The Sage Group plc
Annual Report & Accounts 2012
Giving small and medium sized
companies the confidence and
freedom to be successful
Sage is a business guided by the
diverse needs of more than six million
unique customers in all four corners
of the world
From the intuitive design of our software to the expertise of our people, the
fundamentals of our business are helping our customers achieve their ambitions,
giving them the confidence and control they need to succeed.
In this year’s Annual Report, we recognise some of our customers’ successes and
the stories behind their businesses. From start-ups to Formula 1 racing teams,
we are proud to be associated with each of our valued customers and happy
to help them to do what they do best.
Case studies showing how we are giving small and medium sized companies the confidence and freedom to be successful are on pages 34 to 39.
Highlights
• Strong growth in subscription revenues offset by a contraction in software revenues reflecting
weakening economic environment in Europe and strategic shift to recurring revenue
• Underlying earnings per share of 19.86p (2011: 20.28p*), reflecting an increase in tax rate
to 29% from 23%
• Good progress made with our three cornerstones to drive accelerated growth: focusing
our business, capturing the technology opportunity and the benefits of subscription
• A significant presence established in Brazil through the acquisition of Folhamatic and the
subsequent acquisitions of EBS and Cenize
• Strength of our offering to new and existing customers continues with the addition of
289,000 (2011: 261,000) new paying customers during the year and renewal rate on
support contracts maintained at 81%
Contents
There is more
information about the
Sage Group online
www.sage.com
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Overview
Setting the scene for our business and the markets in
which we operate.
Performance
A review of our financial and corporate performance including
our priorities and how we are delivering against them.
Governance
How we manage our business and an introduction
to our Board and their priorities.
Chairman’s statement
What we do
Where we do it
Cornerstones of our strategy
Our financial management
Our business model
Key risks
Chief Executive’s review
Executive Committee
Our strategy
Key performance indicators
The Sage Business Index
Financial and operating review
Customer case studies
Principal risks and uncertainties
People and organisation
Corporate Responsibility
Chairman’s introduction
Board of directors
Corporate governance report
Directors’ report
Remuneration report
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Financial statements
Our financial statements provide a complete picture
of our 2012 performance.
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Independent auditors’ report to the members of The Sage Group plc
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Group financial statements
81
Notes to the Group financial statements
Independent auditors’ report to the members of The Sage Group plc 125
126
Company financial statements
127
Notes to the Company financial statements
133
Shareholder information
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Organic# revenue
growth
EBITA† margin
KPI
27%
KPI
2%*
Underlying EPS
growth
Cash generation from
operations
-2%*
106%^
KPI
KPI
This symbol
references Group
KPIs. More
information on our
KPIs is on page 24
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6
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2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
# Organic figures exclude the contributions of current and prior year acquisitions, disposals and non-core products.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related
items and imputed interest.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets, acquisition-related items and is after neutralising the
impact of foreign exchange movements.
^ Cash generation from operations represents cash flows from operating activities divided by EBITA. EBITA for cash generation purposes is after
acquisition-related items.
The Sage Group plc | Annual Report & Accounts 2012
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Donald Brydon,
Chairman
Chairman’s statement
The Sage Group has again delivered
a solid performance in the face of an
economic backdrop which remained
difficult and uncertain in many of our
major markets
This is my first report as your Chairman and I am pleased to report
that the Group performed creditably in the past year in the face of
an economic backdrop which remained difficult and uncertain in
many of our major markets. I have been impressed by the strong
fundamentals of Sage’s business: our unmatched footprint with
small to medium sized companies, the recurring nature of our
revenues and strong cash generation. Above all, it is the strength
of our relationship with our customers and partners, and our ability
to meet their needs, which differentiates us in the market and
provides us with significant opportunities to grow.
A feature of the year has been continued good progress in driving
recurring revenue and I am encouraged by the progress made with
our initiatives to develop more active relationships with our
customers. Embedding more valuable support contracts or
integrating a payment solution with the core accounting function
are important examples but there is considerable opportunity to
continue to improve the value of our relationship with our customers.
A key characteristic of this relationship is giving our customers the
confidence to achieve their business ambitions. The importance
of this is amplified in a climate that makes such confidence fragile.
The resilience of our performance demonstrates the value we add
to customers through the products, services and support we
provide to them. It is also testament to the quality of our people
and the quality of what they do and it is important to recognise the
excellence of our employees who help to support our customers.
We know how our business performs in the face of challenging
markets and we will make business decisions appropriately. We are
confident in our ability to grow recurring revenue strongly in all but
the most severe of economic headwinds whilst we recognise that
growth in licence revenue remains more closely linked to GDP
growth. In the current environment, this means we can continue
to invest in our strategic initiatives with confidence. I am pleased
to report that we have done so during the year, not least with our
significant investment in Brazil and in our technology priorities
such as Sage One, hybrid cloud and Sage ERP X3. Importantly,
we have made this investment whilst maintaining margins,
demonstrating our relentless focus on the judicious use of capital
and disciplined execution.
I believe this is an exciting time in the corporate evolution of Sage.
The leadership team at Sage, ably led by Guy Berruyer, is focused
on delivering a step-change in the level of growth and in the quality
of revenue driving growth. Since joining the Board, I have been
struck by the determination and focus across the business to
execute the plans to deliver the full potential of Sage. Whilst we
have been clear that it will take time for the strategy to bear
fruit fully, it is also clear that the foundations are in place and that
momentum has been established. It is not easy to make
changes of this magnitude at a time of economic uncertainty,
and I recognise the courage and commitment of everyone
involved in driving the business forward on this important journey.
Elsewhere in this Report, the Chief Executive will set out progress
against the strategy. A focus on shareholder returns is at the heart
of the strategy and the work of the Board. The Board believes
that high-quality and sustainable long-term revenue and earnings
growth, combined with a disciplined approach to capital allocation,
should drive superior returns for shareholders. Sage has a sound
reputation for capital allocation discipline and the Board will
continue to ensure such discipline is maintained.
Expectations about the value added by Boards are rightly high.
There is much debate about corporate governance; good
corporate governance is about helping to run the Company well
and the exercise of a mindset to do what is right. A successful
Board requires the right interaction between individuals and a
mixture of skills and outlooks that brings balanced judgements
and the ability to rise above the day-to-day detail. The Board sets
the tone for the Company.
As to our Board itself, the past year has seen some important
changes. In September 2012, Tony Hobson retired from the Board.
Tony joined the Board in 2004, acting as Chairman since 2007. He
made a considerable contribution to Sage, particularly as Chairman
and in helping Guy to transition to the CEO role and to cement his
senior team. David Clayton, formerly Group Director of Strategy
and Corporate Development, retired from the Board at the Annual
General Meeting in February 2012. David had been on the Board
of Sage in both non-executive and executive roles since 2004,
providing great authority and experience and making a significant
contribution to the success of Sage in recent years. We wish both
Tony and David well.
Sage remains in a strong position to weather any economic storms
and to take advantage of the compelling opportunities to deliver
accelerated growth from our core business. Whilst much remains
to be done, a continued focus on disciplined execution means we
can look forward to the future challenges and opportunities with
increased confidence and optimism.
On behalf of the Board, I would like to thank Guy and all of our
people for their dedication and focus on our commitment to
performance improvement and value creation for shareholders.
The Sage Group plc | Annual Report & Accounts 2012
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What we do
We understand the diverse needs of our customers
Our vision is to be recognised as the
most valuable supporter of small and
medium sized companies by creating
greater freedom for them to succeed
Start-up
and small
businesses
More than
6,000,000
customers
worldwide
Small and
medium sized
businesses
Mid-market
businesses
Accountants
We understand customers’ changing
needs because we are in constant
contact with them. Our 5,000
customer service people speak
with customers 35,000 times a day
on topics ranging from accounting
questions to advice on new
legislation to technical aspects
of the software.
Our core business is the provision
of accounting, ERP, payroll,
accountancy and related software
to start-up and small businesses
through to mid-market companies.
We also have adjacent businesses
that support the core, typically
involving technology which is highly
integrated such as payments and
CRM solutions.
We develop software specifically
for start-up, small and medium sized
businesses and the mid-market,
because the requirements are
different and one size does not fit all.
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The Sage Group plc | Annual Report & Accounts 2012
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Where we do it
We create solutions for our customers all over the world
Our understanding of a wide range
of different businesses operating
in different markets means we are
best placed to deliver the benefits
of technology to our customers.
We use local, expert people with access
to global technologies and resources
to support our customers’ needs. Local
differences mean we adapt solutions to
local legislation, tax requirements and
accounting practices.
Our regions and their contribution to
Group revenue
Americas 31%
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Europe 58%
AAMEA* 11%
* Africa, Australia, Middle East and Asia
The Sage Group plc | Annual Report & Accounts 2012
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Cornerstones for growth
We have set out our strategy to accelerate growth
Our strategy for growth
Our ambition is to double our
long-term historic average organic
revenue growth rate within the next
three years, together with a targeted
EBITA margin increase of 1 to 2
percentage points over the same
period. We will achieve this through
a relentless focus on our growth
cornerstones, as set out on this page.
3. The benefits of subscription
As our customer relationships evolve, we
are moving to a more flexible, affordable,
higher value-added pricing model,
providing more active customer
relationships and long-term, high-quality
recurring revenue streams.
More information on page 22
KPI
e b e n e f i t s of subscriptio
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T
g t h e t e chnology opp
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Growth
1. Focusing our business
We are reallocating resources to focus on
our core business strengths and
opportunities for greatest growth.
More information on page 20
KPI
Captu ri n
2. Capturing the technology
opportunity
We are capturing the commercial
opportunities presented by the technology
disruption that is transforming what existing
and potential customers need and expect.
More information on page 21
KPI
KPIs
The measurement of success is important and we have developed
a number of KPIs to measure our performance. We will continue to
report on these as evidence of our progress.
More information on page 24
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Our financial management
We maintain a disciplined approach to how we allocate capital
KPI
Financial strength
Our business model continues to be strongly
cash generative and we are rigorous in
allocating capital to business investment
and targeted acquisitions. We also look to
return surplus capital to shareholders and are
doing so with our share buyback programme
and progressive dividend policy. Despite an
uncertain economic environment, we remain
confident about our business and our intention
is therefore to reach a net debt level of a
minimum of 1x EBITDA by a combination of
further capital returns to shareholders and
targeted acquisitions.
Investment
& R&D
Targeted
M&A
Through
cycle gearing
Rigorous
capital
allocation
Selected
disposals
Capital
returns
Sustainable
& progressive
dividends
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The Sage Group plc | Annual Report & Accounts 2012
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Our business model
We deliver value through a model built on our core strengths
We have a strong business model
offering significant growth potential,
together with high levels of
profitability and cash generation.
Our customers and markets
Our customers range from owners, to book
keepers, to finance directors, in businesses
ranging from start-up to mid-market
companies, as well as accountants.
