interest rate risk
The Group is exposed to cash flow interest rate risk on floating rate borrowings.
At 30 September 2009, the Group had drawn down £460.6m (2008: £575.4m) from its
committed revolving credit facilities. The Group regularly reviews forecast debt and interest
rates to monitor this risk. Interest rates on a portion of debt are fixed when management
decide this is appropriate. During the year £93.8m of debt was fixed at an average interest
rate of 1.70% (excluding margin) until 30 April 2012. At 30 September 2009, all remaining
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 partly 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. Surplus cash generated by the Group’s
principal overseas subsidiaries is used to repay debt in the same currencies to provide a
further natural hedge.
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 2009
and 30 September 2008, 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
Group Finance Director
The Sage Group plc
Annual Report and Accounts 2009
18 Principal risks and uncertainties
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Risk management responsibilities and processes:
Executive Committee
Day-to-day responsibility for
risk management
Group Board
Advise and challenge on
risk management strategy
and implementation
Risk Committee
Review and monitor risks
throughout the Group and
monitor implementation
of risk management policy
Audit Committee
Review of risk management
policy and of risks throughout
the Group
Risks can materialise and impact
on both the achievement of business
objectives and the successful
running of Sage’s business. A key
element in achieving business
objectives and maintaining services
to customers is the management
of risks. Sage’s risk management
strategy is therefore to support the
successful running of the business
by identifying and managing risks to
an acceptable level, and delivering
assurances on this.
Operational processes:
– Group compliance framework
– Detailed risk management policies
– Code of ethics
– Whistle-blowing policy
– Organisation and culture
– Delegated authorities
– Group and local risk committees
– Local, decentralised business
processes
Sage is a worldwide company facing a number of wide ranging international factors
Risk description
Potential impact
Mitigation
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,
including Payment Card Industry compliance
and unexpected changes to economic
and market conditions are specific risks
associated with managing our business.
Any failure to maintain compliance with relevant
laws or changes in regulation or any failure
to adapt to market changes or local business
conditions could have a material, adverse impact
on our business. Specific impacts would include
deterioration in financial results, financial penalties
and damage to our reputation.
Sagefacessignificantcompetitiverisk
Risk description
Potential impact
If we are unable to compete in the market in which
we operate, our financial results would deteriorate
through loss of our customer base.
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.
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.
We continually review all relevant local geography
requirements to ensure appropriate policies
and controls are developed. Our Group-wide
compliance programme seeks to ensure
that local operating companies continually
manage and review local rules and regulations.
Our detailed quarterly forecasting process
helps to ensure robust and realistic challenge
to financial performance.
Mitigation
Through the provision of customer support and
our strong brand, we continue to engender loyal
customer relationships. Our strategy to develop our
product and service offering to meet local customer
needs further improves customer loyalty.
The Sage Group plc
Annual Report and Accounts 2009
19
Sage is heavily dependent on information systems and networks
Risk description
Potential impact
Mitigation
We rely significantly on systems and
networks in order to run our business
operations on a day-to-day basis.
Our reliance on systems and networks
includes internally managed and externally
provided systems and networks.
Any external malicious attack on the systems
and networks could lead to misappropriation
of or damage to 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.
We continue to invest in our internal systems and
networks and build and develop relevant recovery
processes. We also continue to review our security,
systems and network infrastructure to ensure
that, 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.
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Sage must ensure it is able to react to ongoing technology changes
Risk description
Potential impact
Mitigation
Technology in the software industry
is constantly changing. In order to be
successful within the software sector,
Sage 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 R&D teams, to stay
up-to-date with technology changes and
customer demands. An inability to adapt to
changing technologies would adversely affect
our competitive position.
Through our substantial dialogue with customers
we are well placed to develop and expand our
product and service offering to meet customer
needs. We also develop appropriate strategic
direction and maintain knowledge of industry
developments to ensure a proactive response
to changing customer requirements.
Sage must ensure its intellectual property is appropriately secure
Risk description
Potential impact
Mitigation
We rely on intellectual property laws,
including laws on copyright, patents,
trade secrets and trademarks to protect
our products. Despite laws and regulations
being in place, unauthorised copies of
software still exist. The internet increases
and provides new methods for illegal
copying of the technology used in our
products and services.
Illegal or unauthorised copies of our software
could be sold without our knowledge, impacting
financial results and Sage’s reputation.
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.
Sagemustensureitmanagesitsexposuretofluctuationsinforeignexchangerates
Risk description
Potential impact
Mitigation
A substantial proportion of Sage’s revenue
and profit is earned outside the UK.
Subsidiaries generally only trade in their own
currency, therefore Sage is not subject to
significant foreign exchange transactional
exposure. Sage’s principal exposure to
foreign currency therefore lies in the
translation of overseas profits into Sterling,
the fluctuation in the value of foreign
currency denominated assets and liabilities
in the balance sheet and any conversion of
foreign currency surplus cash into Sterling.
The accounting profits of the Group and the book
value of assets and liabilities are subject to the
fluctuation in foreign currency rates. The conversion
of foreign currency denominated surplus cash
balances into Sterling are also subject to the
effects of foreign currency fluctuations.
The Group has US Dollar, Euro and Swiss Franc
denominated borrowings which act as a natural
hedge of the net investment in its subsidiaries in
the US, France, Spain, Germany and Switzerland.
The interest on this debt also acts as a partial
hedge against the translation exposure of
the Group’s overseas profits into Sterling.
When surplus cash is generated in overseas
subsidiaries this is used to repay debt interest
and principal in the same currency, therefore
effecting a further natural hedge. Due to this
extensive natural hedging, the Group does not
currently hold any derivative financial instruments
to hedge foreign exchange exposure.
The Sage Group plc
The Sage Group plc
Annual Report and Accounts 2009
Annual Report and Accounts 2009
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“ Over 2,000 customers
per month are taking
the opportunity to rate
us on the quality of the
experience we provide.”
+
Meet one of our customers:
Antony Comyns, e-commerce manager
at Hawes & Curtis discusses the benefits
to his business.
www.ar2009.sage.com
Regional reviews
UK & Ireland
Including:
United Kingdom | Republic of Ireland
CEO:
Paul Stobart
Revenue
£242.2m –2%*
EBITA†
£84.3m –6%*
35% margin
2008
2009
£248.0m*
£242.2m
2008
2009
£89.6m*
£84.3m
Subscription revenue
£171.1m+6%*
Software and software-related
services revenue
£71.1m –18%*
2008
2009
£161.7m*
£171.1m
2008
2009
£86.3m*
£71.1m
Customers
803,000 +31,000
Contracts
360,000 –3,000
2008
2009
772,000
803,000
2008
2009
363,000
360,000
Revenue by sector
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
50%
11%
31%
5%
3%
E
A
D
C
B
Sage Pay
During the year the infrastructure supporting
the Sage Pay gateway was strengthened further,
and the Protx brand name was changed to Sage
Pay. We have begun to win more mid-market
customers who have different needs to SME
customers and we have had to make significant
changes to the way in which we look after these
accounts to meet their expectations. We now
have more than 25,000 Sage Pay customers
and are committed to a broader payments
strategy to improve our competitive position
within the next 12 months.
Sage in the community
The UK team has completed over 817 hours
of volunteer work in the local community on
numerous projects to help charities and other
community groups. This year the UK business
also provided a call centre to help process
donations for a national charity day “Comic Relief”.
Over 860 hours were worked by Sage volunteers
on the phones through the evening and into
the night to help collect donations on behalf
of the charity.
The Sage Group plc
Annual Report and Accounts 2009
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Performance
Total UK revenues declined by 2%* to
£242.2m (2008: £248.0m*). Organic
revenue declined by 3%*, with organic
subscription revenues growing at 5%*,
while organic software and software-
related services revenues contracted
by 19%*.
Sage Pay (formerly Protx) delivered
strong growth of 42% benefiting from
growth in online purchasing, and
Practice Solutions for accountants grew
by 8%* with a number of new product
and service offerings. Our accounting
and ERP products including Sage 50
contracted 5%* reflecting the difficult
economic conditions.
The EBITA† margin, including
restructuring charges of £6.9m incurred
in the year, was 35% (2008: 36%*).
Excluding restructuring charges,
it was 38%.
Marketplace
Supporting customers through
the downturn
Whilst our UK & Ireland customers
were affected by the challenging market
conditions, we acted swiftly to realign
our business to support them during a
significant change to UK taxation and
also by the provision of value added
products and services.
The strength of our decentralised business
structure and our local customer support
was demonstrated in December 2008
when the UK’s Value Added Tax (“VAT”)
rate was decreased with less than a
week’s notice. This affected the majority
of our customers, resulting in a surge in
call activity and the need to update our
software swiftly. However, we were able
to leverage our resources to make these
changes within the five working days
notice we were given as well as support
our customers through this considerable
upheaval, further enhancing our position
as a trusted business partner.
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and
amortisation of intangible assets.
The Sage Group plc
Annual Report and Accounts 2009
22
Regional reviews
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The resilience of our support model
and our focus on delivering services
that customers value, trust and rely
on was illustrated by the success of the
Sage Accountants Club Priority Link
(“ACPL”). This premium support service,
which provides accountants with instant
access to highly qualified technicians,
has delivered exceptional service levels
resulting in revenue growth for ACPL and
our Accountants Club of 21% over the year.
Longer term opportunities
Preparing our business for growth
The Sage identity enjoys strong
awareness in the SME market. This
year our marketing campaign included
sponsorship of a series of programmes
called The Krypton Factor on ITV,
a leading commercial television channel.
The combination of the programmes
which attracted an audience of seven
million every week and the associated
digital marketing have further increased
awareness. By keeping our identity at
the forefront of existing and potential
customers’ minds, particularly during
a period of economic downturn when
many competitors are reducing their
investment in this area, we are well placed
to benefit when the upturn comes.
We have renewed our sponsorship of
The Krypton Factor for 2010 and intend
to continue to maintain a relevant and
contemporary Sage identity.
Providing products and services that are
easy to use is essential. Therefore, our
focus will be on improving the user
experience rather than introducing more
features into our product portfolio. We will
also increase the flexibility of our licensing
and pricing, automate and simplify
deployment, ensuring products can be
downloaded from the web and further
improve product integration. Business advice
services will become more tightly embedded
into products ensuring customers get
maximum value from their SageCover
support contracts. SaaS and hybrid
models will also become more prevalent
as we integrate desktop products with
web services. Finally, we will take a far more
“open” approach to our software, meaning
that we will make it much easier for third
parties to integrate their offerings with ours.
Customers
We spend a great deal of time assessing
how well we look after our customers.
An innovation this year was the
introduction of the “Cust-o-Meter” which
enables customers to give us real-time
feedback on their experience of working
with Sage. On completion of a short
online questionnaire, a live feed updates
a widget installed on all Sage employees’
PCs so we can see how we are
performing, can improve our software
and services and if necessary put in
place a recovery call if a customer is not
happy. Over 2,000 customers per month
are taking the opportunity to rate us on
the quality of the experience we provide.
Not only do we put significant resource
behind our telephone based support –
we handled over 1.8 million calls this year
– but also we have expanded our online
support offering with a knowledge base
that now holds over 15,000 articles and
receives approximately 20,000 visits per
month. This commitment to providing an
outstanding service has resulted in more
than 87% of our customers being satisfied
or better with the service we offer.
People
Our people are fundamental to our
success and despite the hard decisions
we had to make this year in terms of
redundancies we have continued to
invest in our people’s development
and skills, with approximately £450,000
spent on training in the UK. We also
provide Educational Sponsorships and
a training course website. Development
programmes included “Aspire”, which
was piloted during 2009 and is designed
for new managers to Sage. It completes
the trio of leadership programmes we
have had under development in the last
few years: “Aspire” for new managers,
“Enable” for middle managers and
“Inspire” for senior leaders.
Listening to our people is essential if
we are to understand truly how they feel
about the organisation and are to help
bring to life their ideas and initiatives.
This happens informally on a continual
basis but also through formal employee
forums and an annual survey, “Engage”,
which is designed to help measure
employee engagement and job
satisfaction. We received an 81%
response rate and the feedback will help
us to identify what we are doing well, as
well as areas where we need to improve.
Innovation
Encouraging innovation and creativity
is essential, especially in the tough
environment we have faced. We judge
innovations on the benefits they bring
to our customers. Therefore, this year
we developed innovative software and
services designed to help customers
more efficiently manage their business
and their cash flow. This included the
introduction of free, downloadable
invoicing software and free Planning for
Business software which was launched
as part of Lloyds TSB Commercial’s
business banking package.
Corporate responsibility
Our aspiration is to become a truly
responsible business and embed this
ethos into all that we do, behaving
ethically, considering the environment
and the impact of our business
operations. In line with our Group-wide
approach to corporate responsibility we
focus on local initiatives and communities.
Part of our commitment to communities
involves engaging with schools and
universities that are local to our offices.
This year we have piloted an education
scheme where we send our people as
Education Business Partners out into
schools to run events and share their
skills and experiences alongside local
Young Enterprise Schemes. We have
also been working on a National ICT
Diploma to help people develop IT skills
at an early age.
Having measured our carbon footprint,
we are now working with our teams of
environmental volunteers to reduce our
impact and have launched a campaign
called “It’s easy being green” to improve
recycling, cut waste and energy usage
and provide options such as a cycle to
work scheme.
The Sage Group plc
Annual Report and Accounts 2009
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“ There have been
100,000 downloads of
Ciel Auto Entrepreneur
Facile, a free accounts
and invoicing solution.”
+
Read more about our Mainland
Europe business overleaf
The Sage Group plc
Annual Report and Accounts 2009
24 Regional reviews
Mainland Europe
Including:
Austria | Belgium | France (including subsidiaries
in Brazil and Morocco) | Germany | Poland
Portugal | Spain | Switzerland
CEO:
Guy Berruyer
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Revenue
£520.5mflat*
EBITA†
£107.3m –6%*
21% margin
2008
2009
£519.1m*
£520.5m
2008
2009
£114.1m*
£107.3m
Subscription revenue
£292.7m +8%*
Software and software-related
services revenue
£227.8m–8%*
2008
2009
£271.5m*
£292.7m
2008
2009
£247.6m*
£227.8m
Customers
1,676,000 +47,000
Contracts
652,000
+24,000
2008
2009
1,629,000
1,676,000
2008
2009
628,000
652,000
Revenue by sector
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
78%
18%
3%
1%
0%
C
A
D
B
Change in accounting standards
Portugal will be adopting the International
Accounting Standards (“IAS”) on 1 January 2010.
Capitalising on our experience of helping our
Spanish customers through similar legislative
change, we are providing training, a helpdesk and
software to support Portuguese SMEs through
this. We also conducted two events to educate
businesses on the impact of the changes. These
were so oversubscribed we had to repeat them,
with over 4,000 people attending in total.
Supporting North
African customers
We have maintained our presence in North Africa,
supporting our customers in these markets when
some competitors have been reducing their
investments. We have at least one business
partner in every French speaking country in Africa
and conducted a road show which toured six
countries, meeting 850 Sage customers.
Performance
Total revenues in Mainland Europe
were flat* at £520.5m (2008: £519.1m*).
Organic revenue contracted 3%*,
reflecting the economic slowdown which
became apparent in early calendar year
2009. Subscription revenues continued
to show good organic growth of 5%*,
while software and software-related
services revenues contracted organically
by 13%* after very strong growth in the
prior year.
Revenues in our French business
declined 2%* organically in the year.
The slowdown in France has had more
impact on our vertical and CRM
businesses than on our accounting
and ERP businesses which still
showed overall growth in the year.
Spain experienced total revenue growth
of 6%*, reflecting the contribution of
acquisitions in the current and prior
year. As anticipated, organic revenue
contracted 7%*, reflecting the
exceptional growth of 25%* in the prior
year resulting from the stimulus of major
legislative change, and also the severe
impact of the economic slowdown in
Spain in 2009. German revenues were
flat* organically, with the benefit of
increased renewal rates on support and
continued growth in payroll and entry-
level products offsetting general market
weakness. Our smaller businesses in
Mainland Europe, including Switzerland,
Portugal and Poland declined 9%*
overall in slowing market conditions.
The EBITA† margin, including restructuring
charges of £8.8m incurred in the
year, was 21% (2008: 22%*). Excluding
restructuring charges, it was 22%.
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and
amortisation of intangible assets.
The Sage Group plc
Annual Report and Accounts 2009
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Marketplace
Supporting customers through
the downturn
In Spain, Sage’s Small Business Division
hosted road shows across the country to
give business partners more information
and assistance during the economic
downturn. The road shows took place
in seven of the largest cities in Spain
and gave business partners practical
assistance by providing a toolkit for
them to help customers effectively with
the new challenges they face. A series
of initiatives to help business partners
through the economic crisis were
also launched at the road shows.
These included full adaptation of all
Sage products to the new VAT Law
Reform in Spain, modifications to
the business partner programme and
the implementation of various financing
solutions for SMEs to enable easier
purchase of Sage software.
Sage Germany responded to customer
needs by developing product bundle
promotions to address their particular
local points such as cash management
or staff cost planning as well as business
intelligence tools for those customers
seeking to understand better their
business relative to their competition.
Longer term opportunities
Preparing our business for growth
In France, Sage has a well established
relationship with APCE (“Agence pour la
creation d’entreprises”), the government
body promoting business start-ups.
In January 2009, new regulations were
introduced incentivising people to create
their own jobs – “Auto Entrepreneurs” –
as a first step towards establishing new
businesses. In response Sage launched
Ciel Auto Entrepreneur Facile, a free
accounts and invoicing solution
dedicated to these aspiring business
people. Available as a download from
the APCE and Ciel websites this initiative
reinforces our reputation as a trusted
partner and generates long-term loyalty
amongst these new customers.
It has also led to us becoming a key
point of reference for French public
authorities and national institutions when
they need advice on issues affecting
entrepreneurs. In the first year 240,000
people have become “Auto Entrepreneurs”
and there have been 100,000 downloads
of our software.
Demand for online services will continue
to grow and we are investing in this area,
for example through the development
of web versions of our software and in
Sage Germany the creation of a new
business unit, Sage Online Services,
to oversee the development of their
SaaS offerings. More of our customers
are operating and expanding
internationally and, in response to this,
Sage ERP X3 was launched in Germany
and so it is now available in all our main
European markets.
Customers
Listening to and acting on customer
feedback is important for all of our
businesses. In Germany, we launched
an SME customer portal which provides
opportunities for our customers to give
feedback on our products and to rate
their business partner. We also created
a tool to encourage dialogue with people
who visit Sage Germany’s website –
a window pops up and invites them to a
website to enter an online chat about the
product or service they are interested in.
People
This year we have launched a wide
range of initiatives for our people
across Europe. In Poland, an intensive
development programme was
introduced to fast track young talent.
In France a new compensation and
benefits programme was published
online, which includes a profit sharing
plan, and in Germany more flexible
working options, including a sabbatical
programme, adaptation of working
hours for single parents and home
working were instigated.
Innovation
Sage Germany launched einfachLohn –
“simple payroll” – which is a new SaaS
application for small businesses. It is
designed to help them easily manage
their payroll processes and automatically
generates the associated legal documents
for health insurance or tax purposes
and submits them electronically to the
appropriate institutions.
To create such an innovative new
product, which took just nine months to
develop from scratch, we put together
a small team of experts at our Leipzig
office. At their request the development
took place in a separate unit outside
the office. This allowed the team to work
in secret, testing various delivery and
development methods with prospective
customers to ensure they created a
product that truly met their needs.
To ensure robust security, a group of
external specialists and hackers were
invited to simulate attacks on the live
service, and they failed to break into
the system. A creative, online marketing
campaign, including an online community
for potential users, supported the launch.
Through the interaction with potential
customers during the development
phase we were able to generate 220
paying customers before the product
officially came to market.