Whilst each of our customers is unique they
all share common challenges. Helping them
to solve problems and run efficient businesses
remains at the centre of what we do.
r custo m e r s & m a r k ets
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Our people
Our people have the confidence to respond
intuitively and with agility to enhance the
Sage customer experience. We encourage
our people to innovate constantly and
challenge themselves to fulfil Sage’s true
potential, for the mutual benefit of all. Our
people know what’s right for our brand, our
customers and our colleagues due to the
training we undertake and the tools we
provide to do the job.
Our guiding principles of Innovation, Integrity,
Simplicity, Trust and Agility drive everything
we do: how we think, plan and make
decisions to deliver operational excellence
and best serve our customers.
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Our software and support
Our approach to technology is guided by the
current and future needs of our customers
and the unrivalled position Sage enjoys to
lead small and medium sized companies
to apply technology to best effect.
We recognise that requirements differ by
customer, by segment and by market and
that technology provides a catalyst for Sage
to develop a more active relationship with
these customers, both existing and new.
We view technology as an enabler to give
customers control of their business, to work
smartly and efficiently, to achieve success
and grow.
Our ecosystem
We work with over 28,000 business partners
and 40,000 accountants who recommend
and market Sage products worldwide.
Business partners are key not only in
promoting our software and services, but
also in providing local expertise to customers
who demand increasing levels of tailored
software and specialised services.
Accountants make up a key customer
segment for Sage as well as being
recommenders of our products.
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The Sage Group plc | Annual Report & Accounts 2012
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Key risks
We manage risks carefully to ensure success for us and our customers
A key element in achieving
our strategy and maintaining
services to customers is the
management of risks.
Our 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.
See how we are mitigating these risks on page 40
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 regularly reviewed
by the Board and complies fully
with the Turnbull guidance.
Detail of internal control and risk management
is on page 57
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External business factors
As a technology company, operating in
many different countries throughout the
world, there is a risk that Sage does not
appropriately respond to external business
factors, such as changing business needs,
changing technologies, competitor activities,
compliance and regulatory requirements
and the economic environment.
Change management
Our strategy has sought to focus the
business and appropriately prioritise
resources. Given new business priorities,
there are risks associated with the change
management impact on employees, systems
and the alignment of talent with prioritised
business areas. In addition, while Sage
operates in a decentralised culture, with
many different operating companies across
the globe, there is a risk, as with any other
business, relating to key man dependencies
and loss of key management.
External business
factors
Change
management
Products and
services
Intellectual
property
Products and services
There is a risk to Sage’s reputation and
future ability to grow as a business if
poor quality products and services are
released to customers. This risk relates
to both traditional on-premise products
and services and online, customer facing
products and services. In addition, for
online customer facing products and
services, Sage must ensure that it
adequately protects and secures
customers’ data.
Intellectual property
Sage relies 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 provides new methods for
illegal copying of the technology used in
Sage’s products and services.
The Sage Group plc | Annual Report & Accounts 2012
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Chief Executive’s review
Creating freedom to succeed
We remain confident we will
continue to deliver on our
strategic and financial goals
Overview of the year
We delivered 2%* organic revenue growth in the year (2011: 4%*), which reflects
a solid performance in the context of a macro-economic environment which
remained difficult in most of our markets. Growing organic subscription revenue
by 6%* evidences our ability to grow recurring revenue even in challenging market
conditions and the strength of our support offering to customers. The majority of
the contraction in SSRS was attributable to weak market conditions, particularly
in France and Spain with the shift to recurring revenue a factor in other markets.
We have also focused on disciplined resource allocation, protecting margins at
the same time as investing for growth. We are committed to driving strategic
change and I am pleased with the momentum we have established with our
growth initiatives.
A feature of the year has been the variable trading performance by geography.
The trading environment in Europe remained challenging during the year. Spain
has been the worst hit of our markets, and remains in deep recession, but
uncertain and deteriorating conditions in France also impacted performance.
The UK and Germany, by contrast, delivered strong revenue growth, notably
so relative to the economic backdrop. North America showed the anticipated
sequential improvement in the second half of the year, driven by good progress
with Sage Business Care and with Sage Payment Solutions. AAMEA continued
to deliver double digit revenue growth, with particularly strong growth in South
Africa and Africa more broadly. This variance in market conditions calls for
management discipline in allocating resources, directing investment to our
growth opportunities, such as Brazil and our Invest products, whilst protecting
profitability in weaker markets such as Spain.
Strategy for growth
Accelerating growth remains our key priority. At our Investor Day in July 2012,
we set out our ambition to double our long-term historic average organic
revenue growth rate within the next three years, together with a targeted EBITA†
margin increase of 1 to 2 percentage points over the same period. The organic
growth plans are underpinned by three cornerstones and we have made solid
progress on these. We have developed a number of Key Performance
Indicators (“KPIs”) which reflect the measures by which we are running the
business to deliver the cornerstones. Measurement is important and we will
continue to report on these KPIs as evidence of our progress.
Focusing our business
We are changing the way we run our business to capture the considerable
opportunities we have to accelerate growth from our core business. This
starts with a clear assessment of our core business, which is the provision
of accounting, ERP, payroll, accountancy and related products for customers
ranging in size from start-ups to mid-market companies. Importantly, we also
have adjacent businesses that support the core, typically involving technology
which is highly integrated such as payments and CRM solutions.
There are three key areas where we are sharpening our focus on the core.
Firstly, we have undertaken a systematic review of our portfolio of businesses
to ensure it supports our strategy to accelerate growth. Proximity to Sage’s
core business and potential value creation are the principles used to assess the
strategic fit of businesses within the portfolio and have guided our assessment
of both acquisitions and disposals during the year. The disposal of our
Healthcare business in the US and the acquisition of Folhamatic in Brazil
both illustrate this approach. The rigour with which this approach is applied
to our existing portfolio is also demonstrated by our identification of non-core
businesses. These non-core businesses constitute approximately 10% of
Group revenue.
Secondly, we are allocating investment to the most significant initiatives which
will drive the Group’s growth. We have completed a comprehensive review
of our core business and have categorised our products as Invest, Harvest or
Sunset. This determines where resources are allocated and we are reallocating
R&D and sales and marketing resources to Invest products. We are reporting
these measures as a KPI to track progress on our reallocation programme with
2012 as the base year. For 2012, the split by category for R&D is 35% for
Invest, 53% for Harvest and 12% for Sunset and for sales and marketing
investment the split is 42%, 49% and 9% respectively. 2013 we will see
continued focus on reallocating investment towards Invest products. We have
also centralised R&D in North America, which is an important example of how
we are changing processes to accelerate our ability to align resources to our
priorities. It will take time for this programme to deliver in full, but the approach
to streamlining resources is embedded across the Group and will start to drive
accelerated growth.
The third key element of business focus is leveraging our global scale and
assets Sage One and Sage ERP X3 are examples of Invest products which
are global products in reach and where we are looking to leverage global
resources, capability and expertise to drive growth. Our technology strategy
is another important example of how we are investing in global platforms and
initiatives, whilst maintaining a focus on the end-user requirements of the local
market. This links in turn to our subscription strategy, where we are executing
with a global mindset, recognising that leveraging the knowledge of
subscription pricing disciplines across the business is vital to our success.
Capturing the technology opportunity
Our approach to technology is guided by the current and future needs of our
customers and the unrivalled position Sage enjoys to lead small and medium
sized companies to apply technology to best effect. It recognises that these
requirements differ by customer, by segment and by market and that
technology provides a catalyst for Sage to develop a more active relationship
with these customers, both existing and new. As important as leading our
customers is our focus on capturing the commercial opportunities resulting
from a more active customer relationship. We have invested significantly in
# Organic figures exclude the contributions of current and prior year acquisitions, disposals and non-core products.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items
and imputed interest.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets and acquisition-related items and is after neutralising the impact
of foreign exchange movements.
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Guy Berruyer,
Chief Executive
Officer
The Sage Group plc | Annual Report & Accounts 2012
15
Chief Executive’s review continued
our technology, our platforms and our products to capture the trends that are
important to our customers, particularly the move to the cloud and the need
for solutions that fully integrate and support mobility.
Sage One is the focus of our online investment for the start-up and small
business segment. Sage One is a SaaS solution providing online bookkeeping
and business management software to customers. It has been developed on
a global technology platform which can be efficiently and effectively tailored
to local market needs. We are satisfied with the momentum of Sage One in
the UK & Ireland, with over 6,100 paying customers at the year end. We also
launched Sage One in the US. We expect to establish momentum in the US
during 2013 as we further enhance the solution and create the necessary
distribution channels to drive customer adoption. We are also focused on
growing the number of customers in the UK & Ireland as we benefit from the
build-out of our channels and by targeting the 5 to 25 employee segment with
a more advanced solution. We are also rolling-out Sage One to more countries,
starting with Germany in early 2013 and to be followed by Canada, Spain and
France. These priorities drive customer adoption which is the key measure of
our success with Sage One.
Hybrid cloud is the focus of our investment for small to medium sized
businesses (“SMB”), providing customers with compelling cost of ownership
whilst retaining the choice of deployment, data control and tailoring their
solution to their specific needs. Our partnership with Microsoft Azure,
announced in May 2012, is a very significant development in delivering our
hybrid cloud strategy. Building on the Azure platform allows us to speed up
development of customer solutions, accelerate time to market and reduce
duplication. The focus of development started in Europe with Sage 200
“hybrid” in the UK and Sage Murano in Spain which will both be released
to market in 2013. North America is also working closely with Microsoft to
develop a new generation of Sage ERP hybrid cloud products on Azure. The
number of SMB customers adopting hybrid cloud solutions is an important
measure of progress with our technology strategy. The 115 customers reported
for this year’s results principally reflect existing customers on SageCRM.com.
We expect to see that number grow as hybrid cloud accounting and ERP
products are released to market during 2013 and beyond.
Sage ERP X3 is the focus of our investment at the mid-market level and
revenue growth of Sage ERP X3 is the key measure of our success with this
segment. We are pleased with the progress of the international roll-out of
Sage ERP X3 which has been a driver of its recent growth, and demonstrates
our capability to develop products which are successful on a global scale.
Sage ERP X3 revenue grew by 5%* in the year, with revenue outside of France
growing by 17%* and now contributing 43% of Sage ERP X3 global revenue.
Notable developments during the year include the launch of a subscription
pricing option in North America and the recent launch of Sage ERP X3 v6.5
featuring integrated payments and other connected services.
We see mobile technology as a particularly compelling opportunity to develop
more active relationships with our customers and to expand the number of our
paying customers. We are evolving our product architecture to capture this
growth opportunity. In October 2012, we launched four of the first business
apps for Windows 8, namely Sage 50 Accounts Pulse in the UK, Sage eFactura
Online in Spain, Sage Mobile Salary Calculator in Germany and Sage 100
Business Mobile in France. In the UK, we also launched the Sage Record
Keeper app, co-developed with HMRC. North America is also developing
mobile solutions. Working prototypes for two of these, Mobile Sales and
Mobile Service, were showcased at the Sage Summit in July 2012, as
examples of products which expand our addressable market and will be
integrated into our key accounting products and payments.
Payment services represent our largest connected service and our payments
businesses in North America, the UK & Ireland and South Africa continue to
deliver strong revenue growth. Integration of payments to our installed base
of accounting software customers is a compelling strategic opportunity
and is our measure of progress. Our North American business continued
to demonstrate good momentum with integration, with an 18%* increase
in cross-sell revenue and over 9,700 customers have now adopted
integrated payments.
The benefits of subscription
The third cornerstone of our growth strategy is migrating our customers
to a subscription pricing relationship. Subscription represents a significant
opportunity to deliver greater value to our customers and to capture the
benefits of a more active relationship with our customers. Technology is an
important enabler of this strategy, both as a catalyst for changing the needs
and requirements of our customers and providing us with opportunities to
offer greater features and functionality which will drive adoption. Subscription
pricing is a relatively small part of our business today but to reflect its strategic
importance, we have introduced the annualised value of our subscriber base
as a measure to track progress. 2012 is the base year for this measure, with
a value of £80.5m.
The move to subscription pricing reflects the evolving nature of our relationship
with our customers and builds on the success we have had in transitioning
customers to premium support. This will continue to be an important feature
of our business model, as evidenced by the proportion of our contracts which
are premium in nature increasing to 71%. This increase was driven by the
success of Sage Business Care in North America and premium support
packages in the UK.
During the year, we have launched a number of subscription pricing options for
selected products across the Group, alongside traditional licence and support
alternatives. In April 2012, we launched subscription pricing options for certain
North American mid-market ERP products. The early evidence of the dual
model approach is in line with the measured adoption we are targeting, with
approximately 20% of sales being made on a subscription basis. Further
subscription pricing options have been launched in North America, Europe
and South Africa. We will continue to develop subscription pricing offerings
for other key products across the Group.
Summary and outlook
We delivered a solid performance in the context of a macro-economic
environment which remained difficult in most of our markets. We achieved
strong growth in recurring revenue and focused on disciplined resource
allocation, protecting margins at the same time as investing for growth. We are
committed to driving strategic change and I am pleased with the momentum
we have established with our growth initiatives.
A feature of the year has been the variable trading performance by geography.
Europe’s performance reflected good growth by the UK and Germany, offset
by the impact of weaker markets in France and Spain. North America delivered
the anticipated improvement in the second half of the year while AAMEA
continued to deliver very strong growth.
As we look forward, the global macro-economic outlook remains uncertain and
we are watchful of the environment in Europe, particularly in France. We are
making good progress with our strategy for accelerating growth and remain
confident we will continue to deliver on our strategic and financial goals.
As we look forward, the global macroeconomic outlook remains fragile and we
remain watchful of the environment in Europe, particularly in France. However,
we remain confident that we will continue to deliver on our strategic and
financial goals.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest
16
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Now the sixth largest economy in the world,
Brazil represents an attractive market with
robust macro-economic fundamentals and
a favourable, highly complex tax and
regulatory environment. Our entry into the
Brazilian market represents an important
step in building our presence in key
high growth markets, enabling a strategy
focused on growth and a disciplined
approach to returns.
In June 2012 we entered Brazil with
the acquisition of a controlling interest
in Folhamatic, a leading provider of
accounting, tax and payroll and regulatory
content software. We are excited about the
growth opportunity that the combination of
Sage and Folhamatic creates in this market.
It provides us with a market leading
position in the large and rapidly growing
Brazilian market.
In September 2012 we progressed our
strategy of expanding our footprint in
Brazil with the acquisitions of EBS and
Cenize. These businesses are high growth,
with recurring revenue models and are
focused on core accounting customers.
These acquisitions are in line with our
strategy of expanding our footprint in Brazil.
They are also highly complementary to our
core business and extends the geographic
breadth of our offering, particularly in the
São Paulo and Southern region.
Sixth largest
economy in
the world*
…entry into the Brazilian market
represents an important step
in building our presence in key
high growth markets, enabling
a strategy focused on growth
* Source: The Economist Intelligence Unit
The Sage Group plc | Annual Report & Accounts 2012
17
Executive Committee
Moving Sage forward
Our goals are shared collectively and
individually by our Executive Committee
and senior management as a whole
18
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The Executive Committee oversees the sound running of all Sage
operations. It comprises nine internationally diverse senior leaders
from across the business. The role of the Committee is to assist the
Chief Executive in the performance of his duties, including:
• the development and implementation of strategy, operational
plans, policies, procedures and budgets;
• the monitoring of operational and financial performance;
• the assessment and control of risk;
• the prioritisation and allocation of resources; and
• monitoring competitive forces in each area of operation.
Guy Berruyer
Chief Executive Officer
Guy joined Sage in 1997 to run the France, Spain and Portugal
operations. He was appointed to the Board in January 2000 as
CEO for its Mainland Europe business and in 2005 also took
charge of its Asian operations. Prior to joining Sage he was Country
Manager and then European Managing Director for Intuit, the US
software company. Previously he worked at the French hardware
company, Groupe Bull, where he was a Director of Marketing, and
Claris, as Southern European General Manager. On 2 October
2012, Guy became a non-executive director of Meggitt PLC, a
leading international company specialising in high performance
components and sub-systems for the aerospace, defence and
energy markets.
Ivan Epstein
Chief Executive Officer, AAMEA
After training at Price Waterhouse Ivan co-founded Softline in 1988.
In 1997 Softline was listed on the Johannesburg Stock Exchange
with operations in South Africa, Australia, the USA and Canada.
Softline was delisted in 2003 upon its acquisition by Sage. Ivan
continued as CEO of Sage Southern Hemisphere. His role was
expanded to include the Middle East and Asia in October 2010.
Ivan has been recognised for his entrepreneurial contribution and
in 1999/2000 was the recipient of “South Africa’s Best Entrepreneur
Award”, awarded by Ernst & Young, of which he continues as
a panel judge. Ivan was further recognised in South Africa for his
contribution within the IT industry by receiving the Computer
Society’s “IT personality of the year award 2009”.
Karen Geary
Group Human Resources Director
Karen has more than 25 years of international HR experience
across a variety of industries where she has helped organisations
through periods of large scale change and integration. Her early
career was spent at Monsanto Inc. and Electrocomponents plc.
She spent six years at Stena Line, the Swedish transport and
leisure operator, ultimately as HR Director for UK, France and
Ireland. She has been in her current role at Sage for nine years,
following five years as HR Director for Sage in the UK.
Paul Harrison
Chief Financial Officer
A chartered accountant, Paul joined Sage in 1997 from Price
Waterhouse to become Group Financial Controller. He joined
the Board in April 2000 as Chief Financial Officer. Following the
acquisition of Folhamatic, Paul was given additional responsibility
for the Brazil operation. In May 2007, Paul was appointed to the
Board of Hays plc as a non-executive director and, in November
2011, became its Senior Independent non-executive director.
Pascal Houillon
Chief Executive Officer, North America
Pascal became CEO of Sage North America in April 2011. He
was CEO of Sage France from 1997 and in 2005 also took on
responsibility for Sage in Belgium, Brazil, Switzerland and
Morocco. He started his career as a systems analyst for UAP
Insurance and in 1987 Pascal co-founded Sinequanon, a company
that provided business management solutions to SMEs. He joined
Sage in 1989 in sales and held a number of management positions
as a Regional Director and Sales Director before leading the Sybel
business when it was acquired by Sage in 1995. For nine years
Pascal was Vice President of Syntec, the French software and
IT association.
Amanda Jobbins
Group Chief Marketing Officer
Following the year end, Amanda was appointed to the newly
created position of Group CMO. She joined Sage on 5 November
2012 from Cisco where, after leading European Marketing for all
Cisco’s technologies, she was promoted to Global Vice President
of Partner Marketing, based in San Francisco. Amanda was
responsible for driving the global channel and strategic partner
business across the enterprise, commercial and small business
markets. Before Cisco she worked in senior marketing leadership
roles for major technology companies in both the USA and Europe,
including IBM and Symantec.
Álvaro Ramírez
Chief Executive Officer, Europe
Álvaro became CEO of Sage Europe in January 2011. He joined
Sage as CEO of Sage Spain in 2003 after the acquisition of
Grupo SP, which he co-founded in 1989. Álvaro grew Grupo SP
to become the leader in Spain for entry-level business management
software, with subsidiaries in Portugal and across Central and
South America. Since joining Sage, Álvaro has grown the Spanish
business, both organically and through acquisition, transforming it
into a market leading software company. He studied in France and
Spain, and holds an M.Sc. in Telecommunications Engineering.
Michael Robinson
Company Secretary and Group Legal Director
Michael was born and educated in the North East of England
before leaving to study law at Oxford University. After qualifying
as a solicitor, Michael spent 15 years at one of the largest law
firms in the UK, becoming a partner and specialising in a range
of corporate finance work, including flotations, mergers and
acquisitions. In 2002 he joined Sage as Group Legal Director
and Company Secretary.
Klaus-Michael Vogelberg
Group Chief Technology Officer
Klaus-Michael was R&D Director and a partner in the German KHK
Software group, acquired by Sage in 1997. In 2000 he joined the
Group team to assist Sage operating companies and the Board
with software architecture and technology strategy. Between 2004
and 2007 Klaus-Michael acted as R&D Director for Sage UK and
Ireland, before taking up his current post of Group Chief
Technology Officer.
The Executive Committee members pictured are: standing from left to right: Álvaro Ramírez, Klaus-Michael Vogelberg, Paul Harrison, Pascal Houillon, Amanda Jobbins
Seated from left to right: Ivan Epstein, Karen Geary, Guy Berruyer, Michael Robinson
The Sage Group plc | Annual Report & Accounts 2012
19
Our strategy
A vehicle for growth
Accelerating growth is our key
priority and we remain focused on
disciplined execution
At our Investor Day in July 2012, we set out our ambition to double our long-term average
organic revenue growth rate within the next three years, together with a targeted EBITA†
margin increase of 1 to 2 percentage points over the same period.
Our three growth cornerstones are set out below with more detail on how we are delivering.
Focusing our business
1
Reviewing the segments we serve
We have undertaken a systematic assessment of the segments
that we serve in order to ensure that our portfolio of businesses
has the best possible fit with our strategic and financial objectives.
This assessment starts with a definition of core business.
• Our core business lies in providing accounting, ERP, payroll,
accountancy and related software and services to small and
medium sized businesses.
• We will add value to our core business by targeting adjacent
opportunities that are closely linked to the core and offer
genuine synergies. These might include new market segments,
new functionalities and new geographies. Typically, this occurs
where technology is highly integrated; for example payments
and CRM solutions.