Corporate responsibility
Corporate responsibility is driven locally
to ensure it is meaningful to local
communities. Consequently we supported
a wide range of causes including, in
France, a donation of €40,000 to “SOS
Village d’enfants”, a collection for “Secours
Populaire Francais” of clothes and other
essential items (together with donations
of €6,900) and a strategy to help bring the
business closer to local schools through
events and participation in education.
In Germany we provided financial support
to “Die Tafel”, an organisation that allocates
food to homeless people in Frankfurt,
Mönchengladbach, Leipzig and Stuttgart
and to “Delhi House”, a centre for
homeless people. Sage Poland sponsors
and organises the national “Accountant
of the Year” competition which is the most
admired competition in the profession.
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“ To be successful, you’ve
got to find ways to get
the job done… that’s what
I like about Sage MAS 200 :
plain and simple, it gets
the job done.”
Odom Dexter
Dexter’s Farm
Regional reviews
North America
Including:
Canada | United States
CEO:
Sue Swenson
Revenue
£576.4m –10%*
EBITA†
£105.3m–6%*
18% margin
2008
2009
£637.3m*
£576.4m
2008
2009
£111.7m*
£105.3m
Subscription revenue
£428.3m –4%*
Software and software-related
services revenue
£148.1m –23%*
2008
2009
£444.5m*
£428.3m
2008
2009
£192.8m*
£148.1m
Customers
3,118,000 +123,000
Contracts
601,000
2008
2009
2,995,000
3,118,000
2008
2009
601,000
601,000
Revenue by sector
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
36%
43%
4%
7%
10%
Simply Accounting
education programmes
We are seeding our future through our education
programmes across North America, where over
4,000 educational institutions use a Sage product
(Peachtree or Simply Accounting) to teach the
principles of accounting.
A
E
D
C
B
Intergy Practice Portal
Our Intergy Practice Portal has equipped
physician practices with patient self-serve
features to accommodate their patients over the
web, particularly around new patient registration,
appointment scheduling and prescription refill
requests. New functionality was introduced
in FY09 to provide patients with additional
connectivity including the ability to complete
a medical health history questionnaire and
create and maintain a personal health record.
These innovations drive efficiencies, increase
patient safety, and support the migration
toward electronic health record management.
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Performance
Total revenues in North America
contracted 10%* to £576.4m (2008:
£637.3m*), reflecting the difficult
economic conditions. Organic revenue
contracted 8%*. Organic subscription
revenues declined 2%*, while organic
software and software-related services
revenues declined 23%*.
Phase 1 of the changes to our
North American business has been
successfully completed with the new
management team in place and an
appropriate reduction of the cost base.
Operational improvements planned
in Phase 2 are underway including
reinvigoration of the channel, growth
in premium support offers and several
product launches. We are making good
progress in these areas and have seen
increases in customer satisfaction scores
across our product lines.
Sage North America is organised into
three divisions, Sage Business Solutions
Division (“SBS”), Sage Payment
Solutions Division and Sage Healthcare
Division. SBS declined organically 11%*,
the downturn particularly impacting our
mid-market accounting products, CRM
products and Sage Timberline Office
which serves the construction industry.
Our entry-level accounting products
(Peachtree and Simply) delivered
resilient performances with continued
growth of Peachtree Quantum.
Non-Profit Solutions performed well in
the challenging market conditions and
grew modestly. Sage Payment Solutions
Division saw a 15% increase in the
number of merchants served but lower
volume per merchant leading to a fall in
revenue of 4%*. Payments revenue from
cross-sell to our existing customers
grew, from a small base, by over 100%*
in the year and we regard this as a
substantial future opportunity for Sage.
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and
amortisation of intangible assets.
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Sage Healthcare Division has improved
its EBITA† margin in the year to 17%
(2008: 8%*). We have improved
customer service levels and so reduced
customer losses in our Medical Manager
base. Although Healthcare revenues
declined overall by 5%*, revenue from the
Intergy product line, including Electronic
Health Records (“EHR”) capability,
grew by 13%* to £71.2m. Intergy, with
its accredited, market-leading EHR
solution, is well positioned to benefit
from incentives within the American
Recovery and Reinvestment Act for
the adoption of EHR.
The EBITA† margin of Sage North
America, including restructuring charges
of £10.7m incurred in the year, was 18%
(2008: 18%*). Excluding restructuring
charges, it was 20%.
Marketplace
Supporting customers through
the downturn
Our North American customers felt the
full impact of the downturn in mid to
late calendar year 2008. To help them
through this we introduced various
payment and financing packages,
free and low cost options as well as
solutions to help them better manage
their cash flow.
These included Peachtree by Sage
which launched a six month instalment
plan in December 2008. Approximately
20% of Peachtree upgrades are now
sold with this option. MAS 90 introduced
a monthly payment option for service
contracts which has benefited over
1,000 customers. Simply Accounting
by Sage rolled out a free downloadable
version of its entry-level product,
Simply Accounting First Step. So far
approximately 3,000 businesses have
downloaded this version. Further,
a MAS 90 credit card processing module
was given away for free to customers
that also sign up for our merchant
services. This “cash flow bundle” is
positioned to help customers collect
cash and 300 MAS 90 customers have
taken advantage of it this year.
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and
amortisation of intangible assets.
Longer term opportunities
Preparing our business for growth
The US Healthcare market represents
a significant opportunity for growth.
Our market-leading, industry-accredited
products position us well to leverage
future demand for EHR solutions.
This is primarily being driven by funding
for adoption of EHR in the American
Recovery and Reinvestment Act.
We are actively pursuing opportunities
presented by the Act, concentrating
on building brand awareness, sales
effectiveness and the development of
strategic relationships with purchasing
organisations and government agencies.
Within our Payment Solutions Division,
we are actively diversifying our current
customer base, shifting from a high
concentration of merchants in the retail
space by selling merchant services to
existing North America customers in
other sectors. As the economy recovers
it is likely we will see an increase in
processing volumes from our merchant
base as consumer confidence rebounds.
Emphasis is being placed on enhancing
our premium support offerings to provide
additional value to our customers while
also growing average revenue per
customer. Initiatives are underway to
increase the penetration of support
contracts into our customer base and
expand our offerings to include other
premium components such as business
advice and extended hours support.
We have enhanced our channel partner
compensation structure to drive and
reward growth, are leveraging detailed
partner segmentation models to identify
better individual partner performance
and are seeking to expand the channel
in key areas to ensure appropriate
geographical coverage and capacity
to serve future demand.
Customers
Our North American support
organisation is being reshaped to
ensure we resolve customer requests
quickly and accurately while also
continuing to increase the calls we
make to our customers. A Customer
Service Council has been created to
focus on making it easier for customers
to do business with Sage. Tangible
improvements include the introduction
of a live answer for our main “toll free”
800 number which gets customers to
the right place the first time. A training
programme called “Voice of Sage” has
been rolled-out to our customer support
staff, emphasising the key attributes that
create a more satisfying and consistent
customer experience.
Over the year significant investment was
made in online customer communities.
This included the launch of SageSpark
and MyBizCounts – online communities
which provide business owners and
those considering starting a business
with tools, education and community
support. Sage North America also
launched online communities for Sage
MAS ERP and Sage FAS Fixed Assets
customers, adding to more than a
dozen other customer communities
the company hosts.
People
The passion, expertise and ideas of
our people are one of our key strengths.
We actively seek to leverage this,
for example through employee surveys
and round table sessions hosted
with employees from all levels of the
organisation. One such idea resulted
in the development of “Ask Me”,
a programme designed to share
knowledge more effectively and answer
customer questions about different parts
of the business, as well as improve
the cross-selling of our solutions.
We have created a “top down” coaching
programme to provide leaders with
a common approach to developing
employees. This has been delivered
to more than 60 senior leaders and
will be rolled out to different levels of
management over the coming year.
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Our North American leadership team
has also been strengthened through
the recruitment of a Chief Technology
Officer, Chief Information Officer and
Presidents of SBS and our Payment
Solutions Division. All bring industry
expertise and experience to the
business and will help ensure we are
well positioned for the future.
Innovation
The most significant innovations this
year were the introduction of two free
online services focused on helping new
entrepreneurs. The first is a community
site, www.SageSpark.com, where small
businesses can tap into advice from
experts and fellow entrepreneurs.
The site provides free access to
invaluable tools and services to help
businesses save time and money.
While on the site, members can
also take advantage of fee-based
services such as payment processing,
live computer support and web page
creation and promotion. The second
is Billing Boss, a free online invoicing
tool designed for small businesses and
freelancers to create, send and track
invoices helping them get paid faster
and better manage their cash flow.
Corporate responsibility
Sage North America continues to
be focused on its local community.
The business hosted an annual event
celebrating Sage Day, where we
partnered with other Sage locations
around the world in support of charitable
giving. Sage North America centred their
activity on a theme of “Change One
Thing”. During this event a food drive
was conducted for Hunger Task Forces
across the US and Canada with food
donations totalling more than 17,000
pounds or 7,700 kilograms.
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Regional reviews
Rest of World
Asia – region includes:
China | Dubai | India | Malaysia
Saudi Arabia | Singapore
CEO Asia:
Guy Berruyer (left)
Southern Hemisphere – region includes:
Australia | Botswana | Namibia | South Africa
CEO Southern Hemisphere:
Ivan Epstein (right)
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Revenue
£100.2m +1%*
EBITA†
£23.8m–8%*
24% margin
2008
2009
£99.6m*
£100.2m
2008
2009
£25.8m*
£23.8m
Subscription revenue
£44.7m +14%*
Software and software-related
services revenue
£55.5m –8%*
Performance
Total and organic revenue in Rest of
World grew by 1%* to £100.2m (2008:
£99.6m*). Organic subscription revenues
showed strong growth of 14%*, while
organic software and software-related
services revenues contracted by 8%*
after excellent growth in the prior year.
South Africa showed organic revenue
growth of 9%*, with both accounting
and payroll solutions performing
well. However, the impact of the
recession began to be experienced in
the fourth quarter of the financial year.
Australia declined 3%* organically,
reflecting the slowing economy, and our
Asian businesses, with relatively less
mature service offerings declined 15%*.
The EBITA† margin was 24% (2008:
26%*), reflecting the difficult market
conditions in Asia.
2008
2009
£39.4m*
£44.7m
2008
2009
£60.2m*
£55.5m
Marketplace
Supporting customers through
the downturn
Customers
545,000 +44,000
Contracts
166,000 +12,000
2008
2009
501,000
545,000
2008
2009
154,000
166,000
Revenue by sector
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
41%
10%
45%
4%
0%
Innovation
Dressta Asia Pacific Pte. Ltd, a Sage Accpac
ERP customer in Singapore, provides heavy
machines and parts to 20 distributors in Asia,
Australia and New Zealand. When a machine
breaks down it is important for Dressta’s partners
to provide a quick quote and information on
availability. Sage developed web and SMS
applications that integrate with Sage Accpac ERP
enabling direct enquiries online or via mobile
phones, saving time and money in the ordering
and replacement of parts.
D
A
C
B
Sage in the community
Softline, Sage’s business in South Africa,
continues to sponsor the Thuthuka programme,
which is a scheme to support the advancement
of previously disadvantaged students at school
level. The focus is on accountancy, maths and
science and 60 state schools took part in the
programme this year.
Our businesses in Rest of World cover
a diverse geographic region with differing
market conditions. For example, in South
Africa there was a lag effect relative to
the world economic recession, with the
financial problems in the Western world
being felt later in 2009 and particularly
affecting the manufacturing and export
sectors. As with many of our businesses
this presented us with the challenge of
maintaining service excellence whilst at
the same time managing our costs.
We achieved this by concentrating on
providing software and service solutions
that give clear benefits to our customers.
These ranged from SaaS applications,
to instalment payment options and
web-based training on issues directly
affecting businesses, such as
retrenchment processes.
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange
rates for the year ended 30 September 2009 of $1.54/£1 and
€1.14/£1 to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and
amortisation of intangible assets.
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Innovation
Softline Pastel launched its first online,
or SaaS, accounting system this year.
Pastel My Business Online is aimed at
the SME market and was designed from
scratch specifically for business owners
who are starting out with very little
bookkeeping knowledge and require
a basic system. Accessible online,
it is a multi user system that is also
integrated to the iPhone, giving our
customers mobility as well as allowing
their accountant to log on, enabling
them to work seamlessly with their
client. Innovations such as this
demonstrate our commitment to
delivering software and services that
utilise the latest technology where
it adds clear value to our customers.
Corporate responsibility
Each of our businesses throughout
Rest of World selects its own charities
and community projects to support.
In South Africa we have prioritised
educational initiatives and where
possible target the field of IT education
and training for young people.
In Malaysia we support a local
Cheshire Home, and have restored
their dragon fruit farm which is a key
source of income for them, whilst our
Australian employees raised money
and donated blood to help victims
of the February bushfires.
We also successfully introduced new
software into these markets, such as
Sage ERP X3 in South Africa which was
well received by customers due to its
combination of excellent functionality
and low total cost of ownership.
In Malaysia we launched a variety
of tools to help customers face the
challenging times including end-to-end
electronic payment solutions designed
to save time and improve cash
management, credit assessment tools,
mobile solutions and integrated CRM
and accounting systems.
Longer term opportunities
Preparing our business for growth
The support, guidance and training we
give is especially important in developing
economies, such as South Africa, where
there is a continually evolving legislative
landscape particularly in respect to
payroll. There is also a significant shift
occurring in this market from manual to
electronic tax submissions as well as a
move to monthly tax submissions which
is being phased in over the next three
years. This will place a strain on our
customers, who will increasingly look
to Sage to support them through these
changes and provides us with an
opportunity to enhance further our
position as an invaluable and trusted
partner of their business.
Our investment in products and
services continues and we will expand
our online offerings, introducing new
products in 2010. We will also make
further progress with Sage ERP X3
as our flagship upper mid-market
product suite in both South Africa and
Australia. In the latter, we plan to expand
our payroll and HR solutions to meet the
needs of larger organisations with more
complex requirements and introduce
employee services portals to provide
a more cost effective offering for our
smaller customers.
Our Indian business is developing
Sage Pocket Payroll to make it a mass
proposition at the entry-level as well as
setting up strategic alliances with key
partners, such as systems integrators
and consulting firms, to accelerate
market penetration. We will also
continue to invest in infrastructure,
such as our telephone system in
Singapore, to improve the experience
our customers receive.
Customers
Our local approach is well suited to
meeting the needs of our diverse range
of customer in this region. We deliver
locally developed solutions as well as
leveraging existing global solutions such
as our CRM products, Sage Accpac
ERP and Sage ERP X3. Whichever
solution our customers choose, they
are supported locally, either through
our business partner network or directly
via Sage.
We continually look for ways to share
expertise and experience around the
region. This was demonstrated by our
Singapore business which has replaced
its basic support plan with a tiered
offering of Basic, Standard and Premium
contracts, reflecting the model we use in
some of our more mature markets. This
has provided our customers with greater
choice and has improved our response
rate from less than 30% to above 70%.
People
The Sage Leadership Standard
has been embraced in the region.
Initiatives designed to embed this
within the business ranged from
formal discussions to informal cross
team activities. The Sage Guiding
Principles are fundamental to how
we conduct our business and we have
developed an award programme for
demonstrating these in the workplace.
We have introduced an online employee
reward system, which also enables
employees to contribute to charitable
causes at the click of a button, long
service awards and management
development programmes.
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Corporate responsibility
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.
We established this policy in 2008 and it has continued to apply
during 2009. The policy has four areas of focus – industry, people,
community and environment. These initiatives, and some examples,
are illustrated here but please visit our website (www.sage.com)
to read our full Corporate Responsibility Report, which includes
many more examples of our policy in action.
Industry
With over six million customers,
most of which are small to medium-sized
businesses, Sage is in a unique position
to have a positive impact on the world
of industry and commerce and we
have focused on two key areas this year;
supporting SMEs through the recession
and developing the entrepreneurs
of tomorrow.
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Making a
difference
Sage is committed to acting as
a responsible corporate citizen.
We take a pragmatic approach
to Corporate Responsibility
(“CR”) which enables us to focus
our commitment on areas that
are the most relevant to Sage,
to our people and where we
believe we can make a difference.
People
Our focus on people remains
unchanged. We continue to work hard
to develop talent, improve leadership
and raise engagement levels. It has
been a challenging year as we have
had to make some jobs cuts and impose
recruitment freezes in some parts of
our business in response to difficult
market conditions. However, we have
introduced development programmes
at a local and global level to improve
the quality of leadership, extended local
programmes to recognise exemplary
employee performance and celebrated
successes and enhanced local internal
communication in many countries.
We continue to survey our employees
regularly to understand our strengths
and weaknesses as an employer and
action improvements in response.
Regular business briefings are held by
senior managers to inform our people
of the financial performance of the
business and the economic factors
which impact our industry. These include
face-to-face meetings, videos hosted on
our intranet, podcasts and newsletters,
especially around our half and full-year
financial results.
Community
One of our strengths is the fact that
we are not a homogenous organisation.
Sage designs, develops, sells and
supports the vast majority of its
products locally, which means that the
jobs we generate are local, supporting
the local economy. Our people naturally
choose to support and give back to
the communities in which we work
and Sage supports this activity in a
myriad of ways.
Environment
We are not in an industry considered
to be a high energy consumer.
Nevertheless it is responsible practice
to understand better the impacts
we have on our environment and the
opportunities we have to reduce this.
Our work this year has focused on
improving our approach to measurement
of the carbon emissions resulting from
use of electricity and gas at our offices
(our “scope 1 and scope 2” emissions)
and this includes both serviced and
owned properties. We have also
continued our work to reduce
packaging in our products using
electronic downloads where possible.
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Corporate responsibility
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Legislative impacts
The rapid destabilisation of the economy
has led to intervention by governments
in a number of countries and in some
cases this has resulted in changes
in legislation which affects business.
In many countries we have helped
our customers navigate through these
changes. For example, Sage Portugal
launched a new website designed to
help SMEs understand the changes
surrounding the implementation of the
new International Accounting Standards
that will come into effect in Portugal in
January 2010. The website, www.sncpt.
com, contains information for SMEs on
the implications of the new regulations
and details of potential difficulties in
transferring from existing accounting
systems to a new compliant one.
Sage Portugal is providing a conversion
tool which will help an estimated
80,000 Sage customers prepare for
this new legislation.
Developing the
entrepreneurs of tomorrow
The values on which Sage was founded
(Simplicity, Trust, Integrity, Innovation,
Agility) capture the spirit of entrepreneurship
and are the lifeblood of business. Helping
to create the entrepreneurs of tomorrow
is something we are passionate about.
The next generation of entrepreneurs
Softline, Sage’s business in South Africa,
has sponsored the Life College Xchange
programme to promote the development
of entrepreneurial skills amongst the
Life College students. The Xchange is
a trading floor for ideas and opportunities
which these young entrepreneurs can
use to interact with prospective investors.
In Poland, Sage has been granted
Association of Chartered Certified
Accountants (“ACCA”) Approved Employer
status to recognise the support it gives
to ACCA members for continuing
professional development and to trainers
studying towards their ACCA status.
Helping people start out in business
Each year, Sage France interviews
60,000 companies, including customers
and non customers, to find out more
about their views on the current business
climate. Following these surveys
Sage France decided to set up the
Sage Institute to provide SMEs with
additional support and tools to thrive.
The Sage Institute will work by providing
entrepreneurs and SMEs with a chance
to interact, both face to face and online
through www.institut-sage.com.
Web portals have also been developed
in North America for the start-up
community, including www.SageSpark.
com which has numerous free tools such
as Billing Boss, an easy to use web-based
invoicing tool, as well as many advice
papers and a community forum where
entrepreneurs can exchange ideas.
People
Building a stronger Sage team
At Sage, we continue to focus on building
a strong successful team through careful
talent management, development of
people and leadership and by improving
engagement. This has been challenging
in a year when it has been necessary to
cut jobs or freeze recruitment in some
markets most affected by the economic
downturn. Where this has been
necessary we have focused on delivering
clear and concise communication so our
people know what to expect and when.