As we assess existing and potential new businesses we
evaluate how close they are to our core business as well as the
potential for value creation. Our core businesses have a high
degree of commonality in the type of customer they serve; they
leverage our capabilities and technology in the provision of
accounting, payroll and related software and services; and they
are able to take advantage of our network of resellers and other
partners, particularly accountants. In addition, they have the
ability to share costs.
These criteria guide our management of our portfolio of
businesses: both additions and disposals. Through these
criteria we ensure the Group has the optimum portfolio of
businesses, with the maximum possible strategic synergies,
the biggest chance of success and the highest possible
potential for value creation.
Potential
value
creation
Closeness
to Sage’s core
business
Degree of overlap in:
• Target customers
• Capabilities or technology
• Channel partners
• Potential to share costs
Reallocating resources to our biggest opportunities
We have completed a comprehensive review of our core
product portfolio and are reallocating key resources to our
biggest opportunities.
All products within our core businesses have been categorised
as Invest, Harvest or Sunset:
• Invest products have the highest growth potential and will receive
additional investment to secure their future and lead Group
organic revenue growth.
• Harvest products are high margin, established products. Many
will continue to receive current levels of investment; others will
receive lower investment than in the past, as they have moved
into a lower revenue growth phase.
• Sunset products have lower growth potential and, in the large
majority, the needs they serve are better met by a more capable
product within our core portfolio. These products will begin a
sunset process and the associated investment will be redirected
to the Invest portfolio.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets and acquisition-related items and is after neutralising the impact
of foreign exchange movements.
20
The actions taken to streamline the portfolio will result in a
reallocation of key resources towards the areas with highest
potential that will support a significant improvement in growth.
Our sales and marketing will become sharper; our portfolio less
fragmented, offering a clearer choice to prospective and current
customers; and we will leverage our considerable R&D resources
more effectively as we innovate and transition to the next
generation of products and technologies.
Leveraging our global scale and assets
The delivery of this strategy will see us leveraging our global assets
and skills far more effectively, ensuring that we set global priorities
and execute on them in a global manner.
A single, consistent global brand is a critical pillar of this strategy.
We have launched a new powerful global brand proposition that
sits at the heart of our business, guides our activities and ensures
our relevance to all of our stakeholders.
Capturing the
technology opportunity
2
We don’t just make software products; we use technology to
support the success of millions of small and medium sized
businesses around the world, aiming to deliver an extraordinary
customer experience. Our approach to technology is guided by
the current and future needs of our customers and the unrivalled
position Sage enjoys to lead small and medium sized companies
to apply technology to best effect.
Technology is also providing the opportunity to expand our
addressable market, by attracting a new generation of
Sage customers, also supporting a step change in growth
and performance.
We are delivering the benefits of the web to our three core
market segments:
• Sage One – the focus of our online investment for the start-up
and small business segment.
• Hybrid cloud solutions – the focus of our online investment
for the SMB market.
• Sage ERP X3 – the focus of our investment for the mid-market.
We are also developing new product architecture, including
product innovation to embrace mobile technology. The importance
of connected and payment services is very significant as a catalyst
for growth.
Sage One
Sage One is a simple and efficient online bookkeeping and business
management application, designed to address the needs of
entrepreneurs and very small businesses.
To date, we have rolled out Sage One in the UK, Ireland, and
North America. We are satisfied with the momentum of Sage One
in the UK & Ireland, with over 6,100 paying customers at the
year end.
We will enter more countries with Sage One in FY13 and will target
a broader reach with a more advanced service, targeting larger
customers with more sophisticated requirements.
Hybrid Cloud Solutions
Our partnership with Microsoft, announced in May 2012, is
designed to deliver this vision to the market. Building on the Azure
platform allows us to speed up development of customer solutions,
accelerate time to market and reduce duplication.
The focus of development started in Europe with Sage 200
“Hybrid” in the UK and Sage Murano in Spain. The solutions will
also be interoperable with Office 365, creating a single integrated
on-demand business platform. The solutions are in development
now and will be released to market in 2013.
Sage ERP X3 – the focus of our investment
for the mid-market
Sage ERP X3 is our global offering in the mid-market segment
and is designed to address the sophisticated needs of a large
enterprise but the limited resources of an SMB.
We have 3,700 customers in 58 countries and 260 implementation
partners. A subscription service was launched in the US in August
2012 and more countries will have a subscription offer in the
coming months.
New product architecture
Our product architecture is continuing to evolve and represents
a significant catalyst for growth in relation to both new and
existing customers.
Mobility
We see the revolution in mobility as a particularly compelling
opportunity to develop more active relationships with our
customers and to expand the number of our paying customers.
Expanding the product architecture will grow the addressable
market by significantly expanding the number of users who
consume our services. Today, Sage reaches a narrow band of
principal business users which only represents about 20% of
the addressable user base within a company. The existence of a
pervasive ecosystem for connected apps will allow us to extend
the Sage experience to new roles in management, sales and to
the workforce at large.
Connected apps can also act as an entry point into a paying Sage
relationship. A good example is the free Sage Record Keeper app
in the UK – co-developed with HMRC – that feeds into Sage 50
and soon into Sage One.
Payments services
Our current activity in payments is in three distinct areas:
merchant acquiring in North America (SPS); e-commerce and
card holder present payments by customers in Europe (Sage Pay);
and NetCash in South Africa.
The unique proposition that we offer is the capability to integrate
all payment transactions with the customer‘s broader financial and
support systems infrastructure. This integration capability offers
our customers the compelling proposition of time savings and
increased accuracy.
On payments integration, we have services live and available.
For example, in the US we currently have over 9,700 paying
customers. We connect various payment and vendor applications
to the accounting environment and further to payment networks
and fraud protection.
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The Sage Group plc | Annual Report & Accounts 2012
21
Our strategy continued
The subscription model
3
We are designing new pricing models to capture the value of the
evolving relationship we have with our customers. Subscription is
about serving our customers better through establishing an active,
broad based relationship with them and capturing the commercial
value of that opportunity.
We have moved with our customers, over time, from licence sales
of the core application to basic maintenance to premium support
and now to subscription. This is also the transition from a perpetual
licence to a monthly subscription.
active customer relationships. For many of our reseller partners
the move to subscription will be a big change. Where we are
introducing subscription we will work with our partners to ensure
they are appropriately incentivised under this new model. For
example, where we have introduced subscription in North America
we are able to offer our partners alternative commission structures.
Ultimately, for our partners and for Sage, subscription will lead to
higher, more sustainable revenues over time, with stronger, more
predictable relationships with our customers.
Our customers are attracted to subscription because it is affordable,
flexible and is an easier, lower risk decision. Both new and existing
customers will also get the best possible match between what they
pay for and the benefits they receive. Subscription therefore allows
us to address a wider range of customer needs.
In the short-term, we will progressively introduce subscription
options for more products which will be offered alongside perpetual
options. In the medium-term, we will accelerate the subscription
rollout and make subscription the default option for key products.
In the long-term, the perpetual option will be phased out entirely.
The move to subscription provides the opportunity for our partners
to differentiate themselves as well as help them to develop more
Subscription is the latest phase of the natural evolution of our customer relationships
i c e s
v
r
e
nnecte d s
o
C
Premium
support
Basic
maintenance
Subscription
Support
Connected
services
Connected
applications
Connected
features
Core
application
Core
application
Core
application
Core
application
Perpetual licence + service fee
Monthly subscription
22
The Sage Group plc | Annual Report & Accounts 2012
23
Key performance indicators (“KPIs”)
Measuring our progress…
Financial drivers
We monitor our financial performance against a number of different benchmarks. These
are set in agreement with the Board and used to evaluate progress against our strategy.
Our financial performance during 2012, including KPIs, is discussed in more depth in the
Financial review on pages 28 to 30.
Financial performance
We delivered a solid performance in the
context of a macroeconomic environment
which remained difficult and uncertain in
most of our markets. We have protected
margins at the same time as investing for
growth. The decline in EPS is due to an
increase in tax rate from 23% to 29% as a
result of one-off favourable tax settlements
in the prior year.
Organic# revenue growth
Underlying EPS growth
2%*
1
6
%
-2%*
1
6
%1
4
%
4
%
l
F
a
t
2
%
3
%
-
5
%
3
%
l
F
a
t
-
2
%
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
EBITA† margin
Cash generation from operations
27%
106%^
2
7
%
2
7
%
2
3
%
2
5
%2
2
%
1
1
4
%
1
1
2
%
1
1
7
%
1
1
1
%
1
0
6
%
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
Financial strength and
capital discipline
We continued to make progress towards
our net debt level of a minimum of
1x EBITDA through a combination of
our ongoing share buyback programme,
an increase in our total dividend and
a number of completed acquisitions.
Net debt leverage
Interest cover
0.4:1
32.5
1
.
6
1
.
2
0
.
5
0
.
4
0
.
1
3
2
.
5
3
2
.
5
2
7
.
5
2
1
.
3
1
0
.
1
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
# Organic figures exclude the contributions of current and prior year acquisitions, disposals and non-core products.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets and acquisition-related items and is after neutralising the impact of foreign exchange movements.
^ Cash generation from operations represents cash flows from operating activities divided by EBITA. EBITA for cash generation purposes is after acquisition-related items.
24
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Strategic drivers
The measurement of progress in delivering our strategy is important and we have
developed a number of KPIs to measure performance. 2012 is our first year of reporting on
these, and we will continue to report on them as evidence of our progress.
Our performance during 2012, including KPIs, is discussed in more depth in the
Chief Executive’s review on pages 14 to 16.
Growth cornerstones
The following KPIs relate to our three growth cornerstones: focusing our business, capturing the technology opportunity,
the benefits of subscription.
1. Focusing our business
2. Capturing the technology
3. The benefits of subscription
Portfolio management progress will be
captured by reporting on the resource
reallocation exercise in our core business.
Research & Development, and Sales and
Marketing spend in the year is categorised
into the three categories of product: Invest:
Harvest: Sunset and we will reallocate
resources towards the invest category.
Research & Development
spend by category
35:53:12
Sales and marketing spend
by category
42:49:09
Customers
Our customers are at the heart of our
opportunity and of our vision to support
them. From 2013, we will track customer
loyalty through Net Promoter Score. For
2012, we continue to use renewal rates as
an important measure of the value of our
relationships with our customers. Renewal
rates are calculated as the number of
subscription contracts which were renewed
in the period divided by the number of
contracts which were potentially renewable
in the period.
opportunity
We are delivering cloud solutions to our
three core market segments through
Sage One, hybrid cloud and Sage ERP X3.
Payment services are also a significant
opportunity for growth.
We will measure our progress on pure
subscription pricing through customer
adoption of our subscription offerings. This
will be measured by the annualised value
of the subscriber base which is an annual
equivalent of subscription revenue from the
last month of the year.