Industry
Sage’s decentralised structure helps us
to remain close to customers and their
issues as our teams are working in local
markets with people in business every
day. This unique perspective has ensured
that we are close to the problems and
issues our customers feel everyday.
Supporting SMEs
in challenging times
In the last 12 to 18 months we have
witnessed unprecedented levels of
economic turbulence. The impact of
the banking crisis and resulting lack of
credit has affected SMEs in many of our
markets. We have taken a number of
tangible steps to help our customers
manage their businesses through these
difficult times.
Providing practical help
We have amended our pricing and
introduced new payment terms as well
as free offerings to provide customers
with more flexibility to manage their
cash flow. We have also developed
services to provide help in managing
their businesses more efficiently.
For example Sage in Germany launched
a new module in its HWP 2009
construction software designed to help
its customers assess the health of their
businesses. The online questionnaire,
called Auftrags-Schnellcheck, is helping
customers to analyse what they need to
do to combat decreasing order books,
for example by analysing whether their
company is putting enough resources
into marketing and customer retention.
Following the healthcheck, customers can
then download free guides from Sage on
marketing and customer retention.
Engaging with customers
and the business community
www.sncpt.com (right) contains information
for SMEs in Portugal on the implications
of new regulations and advice on migrating
to new compliant accounting systems.
In France, we set up the Sage Institute which
will provide entrepreneurs and SMEs with
a chance to interact, both face to face and
online through www.institut-sage.com (far right).
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Developing talent
As we continue to shape our strategy
and look to our future we have continued
to focus on leadership in Sage and
develop the leadership qualities we need
to be successful. Last year a team of
global leaders developed an aspirational
leadership standard against which all of
our current leaders and emerging talent
are now benchmarked. The new
standard sets out our vision for what
successful leadership looks like in Sage
and defines the behavioural and cultural
attributes we need and expect.
Communication and engagement
All of our major operating companies
now undertake an employee survey
which highlights strengths in Sage as
an employer and areas for improvement.
The findings differ from one region to
another and some of this is driven by
cultural differences. However, the results
would suggest that in many countries
the Sage business is more highly rated
overall than the benchmark standard.
However, this is not the case in all
regions and work will continue in 2010
to work to raise engagement levels in
the areas where the greatest gaps lie.
Reward and recognition
This year our focus has been on getting
the building blocks in place to align
more closely reward with the strategic
performance of the business. The
Group Reward Policy has been clarified
and expanded to ensure more robust
processes are in place for target-setting,
determining pay budgets and managing
bonus structures. This has already
begun to introduce consistent principles
and parameters in reward practice at all
employee levels.
Community work in UK
Sage UK once again acted as a call centre
for Comic Relief and employees gave up their
own time to take calls from those who wished
to donate to the charity.
In addition, a review of leadership
reward has been undertaken to
determine how this may be more
closely linked to business performance
and the attainment of future strategic
goals. The changes in the policy on
the allocation of awards under the
Performance Share Plan (“PSP”)
implemented this year reflect that, and
participation in the PSP itself is now
linked to our talent management process.
Community
Supporting our local communities
Our people have a long history of actively
supporting a wide range of charities and
community organisations that are most
meaningful to them locally. Activities like
fundraising, sponsorship and volunteering
are very common in Sage offices around
the globe. Some examples are shown
below but these are just a sample of the
great work our people have undertaken
to support their local communities during
the course of the year.
Royal Recognition
Our commitment to our local
communities starts at the very top.
In recognition of his work in the
community, Paul Walker, Sage Group
Chief Executive, was awarded the
position of North East Ambassador
of the Year 2009 for Business in the
Community by His Royal Highness
The Prince of Wales.
UK & Ireland
The team has a structured approach
to volunteering and charity efforts
and this year completed over 817 hours
of volunteer work in the local community
on numerous projects to help charities
and other community groups.
Stacey Rodgers of Sage UK wins the North East
Volunteer of the Year award.
Sage UK also provided a call centre
to help process donations for a national
charity day, “Comic Relief”. Over 860
hours were worked by Sage volunteers
on the phones throughout the evening
and into the night to help collect
donations on behalf of the charity.
Mainland Europe
In Poland, Sage supports the
“Iskierka” foundation which helps
children suffering from cancer.
Initiatives to raise money for the charity
include an auction of art works by the
children and a winter promotion of a 5%
discount on our products forwarded
as a donation for “Iskierka” foundation.
North America
In North America, we have expanded
our community and charitable activity
this year. Our Giving is Living charitable
programme was extended to support a
wider range of organisations. Through the
programme, which encourages employees
to donate to charities of their choosing,
Sage provides a 50% match to donations.
In 2009 over $175,000 was donated to
charities through the programme.
Rest of World
Following the bushfires that raged across
Australia, our people in Sage Australia
decided to work together to raise
funds for those who had been affected.
Our people also donated much needed
blood to the Australian Blood Bank
to help burns victims. In total, the 270
employees in Australia raised AUD9,000
which was matched by Sage resulting in
an AUD18,000 donation to the Australian
Red Cross.
BP Sustainability Awards
In 2009 The Sage Group plc alongside The Sage
Gateshead won the prestigious BP Sustainability
Award which celebrates successful collaboration
between business and the arts.
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Annual Report and Accounts 2009
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Corporate responsibility
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Environment
Understanding our
environmental impacts
Sage is an office-based organisation
and as such our environmental impacts
are less than those of many other
industries. In fact, whilst it is difficult to
quantify the savings made, our role in
automating business processes helps
organisations reduce their environmental
impacts by the use of electronic
transactions.
Last year, for the first time, we started
to measure the carbon footprint
from energy use in our main offices.
Our work this year has focused on
improving our approach to measurement
of the carbon emissions (“scope 1 and
scope 2”) from energy use in all offices
with more than 25 Sage employees and
developing a consistent and robust
system for gathering and reporting this
data. We believe we have made significant
steps in establishing this system and
have learnt a lot from the process.
Next year we hope to improve this
process further and use the data to
target energy efficiency opportunities
and therefore take positive steps to
reduce our footprint.
We have continued our work to
reduce packaging in our products
by using electronic downloads where
possible. We have also begun work
to capture levels of waste and
recycling across our organisation but
we need to continue to embed our
reporting systems before we can
begin to report meaningfully on this.
Carbon emissions
Last year we introduced carbon
emissions reporting across our
businesses through a six-month
pilot data capture process.
This year, we are pleased to be able
to publish the carbon footprint for
offices with more than 25 people in the
countries shown (see diagram below).
As a large proportion of our offices
are serviced we have chosen the
ambitious target of including the carbon
emissions from serviced offices where
available, and have chosen to make
sensible estimates for the consumption
of offices where we are still working with
landlords to establish a regular reporting
process. In total, 6% of our energy use
has been estimated using equivalent
office data.
We plan to continue developing
these reporting systems in future
years to improve the completeness
and timeliness of this data.
We have also updated our carbon
calculations process this year to
take account of the new international
emissions factors provided by the
UK’s Department for Energy and
Climate Change (“DECC”), although
we have chosen only to report carbon
dioxide emissions for all countries rather
than a broader collection of greenhouse
gases for those countries where such
data is available. This helps provide
comparability between the footprints
of our various businesses which
will help us to see opportunities for
reduction in energy consumption.
Energy awareness and
reducing consumption
Our operating companies are
encouraged to seek ways to minimise
impact through employee education
and awareness. On Sage Day 2009
we launched a campaign called
“Change One Thing” which focused
on educating employees on climate
change and how small changes in
personal behaviour can make a
difference. Through our global intranet
we encouraged employees to share
personal stories of commitment to
change and these ideas were captured
in an electronic booklet which was
made available to all Sage countries for
translation and electronic distribution.
Total carbon emissions from energy
25,377 tonnes
Operating company and total carbon
emissions from energy (in nearest whole tonnes)
454
Germany
54
Austria
232
Poland
Change One Thing
On Sage Day 2009 we launched a campaign
called “Change One Thing” which focused on
educating employees on climate change and
how small changes in personal behaviour can
make a difference.
3,993
UK & Ireland
12,830
North America
1,825
Spain
102
Portugal
484
France
38
China
72
Malaysia
155
Singapore
4,498
South Africa
641
Australia
The Sage Group plc
Annual Report and Accounts 2009
37
Reducing waste
Sage UK has taken a further step in its
recycling initiatives by removing individual
bins at desks and providing central
bins alongside office recycling stations.
This has resulted in an average increase
of 48% in recycled waste per month.
UK preparation for Carbon
Reduction Commitment (“CRC”)
We have appointed an external service
provider to assist us in preparing for
the CRC. This three-year partnership
will help us not only to fulfil our legal
requirements but also to develop and
implement strategies to reduce our
UK carbon footprint. As part of this
preparation we are working with the
Carbon Trust to gain the Carbon Trust
Standard in the UK.
Governance, risks,
opportunities and CR
Leadership and CR
Corporate Responsibility matters are
reviewed on a quarterly basis by the
Group Executive Committee. Application
of the CR policy is led by the CR
Steering Committee which is led by
the Group Director of Human Resources
and Corporate Communications and
includes Board representation through
the presence of the Company Secretary.
Governance
In some countries the economic crisis
has led to concerns about how large
businesses are managed and run.
Sage continues to work towards the
highest standards of governance and
more details on this can be found in
the section “Corporate Governance”
within the annual report.
To support this, we have embedded
our Code of Ethics in all operating
companies and have extended our
channels by which employees can
anonymously report any concerns
about fraud, bribery or corruption.
Risks
It is expected that legislation
surrounding the area of environmental
reporting will increase over forthcoming
years as governments look to fulfil their
carbon reduction commitments.
Currently we are planning for the
anticipated changes in UK legislation
in this area and our approach this
year to check and improve our carbon
accounting process will help us prepare
for any changes in legislation that
do emerge. The UK business is expecting
to report under the UK’s CRC scheme
and is preparing to do so.
Climate change may also represent
a risk to organisations. None of our
operations are in a geographical
location associated with significant risk
although long-term changing weather
patterns as part of global climate
change could impact on any of our
locations. All of our locations operate
business continuity plans in order to
ensure we would be able to continue
to provide a quality service to our
customers should a site be affected.
We believe this approach is part of good
business planning.
Whilst climate change and increased
energy costs represent long-term
risks to our business, like many
other office-based businesses these
are limited. These risks include:
– Increased energy costs/energy
restrictions and regulation;
– Increased supplier costs (due to
their increasing energy costs);
– Increased oil/petrol costs influencing
employee travel habits which may
affect the target recruitment market
or impact on other employment
policies such as home working;
– Water restrictions; and
– Rising cost of business travel.
These may apply across all of our
operating companies. The processes
to identify and manage the key risks to
the success of the Group are an integral
part of the internal control environment.
To this end, to ensure that risks are
identified and monitored, the Group has
formed a Risk Committee consisting
of the Group Chief Executive, Group
Finance Director, Group Risk Director,
Company Secretary and certain other
members of the Group Executive
Committee.
Opportunities
Increasing legislation and a likely
increase in carbon reporting does
present an opportunity for Sage to
help provide businesses with software
and services to manage these business
processes. Business owners and
software users are also looking for ways
to minimise their impacts and using Sage
software can help. People increasingly
wish to minimise waste and energy use.
We have already done a great deal of
work to support electronic transaction
processing within and between our
products and with government agencies
and banks.
This has huge potential to reduce
the amount of printing that is
necessary within the average SME
and will be very attractive to SMEs
to simplify processes, limit their own
environmental impact and improve
their waste management activity.
This area continues to grow steadily.
Electronic processing and transactions
are now further supported through
our payment processing services.
This electronic network is, in some
areas, extending to suppliers who
can transact electronically through
a developing Sage ecosystem.
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The Sage Group plc
Annual Report and Accounts 2009
38 Board of directors and advisers
Tony Hobson
Chairman, non-executive director
Age 62
N R
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Paul Walker
Chief Executive
Age 52
Paul Harrison
Finance Director
Age 45
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Paul Stobart
CEO, UK & Ireland
Age 52
Tony is the Chairman of Northern Foods plc
and a non-executive director of Glas Cymru
(Welsh Water) and esure. He is also the Chairman
of the Trustees of Changing Faces, the UK’s
leading disfigurement charity. Tony is a chartered
accountant and an MBA and he was previously
the Group Finance Director of Legal & General
Group plc for 14 years, retiring in 2001. He joined
the Board in June 2004, becoming Chairman
in May 2007.
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.
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.
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.
Guy Berruyer
CEO, Mainland Europe and Asia
Age 58
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
Group Strategy and Mergers
and Acquisitions Director
Age 52
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.
The Sage Group plc
Annual Report and Accounts 2009
39
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Tamara Ingram
Independent non-executive director
Age 49
A N
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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 Almeida Theatre.
Tim Ingram
Independent non-executive director
Senior Independent Director
Age 62
A N
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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
Independent non-executive director
Age 56
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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
Independent non-executive director
Age 47
A N R
Ian joined the Board on 1 November 2007.
After working with Mckinsey & Co. and
The 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
Independent non-executive director
Age 51
A N R
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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 retiring in 2007.
He is also a non-executive director of Hornby plc
and Barratt Developments plc and Chairman of
Lane, Clark and Peacock LLP. He joined the
Board on 1 December 2007.
Committee membership
A
Audit Committee
Nominations Committee
N
Remuneration Committee
R
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
Principal Bankers
Lloyds TSB Bank plc
Corporate Markets
Black Horse House
Sandyford Road
Newcastle upon Tyne
NE99 1JW
Solicitors
Allen & Overy LLP
One Bishops Square
London E1 6AD
Registrars
Equiniti
The Causeway
Worthing
West Sussex
BN99 6DA
Independent
Chartered
Accountants
and Statutory
Auditors
PricewaterhouseCoopers LLP
89 Sandyford Road
Newcastle upon Tyne
NE1 8HW
The Sage Group plc
Annual Report and Accounts 2009
40
Directors’ report
For the year ended 30 September 2009
The directors present their report and the audited financial
statements for the year ended 30 September 2009.
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 £267.4m on
revenue of £1,439.3m.
The Companies Act 2006 requires us to present a fair review
of the Group’s business and a description of the principal risks
and uncertainties facing the Group. The information that fulfils the
requirements of the Business review is provided in the sections
of this Annual Report headed Performance overview, Chairman’s
statement, Chief Executive’s review, Financial review, Principal
risks and uncertainties, Regional reviews and Corporate
Responsibility on pages 6 to 37, all of which are incorporated
into this report by reference.
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.
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 61. Dividends paid and proposed are set out
on page 75. The Board proposes a final dividend of 4.93p per
share (2008: 4.78p per share) taking the proposed full year
dividend to 7.43p per share (2008: 7.21p per share).
Research and development
During the year, the Group invested £174.6m (2008: £139.7m)
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 37.
Charitable contributions and political
donations
During the year, within the UK, charitable contributions totalling
£91,000 were made, which included £30,000 to The Tyne and
Wear Community Foundation, £12,500 to The Community
Foundation for Greater Manchester, £12,500 to The Berkshire
Community Foundation, and a total of £36,000 in smaller
contributions to numerous charities. The rest of the Group made
charitable contributions totalling £208,000. No political donations
were made in the year.
Post balance sheet event
On 30 October 2009 the Group disposed of Sage Pro-Concept
S.A. for £6.5m.
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 49 to 60. 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 (which are qualifying
third party indemnity provisions under the Companies Act 2006)
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
2009, 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 and a long-term performance share plan. Further details
of employment policies are given on pages 34 and 35.
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The Sage Group plc
Annual Report and Accounts 2009
41
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 to ensure that suppliers are aware of those terms
and that payments to suppliers are made promptly in accordance
with these terms. Creditor days for the Group have been
calculated at 46 days (2008: 40 days). The Company has no
trade creditors (2008: £nil).
Substantial shareholdings
At 17 December 2009, 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
Direct
shares
%
Indirect
shares
%
Total
shares
%
–
–
– 130,287,263 9.92 130,287,263 9.92
– 58,488,202 4.46 58,488,202 4.46
Legal &
General
Group plc 52,217,411 3.97
–
– 52,217,411 3.97
Future developments
The Group’s future developments are described in the Business
review on pages 6 to 37.
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 2 March 2010, 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 2 March 2010 are set out in the Notice of Annual
General Meeting.
Dividends and distributions
Subject to the provisions of the Companies Act 2006, 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).
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The Sage Group plc
Annual Report and Accounts 2009
42
Directors’ report
Repurchase of shares
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 US$264,000,000 multi-currency revolving 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.
By Order of the Board
M J Robinson
Secretary
17 December 2009
The Company obtained shareholder authority at the last Annual
General Meeting (held on 3 March 2009) to buy-back up to
130,955,755 ordinary shares, which remains outstanding until the
conclusion of the next Annual General Meeting on 2 March 2010.
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
2006 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 Act 2006) 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.
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 Act 2006 and any ordinary
resolution of the Company.
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Corporate governance statement
The Sage Group plc
Annual Report and Accounts 2009
43
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 (June 2008) on Corporate
Governance issued by the Financial Reporting Council (the
“Combined Code”).
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 38 and 39.
These demonstrate that the directors have a range of experience
and are of sufficient calibre to bring independent judgement on
issues of strategy, performance, resources and standards of
conduct, which is vital to the success of the Group. All directors
are subject to re-election at least every three years.
The Board is responsible to shareholders for the proper
management of the Group. Where it is considered appropriate,
training is made available to directors and training needs are
assessed as part of the evaluation procedure of the Board
referred to below. A statement of the directors’ responsibilities in
respect of the accounts is set out on page 48. 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 six occasions. All directors in office
at the time attended all of these Board meetings other than
Ms T Ingram, who was unable to attend one meeting.
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.
The questionnaires cover a range of issues relating to the Board’s
role and its responsibilities, the conduct of Board meetings
and the structures in place to ensure that the Board has the
opportunity to debate fully areas of concern, the leadership and
culture of the Group. The questionnaires also consider Board
communications, governance and the performance of the
Committees and their members. The completed questionnaires
are reviewed and considered by the Chairman and by the Board
as a whole. The Chairman follows this review with meetings with
individual directors. The Company Secretary also raises the areas
covered by the questionnaires for discussion with key executives
who support the Board and the Committees and key advisors
and reports their views to the Chairman. This year’s review
identified new themes and topics for inclusion in the Board
agenda for next year; and a need to increase the time available
for Board meetings.
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.
Under the Companies Act a director must avoid a situation where
he has, or can have, a direct or indirect interest that conflicts,
or possibly may conflict with the Company’s interests. The Act
allows directors of public companies to authorise conflicts and
potential conflicts, where appropriate, where the articles of
association contain a provision to this effect. The Articles of
Association give the directors authority to approve such situations
and to include other provisions to allow conflicts of interest to be
dealt with.
At the commencement of each Board meeting, the Board
consider a register of interests and potential conflicts of directors
and give, when appropriate, any necessary approvals.
There are safeguards which will apply when directors decide
whether to authorise a conflict or potential conflict. First, only
directors who have no interest in the matter being considered will
be able to take the relevant decision, and secondly, in taking the
decision the directors must act in a way they consider, in good
faith, will be most likely to promote the Company’s success.
The directors are able to impose limits or conditions when giving
authorisation if they think this is appropriate.
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The Sage Group plc
Annual Report and Accounts 2009
44
Corporate governance statement
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.
its cost. The Committee determines the contract terms,
remuneration and other benefits for each of the executive
directors including 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 49 to 60, together
with further details of the Remuneration Committee.
The Senior Independent Director
Audit Committee
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 all independent non-executive directors (other
than the Chairman of the Board) are members of all Board
Committees, 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. The terms of reference of the
Remuneration, Nomination and Audit Committees are reviewed
annually and are available on request from the Secretary at the
registered office of the Company or on the Company’s website
at www.sage.com.