Adoption of Sage One
Annualised subscriber base
6,100 customers
£80.5m
Adoption of hybrid cloud
115 customers
Sage ERP X3 revenue growth
5%*
Integration of payments
9,700 customers
Renewal rates
81%
8
1
%
8
1
%
8
1
%
8
1
%
8
1
%
2008
2009
2010
2011
2012
The Sage Group plc | Annual Report & Accounts 2012
25
The Sage Business Index
Insights into our markets
Our latest Index shows that businesses
are still worried about global and local
economic issues. However, there
are some positives to be taken from
individual markets
The fourth Sage Business Index published in September 2012, tracks the views of nearly
11,000 small to medium sized companies from across the globe, including Europe,
North America, Africa, Asia and Brazil. This report highlighted that nervousness about the
economy, both at global and country levels, continues to affect confidence. Unsurprisingly,
countries in Europe feel the least confident, with France recording the biggest fall in
confidence. However, businesses are taking actions to weather the storm and are more
confident about their own prospects notwithstanding the economic headwinds. This is
an important reminder of the resilience of our customers.
We knew that when we did this Index the Eurozone crisis would indeed be a major factor in
the results, so we took the opportunity to find out a bit more about its impact. Two thirds of
businesses felt that the Eurozone crisis had some or a significant impact on their business
and only 15% felt that the Eurozone could continue in its current form.
So the very fact that, in light of all this uncertainty, businesses still feel confident about their
prospects in the next six months is a testament to their strength and resilience. Indeed
nearly 70% of those we surveyed have been in business already for over 10 years and are
clearly equipped to deal with the changing landscape.
Exploring this in more detail we asked businesses if they felt that they had adapted to the
challenges of the economic environment over the last three years. Seven in 10 felt they had
and 88% of all businesses had made changes to this effect – from cutting operational
costs to developing new products and services.
Despite the many government initiatives across the world to help small and medium sized
companies, almost seven in 10 businesses still feel that their governments are just not
doing enough for them. What they feel would really make a difference to their ability to
survive and thrive are reducing bureaucracy, reducing business tax and providing more
opportunity for skills development. Respondents who cited bureaucracy felt that tax law,
labour law and public procurement procedures were the worst offenders.
As a global business with over six million customers, we have a duty to support small and
medium sized companies and we do this by providing products and services that take
care of the basics, allowing them to achieve their business ambitions. The Sage Business
Index is an important part of helping us to stay close to what our customers are saying and
what they are experiencing. We hope that it also proves a useful guide for governments
and other stakeholders as to how we can all support these businesses better.
Guy Berruyer, Chief Executive Officer
The Sage Business Index
September 2012
We recently launched the fourth Sage
Business Index, a global measure of
confidence across small and medium
sized companies.
Since our last Business Index in March
2012, we have extended the reach of the
survey to include 10,861 businesses from
15 countries, this time adding Brazil,
Poland, Portugal, Switzerland and Ireland.
This has provided us with the clearest
picture yet of the pressures and
challenges faced by small and medium
sized companies around the world.
We first carried out the Index in February
2011 and with the addition of the most
recent results, we now have two years’
worth of insight into the challenges faced
by small and medium sized businesses
around the world.
More
Visit the index at
www.businessindex.sage.com
26
The Sage Business Index
International Business Insights
Business confidence and the economy
Global economy
Country economy
Business confidence
52.13
60
50
40
57.17
57.88
58.86
56.48
56.46
44.47
43.95
42.59
47.11
47.26
42.47
February 2011
September 2011
March 2012
September 2012
Business challenges, the top three concerns
In the past six months, has revenue…
1.
2.
3.
Inflation and rising costs of energy, fuel, raw materials
Instability/uncertainty in local economic market
Decreased consumer confidence
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Don’t know
10%
Increased
31%
Decreased
27%
Stayed the same
32%
The Sage Group plc | Annual Report & Accounts 2012
27
Financial and operating review
Financial results
Reconciliation of operating to statutory results
EBITA† to operating profit
EBITA†
Impact of movements in foreign
currency exchange rates
Adjustments
Operating profit
Underlying to statutory
basic earnings per share
Underlying basic EPS
(continuing operations)
Impact of movements in foreign
currency exchange rates
Adjustments
Statutory basic EPS (continuing
operations)
2012
£m
366.4
–
366.4
(21.5)
344.9
2011
£m
356.0
9.5
365.5
(22.2)
343.3
Variance
%
+3%
–
–
2012
pence
2011
pence
Variance
%
19.86
20.28
-2%
–
19.86
(1.23)
0.56
20.84
(1.40)
-5%
18.63
19.44
-4%
Adjustments relate to amortisation of acquired intangible assets, acquisition-
related items and imputed interest, net of taxation.
Revenue
Revenue from continuing operations was £1,340.2m which
increased by 3%* compared to the prior year (2011: £1,334.1m*).
Organic revenue grew by 2%* compared to the prior year.
Total subscription revenue was £922.7m (2011: £860.0m*) which
grew organically by 6%*, benefiting from growth in premium
subscription contracts and payment services. Subscription revenue
is recurring in nature and include stand-alone support, combined
software and maintenance and support, and payment services.
Total revenue for software and software-related services were
£417.5m (2011: £439.1m*), which declined organically by 5%*,
reflecting challenging macro-economic conditions, most notably
in the mid-market, and our strategy of increasing our recurring
revenue. The majority of the contraction was attributable to weak
market conditions, particularly in France and Spain. Elsewhere,
SSRS was more affected by a shift to recurring revenue, reflecting
the transition of customers to premium support. Software and
software-related services include stand-alone software licence sales
(including new licences, upgrades and migrations) and professional
services, hardware and business forms.
Organic revenue growth in the second half of the year was 3%*,
compared to 2%* in the first half of the year. The anticipated
stronger performance in North America and the continued strong
growth in AAMEA were offset by a weakening economic
environment in Europe, particularly in France.
Profitability
EBITA† increased by 3%* to £366.4m* (2011: £356.0m*) with
the Group’s EBITA† margin maintained at 27% (2011: 27%*).
The mixed market conditions in which we are operating call for
agility in our business and focused resource allocation to protect
profitability, whilst investing in our growth initiatives. During the
year, we invested in growth opportunities, including products such
as Sage ERP X3, Sage One and markets such as Brazil, whilst
protecting margins in weaker markets like Spain.
Net finance costs declined to £10.6m (2011: £12.5m). The
reduction in finance costs is primarily driven by reduced interest
charges as the Group was in a net cash position for an extended
period during the year. The average interest rate on borrowings
during the year was 4.59% (2011: 3.96%). The income tax
expense of £95.4m (2011: £74.8m), and the effective tax rate of
29% (2011: 23%) reflect an anticipated increase due to one-off
favourable settlements in the prior year. Underlying earnings
per share from continuing operations declined by 2%* to 19.86p
(2011: 20.28p*) as a result of the increased tax charge. Statutory
basic earnings per share from continuing operations for the
year ended 30 September 2012 declined by 4% to 18.63p
(2011: 19.44p). Statutory diluted earnings per share from
continuing operations declined by 4% to 18.60p (2011: 19.29p).
Cash flows
The Group remains highly cash generative with an operating cash
flow of £383.8m (2011: £405.1m), representing 106%^ of EBITA
(2011: 111%). After interest, tax, net capital expenditure and
discontinued operations, free cash flow was £247.9m. The net
inflow from acquisitions and disposals completed in the year was
£36.2m. After dividends paid of £136.5m, share buybacks of
£297.5m and other movements of £13.3m, including exchange
movements, net debt stood at £161.5m at 30 September 2012
(30 September 2011: £24.9m).
Balance sheet and capital structure
Debt and facilities
The Group has net debt of £161.5m at 30 September 2012
(2011: £24.9m). The Group is funded through retained earnings
and multi-currency revolving credit facilities totalling £338.3m
(2011: £358.3m) (US$271.0m and €214.0m tranches), which expire
in 2015. At 30 September 2012, £15.0m of these facilities were
drawn (2011: £nil). In addition, the Group has US private placement
loan notes at 30 September 2012 of £185.8m (US$300.0m)
(2011: £192.6m, US$300.0m). The Group continues to monitor
opportunities to enhance and diversify its funding sources in the
current capital market conditions.
Organic revenue
growth
2%*
2011: 4%*
Underlying EPS
growth
-2%*
2011: 16%*
EBITA margin
maintained at
27%
2011: 27%*
Full year
dividend of 10.15p
per share up
4%
2011: 9.75p
per share
# Organic figures exclude the contributions of current and prior year acquisitions, disposals and non-core products.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets and acquisition-related items and is after neutralising the impact of foreign exchange movements.
^ Cash generation from operations represents cash flows from operating activities divided by EBITA. EBITA for cash generation purposes is after acquisition-related items.
28
Paul Harrison,
Chief Financial
Officer
The Sage Group plc | Annual Report & Accounts 2012
29
Financial and operating review continued
Capital structure and dividend
We continue to generate a high proportion of revenue through
recurring contracts, providing both high-quality products and
responsive and valuable services to our loyal customer base.
We expect our associated strong cash generation to continue
in the future. We are rigorous in allocating capital to business
investment and targeted acquisitions. We also look to return
surplus capital to shareholders.
In September 2011, we announced a share buyback programme
to return the proceeds from the disposal of Sage Healthcare to
shareholders. We have continued the share buyback programme
beyond these proceeds, and have returned a total of £299.8m
during the year. We continue to make progress towards our target
net debt level of a minimum of 1x EBITDA, by a combination of
further capital returns to shareholders and targeted acquisitions,
with a net debt to EBITDA ratio at 30 September 2012 of 0.4x.
Consistent with this objective, and given the recent step-up of
the dividend in 2011, we are pleased to propose a final dividend of
6.67p per share (2011: 7.07p per share), which increases our total
dividend for the year by 4% to 10.15p per share (2011: 9.75p per
share). This total dividend is covered 2x by profits. We intend to
pursue a policy of further increasing our dividend broadly in line
with underlying EPS growth over time.
Treasury 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.
Acquisitions and disposals
During the year we completed the following acquisitions. These
acquisitions, detailed in the table below, further strengthen our
offerings in key geographic areas, importantly establishing a leading
market position in the large and growing Brazilian market, as well
as enhancing our product and technology capability.
Date
October 2011
February 2012
June 2012
September 2012 Cenize
Company
Alchemex
Integral
Folhamatic 75%
Amount
acquired Country
100% South Africa
100% Ireland
Brazil
100% Brazil
Enterprise
Value
£5.5m
£14.0m
£143.8m
£3.9m
For the Folhamatic acquisition, the expected total cash
consideration of £122.6m (R$398.0m) for 75% of the equity,
includes a conditional payment of £24.0m to be paid if certain
performance targets for the year to 31 December 2012 are met.
We have also entered into a put and call arrangement over the
remaining 25% of the equity which can be exercised in 2015. The
transaction is consistent with our M&A strategy, being immediately
earnings accretive and with the return on capital expected to meet
our risk-adjusted hurdle rate in the third year post acquisition.
In November 2011, we completed the sale of Sage Healthcare
to Vista Equity Partners. The net cash inflow from the sale was
£198.8m which was returned to shareholders through a share
buyback programme.
R&D and capex
The Group spent £159.4m in the year ended 30 September 2012
on research and development (2011: £148.9m*). No expenditure
was capitalised and no amount (2011: £0.1m) was amortised to
the income statement relating to prior years’ expenditure which
had been capitalised. Capital expenditure in the year ended
30 September 2012 (including the purchase of third-party software
systems for internal use) was £26.2m (2011: £29.5m). The majority
of this expenditure relates to IT infrastructure, both in new and
replacement systems.
Foreign exchange
The financial results have been impacted by movements in
exchange rates. The average Euro exchange rate used to translate
the Consolidated income statement moved 6% compared to the
prior year from £1 = €1.15 to £1 = €1.22, the average US Dollar
exchange rate used moved 2% from £1 = $1.61 to £1 = $1.58
and the average South African Rand exchange rate used moved
14% from £1 = ZAR11.18 to £1 = ZAR12.72. In order to assess
like-for-like performance, Group growth trends are shown on
a foreign currency neutral basis where indicated.
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.
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
financial statements.
Archer Capital
On 14 November 2011, the Group reported a claim for damages
made by Archer Capital (“Archer”) following the termination of
discussions between the Group and Archer relating to the potential
purchase of MYOB. The Group strongly rejects the claim, which
it understands to be in the region of £80.0m (A$130.0m), and will
defend itself vigorously.
Events after the reporting period
Acquisition of Empresa Brasileira de Sistemas Ltda.
On 11 October 2012, the Group acquired EBS Empresa Brasileira
de Sistemas Ltda. a provider of accounting, business management
and tax software in Brazil for a cash consideration of up to £10.5m,
including a payment of £1.8m linked to the future financial
performance. The provisional fair value of the assets acquired
was £0.1m, resulting in provisional goodwill of £10.4m.
Executive Committee change
On 9 October 2012, the Group announced the appointment of
Amanda Jobbins as Group Chief Marketing Officer, who will join
Sage’s Executive Committee.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets, acquisition-related items and is after neutralising the impact of foreign exchange movements.
30
Operating results
Europe
Álvaro Ramírez, Chief Executive Officer, Europe
Strategic highlights
• Sage One gathered momentum in the UK & Ireland
• Four of the first business apps for Windows 8 launched in the UK, Spain, Germany
and France
• Subscription pricing options launched in the UK, France, Spain and Germany
• Card holder present capability added to payments offering in UK & Ireland
following acquisition of Integral
Strategic priorities for FY13
• Hybrid cloud products for the SMB segment to be launched on the Azure platform
• Sage One to be launched in key European markets
• Sage Pay will launch into mainland Europe starting with Germany
Key data
£ m
Revenue
EBITA
EBITA margin
Country revenue
France
UK & Ireland
Spain
Germany
Sage Pay Europe
Others
34%
33%
13%
11%
3%
6%
2012
2011
£775.8m £765.1m
£219.1m £220.9m
29%
28%
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Total Europe revenue grew by 1%* to £775.8m (2011: £765.1m*).
On an organic basis, this growth was also 1%* (2011: 4%*).
Organic subscription revenue grew at 5%* (2011: 5%*), with organic
software and software-related services revenue contracting by 7%*
(2011: 3%* growth).
Revenue in our French business was flat* in the year, with licence
sales for our mid-market business in particular suffering from
a decline in business confidence in the country. Subscription
revenue grew strongly in the year, particularly from Sage 100
and Sage ERP X3. We expect conditions in France to remain
challenging in the foreseeable future.
Our UK & Ireland business grew by 4%* in the year. This growth
was driven by a strong performance in maintenance and support,
particularly in Sage 50 and our Accountants’ Division. Our
mid-market business has also delivered good growth in the year
and Sage ERP X3 continued its momentum in the UK.
Our Spanish business contracted by 7%* with the bulk of the
contraction attributable to revenue shortfalls within the small
business division and software for local authorities. As we expected,
the market in Spain has remained challenging, with a decline in the
number of small and medium sized businesses and low business
confidence. In response to the continued weakness in the Spanish
market, we restructured the business with an associated reduction
in headcount, resulting in a charge towards the end of the year
of £6.5m.
Revenue in Germany grew by 5%* with a solid performance in both
SSRS and subscription revenue. Our German business continued
to deliver good growth due to new releases of our core products
generating demand and a continued strong performance from our
HR products.
Swiss revenue contracted by 3%* and our Polish business
contracted by 20%* with a particularly difficult comparative due to
the one-off VAT stimulus in the prior year. Our Portuguese business
continued to benefit from legislative changes with growth of 2%*
in the year.
Our Sage Pay business also performed very strongly, with organic
revenue growth of 25%* for the year, driven by new customers
and the successful introduction of pricing increases. The Integral
acquisition in February 2012 was another important development,
giving Sage Pay a cardholder present capability. This business has
been successfully rebranded to Sage Pay. The launch of Sage Pay
in Germany in October 2012 also represented a significant milestone
in the roll-out of Sage’s payments capability across Europe.
The EBITA† margin for Europe was 28% (2011: 29%*), reflecting both
the cost of the restructuring of our Spanish business and a focus on
protecting profitability, notwithstanding challenging markets.
The Sage Group plc | Annual Report & Accounts 2012
31
Financial and operating review continued
Americas
Pascal Houillon,
Chief Executive Officer, North America
Paul Harrison,
Brazil
Strategic highlights
• The strategic shift to subscription continues to be a key theme with a continued
uptake in the adoption of Sage Business Care, our premium support contract
• Sage One, our SaaS solution for start-up and small business, was launched to the
US market in May 2012
• Subscription pricing options for our North America mid-market products launched
in April 2012
• Strong payments revenue growth in North America driven by cross-sell and higher
merchant and volumes
• Entry into Brazil with the acquisitions of Folhamatic, EBS and Cenize
Strategic priorities for FY13
• Subscription pricing option for Sage ERP X3 to launch in North America
• Integration of EBS and Cenize into Folhamatic leveraging broader geographical
reach with a streamlined product portfolio
Key data
£ m
Revenue from continuing operations
EBITA
EBITA margin
Country revenue
North America
Brazil
97%
3%
2012
2011
£411.7m £395.8m
£106.1m £100.9m
25%
26%
Total revenue from continuing operations in the Americas grew
by 4%* to £411.7m (2011: £395.8m*), with organic revenue
growth of 2%* (2011: 3%*). Organic subscription revenue grew
4%* (2011: 4%*), while organic software and software-related
services revenue contracted by 6%* (2011: 3%* contraction).
Organic revenue growth for the second half of the year was 3%*
compared with 1%* for the first half of the year, demonstrating
the anticipated sequential improvement in performance.
The EBITA† margin for Americas increased to 26% (2011: 25%*),
reflecting an increase in margin of our North American business.
North America
In North America, we continue to see the impact of the strategic
switch to recurring revenue. Adoption of Sage Business Care, our
premium support offering, was a key feature of the year particularly
for Sage 50 US Edition and Sage 50 Canada Edition, which both
delivered good revenue growth. In April 2012, we announced the
launch of a pure subscription option for our mid-market products
including Sage 100 ERP, Sage 300 ERP and Sage 500 ERP and
have also launched this option for Sage ERP X3 in North America
and Sage 50 Canadian Edition.
Our payment services business showed good growth of 6%*,
driven by growth in merchant numbers and volumes and 18%*
revenue growth in the cross-sell of integrated payment solutions
into our accounting base.
Brazil
Folhamatic has continued to perform well in the short period since
the acquisition, contributing revenue of £12.2m and EBITA† of
£3.0m, which is in-line with our expectations. We are also pleased
with progress made on integration. We have supplemented the
management team around Mauricio Frizzarin, the founder and
CEO of Folhamatic, with key appointments in senior finance
and HR roles.
We have subsequently strengthened our footprint in Brazil with the
important in-fill acquisitions of EBS and Cenize, as announced in
September 2012. The acquisition of EBS, a provider of accounting,
business management and tax software in Brazil, strengthens
Sage’s market leadership position in the accounting firm market
in Brazil and extends the geographic breadth of our offering,
particularly in the Southern region. The acquisition of Cenize,
a provider of accounting software to small and micro businesses
in Brazil, extends Sage’s reach to an attractive market segment
with significant growth potential.
* Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest.
† EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets, acquisition-related items and is after neutralising the impact of foreign exchange movements.
32
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AAMEA
Ivan Epstein, Chief Executive Officer, AAMEA
Strategic highlights
• Expansion into Africa continues to deliver strong growth and remain a key
opportunity for the future
• Sage ERP X3 has delivered exceptional growth in South Africa, with 100 new
customers added
Strategic priorities for FY13
• Integration of our South Africa payments offering, NetCash, into our core
accounting and ERP solutions
• Rebranding of Softline in South Africa to Sage to leverage the global brand
Total revenue in AAMEA grew by 10%* to £152.7m (2011: £138.2m*).
Organic revenue grew 12%* (2011: 10%*). Organic subscription
revenue showed strong growth of 15%* (2011: 13%*), while organic
software and software-related services revenue grew by 8%*
(2011: 6%*).
South Africa continued to deliver strong organic revenue growth of
16%*. Our core mid-market products such as Pastel and VIP have
performed well in the year, and Sage ERP X3 has made significant
progress in the country during the year. Sales into the broader
African continent have continued to grow well and remain a good
future opportunity.
Australia grew by 7%* led by good growth in subscription revenue
from our key products in the country. Together, our Middle East
and Asian businesses grew by 4%*, with a particularly strong
performance in Singapore.
The EBITA† margin was 27% (2011: 25%*), reflecting strong revenue
growth and cost discipline.
2012
2011
£152.7m £138.2m
£41.2m £34.2m
25%
27%
Key data
£ m
Revenue
EBITA
EBITA margin
Country revenue
South Africa
Australia
Middle East and Asia
58%
31%
11%
Our business in action
The following pages illustrate how we
are giving small and medium sized
companies the confidence and freedom
to be successful
The Sage Group plc | Annual Report & Accounts 2012
33
34
Sage Pay
Housebites
Making it safe and easy for our
customers to pay us is essential
to the survival of our business
Simon Procktor, Housebites
Housebites was created by a team of passionate foodies with
busy lives. Not content with the current “order-in” options – in terms
of both quality and service – they decided to come up with a
solution. They created a service that allows customers to order
food from top chefs in their neighbourhood and have it delivered
to their door.
Originally working with another payment gateway, Housebites were
looking to revolutionise their customer experience. They quickly
found that Sage Pay’s Token product and service were ahead of its
competitors. “We felt that Sage Pay offered the best system at the
best price,” says Simon.