Remuneration Committee
The Group’s Remuneration Committee is chaired by
Ms R Markland who became its chair in March 2009 following
the annual general meeting. The other members of the
Committee are the Chairman of the Board, Mr A J Hobson,
and the other independent non-executive directors, Ms T Ingram,
Mr T C W Ingram, Mr I Mason and Mr M E Rolfe. 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 two further meetings 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 and Ms T Ingram who was unable to attend
one meeting. The Chief Executive may, by invitation of the
Committee, attend meetings (except when his own performance
or 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
The Audit Committee is chaired by Mr M E Rolfe. Its other
members are independent non-executive directors, Mr T C W
Ingram, Ms R Markland, Ms T Ingram and Mr I Mason. Mr Rolfe
is a Fellow of the Institute of Chartered Accountants in England
and Wales and is considered by the Board to have the recent
and relevant financial experience required for the provisions of the
Combined Code. The other members of the Committee have
a wide range of business experience, which is evidenced in
their biographies on pages 38 and 39. 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. Having reviewed the composition of the Committee in
the year under review, the Board is satisfied that the Committee
has the resources and expertise to fulfil effectively its
responsibilities, including those relating to risks and controls.
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.
In order to fulfil its duties referred to above, the Committee
receives sufficient, reliable and timely information from
management as referred to below. The terms of reference of
the Committee are reviewed on an annual basis and are available
at www.sage.com. Following its most recent review, the
Committee is satisfied that the terms enable the Committee to
fulfil its responsibilities and determined that no material changes
were necessary.
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The Sage Group plc
Annual Report and Accounts 2009
45
To assess the effectiveness of the external auditors, the Audit
Committee reviewed:
− The external auditors’ fulfilment of the agreed audit plan and
any variations;
− The robustness and perceptiveness of the auditors in their
handling of key accounting and audit judgements; and
− The content of the external auditors’ Internal Control Report.
The scope, fee, performance and independence of the external
auditor are 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.
Audit partners are rotated every five years (with the next change
taking place in the year to 30 September 2010). 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 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 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, with 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.
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Meetings
The Committee invites executive directors, management,
external and internal auditors to attend meetings as it considers
appropriate for the matters being discussed.
Work of the Committee
In the financial year, the Audit Committee met on four
occasions with all members present on each occasion (other
than Ms T Ingram who was unable to attend one meeting) 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 annual 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.
The Sage Group plc
Annual Report and Accounts 2009
46
Corporate governance statement
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 in the year are anticipated to exceed a
certain sum, the prior approval of the Audit Committee is required.
In the year to 30 September 2009 the audit fee was £1.7m.
The Company’s auditors, PricewaterhouseCoopers LLP, also
perform non-audit services for the Group (principally tax advice)
over and above the external audit. The fees in relation to these
services were £1.9m of which £1.7m was attributable to tax
services and tax compliance work and £0.2m to other non-tax
compliance services (which include interim review costs and are
therefore closely associated with the audit). Further details of fees
paid to auditors are set out on page 74.
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 and the factors
referred to above, the Committee has determined to recommend
to the Board the reappointment of the auditors at the Annual
General Meeting in March 2010. In reaching this decision, the
Committee also had regard to the likelihood of a withdrawal of
the auditor from the market. The current external auditors were
appointed to that role in 1988. The Committee has determined
that, providing the work of the external auditors remains entirely
satisfactory, formal consideration of a tender process will be
undertaken every five years, around the time that the audit
partner is normally changed.
The next change of audit partner will occur in the year to
30 September 2010 and therefore, formal consideration of
an audit tender process will take place during the course of
that year.
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 and Mr M E Rolfe.
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. Two meetings
of the Committee took place in the year under review at which
all the members of the Committee in office at the time were
present other than on one occasion when Ms T Ingram was
unable to attend.
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 and undertook a review of this area in the year under
review. The Secretary acts as secretary to the Committee.
Relations with shareholders
Communication with shareholders is given high priority.
The Business review on pages 6 to 37 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 is
managed on a day-to-day basis by the Group Risk Director and
has been in place for the year under review and up to the date of
approval of this report. It is regularly reviewed by the Board and
complies fully with the Turnbull guidance.
The internal control systems are designed to meet the Group’s
particular needs and the risks to which it is exposed and by their
nature can only provide reasonable but not absolute assurance
against misstatement or loss. The effectiveness of this process
has been reviewed by the Audit Committee, which reports its
findings to the Board.
The processes used by the Audit Committee to review the
effectiveness of the system of internal control include discussions
with management on significant risk areas identified and the
review of plans for, and results from, internal and external audits.
The Audit Committee reports the results of its review of the risk
assessment process to the Board. The Board then draws its
collective conclusion as to the effectiveness of the system of
internal control. The key procedures, which the directors have
established with a view to providing effective internal control,
are as follows:
Indication of business risks
The processes to identify and manage the key risks to the
success of the Group are an integral part of the internal control
environment. Such processes, which are reviewed and improved
as necessary, include strategic planning, the appointment of
senior managers, the regular monitoring of performance and
control over capital expenditure and acquisitions. The Company
has formed a Risk Committee consisting of the Chief Executive,
Group Finance Director, the Group Risk Director, the Secretary
and certain other members of the Executive Committee.
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The Sage Group plc
Annual Report and Accounts 2009
47
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.
Directors
The information about the appointment and replacement of
directors and the powers of directors required to be included in
this statement can be found on page 42 of the Directors’ Report.
Articles of Association
The information about making amendments to the articles of
association required to be included in this statement can be found
at page 42 of the Directors’ Report.
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.
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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 conclusions of the Risk Committee
are reported on a regular basis 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. Processes for the confidential reporting of concerns have
been introduced in France and the Group is considering the
introduction of further telephone hotlines where local legislation
permits. The Audit Committee receives regular reports on any
matters raised through these services and monitors their use
throughout the Group. The Board considers that it receives,
as a result, adequate information for the identification and
assessment of risk.
Financial reporting
In addition to the general internal controls and risk management
processes described above, the Group also has specific internal
controls and risk management systems to govern the financial
reporting process. The requirements for producing financial
information are governed by the Group Accounting Manual,
against which the Group’s external auditors review the financial
statements. Financial control requirements are set out in a
detailed Financial Controls Policy, which is subject to internal audit
reviews on an annual basis. Any part of the Group not subject to a
specific internal audit review of financial controls in any given year
is required to self assess on the effectiveness of their financial
control environment. Management representations covering the
compliance with relevant policies and the accuracy of financial
information are also collated on an annual basis.
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 organisational structure exists
The Sage Group plc
Annual Report and Accounts 2009
48
Corporate governance statement
Information on share capital and
other matters
The information about share capital required to be included in
this statement can be found on page 41 of the Directors’ Report.
− 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.
Statement by the directors on
compliance with the provisions
of the Combined Code
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”). 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.
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;
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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 2006 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.
Each of the directors, whose names and functions are listed in
the Board of directors and advisers section on pages 38 and 39,
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 418 of the Companies
Act 2006.
By Order of the Board
M J Robinson
Secretary
17 December 2009
Remuneration report
The Sage Group plc
Annual Report and Accounts 2009
49
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. In setting
remuneration levels for the executive directors, the Committee
takes account of the remuneration policy and practice applicable
to other Group employees, and received information on bonus
levels and base salary reviews for other managers around
the Group.
The components of remuneration for executive directors are
base salary (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. 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.
The chart below illustrates the anticipated mix between fixed
and variable pay for Executive Directors under Sage’s current
remuneration policy.
Around 75% of each executive’s total compensation value is
delivered through performance-related incentives, and is therefore
‘at-risk’ if stretching performance targets are not achieved.
At ‘target’ levels of performance, more than 50% of the package
remains performance-related.
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This report sets out the remuneration policy and remuneration
details of the executive and non-executive directors of the
Company. The report has been prepared in accordance with
the Companies Act 2006 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 Ms R Markland (Chair from March 2009), Mr T C W Ingram
(Chair until March 2009), Mr A J Hobson, Ms T Ingram,
Mr I Mason and Mr M E Rolfe.
All the members of the Committee have been members of the
Committee throughout the year.
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,
an independent firm of remuneration consultants appointed
after consultation with the Board. The terms of engagement of
Deloitte are available on request from the Secretary. Deloitte
were appointed by the Committee and provide no services to
the Group otherthan advice on executive remuneration to the
Remuneration Committee and advice to the Group’s North
American business on a software implementation programme.
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, at the
invitation of the Committee, attended certain meetings (but
were not present at any meeting when any matter relating
directly to their own remuneration was discussed).
The Sage Group plc
Annual Report and Accounts 2009
50
Remuneration report
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 light of economic circumstances,
and also the position of the wider employee population in Sage,
in the year ending 30 September 2010 salaries of executive
directors have not been increased from those disclosed in
this report, with the exception of Paul Harrison, whose salary
will be increased by 7% to move him towards a market
competitive range.
2.3 Policy on fees of non-executive directors
Remuneration policy for the non-executive directors is determined
by the Board (excluding the non-executive directors). The fees
of the non-executive directors are reviewed every two years.
For the two financial years ending 30 September 2010, the
basic fee is £55,000. Committee membership fees are not paid.
The chairmanship fees are £13,000 and £17,000 for the
Remuneration and Audit Committees respectively. The payment
to the Senior Independent Director is £10,000.
In relation to the Chairman of the Board, remuneration is
positioned by reference to 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).
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Executive directors with no specific divisional responsibility have
75% of their bonus based on Group profit before tax and
amortisation. The remaining 25% is 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. The Committee has discretion to make
suitable adjustments to reported financial measures to ensure
that financial performance for bonus purposes reflects underlying
business performance.
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.
The bonuses paid to the executive directors in relation to the year
under review are set out on page 55 and are considered to be
appropriate in the context of the maximum bonus opportunity.
In respect of performance for the year ended 30 September
2009, the Committee considered financial performance over
the full financial year and reviewed the impact of one-off items.
The Committee concluded that financial performance measured
prior to one-off Group restructuring costs provided a better
measure of the Group’s overall performance and strength of the
business. At the same time, the Committee also exercised its
discretion to align Group executive bonus payments with those
determined for the individual business units.
In determining the individual strategic element of the bonus the
Committee considered a range of factors and measures including
the level of customer support and the retention of support
contracts, and the achievement of strategic milestones against
a background of an evolving long-term strategy.
No deferred shares were awarded for the year ended
30 September 2009, as the bonus payment was below the
target level.
The Sage Group plc
Annual Report and Accounts 2009
51
2.5 Policy on long-term incentives
In the previous financial year the Committee established the
current long-term incentives structure consulting widely with
shareholders to establish a motivational and performance-
orientated structure that focuses on the creation of shareholder
value. Executive share options have not been granted under the
1999 Executive Share Option Scheme (“ESOS”) since June 2008
(January 2008 for executive directors).
Long-term incentive awards are made under the Performance
Share Plan (“PSP”) and now vest on the following basis:
A sliding scale based on EPS is used. 25% of the award vests 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 vests at that time
only if RPI is exceeded in that period by 27% (an average of 9%
per year). Between those targets, awards vest on a straight-line
basis, and if those targets are not met there is no opportunity for
re-testing.
Awards are also subject to a TSR ‘multiplier’ whereby the level of
vesting based on EPS achievement is 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
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 2010 for TSR purposes will comprise the
following companies:
− Adobe Systems
− ARM Holdings
− Autonomy
− Blackbaud
− Cap Gemini
− Cegid
− Dassault Systemes
− Exact
− Intuit
− Lawson Software
− Logica
− Micro Focus International
− Microsoft
− Misys
− Oracle
− Salesforce.com
− SAP
− Software AG
multiplier is 0.75;
− If Sage’s TSR is ranked at median in the group, the multiplier
The Committee will keep under review the comparator group
to ensure that it remains appropriate.
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%, 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 annual
bonus plan.
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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
PSP awards to executive directors for the year to 30 September
2010 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).
The Remuneration Committee considers that this grant level is
appropriate, taking into account the challenging performance
criteria and recognising the increased competition for senior
executives in the industry. The individual limit in the Plan is
300% of salary. However, the Committee would expect to
consult with shareholders if awards were to be made routinely
above current levels.
For the financial year to 30 September 2010, PSP awards
will be made following the AGM in March 2010.
Shareholder approval to operate the ESOS will expire in
December 2009.
The Sage Group plc
Annual Report and Accounts 2009
52
Remuneration report
All-employee share schemes
UK based executive directors are entitled to participate in
The Sage Group Savings-Related Share Option Plan (the
“SAYE Scheme”) which is an all-employee plan. 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.
2.6 Policy on pensions
All the executive directors’ pension arrangements are defined
contribution. 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.
2.8 Policy on service contracts
In relation to contracts with executive directors, the Remuneration
Committee aims to set notice periods that are no longer than
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.
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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 £75,000 in the
case of Mr P A Walker, £42,000 in the case of Mr P L Stobart
and £62,000 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. Except in exceptional circumstances where approved
in advance by the Chairman of the Committee, if an executive
director holds non-executive positions at more than one listed
company then 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.
The Sage Group plc
Annual Report and Accounts 2009
53
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.
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
Date of contract
Unexpired term
of contract on
30 September 2009
30 September 2004
12 months
25 July 2007
Age 60 or 12 months
1 April 2000
Age 60 or 12 months
26 September 2003
Age 60 or 12 months
26 September 2003
Age 60 or 12 months
Non-executive directors
A J Hobson
T Ingram
24 May 2007
8 months
23 November 2007
1 year 3 months
T C W Ingram
3 March 2009
R Markland
13 September 2009
6 months
3 years
I Mason
M E Rolfe
31 October 2007
1 year 1 month
23 November 2007
1 year 2 months
Notes:
• There are no other benefits in the contracts relevant to termination payment.
Notice period under contract
12 months from the Company
and/or 6 months from individual
12 months from the Company
and/or individual
12 months from the Company
and/or individual
12 months from the Company
and/or individual
12 months from the Company
and/or individual
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
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Annual Report and Accounts 2009
54
Remuneration report
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 2009 of £100 invested in The Sage Group plc on 30 September 2004 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 2009 for PSP awards made to date was as follows:
− 2007 awards – TSR ranking of 5 out of 13 comparators
− 2008 awards – TSR ranking of 6 out of 19 comparators
− 2009 awards – TSR ranking of 7 out of 19 comparators
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Annual Report and Accounts 2009
55
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 8 of the Companies
Act 2006.
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
T Ingram
T C W Ingram
R Markland
I Mason
M E Rolfe
Salary
and fees
’000
€655
£350
£350
£445
–
£770
£250
£55
£65
£68
£55
£72
Bonus
’000
€314
£168
£168
£213
–
£370
–
–
–
–
–
–
Bonus
deferred
into shares2
’000
Benefits
in kind3
’000
2009
Total
’000
2009
Pension
contributions4
’000
2008
Pension
contributions
’000
2008
Total
’000
–
–
–
–
–
–
–
–
–
–
–
–
€7
£18
£18
£18
–
£21
–
–
–
–
–
–
€976
£536
£536
£676
–
£1,161
£250
£55
£65
£68
£55
£72
€1,204
£603
£604
£634
$632
£1,307
£250
£45
£62
£52
£48
£47
–
£88
£88
£111
–
£193
–
–
–
–
–
–
–
£84
£84
£106
–
£184
–
–
–
–
–
–
Notes:
1 Ceased to be a member of the Board, and contract terminated on 11 October 2007. Therefore, the prior year 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 No bonus has been deferred by the Company as an award under the Sage Group Deferred Bonus Plan.
3 Benefits in kind include the provision of car allowance and insurance.
4 Retirement benefits were accruing to four directors (2008: four). All pension contributions accrued under money purchase schemes.
• No payments for compensation for loss of office or otherwise relating to termination of office or employment were made during the year.
• Total directors’ emoluments were £4,329,000 (2008: £4,893,000).
• No other payments (including non-cash benefits) were made to third parties in respect of the services of a person who served as a director of the Company at any time during
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the financial year.
• Including gains on share options, the total emoluments of the highest paid director were £1,354,000 (2008: £1,307,000).
• In the table above exchange rates of $1.54 /£1 and €1.14 /£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 2009 (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
5.6% used
6.2
% used
The Company has satisfied and intends to satisfy all awards under the Performance Share Plan through the market purchase of shares.
If awards under the Performance Share Plan are removed from the calculations above then under discretionary share schemes the
percentage becomes 4.1% and under all share schemes 4.6%.
The Sage Group plc
Annual Report and Accounts 2009
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Remuneration report
Executive share options
The Group’s only current executive share option scheme is the ESOS. In the year under review, executive directors did not receive
grants under this scheme. 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
Shares
under
option at
1 October
2008
number
329.75p 121,304
171.00p 175,438
198.00p 189,082
258.50p 147,748
270.00p 147,639
214.00p 218,545
999,756
Granted
during
the year
number
–
–
–
–
–
–
–
Exercised
during
the year
number
–
–
–
–
–
–
–
Lapsed
during
the year
number
–
–
–
(25,118)
–
–
(25,118)
Shares under
option at
30 September
2009
number
121,304
175,438
189,082
122,630
147,639
218,545
974,638
D H Clayton
214.00p 156,542
156,542
–
–
–
–
–
–
P S Harrison
P L Stobart
30,000
721.00p
65,595
329.75p
134.00p 186,567
171.00p 128,654
198.00p 133,838
258.50p 116,054
270.00p 118,519
214.00p 156,542
935,769
329.75p 121,304
134.00p 223,880
171.00p 175,438
198.00p 181,818
258.50p 146,228
270.00p 148,889
214.00p 198,598
1,196,155
–
–
–
–
– (186,567)
–
–
–
–
–
–
–
–
–
–
– (186,567)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(19,730)
–
–
(19,730)
–
–
–
–
(24,859)
–
–
(24,859)
156,542
156,542
30,000
65,595
–
128,654
133,838
96,324
118,519
156,542
729,472
121,304
223,880
175,438
181,818
121,369
148,889
198,598
1,171,296
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Date exercisable
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
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
The Sage Group plc
Annual Report and Accounts 2009
57
Executive share options (continued)
Exercise
price
per share
Shares
under
option at
1 October
2008
number
136.00p 440,000
329.75p 151,630
134.00p 313,432
171.00p 280,701
198.00p 315,656
258.50p 253,771
270.00p 258,889
214.00p 343,457
2,357,536
5,645,758
Granted
during
the year
number
Exercised
during
the year
number
– (440,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (440,000)
Lapsed
during
the year
number
–
–
–
–
–
(43,142)
–
–
(43,142)
Shares under
option at
30 September
2009
number
–
151,630
313,432
280,701
315,656
210,629
258,889
343,457
1,874,394
– (626,567) (112,849)
4,906,342
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:
• No options were varied during the year.
• Options granted to all directors of the Company and its operating subsidiaries throughout the Group under the ESOS that became 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 which became exercisable on or after 6 January 2008 the performance criteria for exercise are
based on 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. In respect of any share options which became exercisable prior to 23 February 2003 no performance
conditions apply as such conditions were not deemed appropriate by the Remuneration Committee at that time.
• For the options exercised in the year, the market price of the exercised shares at the date of exercise was as follows:
– P A Walker – 10 December 2008 was 179.90p.
– P S Harrison – 22 June 2009 was 182.85p.
• The market price of a share of the Company at 30 September 2009 was 233.40p and the lowest and highest market price during the year was
233.40
148.40
p and
p
respectively.
• Total gains on the exercise of share options were £285,365 (2008: £684,275), including £284,298 (2008: £684,275) on executive share options.
• Lapses during the year relate to performance conditions not having been met in full.
All-employee share scheme
In relation to the SAYE Scheme, the outstanding options granted to each director of the Company are as follows:
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P S Harrison
Exercise
price
per share
184.00p
149.00p
Shares
under
option at
1 October
2008
number
5,081
–
5,081
Granted
during
the year
number
–
6,140
6,140
Exercised
during
the year
number
–
–
–
Lapsed
during
the year
number
(5,081)
–
(5,081)
Shares under
option at
30 September
2009
number
–
6,140
6,140
P L Stobart
184.00p
5,081
5,081
–
–
(5,081)
(5,081)
–
–
–
–
Total
10,162
6,140
(5,081)
(5,081)
6,140
Date exercisable
1 August 2009 – 31 January 2010
1 August 2012 – 31 January 2013
1 August 2009 – 31 January 2010
Notes:
• These options are not subject to performance conditions since these do not apply to this type of all-employee share scheme.