Security and fraud are always a worry for any online business and
keeping up with security rules and regulations can be a full-time
job in itself. The Token system is a fully PCI compliant process that
negates the need for Housebites to hold or store any card data
so customers can be sure that their details are completely secure.
Sage Pay key facts
• Sage Pay is the UK & Ireland’s leading independent payment
service provider (PSP).
• Every year Sage Pay processes billions of pounds worth of
secure payments for its customers and makes the process
of accepting payments online, over the phone, or in person
simpler, faster, safer and more profitable for businesses of
all sizes.
• Our payment services range from the simple to sophisticated
tailored solutions and because they are easy to integrate and
manage, our customers have more time to spend on growing
their businesses.
• Sage Pay recently entered the German market focused
on driving e-commerce growth for small and medium
sized businesses.
40,000
Sage Pay customers in the UK & Ireland
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Scan this code to view the video on a mobile device or visit
www.investors.sage.com/2012annualreport
The Sage Group plc | Annual Report & Accounts 2012
35
Sage One
Garbeau made-to-measure shirts
I was using Excel to start with for
managing my finances for the
business but, as the business has
grown, it just wasn’t working
Jessica McLean, Garbeau
Sage One key facts
• Sage One was developed with customers at its heart. Sole
traders, small business owners and accountants have all been
involved from the beginning in shaping the feature set, design
and language.
• Sage One is one of the industry’s best value for money
accounting software packages: no upfront costs, no installation
charges, no maintenance or support fees and free, automatic
upgrades. The Sage One pricing model is well suited to
business owners who want to spread costs and manage
their cash flow.
• Sage One has been built from scratch, using Sage’s deep
expertise and the latest web technologies to address specific
customer pain points.
• Sage One has a simple, flexible architecture with an appealing
look and feel, developed using Ruby on Rails. It is designed
to support both Mac and PC and features highly
customisable options.
Garbeau is a made-to-measure shirt tailoring company set up
by Jessica McLean. Jessica researched and developed her
idea for the business during her final year at university studying
Fashion Marketing.
Garbeau has been trading for nearly five years now and has
supplied shirts to over 600 customers, many of whom place
repeat orders. The company targets sports organisations as
well as business people and wedding parties.
Sage One user Jessica said: “I was using Excel to start with for
managing my finances for the business but, as the business has
grown, it just wasn’t working. Sage One is really efficient, really
easy to use; especially for people like me who aren’t good with
numbers and finances.”
24/7
Free 24 hour support by phone, email or on the web.
Scan this code to view the video on a mobile device or visit
www.investors.sage.com/2012annualreport
36
The Sage Group plc | Annual Report & Accounts 2012
37
38
Sage ERP X3
Marussia F1™ Team
Sage ERP X3 will enable us to
automate complex business processes
and dramatically increase operational
efficiencies
Kevin Lee, Marussia F1™ Team
Sage ERP X3 key facts
• 3,700 customers representing 195,000 users worldwide chose
Sage ERP X3 because it is easy to use, fast to deploy and
cost effective.
• Sage ERP X3 is a proven and comprehensive ERP solution,
addressing mid-market companies’ specific requirements and
challenges in various industries from manufacturing services
to distribution and many more.
• Sage ERP X3 is present in 58 countries and counts a network
of more than 2,000 Sage professionals and 260 partners in
its ecosystem.
• Good momentum in the international roll-out of Sage ERP X3
during the year.
The Marussia F1™ Team is a young and ambitious Anglo-Russian
challenger, competing in the FIA Formula One World
Championship. Headquartered at the new Marussia Technical
Centre in Banbury, UK, the team is majority-owned by the
Russian supercar marque, Marussia, based in Moscow.
With just two seasons of F1 competition under its belt, the team
has enjoyed an extraordinary journey. It was founded in 2009,
under the Resource Restriction Agreement that has redefined the
sport’s commercial landscape, paving the way for exciting new
entrants to challenge tradition and expectation.
Kevin Lee, Operations Manager at Marussia F1™ Team, explained:
“Before investing in Sage ERP X3, we, like many businesses,
were operating a number of disparate IT systems and needed a
centralised ERP solution that could look after the entire lifecycle
of the products and thousands of parts that we deal with. Offering
a complete end-to-end business management system that can
scale seamlessly to break down departmental and geographical
silos, Sage ERP X3 will enable us to automate complex business
processes and dramatically increase operational efficiencies.”
260Sage ERP X3 partners worldwide
Scan this code to view the video on a mobile device or visit
www.investors.sage.com/2012annualreport
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The Sage Group plc | Annual Report & Accounts 2012
39
Principal risks and uncertainties
Sound management
Risks can materialise and impact on
both the achievement of business
strategy and the successful running
of our business
A key element in achieving our strategy and maintaining services to our customers is the
management of risks. Our 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.
In addition to the principal risks and uncertainties set out below, we have reviewed our
plans in light of potential risks to achieving our strategic objectives. Principal risks and
uncertainties have been updated to reflect high level strategic risks. Lower level strategic
risks are analysed and mitigated via the normal embedded risk management processes.
External business factors
Products and services
Change management
Intellectual property
As a technology company, operating in many different
countries throughout the world, there is a risk that Sage
does not appropriately respond to external business factors,
such as changing business needs, changing technologies,
competitor activities, compliance and regulatory requirements
and the economic environment.
There is a risk to Sage’s reputation and future ability to grow
as a business if poor quality products and services are released to
customers. This risk relates to both traditional on-premise products
and services and online, customer facing products and services.
In addition, for online customer facing products and services,
Sage must ensure that it adequately protects and secures
customers’ data.
There is a potential for an adverse impact on business
performance if external business factors and changes thereto are
not appropriately addressed. Such adverse impacts could affect
Sage’s competitive position, revenue and margin, make demands
on employees and cause financial penalties to be incurred.
We continue to build strong customer relationships, develop and
expand our product and services offering and seek organic and
acquisitive growth opportunities. We develop appropriate strategic
direction and maintain knowledge of industry developments to
ensure a proactive response to changing needs. Our business model
and the significant percentage of our revenue which is recurring, give
comfort and support against economic exposure. Our Group-wide
compliance programme seeks to ensure that local, national and
international regulatory requirements are identified and complied
with. A detailed quarterly forecasting process helps to ensure robust
and realistic challenge to financial performance.
Sage’s reputation and competitive advantage could be jeopardised
if a poor quality product or service is released to customers. The
impact of Sage’s products and services on its customers’ ability
to do business increases the severity of the risk. The change in the
product and services landscape in terms of online customer facing
products and services and the need to ensure reliability and
availability also increase the potential impact of the risk.
Sage has detailed product and service release and quality control
procedures which are adhered to in advance of a product or service
release. Sage also has thorough quality assurance processes and
initiatives relating to the level of service provided to customers. Sage
has a detailed framework to control the risks associated with the
provision of online services and the protection of customers’ data.
Risk
Potential
impact
Mitigation
process
40
Our strategy has sought to focus the business and appropriately
Sage relies on intellectual property laws, including laws on
Risk
prioritise resources. Given new business priorities, there are risks
copyright, patents, trade secrets and trademarks, to protect
associated with the change management impact on employees,
our products. Despite laws and regulations being in place,
systems and the alignment of talent with prioritised business areas.
unauthorised copies of software still exist. The internet
In addition, while Sage operates in a decentralised culture, with
provides new methods for illegal copying of the technology
many different operating companies across the globe, there is a risk,
used in Sage’s products and services.
as with any other business, relating to key man dependencies
and loss of key management.
If the change management implications of resource prioritisation are
Illegal or unauthorised copies of Sage’s software could be
not identified and managed, talent and resources key to successful
sold without our knowledge, impacting financial results and
Potential
impact
strategic delivery could be lost. Loss of key knowledge or personnel,
Sage’s reputation.
or failure to update systems to respond to changing business
priorities could result in an inability for Sage to operate effectively
and maintain a competitive edge. Loss of key management could
result in important, sensitive information leaving the Group.
A change management programme including a talent review
While relying, as other companies do, on the laws and
and systems requirements review is in place to ensure change
regulations in existence, Sage continually polices the
management implications are addressed. Sage has detailed key
unauthorised use of its products. Sage also ensures the
man dependency identification processes and detailed succession
secure storage of source code throughout the Group.
Mitigation
process
planning processes in place to mitigate against the risk of loss of
key personnel.
Ide ntif y
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Principal risks
M
i
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n alyse
A
The processes to identify and manage the principal
risks to the success of the Group are an integral part
of the internal control environment.
Internal control and risk management
To see how our internal control and risk management processes and
responsibilities work, see our Corporate governance report.
More information on page 57
External business factors
Products and services
Change management
Intellectual property
Risk
Potential
impact
Mitigation
process
As a technology company, operating in many different
countries throughout the world, there is a risk that Sage
There is a risk to Sage’s reputation and future ability to grow
as a business if poor quality products and services are released to
does not appropriately respond to external business factors,
customers. This risk relates to both traditional on-premise products
such as changing business needs, changing technologies,
and services and online, customer facing products and services.
competitor activities, compliance and regulatory requirements
In addition, for online customer facing products and services,
and the economic environment.
Sage must ensure that it adequately protects and secures
customers’ data.
There is a potential for an adverse impact on business
Sage’s reputation and competitive advantage could be jeopardised
performance if external business factors and changes thereto are
if a poor quality product or service is released to customers. The
not appropriately addressed. Such adverse impacts could affect
impact of Sage’s products and services on its customers’ ability
Sage’s competitive position, revenue and margin, make demands
to do business increases the severity of the risk. The change in the
on employees and cause financial penalties to be incurred.
product and services landscape in terms of online customer facing
products and services and the need to ensure reliability and
availability also increase the potential impact of the risk.
We continue to build strong customer relationships, develop and
Sage has detailed product and service release and quality control
expand our product and services offering and seek organic and
procedures which are adhered to in advance of a product or service
acquisitive growth opportunities. We develop appropriate strategic
release. Sage also has thorough quality assurance processes and
direction and maintain knowledge of industry developments to
initiatives relating to the level of service provided to customers. Sage
ensure a proactive response to changing needs. Our business model
has a detailed framework to control the risks associated with the
and the significant percentage of our revenue which is recurring, give
provision of online services and the protection of customers’ data.
comfort and support against economic exposure. Our Group-wide
compliance programme seeks to ensure that local, national and
international regulatory requirements are identified and complied
with. A detailed quarterly forecasting process helps to ensure robust
and realistic challenge to financial performance.
Our strategy has sought to focus the business and appropriately
prioritise resources. Given new business priorities, there are risks
associated with the change management impact on employees,
systems and the alignment of talent with prioritised business areas.
In addition, while Sage operates in a decentralised culture, with
many different operating companies across the globe, there is a risk,
as with any other business, relating to key man dependencies
and loss of key management.