• 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
2009 23,886 units were held by Mr G S Berruyer at a price of €2.426 per share. On 30 September 2008 16,566.38 units were held at a price of €2.668 per share. Units are
valued on a weekly basis.
• For the options exercised in the year, the market price of the exercised shares at the date of exercise was 205.00p.
The Sage Group plc
Annual Report and Accounts 2009
58
Remuneration report
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
P A Walker
Awarded
1 October
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
Awarded
during
the year
number
–
–
–
745,649
745,649
–
438,282
438,282
–
–
–
438,282
438,282
–
–
–
557,245
557,245
–
–
–
964,221
964,221
Total
3,085,745 3,143,679
Vested
during
the year
number
–
–
–
–
–
Lapsed
during
the year
number
(147,748)
–
–
–
(147,748)
Awarded
30 September
2009
number
–
147,639
361,647
745,649
1,254,935
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(116,054)
–
–
–
(116,054)
(146,228)
–
–
–
(146,228)
(253,771)
–
–
–
(253,771)
253,787
438,282
692,069
–
118,519
253,787
438,282
810,588
–
148,889
321,969
557,245
1,028,103
–
258,889
556,818
964,221
1,779,928
(663,801)
5,565,623
Vesting date
10 January 2009
10 January 2010
3 March 2011
3 March 2012
3 March 2011
3 March 2012
10 January 2009
10 January 2010
3 March 2011
3 March 2012
10 January 2009
10 January 2010
3 March 2011
3 March 2012
10 January 2009
10 January 2010
3 March 2011
3 March 2012
Notes:
• No variations were made in the terms of the awards in the year.
• The market price of a share on 3 March 2009, the date of the awards made in the year ended 30 September 2009 was162.10p.
• 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. For awards made prior to March 2008, 30% of shares vest for median TSR performance as compared to that group whilst all shares vest for upper quintile
(top 20%) TSR performance. Between those points, shares will vest on a straight-line basis. Awards made in March 2008 have the same vesting schedule except that 25% of
the award vests for median performance. The performance condition for awards made in March 2009 is set out in paragraph 2.5 above.
• In respect of the awards with a vesting date in 2009 the comparator group for TSR comprised: Blackbaud, Cap Gemini, Cegid, Exact, Intuit, iSoft, Microsoft, Misys, Oracle,
Salesforce.com and SAP. For those vesting in 2010 the group comprised: Blackbaud, Cap Gemini, Cegid, Exact, Intuit, Lawson Software, Logica, Microsoft, Misys, Oracle,
Salesforce.com and SAP. For those vesting in 2011 and 2012 the group comprised: Adobe Systems, ARM Holdings, Autonomy, Blackbaud, Cap Gemini, Cegid,
Dassault Systemes, Exact, Intuit, Lawson Software, Logica, Micro Focus International, Microsoft, Misys, Oracle, Salesforce.com, SAP and Software AG.
• For awards made in 2006, TSR performance was such that none of the shares originally awarded to executive directors vested.
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The Sage Group plc
Annual Report and Accounts 2009
59
5.4 Deferred shares (audited information)
The outstanding awards granted to each director of the Company under the Sage Group Deferred Bonus Plan are as follows.
Director
G S Berruyer
P S Harrison
P L Stobart
P A Walker
Shares at
1 October
2008
number
11,736
10,815
14,714
–
37,265
Shares
awarded
during the year
number
–
–
–
12,716
12,716
Shares
vested
during the year
number
(11,736)
–
–
–
(11,736)
Shares
lapsed
during the year
number
–
–
–
–
–
Shares at
30 September
2009
number
–
10,815
14,714
12,716
38,245
8,418
10,187
11,495
30,100
3,524
3,878
8,401
15,803
19,853
22,275
25,111
67,239
–
–
–
–
–
–
–
–
–
–
–
–
(8,418)
–
–
(8,418)
(3,524)
–
–
(3,524)
(19,853)
–
–
(19,853)
(43,531)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,187
11,495
21,682
–
3,878
8,401
12,279
–
22,275
25,111
47,386
119,592
Vesting date
10 January 2009
10 January 2010
10 January 2011
10 December 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 2011
Total
150,407
12,716
Notes:
• 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.
• Awards are not subject to further performance conditions once granted.
• No variations were made in the terms of the awards in the year.
• Shares awarded in the year relate to the deferred element of bonus awards in respect of the year ended 30 September 2008.
• The market price of a share on 10 December 2008, the date of the award, was 178.70p.
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The Sage Group plc
Annual Report and Accounts 2009
60
Remuneration report
5.5 Interests in shares
The interests of each person who was a director of the Company as at 30 September 2009 (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
2009
number
239,549
31,000
46,324
24,126
3,600
33,552
5,000
10,000
10,000
76,701
6,223,164
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
6,703,016
6,729,639
Notes:
• There have been no changes in the directors’ holdings in the share capital of the Company between 30 September 2009 and 17 December 2009.
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:
R Markland
Chairman of the Remuneration Committee
17 December 2009
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Consolidated income statement
For the year ended 30 September 2009
The Sage Group plc
Annual Report and Accounts 2009
61
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 of the parent
EBITA*
Earnings per share (pence)
– Basic
– Diluted
Note
1
1,3
2
2
2
4
22,23
2009
£m
1,439.3
(108.8)
1,330.5
(1,049.9)
280.6
4.0
(17.2)
(13.2)
267.4
(77.9)
189.5
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
1
320.7
299.8
6
6
14.46p
14.42p
12.73p
12.69p
Consolidated statement of recognised income and expense
For the year ended 30 September 2009
Profit for the year
Net exchange adjustments offset in reserves
Equity movement of deferred tax
Actuarial (loss)/gain on employment benefits
Cash flow hedges – net of tax
Net gains not recognised in income statement
Note
22,23
21,23
17,23
22
16,21
2009
£m
189.5
140.6
4.0
(0.3)
(0.3)
144.0
2008
£m
166.3
117.1
(0.2)
3.1
–
120.0
Total recognised income for the year – attributable to equity shareholders of
the parent
333.5
286.3
*EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
• Amortisation of acquired intangible assets; and
• Net amortisation or capitalisation of software development expenditure.
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Annual Report and Accounts 2009
62
Consolidated balance sheet
As at 30 September 2009
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
Derivative financial instruments
Retirement benefit obligations
Deferred tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Other reserves
Retained earnings
Total equity
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Note
2009
£m
2008
£m
7
8
9
17
10
11
12
13
15
14
15
16
27
17
18
20
21
22
23
2,030.8
216.0
144.5
7.5
2,398.8
5.2
275.1
59.4
339.7
1,825.5
223.7
140.5
5.2
2,194.9
5.4
267.6
70.1
343.1
2,738.5
2,538.0
(252.8)
(62.1)
(18.8)
(2.3)
(391.1)
(727.1)
(460.6)
(0.3)
(11.8)
(41.2)
(513.9)
(247.2)
(69.2)
(13.9)
(2.6)
(352.2)
(685.1)
(575.2)
–
(3.9)
(26.8)
(605.9)
(1,241.0)
1,497.5
(1,291.0)
1,247.0
13.1
492.0
249.5
742.9
13.1
486.6
109.2
638.1
1,497.5
1,247.0
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The consolidated financial statements on pages 61 to 104 were approved by the Board of directors on 17 December 2009 and are
signed on their behalf by:
P A Walker
Director
P S Harrison
Director
Consolidated cash flow statement
For the year ended 30 September 2009
The Sage Group plc
Annual Report and Accounts 2009
63
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 subsidiary
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, cash equivalents and bank overdrafts
(before exchange rate changes)
Effects of exchange rate changes
Net (decrease)/increase in cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts at 1 October
Cash, cash equivalents and bank overdrafts at 30 September
Note
24
2
2
25(f)
25(d)
8
9
24
5
24
24
2009
£m
357.6
4.0
(16.2)
(55.9)
289.5
(13.8)
12.0
(10.3)
(19.5)
0.2
(31.4)
5.4
(0.1)
(0.7)
(323.9)
129.5
(95.1)
(284.9)
(26.8)
8.9
(17.9)
70.1
52.2
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
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Annual Report and Accounts 2009
64
Notes to the accounts – Group
For the year ended 30 September 2009
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 24 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 2009.
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 (“EU”).
The accounts are also prepared in accordance with International
Financial Reporting Interpretations Committee (“IFRIC”)
interpretations as endorsed by the EU and with those parts
of the Companies Act 2006 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 relate to share-based payment charges, pensions and
derivative financial instruments which are measured at fair value.
Standards, amendments and interpretations effective in 2009
The following IFRIC interpretations and amendments have been
adopted in the financial statements. None had any impact on
the Group results or financial position:
− IFRIC 13, “Customer Loyalty Programmes”
− IFRIC 14, “IAS 19 – The Limit of a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction”
− IFRIC 16, “Hedges of a Net Investment in a Foreign Operation”
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.
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.
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Annual Report and Accounts 2009
65
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.
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 a relative fair value
basis. 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.
Intangible assets arising on business combinations are stated
at cost less accumulated amortisation and impairment losses
if applicable.
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
Fully amortised intangible assets which are no longer in use are
eliminated from the balance sheet and presented as a disposal
within the notes to the accounts.
h Intangible assets – other
Other intangible assets that are acquired by the Group are stated
at cost less accumulated amortisation and impairment losses
if applicable. Software assets are amortised on a straight-line
basis over their estimated useful lives, which do not exceed
seven years.
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Annual Report and Accounts 2009
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Notes to the accounts – Group
Group accounting policies (continued)
i Internally generated intangible assets – research and
development expenditure
Expenditure on research activities is recognised as an expense
in the period in which it is incurred.
An internally generated intangible asset arising from the
development of software is recognised only if all of the following
conditions are met:
− It is probable that the asset will create future economic
benefits;
− The development costs can be measured reliably;
− Technical feasibility of completing the intangible asset can
be demonstrated;
− There is the intention to complete the asset and use or sell it;
− There is the ability to use or sell the asset; and
− Adequate technical, financial and other resources to complete
the development and to use or sell the asset are available.
Internally generated intangible assets are amortised over their
estimated useful lives which is between three to six years on a
straight-line basis. 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.
l Cash and cash equivalents
For the purpose of preparation of the cash flow statement and
the balance sheet, 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) (note n) and cash and cash
equivalents in the balance sheet (note l).
j Property, plant and equipment
n Trade receivables and trade payables
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses if applicable.
Depreciation on property, plant and equipment is provided on a
straight-line basis down to an asset’s residual value over its useful
economic life as follows:
− Freehold buildings
− Long leasehold buildings
– 50 years
and improvements
− Plant and equipment
− Motor vehicles
− Office equipment
Freehold land is not depreciated.
– over period 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.
k Inventories
Inventories are stated at the lower of cost and net realisable value
after making allowances for slow moving or obsolete items.
Cost includes expenditure incurred in acquiring the inventories
and bringing them to their existing location and condition.
Cost is calculated using the first-in-first-out method.
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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 non-interest-bearing and are stated at their
nominal value.
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Annual Report and Accounts 2009
67
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.
The Group uses derivative financial instruments to reduce
exposures to interest rate risk. All derivatives are initially
recognised at fair value, and are subsequently remeasured to
fair value at each reporting date.
Derivatives designated as hedging instruments are accounted
for in line with the nature of the hedging arrangement. Derivatives
are intended to be highly effective in mitigating interest rate risk,
and hedge accounting is adopted where the required hedge
documentation is in place and the relevant test criteria are met.
Changes in fair value of any derivative instruments that do not
qualify for hedge accounting are recognised immediately in the
income statement.
Derivative instruments are used to manage the Group’s exposure
to changes in cash flows arising from movements in interest rates.
The derivatives are designated as cash flow hedges, and hedge
accounting is used where it has been shown that the hedge
relationship is highly effective. Gains and losses on derivative
financial instruments in a cash flow hedge relationship are
recognised directly in equity and subsequently recognised in
the income statement in the same period that the hedged item
affects income.
When a hedging instrument is sold, or when a hedge no longer
meets the criteria for hedge accounting, any cumulative gain
or loss existing in equity at that time remains in equity and is
recognised when the forecast transaction is ultimately recognised
in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to the income statement.
In accordance with its treasury policy, the Group does not hold
or issue derivative financial instruments for trading purposes.
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.
The Group also operates 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. On disposal of the net investment, the foreign exchange
gains and losses on the hedging instrument are recognised in the
income statement from equity.
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The Sage Group plc
Annual Report and Accounts 2009
68
Notes to the accounts – Group
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 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 Standards”.
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.
The property, plant and equipment acquired under finance leases
are depreciated over the shorter of the asset’s useful life and the
lease term.
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.
The Group also operates a small number of defined benefit
pension and other retirement benefit schemes. 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.
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Annual Report and Accounts 2009
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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 27.
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.
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 IFRS
At the date of approval of these financial statements, the
following standards, interpretations and amendments were
issued but not yet mandatory for the Group and early adoption
has not been applied.
IFRS
− IFRS 1 (Revised), “First-time Adoption of IFRSs”
− IFRS 3 (Revised), “Business Combinations”
− IFRS 8, “Operating Segments”
− IAS 1 (Revised), “Presentation of Financial Statements”
− IAS 23 (Revised), “Borrowing Costs”
− IAS 27 (Revised), “Consolidated and Separate Financial
Statements”
IFRIC interpretations
− IFRIC 12, “Service Concession Arrangements”
− IFRIC 15, “Agreements for Construction of Real Estates”
− IFRIC 17, “Distribution of Non-cash Assets to Owners”
− IFRIC 18, “Transfer of Assets from Customers”
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The Sage Group plc
Annual Report and Accounts 2009
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Notes to the accounts – Group
Group accounting policies (continued)
y Adoption of new and revised IFRS (continued)
Amendments to existing standards
− Amendments to IAS 32 and IAS 1, “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, “Eligible Hedged Items”
− Amendment to IFRS 2, “Vesting Conditions and Cancellations”
− Amendments to IFRS 7, “Improving Disclosures about
Financial Instruments”
− Amendment to IFRS 2, “Group Cash-settled Share-based
Payment Transactions”
− Amendment to IFRS 1 for additional exemptions
− Amendment to IAS 32, “Presentation and Classification of
Rights Issues”
− Improvements to IFRSs 2009
All the IFRSs, IFRIC interpretations and amendments to existing
standards are endorsed by the EU at the date of approval of
these consolidated financial statements with the exception of
IFRS 1, IFRIC 17, IFRIC 18, the amendment to IAS 39, the
amendment of IFRS 7, Improvements to IFRSs 2009, the
amendment to IFRS 2, the amendment to IFRS 1 and the
amendment to IAS 32.
IFRS 3 (Revised), “Business Combinations”, must be applied
prospectively by the Group from 1 October 2009. The revised
standard requires that all acquisition-related costs are to be
expensed to the income statement in the period incurred.
Furthermore, purchase accounting only applies at the point
when control is achieved. This has a number of implications:
− Where the acquirer has a pre-existing equity interest in the
entity acquired and increases its equity interest such that it
achieves control, it must re-measure its previously held equity
interest to fair value as at the date of obtaining control and
recognise any resulting gain or loss in the income statement;
− Once control is achieved all other increases and decreases in
ownership interest are treated as transactions among equity
holders and reported directly within equity. Goodwill is not
re-measured or adjusted.
The financial effect of the adoption of this standard will be
dependent on the circumstances surrounding the future
transactions to which they will apply, that are at present unknown.
With the exception of adoption of IFRS 3, (Revised), as referred to
above, 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:
Acquisitions
When acquiring a business, the Group has to make judgements
and best estimates about the fair value allocation of the purchase
price. The Group seeks appropriate competent and professional
advice before making any such allocations. The Group tests 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).
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).
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.
A Exceptional items
Exceptional items are those significant items which are separately
disclosed by virtue of their size or incidence to enable a full
understanding of the Group’s financial performance. Examples of
events that, inter alia, may give rise to the classification of items as
exceptional are the restructuring of existing and newly-acquired
businesses, gains or losses on the disposal of businesses or
individual assets and asset impairments.
.
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The Sage Group plc
Annual Report and Accounts 2009
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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, Dubai, 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 2009
The primary segment results were as follows:
Note
UK &
Ireland
£m
Mainland
Europe
£m
North
America
£m
Rest of
World
£m
Group
£m
Continuing operations
Revenue
Segment operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit for the year
3
2
2
4
242.2
79.7
520.5
90.6
576.4
86.7
100.2
23.6
The primary segment assets and liabilities were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
– Corporate borrowings
Total net assets
407.8
(193.9)
213.9
741.5
(295.9)
445.6
1,459.5
(237.8)
1,221.7
129.7
(53.0)
76.7
Other segmental information in respect of the primary segments was as follows:
Capital expenditure – property, plant and equipment 9
8
Capital expenditure – intangible fixed assets
9
Depreciation
8
Amortisation of intangible assets
Other non-cash expenses – share-based payments 19
4.6
0.1
7.5
4.7
3.6
9.2
1.6
6.3
18.5
2.3
3.8
8.6
6.5
22.5
0.2
1.9
–
2.0
0.2
0.6
1,439.3
280.6
4.0
(17.2)
267.4
(77.9)
189.5
2,738.5
(780.6)
1,957.9
(460.4)
1,497.5
19.5
10.3
22.3
45.9
6.7
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, deferred income, 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.
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Annual Report and Accounts 2009
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Notes to the accounts – Group
1 Segmental reporting (continued)
Year ended 30 September 2008
The primary segment results were as follows:
Note
UK &
Ireland
£m
Mainland
Europe
£m
North
America
£m
Rest of
World
£m
Group
£m
Continuing operations
Revenue
Segment operating profit
Finance income
Finance expenses
Profit before taxation
Taxation
Profit for the year
3
2
2
4
245.7
84.5
457.3
87.8
500.9
71.9
91.1
23.2
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:
9
Capital expenditure – property, plant and equipment
8
Capital expenditure – intangible fixed assets
9
Depreciation
Amortisation of intangible assets
8
Other non-cash expenses – share-based payments 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
Reconciliation of operating profit to EBITA* (Non GAAP measure)
Operating profit
Amortisation of acquired intangible assets
Net amortisation of software development expenditure
EBITA*
*EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
• Amortisation of acquired intangible assets; and
• Net amortisation or capitalisation of software development expenditure.
2.0
–
1.7
0.2
0.5
2009
£m
280.6
39.5
0.6
320.7
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
2008
£m
267.4
31.8
0.6
299.8
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The Sage Group plc
Annual Report and Accounts 2009
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Secondary reporting format – business segment
The business segments identified are: Accounting; industry-specific; HR and payroll; CRM and payment processing.
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
2009
£m
792.2
369.5
148.9
63.2
65.5
1,439.3
Revenue
2008
£m
713.7
314.6
145.2
68.7
52.8
1,295.0
2009
£m
1,507.4
703.0
283.3
120.2
124.6
2,738.5
Segment
assets
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
2009
£m
16.4
7.7
3.1
1.3
1.3
29.8
2009
£m
502.5
936.8
1,439.3
2009
£m
4.0
(16.2)
(1.0)
(17.2)
Capital
expenditure
2008
£m
22.3
9.8
4.5
2.1
1.7
40.4
Revenue
2008
£m
509.3
785.7
1,295.0
2008
£m
3.8
(29.2)
(1.0)
(30.2)
Net finance expenses
(13.2)
(26.4)
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The Sage Group plc
Annual Report and Accounts 2009
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Notes to the accounts – Group
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
Profit on disposal of intangible assets
Other operating lease rentals payable
– Plant and machinery
– Property
Repairs and maintenance expenditure on property, plant and equipment
Net foreign exchange losses
Research and development expenditure
Services provided by the Group’s auditor and network firms
Note
26
2009
£m
682.0
10
29.7
9
9
8
8
9
9
22.1
0.2
45.3
0.6
0.5
(3.3)
2.5
39.5
6.8
0.2
174.6
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs
as detailed below:
Fees payable to the Company auditor for the audit of parent Company and consolidated accounts
Fees payable to the Company auditor and its associates for the audit of the Company’s subsidiaries
pursuant to legislation
Total audit fees
Other non-tax compliance services
Total audit and assurance fees
Tax services and tax compliance work
2009
£m
1.5
0.2
1.7
0.2
1.9
1.7
3.6
2008
£m
595.5
39.9
18.3
0.2
36.1
0.6
–
–
0.7
27.5
5.6
0.4
139.7
2008
£m
1.5
0.2
1.7
0.2
1.9
1.8
3.7
The total audit fee for the Group, including the audit of overseas subsidiaries was £1.7m (2008: £1.7m). Other non-tax compliance
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 45 and 46.
Exceptional items
Included in selling and administrative expenses are £26.4m of exceptional restructuring costs (2008: £nil).
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The Sage Group plc
Annual Report and Accounts 2009
75
4 Taxation
Analysis of charge in the year
Current tax
– Current year
– Adjustment in respect of prior year
Current tax
Deferred tax
– Origination and reversal of temporary differences
– Adjustment in respect of prior year
Deferred tax
Taxation
Tax on items (credited)/charged to equity
Deferred tax (credit)/charge on share options
Current tax credit on exchange adjustments
Total tax on items credited to equity
The tax for the year is higher (2008: higher) than the standard rate of corporation tax
in the UK 28% (2008: 29%). 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 28% (2008: 29%)
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
Total taxation
5 Dividends
Final dividend paid for the year ended 30 September 2008 of 4.78p per share
(2008: final dividend paid for the year ended 30 September 2007 of 5.73p per share)
Interim dividend paid for the year ended 30 September 2009 of 2.50p per share
(2008: interim dividend paid for the year ended 30 September 2008 of 2.43p per share)
Note
17
Note
23
2009
£m
80.7
(18.0)
62.7
6.5
8.7
15.2
77.9
2009
£m
(4.0)
(4.3)
(8.3)
2009
£m
267.4
74.9
(9.3)
9.4
2.9
77.9
2009
£m
62.5
–
32.6
–
95.1
2008
£m
74.9
0.5
75.4
(0.7)
–
(0.7)
74.7
2008
£m
0.2
(4.6)
(4.4)
2008
£m
241.0
69.9
0.5
5.8
(1.5)
74.7
2008
£m
–
74.5
–
31.7
106.2
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2009 of 4.93p per share
which will absorb an estimated £64.7m of shareholders’ funds. It will be paid on 5 March 2010 to shareholders who are on the register
of members on 5 February 2010. These financial statements do not reflect this dividend payable.
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The Sage Group plc
Annual Report and Accounts 2009
76
Notes to the accounts – Group
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 2009, the performance criteria for
the vesting of the awards under the incentive scheme had not been met in all cases 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
Basic EPS
Earnings attributable to
ordinary shareholders
Effect of dilutive securities
Options
Diluted EPS
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
Adjusted basic EPS
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)
Weighted
average
number
of shares
millions
2009
Per share
amount
pence
Weighted
average
number
of shares
millions
2008
Per share
amount
pence
Earnings
£m
Earnings
£m
189.5
1,310.6
14.46
166.3
1,306.5
12.73
189.5
3.7
1,314.3
166.3
3.8
1,310.3
(0.04)
14.42
2009
Weighted
average
number
of shares
millions
Earnings
£m
Per share
amount
pence
Earnings
£m
Weighted
average
number
of shares
millions
(0.04)
12.69
2008
Per share
amount
pence
189.5
1,310.6
14.46
166.3
1,306.5
12.73
40.1
(11.6)
28.5
218.0
1,310.6
2.17
16.63
32.4
(10.0)
22.4
188.7
41.4
(12.8)
28.6
1,306.5
1.71
14.44
2.19
218.0
1,310.6
16.63
217.3
1,306.5
16.63
3.7
(0.04)
3.8
(0.04)
218.0
1,314.3
16.59
217.3
1,310.3
16.59
Exchange adjustments relate to the retranslation of prior year results to current year exchange rates as shown in the table on page 14
within the Financial review.
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7 Goodwill
Cost
At 1 October
Additions
Disposals
Exchange adjustments
At 30 September
Aggregate impairment at 1 October and 30 September
Net book amount at 30 September
The Sage Group plc
Annual Report and Accounts 2009
77
Note
25(g)
25(d)
2009
£m
2008
£m
1,825.5
7.3
(10.1)
208.1
2,030.8
1,567.0
67.2
–
191.3
1,825.5
–
–
2,030.8
1,825.5
Details of acquisitions in the year are shown in note 25. During the year, goodwill was reviewed for impairment in accordance with
IAS 36. For the purposes of this impairment review, goodwill has been valued on the basis of discounted future cash flows arising
in each relevant cash-generating unit.
Goodwill impairment tests
Goodwill acquired in a business combination is allocated to one or more cash-generating units (“CGUs”). CGUs represent the
operations of a country or, in more material operations, divisions within a country.
The following table shows the allocation of the carrying value of goodwill at the balance sheet date by geographic area:
2008
£m
213.2
251.9
24.8
32.1
8.0
116.1
2009
£m
212.4
293.6
28.8
38.6
7.4
142.3
UK & Ireland
France
Germany
Switzerland
Poland
Spain
North America
– Sage Business Solutions Division
– Sage Payment Solutions Division
– Sage Healthcare Division
South Africa
Australia
Asia
754.2
163.8
307.5
36.3
26.6
19.3
2,030.8
695.6
141.8
266.3
34.1
24.7
16.9
1,825.5
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The Sage Group plc
Annual Report and Accounts 2009
78
Notes to the accounts – Group
7 Goodwill (continued)
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% (2008: 5.9%)
to 10.7% (2008: 11.4%).
− 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 10% (2008: 8%) to 50% (2008: 47%).
− 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 1.3% (2008: 1.0%) to 5.7% (2008: 5.0%).
Goodwill impairment tests were conducted separately for each CGU.
Sensitivity to changes in assumptions
Management believes that no reasonable potential change in any of the above key assumptions would cause the carrying value of any
unit to exceed its recoverable amount.
8 Other intangible assets
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
Cost
At 1 October 2008
Additions
Acquisitions
Disposals
Exchange adjustments
At 30 September 2009
Accumulated
amortisation
At 1 October 2008
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2009
Net book amount at
30 September 2009
40.4
–
–
–
5.3
45.7
8.2
5.1
–
–
1.2
14.5
88.8
–
1.4
(1.5)
10.5
99.2
30.9
14.5
–
(1.1)
3.9
48.2
31.2
51.0
0.3
–
–
–
0.1
0.4
0.1
0.1
–
–
–
0.2
0.2
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–
–
–
0.5
5.6
4.1
0.6
–
–
0.4
5.1
60.4
10.1
0.1
(6.3)
7.1
71.4
21.5
5.8
–
(6.3)
3.1
24.1
136.5
0.2
1.4
(2.2)
15.5
151.4
43.0
19.8
–
(2.1)
4.9
65.6
Total
£m
331.5
10.3
2.9
(10.0)
39.0
373.7
107.8
45.9
–
(9.5)
13.5
157.7
0.5
47.3
85.8
216.0
The Sage Group plc
Annual Report and Accounts 2009
79
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
112.5
0.6
8.8
–
–
14.6
136.5
21.7
17.0
–
–
4.3
43.0
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
Brands
£m
Technology
£m
Acquired
IPR&D
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
Cost
At 1 October 2007
Additions
Acquisitions
Transfers
Disposals
Exchange adjustments
At 30 September 2008
Accumulated
amortisation
At 1 October 2007
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2008
Net book amount at
30 September 2008
34.0
–
1.5
–
–
4.9
40.4
4.5
2.8
–
–
0.9
8.2
70.7
–
8.9
–
–
9.2
88.8
16.1
11.9
–
–
2.9
30.9
0.3
–
–
–
–
–
0.3
0.1
0.1
–
–
(0.1)
0.1
32.2
57.9
0.2
4.7
–
–
–
–
0.4
5.1
3.2
0.6
–
–
0.3
4.1
1.0
38.9
93.5
223.7
All amortisation charges in the year have been charged through selling and administrative expenses. Intangible assets (other than
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.
9 Property, plant and equipment
Cost
At 1 October 2008
Additions at cost
Acquisitions
Disposals
Exchange adjustments
At 30 September 2009
Accumulated depreciation
At 1 October 2008
Charge for the year
Acquisitions
Disposals
Exchange adjustments
At 30 September 2009
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
and office
equipment
£m
93.3
1.0
–
–
2.2
96.5
7.5
1.0
–
–
0.5
9.0
142.5
10.7
0.3
(21.2)
14.5
146.8
101.6
13.8
0.3
(20.9)
10.4
105.2
47.3
7.8
–
(3.0)
7.1
59.2
33.5
7.5
–
(2.6)
5.4
43.8
Total
£m
283.1
19.5
0.3
(24.2)
23.8
302.5
142.6
22.3
0.3
(23.5)
16.3
158.0
Net book amount at 30 September 2009
87.5
41.6
15.4
144.5
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The Sage Group plc
Annual Report and Accounts 2009
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Notes to the accounts – Group
9 Property, plant and equipment (continued)
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
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
Net book amount at 30 September 2008
85.8
40.9
13.8
140.5
Depreciation expenses of £22.3m (2008: £18.5m) have been charged through selling and administrative expenses (note 3).
Lease rentals amounting to £2.5m (2008: £0.7m) and £39.5m (2008: £27.5m) relating to the lease of plant and machinery and property
respectively have also been charged through selling and administrative expenses (note 3).
Assets held under finance leases have the following net book amount:
Cost
Accumulated depreciation
Net book amount
2009
£m
0.9
(0.5)
0.4
2008
£m
1.3
(0.5)
0.8
Included in assets held under finance leases are plant and equipment with a net book amount of £0.2m (2008: £0.5m) and vehicles
£0.2m (2008: £0.3m).
10 Inventories
Materials
Finished goods
2009
£m
1.4
3.8
5.2
2008
£m
1.2
4.2
5.4
The Group consumed £29.7m (2008: £39.9m) of inventories, included in cost of sales, during the year. There was no material write
down of inventories during the current or prior year.
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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
The Sage Group plc
Annual Report and Accounts 2009
81
2009
£m
265.1
(31.4)
233.7
20.7
20.7
275.1
2008
£m
255.0
(28.0)
227.0
23.2
17.4
267.6
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
2009
£m
75.5
107.2
57.7
14.0
254.4
2009
£m
28.0
(0.2)
14.0
(9.0)
(5.3)
3.9
31.4
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
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 2009, trade receivables of £49.8m (2008: £52.5m) 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
2009
£m
11.0
9.9
28.9
49.8
2008
£m
7.5
25.0
20.0
52.5
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Annual Report and Accounts 2009
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Notes to the accounts – Group
11 Trade and other receivables (continued)
Trade receivables which were past their due date but not impaired at 30 September 2009 were £56.6m (2008: £65.4m).
The ageing of these receivables was as follows:
Less than six months past due
More than six months past due
2009
£m
52.7
3.9
56.6
2008
£m
60.8
4.6
65.4
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 at bank and in hand
Short-term bank deposits
2009
£m
59.3
0.1
59.4
2008
£m
69.8
0.3
70.1
The effective interest rate on short-term deposits was 1.1% (2008: 3.2%) and these deposits have an average maturity of 85 days
(2008: 30 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
2009
£m
66.0
70.5
116.3
252.8
2009
£m
391.1
2008
£m
66.5
71.6
109.1
247.2
2008
£m
352.2
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 overdrafts
Bank loans – unsecured
Finance lease obligations
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Non-current
Bank loans – unsecured
Finance lease obligations
2009
£m
7.2
11.4
0.2
18.8
2009
£m
460.5
0.1
460.6
2008
£m
–
13.6
0.3
13.9
2008
£m
575.0
0.2
575.2
The Sage Group plc
Annual Report and Accounts 2009
83
Bank loans are denominated in a number of currencies and principally are charged interest linked to LIBOR.
Included in loans above is £460.5m (2008: £575.0m) of unsecured loans (after unamortised issue costs) taken out in connection
with acquisitions.
This is drawn down under £815.1m (2008: £850.0m) multi-currency revolving credit facilities, £650.0m (2008: £650.0m) expiring on
4 August 2011 and US$264.0m or £165.1m (2008: £200.0m) expiring on 13 January 2011. During the year, the £200.0m facility was
renegotiated, resulting in it being redenominated and reduced to a US$264.0m facility.
In the table above, loans are stated net of unamortised issue costs of £0.2m (2008: £0.5m). The Group has incurred total issue costs
of £8.3m (2008: £7.6m) 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 £81.7m (2008: £75.3m); US Dollar £229.3m (2008: £290.6m),
Euro £148.1m (2008: £208.8m) and Swiss Franc £12.8m (2008: £13.9m) and currently bear interest at a rate of 0.35% (2008: 0.45%)
above LIBOR, apart from £93.8m (2008: £nil) which bear an average fixed interest rate of 1.70% (excluding margin).
16 Financial instruments
Numerical financial instruments disclosures are set out below and also in note 24.
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
Derivatives used for hedging:
Derivative financial instruments
Risk management
Note
15
15
13
11
12
12
Book
value
£m
(460.6)
2009
Fair
value
£m
(460.6)
Book
value
£m
(575.2)
2008
Fair
value
£m
(575.2)
(18.8)
(18.8)
(13.9)
(13.9)
(182.3)
254.4
0.1
59.3
(182.3)
254.4
0.1
59.3
(175.6)
250.2
0.3
69.8
(175.6)
250.2
0.3
69.8
(0.3)
(0.3)
–
–
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.
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Capital risk
The Group’s objectives when managing capital (defined as net debt (note 24) 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 regularly reviews net debt and its ratio to
earnings before interest, tax, depreciation and amortisation (EBITDA) to ensure that it does not exceed the covenant contained within
the Group’s banking facilities being 3.0 times. 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.
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Annual Report and Accounts 2009
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Notes to the accounts – Group
16 Financial instruments (continued)
Liquidity risk
The Group manages its exposure to liquidity risk by regularly reviewing net debt and forecast cash flows to ensure that current cash
resources are available to meet its business objectives. The Group also regularly monitors its compliance with its debt covenants.
During the financial year, all covenants have been complied with. 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 optimising 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
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
Borrowing facilities
Borrowings
£m
18.8
466.6
–
Trade and
other payables
£m
252.8
–
–
Derivative
financial
instruments
£m
1.4
1.4
0.8
485.4
252.8
3.6
Borrowings
£m
13.9
0.2
639.9
654.0
Trade and
other payables
£m
247.2
–
–
247.2
Derivative
financial
instruments
£m
–
–
–
–
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 between one and two years
Expiring in more than two years
2009
£m
354.5
–
354.5
2009
Total
£m
273.0
468.0
0.8
741.8
2008
Total
£m
261.1
0.2
639.9
901.2
2008
£m
–
274.6
274.6
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. In addition, the Group maintains overdraft and uncommitted facilities to provide short-term flexibility.
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.
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Annual Report and Accounts 2009
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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.
Interest rate risk
The Group is exposed to cash flow interest rate risk on floating rate bank loans and overdrafts. At 30 September 2009, the Group had
drawn down £460.6m (2008: £575.4m) from its committed revolving credit facilities. It is the Group’s policy to regularly review interest
rates and forecast debt to monitor its interest rate exposure. The profile of fixed and floating interest rates is then managed accordingly
using interest rate swaps or other hedging instruments approved by the Board. At 30 September 2009, the Group had fixed the
interest rate on £93.8m of borrowings (2008: £nil) using interest rate swaps, with all other outstanding debt 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 2009
was £227.9m (2008: £290.6m), the Euro borrowings £148.1m (2008: £203.5m) and Swiss Franc borrowings £12.8m (2008: £13.9m).
The foreign exchange loss of £71.3m (2008: loss of £71.7m) 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 2009 and 30 September 2008, these exposures
were immaterial to the Group.
Derivative financial instruments
Interest rate swaps – cash flow hedge:
Current
Non-current
Assets
£m
–
–
2009
Liabilities
£m
–
(0.3)
Assets
£m
–
–
2008
Liabilities
£m
–
–
The fair values of derivatives have been calculated using market rates prevailing at the balance sheet date. Their designation depends
on the contractual maturity of the derivative.
The notional principal amount of the outstanding interest rate swap contracts at 30 September 2009 was £93.8m (2008: £nil).
At 30 September 2009, the average fixed interest rate is 1.70%, (excluding margin) (2008: n/a) and the main floating rates are 0.35%
above LIBOR.
Losses recognised in the hedging reserve in equity (note 21) on interest rate swap contracts as of 30 September 2009 will be
continuously released to the income statement until the repayment of the bank borrowings.
Sensitivity analysis
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.
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Annual Report and Accounts 2009
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Notes to the accounts – Group
16 Financial instruments (continued)
1% increase in market interest rates
1% decrease in market interest rates
10% strengthening of Sterling versus the US Dollar
10% strengthening of Sterling versus the Euro
10% weakening of Sterling versus the US Dollar
10% weakening of Sterling versus the Euro
Income
gains/(losses)
£m
(5.2)
5.2
4.0
5.9
(4.4)
(6.5)
2009
Equity
gains/(losses)
£m
(5.2)
5.2
51.9
24.0
(57.1)
(26.4)
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)
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
2009
Total
£m
0.2
0.1
0.3
–
0.3
2008
Total
£m
0.3
0.2
0.5
–
0.5
17 Deferred tax
Deferred tax has been calculated at 28% (2008: 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/(from) current tax liabilities
Income statement (charge)/credit
Exchange differences
Share options
At 30 September
2009
£m
(21.6)
–
0.3
(15.2)
(1.2)
4.0
(33.7)
2008
£m
(5.9)
(6.2)
(8.2)
0.7
(1.8)
(0.2)
(21.6)
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.
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Deferred tax
Assets
At 1 October 2008
Income statement credit
Reclassification from deferred tax liability
Exchange differences
At 30 September 2009
Liabilities
At 1 October 2008
Income statement charge
Deferred tax on intangible assets
Reclassification from deferred tax asset
Acquisition of subsidiary
Exchange differences
Share options
Transfer to current tax liabilities
At 30 September 2009
The Sage Group plc
Annual Report and Accounts 2009
87
Intangible
assets
£m
(0.3)
–
–
–
(0.3)
(33.1)
(2.3)
(0.8)
–
–
(4.5)
–
–
(40.7)
Other
£m
5.5
0.5
0.6
1.2
7.8
6.3
(13.4)
–
(0.6)
0.8
2.1
4.0
0.3
(0.5)
Total
£m
5.2
0.5
0.6
1.2
7.5
(26.8)
(15.7)
(0.8)
(0.6)
0.8
(2.4)
4.0
0.3
(41.2)
Net deferred tax (liability)/asset at 30 September 2009
(41.0)
7.3
(33.7)
Assets
At 1 October 2007
Income statement credit
Reclassification (to)/from deferred tax liability
Exchange differences
At 30 September 2008
Liabilities
At 1 October 2007
Income statement (charge)/credit
Deferred tax on intangible assets
Reclassification to/(from) deferred tax asset
Acquisition of subsidiary
Exchange differences
Share options
Transfer from current tax liabilities
At 30 September 2008
Intangible
assets
£m
6.6
–
(6.9)
–
(0.3)
(23.5)
(5.9)
(7.4)
6.9
–
(3.2)
–
–
(33.1)
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
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)
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Net deferred tax (liability)/asset at 30 September 2008
(33.4)
11.8
(21.6)
The deferred tax liability due after more than one year is £40.7m (2008: £33.1m).
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Annual Report and Accounts 2009
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Notes to the accounts – Group
18 Share capital
Authorised
1,860,000,000 (2008: 1,860,000,000) ordinary shares of 1p each
2009
£m
18.6
Issued and fully paid
At 1 October
Allotted under share option schemes
At 30 September
Potential issues of ordinary shares
2009
shares
1,309,557,557
3,409,399
1,312,966,956
2009
£m
2008
shares
13.1 1,304,160,154
5,397,403
13.1 1,309,557,557
–
2008
£m
18.6
2008
£m
13.0
0.1
13.1
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
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
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
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
2009
number
–
–
35,212
31,250
19,037
1,821,676
459,833
1,385,648
2,740,223
1,798,420
542,953
5,202,139
230,234
3,010,315
1,639,524
3,469,517
5,339,143
129,956
8,063,504
246,209
36,164,793
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
Under the above scheme, 2,920,353 1p ordinary shares were issued during the year for aggregate proceeds of £4.6m.
Under the Group’s long-term incentive plan for certain senior executives approved by shareholders on 3 March 2005 and amended
at the Annual General Meeting on 3 March 2009, the following awards have been made:
Date of award
10 January 2006
10 January 2007
20 June 2007
3 March 2008
17 June 2008
3 March 2009
Vesting date
10 January 2009
10 January 2010
20 June 2010
3 March 2011
17 June 2011
3 March 2012
2009
number
–
2,136,092
33,000
4,644,041
333,148
11,962,924
19,109,205
2008
number
1,989,958
2,347,292
33,000
5,107,983
333,148
–
9,811,381
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Annual Report and Accounts 2009
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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 2002
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
1 August 2009
1 August 2009
1 August 2009
Exercise price
pence
180.40p
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
149.00p
149.00p
149.00p
Exercise period
1 March 2009 – 31 August 2009
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
1 August 2012 – 31 January 2013
1 August 2014 – 31 January 2015
1 August 2016 – 31 January 2017
2009
number
–
13,312
678
32,348
–
87,988
16,918
249,897
130,845
21,928
263,007
75,005
22,334
471,032
206,528
10,250
1,347,158
343,512
62,289
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
–
–
–
3,355,029
3,028,525
Under the above scheme, 489,046 1p ordinary shares were issued during the year for aggregate proceeds of £0.8m.
The market price of the shares of the Company at 30 September 2009 was 233.40p and the highest and lowest prices during the year
were 233.40p and 148.40p respectively.
19 Share-based payments
The total charge for the year relating to employee share-based payment plans was £6.7m (2008: £7.6m), all of which related to
equity-settled share-based payment transactions. After deferred tax, the total charge was £4.8m (2008: £5.2m). A reconciliation of
share movements for options granted after 7 November 2002 to which IFRS 2, “Share-based Payment” is applicable is shown below.
ESOS
There have been no grants of executive share options under the 1999 Executive Share Option Scheme (“ESOS”) since June 2008.
Long-term incentive awards are made under The Sage Group plc Performance Share Plan.
The performance targets governing the vesting of existing 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.
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Notes to the accounts – Group
19 Share-based payments (continued)
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
£2.53
£2.59
351
£2.07
£2.06
119
£1.90
£1.98
104
£1.75
£1.71
365
£1.72
£1.72
18
£2.72
£2.70
514
5,202,139 230,234 3,010,315 1,639,524 3,469,517 5,339,143
3
30%
10
4
5.0%
3
62%
10
4
4.5%
3
57%
10
4
5.1%
3
40%
10
4
4.1%
3
48%
10
4
4.3%
3
52%
10
4
4.4%
£2.49
£2.48
11
£2.13
£2.14
408
129,956 8,063,504
3
24%
10
4
4.2%
3
25%
10
4
5.7%
£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:
2009
Weighted
average
exercise
price
£
2.14
–
2.38
1.65
2.13
1.95
Number
’000s
37,763
–
(5,862)
(2,229)
29,672
16,194
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
2009
Weighted average
remaining life years
2008
Weighted average
remaining life years
Weighted
average
exercise
price
£
2.13
Number
of shares
’000s
29,672
Expected Contractual
6.3
0.4
Weighted
average
exercise
price
£
2.14
Number
of shares
’000s
37,763
Expected
0.8
Contractual
7.3
Outstanding at 1 October
Granted
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
1.71 – 2.70
The weighted average share price during the period for options exercised over the year was 199.63p (2008: 211.02p).
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The Sage Group PSP
The Performance Share Plan (the “Plan”) was approved by shareholders at the Annual General Meeting in 2005 and amended at
the Annual General Meeting in 2009. 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.
Following the amendments to the scheme, annual awards under the Plan are limited to shares worth up to 300% of base salary.
In practice, annual grants to executive directors are limited to shares with a maximum value on award of 210% 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 on a sliding scale based on EPS. 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 are then 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.
The comparator group for awards made in 2009 comprised the following companies:
− Adobe Systems
− ARM Holdings
− Autonomy
− Blackbaud
− Cap Gemini
− Cegid
− Logica
− Salesforce.com
− Dassault Systemes
− Micro Focus International
− SAP
− Exact
− Intuit
− Lawson Software
− Microsoft
− Misys
− Oracle
− Software AG
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. 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 and1.5, but the multiplier cannot be higher or lower than these figures.
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
2007
£2.72
£0.00
87
2,136,092
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
106
4,644,041
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
March
2009
£1.62
£0.00
230
11,962,924
3
33%
3
3
1.5%
0.0%
£1.434
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.
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Notes to the accounts – Group
19 Share-based payments (continued)
A reconciliation of award movements over the year is shown below:
2009
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
9,811
12,045
(2,747)
–
19,109
–
2008
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
7,194
5,568
(1,862)
(1,089)
9,811
–
2009
Weighted average
remaining life years
2008
Weighted average
remaining life years
Weighted
average
exercise
price
£
–
Number
of shares
’000s
19,109
Expected Contractual
1.9
1.9
Weighted
average
exercise
price
£
–
Number
of shares
’000s
9,811
Expected
1.7
Contractual
1.7
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
N/A
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.
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Grant of options
Each option is granted over a number of Shares which, when multiplied by the Exercise Price, does not exceed the total monthly
contributions plus the bonus payable on the maturity of the SAYE contract. There will be no payment for the grant of an option.
Invitations to apply for options must be made within a period of 42 days after:
− Approval of the SAYE Plan by HMRC; or
− The publication by the Company of its interim or final results each year; or
− The day after the Company’s Annual General Meeting; or
− Any day on which any change to the savings-related share option schemes legislation is announced or made; or
− If the directors resolve that exceptional circumstances exist which justify the operation of the SAYE Plan.
Exercise of options
In normal circumstances, an option may be exercised at any time within six months following maturity of the SAYE contract, using
the proceeds of the SAYE contract and the applicable bonus.
Options were valued using the Black-Scholes option-pricing model. Performance conditions were not included in the fair value
calculations. The fair value per option granted and the assumptions used in the calculation are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free rate
Expected dividends
expressed as a dividend yield
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%
March
2004
£1.93
£1.40
2
678
5
59%
5
5
4.6%
March
2004
£1.93
£1.40
9
32,348
7
54%
7
7
4.7%
March
2005
£2.06
£1.57
27
87,988
5
55%
5
5
4.7%
March
2005
£2.06
£1.57
5
16,918
7
54%
7
7
4.7%
August
2006
£2.28
£1.84
144
August
2006
£2.28
£1.84
54
249,897 130,845
5
42%
5
5
4.7%
3
26%
3
3
4.7%
August
2006
£2.28
£1.84
9
21,928
7
51%
7
7
4.6%
1.1%
£0.746
0.9%
£1.135
0.9%
£1.192
1.6%
£1.092
1.6%
£1.176
1.6%
£0.706
1.6%
£1.028
1.6%
£1.255
August
2007
£2.28
£2.03
222
263,007
3
22%
3
3
5.4%
August
2007
£2.28
£2.03
38
75,005
5
34%
5
5
5.3%
August
2007
£2.28
£2.03
7
22,334
7
45%
7
7
5.2%
August
2008
£1.98
£1.77
297
471,032
3
28%
3
3
4.8%
August
2008
£1.98
£1.77
65
206,528
5
27%
5
5
4.8%
August
2008
£1.98
£1.77
6
August
2009
£1.95
£1.49
556
August
2009
£1.95
£1.49
73
10,250 1,347,158 343,512
5
29%
5
5
3.1%
3
33%
3
3
2.4%
7
39%
7
7
4.8%
August
2009
£1.95
£1.49
17
62,289
7
35%
7
7
3.5%
3.0%
£0.503
3.0%
£0.750
3.0%
£0.965
3.0%
£0.476
3.0%
£0.543
3.0%
£0.746
3.5%
£0.565
3.5%
£0.580
3.5%
£0.682
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.
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Notes to the accounts – Group
19 Share-based payments (continued)
A reconciliation of option movements over the year is shown below:
2009
Weighted
average
price
£
1.82
1.49
1.83
1.85
1.76
1.65
1.84
Number
’000s
3,022
1,763
(267)
(676)
(487)
3,355
251
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
2009
Weighted average
remaining life years
2008
Weighted average
remaining life years
Weighted
average
exercise
price
£
1.65
Number
of shares
’000s
3,355
Expected Contractual
3.1
2.6
Weighted
average
exercise
price
£
1.82
Number
of shares
’000s
3,022
Expected
2.4
Contractual
2.4
Outstanding at 1 October
Awarded
Forfeited
Surrendered
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
1.12 – 2.03
20 Share premium account
At 1 October 2007
Premium on shares issued during the year under share option schemes
At 1 October 2008
Premium on shares issued during the year under share option schemes
At 30 September 2009
21 Other reserves
At 1 October 2007
Currency translation differences
At 30 September 2008
Currency translation differences
Cash flow hedges:
– fair value losses in the period
At 30 September 2009
Translation reserve
£m
478.2
8.4
486.6
5.4
492.0
Total
other
reserves
£m
(7.9)
117.1
109.2
140.6
(0.3)
249.5
Translation
reserve
£m
(69.0)
117.1
48.1
140.6
–
188.7
Hedge
reserve
£m
–
–
–
–
(0.3)
(0.3)
Other
reserve
£m
61.1
–
61.1
–
–
61.1
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.
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Hedge reserve
The hedge reserve records movements on derivative financial instruments designated as cash flow hedges.
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 (loss)/gain on employment benefits
Equity movement of deferred tax
At 30 September
2009
£m
638.1
189.5
6.7
(95.1)
(0.3)
4.0
742.9
2008
£m
567.5
166.3
7.6
(106.2)
3.1
(0.2)
638.1
The actuarial loss of £0.3m (2008: gain of £3.1m) is made up of net gains of £0.1m (2008: gain of £2.8m) on post-employment benefits
(note 27) and a loss of £0.4m (2008: gain of £0.3m) on other long-term employee benefits (note 27).
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 3,601,541 ordinary
shares in the Company (2008: 3,648,697) at a cost of £10.1m (2008: £10.2m) and a nominal value of £36,015 (2008: £36,487).
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, 47,156 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 2009 was £8.4m (2008: £7.1m).
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Notes to the accounts – Group
23 Shareholders’ funds and reconciliation of changes in shareholders’ equity
At 1 October 2007
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 gain on employment benefits
Dividends paid
At 30 September 2008
Exchange adjustments
Cash flow hedge
New shares issued
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 paid
At 30 September 2009
24 Cash flow and net debt
Share
capital
(note 18)
£m
13.0
–
0.1
Share
premium
(note 20)
£m
478.2
–
–
–
–
–
–
–
–
13.1
–
–
–
–
–
–
–
–
–
13.1
–
–
8.4
–
–
–
486.6
–
–
–
–
–
5.4
–
–
–
492.0
Retained
earnings
(note 22)
£m
567.5
–
–
166.3
(0.2)
–
7.6
3.1
(106.2)
638.1
–
–
–
189.5
4.0
–
6.7
(0.3)
(95.1)
742.9
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
Profit on disposal of intangible assets
Equity-settled share-based transactions
Exchange movements
Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries)
– Decrease in inventories
– Decrease/(increase) in trade and other receivables
– (Decrease)/increase in trade and other payables
– (Decrease)/increase in deferred income
Cash generated from continuing operations
Other
reserves
(note 21)
£m
(7.9)
117.1
–
–
–
–
–
–
–
109.2
140.6
(0.3)
–
–
–
–
–
–
–
249.5
2009
£m
189.5
77.9
(4.0)
17.2
45.9
22.3
0.5
(3.3)
6.7
1.7
1.0
15.8
(13.5)
(0.1)
357.6
Total
equity
£m
1,050.8
117.1
0.1
166.3
(0.2)
8.4
7.6
3.1
(106.2)
1,247.0
140.6
(0.3)
–
189.5
4.0
5.4
6.7
(0.3)
(95.1)
1,497.5
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
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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
2009
£m
(26.8)
195.2
168.4
–
(1.0)
(65.8)
101.6
(541.0)
(439.4)
2008
£m
(3.3)
40.0
36.7
(0.9)
(1.0)
(66.1)
(31.3)
(509.7)
(541.0)
Analysis of change in net debt
(inclusive of finance leases)
Cash and cash equivalents
Bank overdrafts
Cash, cash equivalents and
bank overdrafts
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
2008
£m
70.1
–
70.1
(13.6)
(0.3)
(574.3)
(0.2)
(22.7)
(541.0)
Cash flow
£m
(19.6)
(7.2)
Acquisitions
£m
–
–
(26.8)
3.1
–
186.1
0.1
5.9
168.4
–
–
–
–
–
–
–
Exchange
movements
£m
8.9
–
At
30 September
2009
£m
59.4
(7.2)
8.9
(0.9)
0.1
(71.3)
–
(2.6)
(65.8)
52.2
(11.4)
(0.2)
(460.5)
(0.1)
(19.4)
(439.4)
Other
£m
–
–
–
–
–
(1.0)
–
–
(1.0)
Included in cash above is £19.4m (2008: £22.7m) 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.
25 Acquisitions and disposals
a Acquisition of Aytos CPD, S.L.
On 20 November 2008 the Group completed the acquisition of Aytos CPD, S.L. (“Aytos”), for a consideration of £13.0m (inclusive of
£0.3m related costs). Total goodwill arising on the acquisition is £7.8m.
In the purchase 100% of the voting shares were acquired. From the date of the acquisition to 30 September 2009 the acquisition
contributed £7.6m to revenue and £2.3m to profit.
The net identifiable assets (including intangible assets) were recognised at their 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
11.5
0.3
1.2
13.0
(5.2)
7.8
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Notes to the accounts – Group
25 Acquisitions and disposals (continued)
Goodwill represents the fair value of the assembled workforce at the time of acquisition, potential synergies and other potential future
economic benefit that is anticipated from the integration of services already offered by Sage with existing product and service offerings
with the Aytos business.
Aytos acquisition
Intangible fixed assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other 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 Aytos is calculated as follows:
Cash consideration
Cash acquired
Net cash outflow
The intangible assets acquired as part of the acquisition of Aytos can be analysed as follows:
Customer relationships
Technology
Computer software
Further details of these are given in note 8.
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Carrying values
pre-acquisition
£m
0.1
0.3
0.1
2.9
(0.4)
(0.7)
(0.1)
–
1.0
3.2
Fair value
£m
2.9
0.3
0.1
2.9
(0.4)
(0.7)
(0.1)
(0.8)
1.0
5.2
7.8
13.0
11.8
1.2
13.0
£m
11.8
(1.0)
10.8
£m
1.4
1.4
0.1
2.9
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The Sage Group plc
Annual Report and Accounts 2009
99
b Other acquisitions made in the year
The following acquisitions, were made during the year:
− Certain trade and assets of Pocket India w acquired from Crystal Info Solutions (P) Ltd on 3 November 2008 for a cash
ere
consideration of £0.4m (including costs). The fair value of assets acquired was £nil resulting in goodwill of £0.4m.
− Certain trade and assets of Matrix Factory S.L. were acquired on 23 April 2009 for a cash consideration of £1.1m (including costs).
The fair value of assets acquired was £nil resulting in goodwill of £1.1m.
Other acquisitions
Net assets acquired
Goodwill
Consideration satisfied by: Cash
Carrying values
pre-acquisition
£m
–
Provisional
fair value
£m
–
1.5
1.5
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
c Contribution of acquisitions
£m
1.5
–
1.5
Had these acquisitions occurred at the beginning of the financial year, Group revenue would have been £1,439.8m and Group profit
before taxation would remain unchanged.
d Disposal of the Tax Compliance Services Division of Sage Software, Inc.
On 28 February 2009 the Group disposed of the Tax Compliance Services division of Sage Software, Inc. for £12.0m in cash.
Details of net assets disposed of and the gain on disposal are as follows:
Tax Compliance Services Disposal
Goodwill
Intangible fixed assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Deferred income
Net assets disposed
The gain on disposal is calculated as follows:
Disposal proceeds
Net assets disposed
Cumulative translation differences
Gain on disposal
e Other
During the year ended 30 September 2009 adjustments were made in respect of goodwill on prior year acquisitions of £2.0m, due to
a reduction in deferred consideration of £0.1m and decrease in net assets of £1.9m following the finalisation of the fair value of assets
and liabilities.
Carrying value
pre-disposal
£m
10.1
0.5
0.1
1.0
(0.1)
(0.8)
10.8
£m
12.0
(10.8)
2.1
3.3
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Notes to the accounts – Group
25 Acquisitions and disposals (continued)
f Analysis of net outflow of cash in respect of acquisitions
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
Aytos
Other acquisitions
Payment of deferred consideration
Net cash outflow in respect of acquisitions
g Analysis of goodwill
The total additions to goodwill are calculated as follows:
Aytos
Other acquisitions
Adjustments in relation to previous years’ acquisitions
Net movement in goodwill on acquisitions
26 Employees and directors
Average number of people employed (including directors)
By territory:
UK & Ireland
Mainland Europe
North America
Rest of World
Staff costs (including directors on service contracts)
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
£m
10.8
1.5
1.5
13.8
£m
7.8
1.5
(2.0)
7.3
2008
number
2,695
5,653
4,939
1,752
2009
number
2,509
5,573
4,501
1,769
Note
19
27
14,352
15,039
2009
£m
551.0
110.5
6.7
13.8
682.0
2009
£m
6.5
0.6
3.1
10.2
2008
£m
492.6
86.5
7.6
8.8
595.5
2008
£m
6.3
0.6
2.1
9.0
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The key management figures given above include directors. Key management personnel are deemed to be members of the Executive
Committee as shown on pages 12 and 13.
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Annual Report and Accounts 2009
101
27 Retirement benefit obligations
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 pension schemes in Switzerland and another retirement benefit scheme
in France. Under French legislation, the Group is required to make one-off payments to employees in France who reach retirement age
while still in employment. The Group has previously included this potential liability within trade and other payables. This liability has been
reclassified to be included with other retirement benefits obligations during the year ended 30 September 2009.
Pension costs
Defined contribution schemes
Defined benefit plans
Defined benefit plans
Note
26
2009
£m
11.9
1.9
13.8
The most recent actuarial valuations of the retirement benefit plans were performed by Ernst & Young in October 2009.
Weighted average principal assumptions made by the actuaries
Rate of increase in pensionable salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate
Inflation assumption
Expected return on plan assets
Pensions and other post-employment obligations
Amounts recognised in the balance sheet
Present value of funded obligations
Fair value of plan assets
Net liability recognised in the balance sheet
2009
%
0.50
0.00
3.20
1.00
4.00
2009
£m
(31.7)
19.9
(11.8)
2008
£m
7.4
1.4
8.8
2008
%
2.00
0.50
3.50
1.50
4.00
2008
£m
(20.0)
16.1
(3.9)
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.
Major categories of plan assets as a percentage of
total plan assets
Bonds
Equities
Property
Other
£m
12.4
3.2
1.1
3.2
19.9
2009
%
62.3
16.1
5.5
16.1
100.0
£m
7.6
1.5
1.0
6.0
16.1
2008
%
47.2
9.3
6.2
37.3
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 2010 are £1.5m.
Amounts recognised in the income statement
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
26
2009
£m
(1.0)
0.8
(1.7)
(1.9)
2008
£m
(0.6)
0.6
(1.4)
(1.4)
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Notes to the accounts – Group
27 Retirement benefit obligations (continued)
Changes in the present value of the defined benefit obligation
Present value of obligation – 1 October
Exchange movement
Service cost
Plan participant contributions
Interest cost
Benefits paid
Reclassification
Actuarial gain on benefit obligation
Present value of obligation – 30 September
Changes in the fair value of plan assets
Fair value of plan assets – 1 October
Exchange movement
Expected return on plan assets
Employer’s contributions
Employee’s contributions
Benefits paid
Reclassification
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
Total expense as recognised in the income statement
Contributions paid
Reclassification
Actuarial (loss)/gain
At 30 September
The actual return on plan assets was £0.2m (2008: £0.1m).
History of experience gains and losses
Present value of defined benefit obligation
Fair value of plan assets
Deficit
Experience adjustments on plan liabilities
Experience adjustments on plan assets
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£m
(31.7)
19.9
(11.8)
(0.2)
0.5
2008
£m
(20.0)
16.1
(3.9)
(3.5)
0.7
2007
£m
(17.9)
12.6
(5.3)
(5.8)
7.6
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Cumulative actuarial gains and losses recognised in equity
At 1 October
Actuarial (losses)/gains recognised in the year (before tax)
At 30 September
2009
£m
(20.0)
(5.0)
(1.7)
(2.9)
(1.0)
4.3
(5.6)
0.2
(31.7)
2009
£m
16.1
3.3
0.8
1.4
2.9
(4.3)
0.2
(0.5)
19.9
2009
£m
(3.9)
(1.7)
(1.9)
1.4
(5.4)
(0.3)
(11.8)
2006
£m
(11.7)
9.6
(2.1)
(0.1)
0.1
2009
£m
0.9
(0.3)
0.6
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)
2005
£m
(11.2)
8.8
(2.4)
(0.1)
(0.1)
2008
£m
(1.9)
2.8
0.9
The Sage Group plc
Annual Report and Accounts 2009
103
28 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
2009
Vehicles
plant and
equipment
£m
2.0
4.9
–
6.9
Property
£m
11.8
61.6
132.0
205.4
2008
Vehicles
plant and
equipment
£m
0.7
3.7
–
4.4
Property
£m
6.7
62.2
93.7
162.6
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.
29 Contingent liabilities
The Group had no contingent liabilities at 30 September 2009 (2008: none).
30 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.
31 Post balance sheet event
On 30 October 2009 the Group disposed of the
entire
share capital of Sage Pro-Concept S.A. for £6.5m in cash.
Details of net assets disposed of and the loss on disposal are as follows:
Sage Pro-Concept S.A.
Goodwill
Intangible fixed assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Deferred taxation
Cash and cash equivalents
Deferred income
Net assets disposed
The gain on disposal is calculated as follows:
Disposal proceeds
Net assets disposed
Cumulative translation differences
Loss on disposal
At 30 September 2009 the sale was not deemed as being highly probable under IFRS 5, “Non-current Assets Held for Sale and
Discontinued Operations”.
Carrying value
pre-disposal
£m
7.9
1.5
1.0
4.1
(3.0)
(0.4)
0.2
(1.1)
10.2
£m
6.5
(10.2)
3.6
(0.1)
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104
Notes to the accounts – Group
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, LLC
Sage Software Canada Ltd
Ciel SAS
Sage SAS
Sage FDC SAS
Sage Holding France SAS
Sage Software GmbH
Sage bäurer GmbH
Sage Schweiz AG
Sage Simultan AG
Sage Pro-Concept S.A.
Sage SP, S.L.
Sage Logic Control, S.L.
Sage sp. z.o.o.
Sage Portugal – Software S.A.
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
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Country of
incorporation
UK
Ireland
US
US
US
Canada
France
France
France
France
Germany
Germany
Switzerland
Switzerland
Switzerland
Spain
Spain
Poland
Portugal
Australia
Australia
Australia
South Africa
Singapore
Malaysia
China
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Independent auditors’ report to
the members of The Sage Group plc
We have audited the Group financial statements of The Sage
Group plc for the year ended 30 September 2009 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. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (“IFRSs”) as adopted by the
European Union.
Respective responsibilities of directors and auditors
As explained more fully in the Statement of directors’
responsibilities set out on page 48, the directors are
responsible for the preparation of the Group financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit the Group financial statements in
accordance with applicable law and International Standards
on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Sections 495 and 496 of the Companies Act 2006 and for no
other purpose. We do not, in giving these opinions, 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements are
free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s circumstances and
have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the Group financial statements:
− Give a true and fair view of the state of the Group’s affairs as
at 30 September 2009 and of its profit and cash flows for the
year then ended;
− Have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
− Have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the lAS Regulation.
The Sage Group plc
Annual Report and Accounts 2009
105
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion:
− The information given in the Directors’ report for the financial
year for which the Group financial statements are prepared
is consistent with the Group financial statements; and
− The information given in the Corporate governance statement
set out on pages 43 to 48 with respect to internal control and
risk management systems and about share capital structures
is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
− Certain disclosures of directors’ remuneration specified by law
are not made; or
− We have not received all the information and explanations we
require for our audit; or
− A corporate governance statement has not been prepared by
the parent Company.
Under the Listing Rules we are required to review:
− The directors’ statement, set out on page 48 in relation to
going concern; and
− The part of the Corporate governance statement relating to
the Company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review.
Other matter
We have reported separately on the parent Company
financial statements of The Sage Group plc for the year
ended 30 September 2009 and on the information in the
Remuneration report that is described as having been audited.
Richard Pollard (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
17 December 2009
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Annual Report and Accounts 2009
106
Company balance sheet
At 30 September 2009
Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors
Amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors
Amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserve
Profit and loss account
Total shareholders’ funds
Note
2
3
4
5
6
7
7
7
2009
£m
2008
£m
1,578.0
1,578.0
1,544.1
1,544.1
287.4
–
287.4
257.7
0.3
258.0
(579.2)
(291.8)
(499.1)
(241.1)
1,286.2
1,303.0
(460.7)
825.5
(574.9)
728.1
13.1
492.0
50.7
269.7
825.5
13.1
486.6
50.9
177.5
728.1
The financial statements on pages 106 to 110 were approved by the Board of directors on 17 December 2009 and are signed on their
behalf by:
P A Walker
Director
P S Harrison
Director
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Notes to the accounts – Company
For the year ended 30 September 2009
Parent Company accounting policies
a Basis of accounting
The Sage Group plc
Annual Report and Accounts 2009
107
These financial statements have been prepared under the historical cost convention, except where noted below, and in accordance
with the Companies Act 2006 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
Monetary assets and liabilities expressed in foreign currencies are translated into Sterling at rates of exchange prevailing at the date
of the balance sheet or at the agreed contractual rate. Transactions in foreign currencies are converted into Sterling at the rate prevailing
at the dates of the transactions. All differences on exchange are taken to the profit and loss account.
c Investments
Fixed asset investments are stated at cost less provision for any diminution in value.
d Parent Company profit and loss account and cash flow statement
The amount of profit for the financial year before dividends within the accounts of the parent Company is £181.2m (2008: loss £79.5m).
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 408 of the Companies
Act 2006.
e 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.
f Financial instruments and hedge accounting
The accounting policy of the Company for financial instruments and hedge accounting is the same as that shown in the Group
accounting policies (accounting policy p). This policy is in accordance with FRS 26, “Financial Instruments: Recognition and
Measurement”.
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Annual Report and Accounts 2009
108
Notes to the accounts – Company
1 Dividends
Final dividend paid for the year ended 30 September 2008 of 4.78p per share
(2008: final dividend paid for the year ended 30 September 2007 of 5.73p per share)
Interim dividend paid for the year ended 30 September 2009 of 2.50p per share
(2008: interim dividend paid for the year ended 30 September 2008 of 2.43p per share)
2009
£m
62.5
–
32.6
–
95.1
2008
£m
–
74.5
–
31.7
106.2
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2009 of 4.93p per share
which will absorb an estimated £64.7m of shareholders’ funds. It will be paid on 5 March 2010 to shareholders who are on the register
of members on 5 February 2010. These financial statements do not reflect this dividend payable.
2 Investments
Equity interests in subsidiary undertakings are as follows:
Cost
At 1 October 2008
Additions in year
At 30 September 2009
Provision for diminution in value at 30 September 2008 and 2009
Net book value
At 30 September 2009
At 30 September 2008
£m
1,544.1
33.9
1,578.0
–
1,578.0
1,544.1
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 2009, 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
4 Creditors: amounts falling due within one year
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Bank overdraft
Borrowings
Amounts owed to Group undertakings
Accruals
2009
£m
286.5
0.9
287.4
2009
£m
0.3
1.3
576.4
1.2
579.2
2008
£m
256.8
0.9
257.7
2008
£m
–
–
498.3
0.8
499.1
The Sage Group plc
Annual Report and Accounts 2009
109
5 Creditors: amounts falling due in more than one year
Borrowings
Derivative financial instruments
2009
£m
460.4
0.3
460.7
2008
£m
574.9
–
574.9
Bank loans are denominated in a number of currencies and principally are charged interest linked to LIBOR.
Loans shown above represent unsecured loans (after unamortised issue costs) taken out in connection with acquisitions.
This is drawn down under £815.1m (2008: £850.0m) multi-currency revolving credit facilities, £650.0m (2008: £650.0m) expiring on
4 August 2011 and US$264.0m or £165.1m (2008: £200.0m) expiring on 13 January 2011. During the year, the £200.0m facility was
renegotiated, resulting in it being redenominated and reduced to a US$264.0m facility.
In the table above, loans are stated net of unamortised issue costs of £0.2m (2008: £0.5m). The Group has incurred total issue costs
of £8.3m (2008: £7.6m) 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 £71.7m (2008: £75.3m); US Dollar £229.3m (2008: £290.6m),
Euro £147.9m (2008: £208.8m) and Swiss Franc £12.8m (2008: £13.9m) and currently bear interest at a rate of 0.35% (2008: 0.45%)
above LIBOR, apart from £93.8m (2008: £nil) which bear an average fixed interest rate of 1.70% (excluding margin).
6 Called up share capital
Authorised
1,860,000,000 (2008: 1,860,000,000) ordinary shares of 1p each
2009
£m
18.6
Issued and fully paid
At 1 October
Allotted under share option schemes
At 30 September
Potential issues of ordinary shares
2009
shares
1,309,557,557
3,409,399
1,312,966,956
2009
£m
2008
shares
13.1 1,304,160,154
5,397,403
13.1 1,309,557,557
–
2008
£m
18.6
2008
£m
13.0
0.1
13.1
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.
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The Sage Group plc
Annual Report and Accounts 2009
110
Notes to the accounts – Company
7 Reserves
At 1 October 2008
New shares issued
Utilisation of treasury
shares
Cash flow hedge
Retained profit/(loss) for
the year
Dividends
Equity-settled
transactions
At 30 September 2009
Treasury shares
Treasury
shares
£m
(10.2)
–
Merger
reserve
£m
61.1
–
0.1
–
–
–
–
–
–
–
–
–
Hedge
reserve
£m
–
–
–
(0.3)
–
–
–
Total
other
reserves
£m
50.9
–
0.1
(0.3)
–
–
–
Share
premium
account
£m
486.6
5.4
Profit and
loss account
£m
177.5
–
–
–
–
–
–
(0.1)
–
181.2
(95.1)
6.2
269.7
Total
£m
715.0
5.4
–
(0.3)
181.2
(95.1)
6.2
812.4
(10.1)
61.1
(0.3)
50.7
492.0
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
3,601,541 ordinary shares in the Company (2008: 3,648,697) at a cost of £10.1m (2008: £10.2m) and a nominal value of £36,015
(2008: £36,487). 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, 47,156 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 2009 was £8.4m (2008: £7.1m).
8 Operating lease commitments – minimum lease payments
The Company had no operating lease commitments during the year (2008: £nil).
9 Capital commitments and contingent liabilities
The Company had no capital commitments or contingent liabilities at 30 September 2009 (2008: 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.
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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 2009
which comprise the Company balance sheet and the related
notes. The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
Respective responsibilities of directors and auditors
As explained more fully in the Statement of directors’
responsibilities set out on page 48, the directors are responsible
for the preparation of the parent Company financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit the parent Company financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Sections 495 to 497 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, 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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the parent Company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of
significant accounting estimates made by the directors; and the
overall presentation of the financial statements.
Opinion on financial statements
In our opinion the parent Company financial statements:
− Give a true and fair view of the state of the Company’s affairs
as at 30 September 2009;
− Have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
− Have been prepared in accordance with the requirements
of the Companies Act 2006.
The Sage Group plc
Annual Report and Accounts 2009
111
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
− The part of the Remuneration report to be audited has been
properly prepared in accordance with the Companies Act
2006; and
− The information given in the Directors’ report for the financial
year for which the parent Company financial statements are
prepared is consistent with the parent Company financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
− Adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
− The parent Company financial statements and the part of the
Remuneration report to be audited are not in agreement with
the accounting records and returns; or
− Certain disclosures of directors’ remuneration specified by law
are not made; or
− We have not received all the information and explanations we
require for our audit.
Other matter
We have reported separately on the Group financial statements
of The Sage Group plc for the year ended 30 September 2009.
Richard Pollard (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
17 December 2009
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The Sage Group plc
Annual Report and Accounts 2009
112
Shareholder information
Financial calendar
Annual General Meeting
Dividend payments
Final payable – year ended 30 September 2009
Interim payable – period ending 31 March 2010
Results announcements
Interim results – period ending 31 March 2010
Final results – year ending 30 September 2010
2 March 2010
5 March 2010
June 2010
5 May 2010
1 December 2010
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 2100
)
(from outside the UK: +44 (0)1903 698403
Information for investors
Information for investors is provided on the internet as part of the Group’s website which can be found at: www.investors.sage.com
Investor enquiries
Enquiries can be directed via our website or by contacting our Investor Relations department:
Andrew Griffith
Investor Relations
Tel: +44 (0) 191 294 3000
Fax: +44 (0) 191 294 0002
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The Sage Group plc
Registered office:
North Park
Newcastle upon Tyne
NE13 9AA
Registered in England number 2231246
What we do and how we work
Our
business
We are a market-leading,
global company with
offices in 24 countries
and products and services
available in more than 160.
Yet we complement our size by
staying in touch with customers
through our localised business model.
Products and services are developed
wherever our customers are and they
can talk to someone who speaks
their language and understands
their situation.
Our products
and sectors
We combine our affinity for
SMEs with our technological
expertise to deliver high
quality, easy to use, relevant
and cost-effective solutions
across a range of sectors.
From accounts and payroll through
to payment processing, customer
relationship management (“CRM”)
and solutions for specific industries
we anticipate customers needs,
offer choice and advice on the best
fit for each individual business.
Our
customers
Our customers are principally
small and medium-sized
businesses, though we also
serve larger organisations.
They remain at the centre of our
thinking. We share their passion for
entrepreneurialism and we respect that
they invest much more than money in
their business. We strive to help them
manage their businesses more efficiently
allowing them to pursue their ambitions.
Our
partners
Sage has a powerful
ecosystem designed to
enable customers to get
what they want from us,
when and how they want it.
We constantly seek innovative ways
to make ourselves accessible to
customers. This can be through
providing software and support direct
from Sage or their local business
partner; working with our developer
community to provide add-on solutions;
integrating our software with their
accountant’s system or ensuring our
products can easily be found online,
in their local bank or retail store.
Our guiding
principles
In the same way our
customers rely on the skills
and talent of their employees
to operate their businesses,
we rely on our 13,400 people
to do the right thing for our
customers, day in day out.
To help them deliver consistently
wherever they are in the world we
live by five principles which guide
our thinking and decision making.
Our strategy
and goals
Our strategy is to provide
the most effective solutions,
developed and supported
locally to meet our customers’
specific market needs.
We encourage innovation to flourish locally,
utilising the most appropriate technology
to bring real benefits for customers.
Many of our customers are resource
constrained and look to Sage for support
and advice, not only to ensure they get the
most out of their software and services but
also for guidance on key business issues.
We place great emphasis on providing
this customer support, which is a key
differentiator in the marketplace.
24
Countries with direct operations –
a presence in many more
6.1 million
Customers
8%#
Third largest provider of business management
solutions in the world with 8% market share
30,000
Business partners
40,000
Accountants
40%+
Sage people dedicated to technical support,
customer service and training
1.7 million
Support contracts
Revenue by region
Revenue by sector
Customer profile
Our brands
Our principles
Our long-term goals
A
B
C
D
UK & Ireland
Mainland Europe
North America
Rest of World
17%
36%
40%
7%
A
B
C
D
E
Accounting
Industry-specific
HR and payroll
CRM
Payment processing
55%
26%
10%
4%
5%
A
D
E
A
D
B
C
These brands, such as ACT!, Ciel! in France,
Sage 50 in the UK, Softline Pastel in South Africa,
Peachtree in the US 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.
Enterprise
Upper
mid-market
<5,000
employees
Lower
mid-market
Entry-level
500
25
C
B
80%
of our customer base
17%
of our customer base
3%
of our customer base
1
2
Be a key leader in all markets
of the world.
Develop products and services
which are the most compelling
fit with a customer’s country
and industry.
3
Have the most trusted brands.
4
5
Have the most satisfied and
active customers in our industry.
Experience superior organic
revenue growth versus our
peer group.
6
Be recognised as one of the
most admired employers.
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 think ahead, to anticipate our
customers’ needs and are 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.
# Gartner, June 2009. Worldwide Total ERP Software Revenue
Market share by Vendor, 2008.
+
More on our people | Pages 34 and 35
Design and production
Radley Yeldar | www.ry.com
Board photography
Andy Wilson
Print
CTD
This Report has been printed on Cocoon Silk which
is 100% recycled and FSC certified. This report was
printed by an FSC and ISO 14001 accredited 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 offset through
the purchase of carbon credits in the Candelaria
Hydroelectric Project in Guatemala. The project
involves the generation of renewable energy
through the installation of a run-of-river hydropower
plant. The project is verified and certified to the
Voluntary Carbon Standard.
The Sage Group plc
Annual Report
and Accounts 2009
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www.sage.com
The Sage Group plc
North Park
Newcastle upon Tyne
NE13 9AA
Business software
and services for the
world’s entrepreneurs
Introduction to Sage
What we do
Across the world Sage supports our customers –
mainly small and medium-sized enterprises (“SMEs”) –
in their everyday endeavours. We provide software,
services and support to help them better manage the tasks
and processes that are at the core of their business.
How we’ve performed
Sage has performed well in a difficult market. Our business
model has proved strong and agile and we have outperformed
many of our competitors. We quickly adjusted our business
to the economic environment and focused on delivering the
software and services most needed by our customers to help
them through the recession.
Revenue
£1,439.3m -4%*
EBITA†
£320.7m -6%*
Adjusted pre-tax profit^
£307.5m -2%
Total dividend
7.43p +3%
+
More analysis of financial highlights and our key performance indicators | Pages 06–07
Longer term opportunities
Our large, loyal customer base, our focus on delivering
solutions that businesses value, trust and rely on,
alongside the efficiencies we have driven in our business
position us well for future growth.
+
More on supporting customers through the downturn and preparing
our business for growth | Pages 02–05
* Foreign currency results for the prior year ended 30 September
2008 have been retranslated based on the average exchange rates
for the year ended 30 September 2009 of $1.54/£1 and €1.14/£1
to facilitate the comparison of results.
† EBITA is defined as earnings before interest, tax and amortisation
of intangible assets.
^ Adjusted pre-tax profit stated prior to amortisation of intangible fixed
assets and after neutralisation of foreign exchange movements.
Note: A reconciliation of operating to statutory results is provided
on page 14.