If the change management implications of resource prioritisation are
not identified and managed, talent and resources key to successful
strategic delivery could be lost. Loss of key knowledge or personnel,
or failure to update systems to respond to changing business
priorities could result in an inability for Sage to operate effectively
and maintain a competitive edge. Loss of key management could
result in important, sensitive information leaving the Group.
A change management programme including a talent review
and systems requirements review is in place to ensure change
management implications are addressed. Sage has detailed key
man dependency identification processes and detailed succession
planning processes in place to mitigate against the risk of loss of
key personnel.
Sage relies 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
provides new methods for illegal copying of the technology
used in Sage’s products and services.
Risk
Illegal or unauthorised copies of Sage’s software could be
sold without our knowledge, impacting financial results and
Sage’s reputation.
Potential
impact
While relying, as other companies do, on the laws and
regulations in existence, Sage continually polices the
unauthorised use of its products. Sage also ensures the
secure storage of source code throughout the Group.
Mitigation
process
The Sage Group plc | Annual Report & Accounts 2012
41
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People and organisation
A unique promise
Our Guiding Principles
Simplicity
Whether it is software which is easy to use or support that is easy
to access, simplicity is a key driver of our business.
Trust
Our customers place important, confidential information in our hands
so it is imperative that they fully trust us to deliver.
Integrity
Whether providing reliable, high quality products or giving advice
on business critical topics, integrity is critical to us when building
long-term customer relationships.
Innovation
We need to think ahead, to anticipate our customers’ needs and
be creative in how we develop our software and services, continually
innovating to improve the customer experience we deliver.
Agility
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.
How we change the way we
work is about unlocking
growth at Sage by shifting
a business with multiple
histories to becoming a truly
global organisation where
we can better leverage scale
and expertise and create
efficiencies along the way
Karen Geary – Group HR Director
Changing the way we work
Our success has been built on our in-depth understanding
of customers, our exceptional service ethos and great people.
To keep ahead of the evolving market, we are changing the way
we work – not abandoning the strengths that come from our local
heritage, but bringing a more global spirit. This underpins our
growth plans. Our teams around the world will take more global
responsibilities and work with each other with a strong, common
purpose. We will collaborate more closely across borders, reduce
reinvention and leverage innovation from around the organisation.
This means we can spend more time focusing on customers; and
it is this closeness that has been the cornerstone of our success.
The Employee Experience
To build business confidence in our customers, we are nurturing
a culture that inspires confidence. In 2012 we began our journey
to create a more common culture across Sage that has inner
confidence at its heart and touches every touch point in our
employee experience. We believe that a culture of inner confidence
is essential to hire the right talent and inspire our people. The
more engaged our people feel, the better they can support our
customers. We strive to give our people the tools, know-how and
support that help them do a great job for our customers. We want
them to feel valued, challenged, fulfilled and above all understand
the significant role they have in freeing up customers to achieve
their business ambitions.
Employees
2012
2011
Europe
7,593
7,685
Americas
3,695
2,753
AAMEA
1,929
1,785
Group and
central
operations
292
166
Total
13,509
12,389
42
The History of Payments mural illustrates Sage Pay’s vi sion perfectly; make life easier for
businesses by giving them the tools to trade quickly and secure ly and together we will build a
better future! The mural starts from the left with early man dwelling in caves, through the
romans and early coinage, the commercial revolution, twentieth century capitalism, through
to where we are today; mobile payments and e-commerce. The wider Sage business is
reflected too as an enabler of business growth. This mural was created by Joe Steele, graphic
designer for Sage Pay, pictured with the mural on the opposite page.
43
People and organisation continued
Equipping our people
Our priorities focus on the following:
Communication
Our goals unite our people behind a common purpose; and cross
border collaboration is key to our success. To facilitate global
communication, we have invested in Cisco’s Telepresence and
WebEx capabilities in all our key locations. Already we are seeing
remote teams working seamlessly together and, at the same time,
reducing travel costs. Our global enterprise platform, Open…, is a
collaboration tool providing a social network where everyone
across Sage, regardless of their location, can talk, share, create
and innovate within teams.
Leadership
During 2012 we created a community called the Global Leadership
Team, comprising our top 30 key leaders who are accountable for
driving our global priorities. To support our new way of working,
we have introduced a common set of executive competencies
against which each will be measured in respect of their long-term
capability, and their short-term performance and reward. This is
supported by systematic investment in their development, resulting
in true global succession planning. A new global mobility policy
enables us to move our talent around the globe, with over 40
assignments in 2012.
Accolades
We are proud to call ourselves much more than a software
provider and our customer experience continues to be recognised.
This year we earned the accolade of European Call Centre and
Customer Service – large Contact Centre of the year award.
In South Africa, we have won ‘Best Companies to Work For’
in our category for the second year in a row, and most recently
in North America – ‘Texas Best Company to Work For’.
Diversity
As a global company we aim to treat our people with dignity and
respect. We emphasise the importance of treating individuals in
a non-discriminatory manner across the full employment lifecycle,
including hiring, reward, development, promotions, mobility and
departure. Training is provided to those making decisions on these
factors so that no individual is disadvantaged and to prevent
discrimination on the grounds of gender, religion, belief, race,
creed, age, disability, sexual orientation, ethnic origin or marital
status. In many of our operational companies we have guidelines
to help our businesses meet the Group requirements and to
manage diversity within the context of different national legislation
and cultures. At Sage we are proud of the various initiatives taking
place globally related to gender, age, disadvantaged backgrounds,
disabilities and ethnic minorities. These include internships,
apprenticeships, disability awards and targets; schemes to support
ethnic minorities and those with disadvantaged backgrounds.
Highlights of which can be found in the Corporate Responsibility
section on page 45.
Gender
At Sage we value the aims and objectives of The Davies Report on
Women on Boards. In considering appointments to the Board and
to senior executive positions, it is our policy to evaluate the skills,
experience and knowledge required by a particular role with due
regard for the benefit of diversity on the Board and at senior
management level and make an appointment accordingly. The
Board of Sage currently comprises 29% women and we would
expect to maintain a similar balance through 2013 to 2015. It is of
the utmost importance to maintain strong leadership at Sage and
we will therefore continue to appoint only the most appropriate
candidates. Our top leadership population is 24% female; the
majority of our core operating companies have top leadership
teams in excess of 20% female; and 46% of our total workforce
profile is female.
Examples of some of the local gender specific-initiatives include
Spain with a Gender Diversity Plan to help ensure equality and
Portugal’s Womens’ Day celebration. The UK has an Enterprise for
Women network aimed at supporting and encouraging womens’
career development which includes running networking events,
training sessions, bi-monthly newspapers and a Twitter account
with many followers. Currently, in the UK, 39% of employees
are females with 35.5% of those in leadership positions. Other
highlights include North America, whose leadership teams have
worked towards comprising 30% women, while in South Africa
we have 62% female employees and 48% women in
leadership teams.
Board diversity
29%
Total Members
Women
%
Top leadership diversity
24%
Total Members
Women
%
2012
7
2
29%
2011
8
2
25%
2012
99
24
24%
2011
97
25
26%
Total workforce diversity
46%
Total Members
Women
%
2012
2011
13,509 12,389
5,451
44%
6,214
46%
44
Corporate Responsibility
Acting responsibly
Corporate Responsibility (“CR”) provides us with an opportunity to be a good
citizen while supporting our Group-wide vision: to be recognised as the most
valuable supporter of small and medium sized companies by creating greater
freedom for them to succeed. Our commitment to being a good corporate citizen
is inherent in our Guiding Principles. We are aware of our impact and seek to
enhance the positive while minimising the negative.
Making a difference
Everything we do in CR reflects our core strategic values, while
local legal standards are our absolute minimum.
Our simple, pragmatic approach to CR focuses on areas that
mean the most to our business, our employees and our customers.
And we are always looking for innovative ways we can improve
our practices.
To make a real and positive contribution, we are committed to
focusing on a few key areas where we believe we can make a
difference. Our policy is to set out high level expectations to ensure
that the impact of our actions is at the heart of our business. This
provides our operating companies with the flexibility to select
where they will invest resources locally, depending on what has the
most meaning and impact. By thinking like a global business with
a strong local spirit, we can maximise the potential of our size and
work within local communities responsibly and effectively.
We share the best of what we do throughout our organisation
and always aim to achieve best practice in the local context of
each country where we operate. This flexible, continually updated
approach serves us well, giving our business the freedom to
focus on what’s important to both Sage and local customers.
For example, in Spain we gave grants to four entrepreneurs to
support them in new projects in technology and sustainability. Each
entrepreneur received director level support for six months, training
on Sage business software, free space within the Spanish office
and tools to support them in their work.
Board reporting: The Company Secretary regularly updates the
Board on CR risks and opportunities.
Ethics: Our Code of Ethics is integral to our organisation and we
continue to build on ways employees can anonymously report any
concerns about bribery, fraud or corruption. Our leadership signs a
declaration relating to the Code of Ethics to make sure any
additional business commitments or client and supplier
relationships they may have are clear and transparent.
Our CR policy
Industry
We aim to leverage the unique trusted
partner relationship that we have with
our customers globally to continue to
understand and support the issues and
challenges that they face.
Community
Our local communities are important to
us and we actively support a number of
charities and community organisations
worldwide in order to make a positive
impact on the communities in which
we live and work.
Environment
We continue to analyse our impact on
our environment. We remain committed
to reducing our energy consumption and
related emissions, where possible, as well
as reducing our wider impacts such as
resource use and waste to landfill.
People
Our approach to our people is set out
on pages 42 to 44.
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More
For more on corporate responsibility
Go to: www.sage.com/ourbusiness/aboutus/corporateresponsibility
The Sage Group plc | Annual Report & Accounts 2012
45
Corporate Responsibility
Industry
We work closely with our customers and pay attention to the issues that are important to
their businesses – we regard it as the cornerstone of our business philosophy. Our focus on
industry is at a local level, so we can understand and react to problems and opportunities
our customers face every day.
Understanding issues small and medium sized
businesses face
Our strength is our deep knowledge and understanding of our six
million plus customers – we know and understand them and never
treat them all the same. We have the largest footprint of small and
medium sized businesses globally and appreciate the different
needs in our segments: start-up and small businesses, small and
medium sized businesses (“SMB”), mid-market and accountants.
Twice a year we carry out global research that gives us a clear
picture of the challenges our customers face.
Our “Sage Business Index – International Business Insights” is our
fourth comprehensive survey into the mindset of small and medium
sized businesses around the world. This bi-annual survey is the
largest yet, and includes responses from nearly 11,000 businesses
from a variety of sectors in 15 countries.
Developing tomorrow’s business leaders
Sage’s foundations are in entrepreneurism, and we are passionate
about helping to create the entrepreneurs and the business leaders
of tomorrow.
To do this we encourage small businesses where we can. For
example, in the US we co-sponsor the SBA Small Business Week.
In South Africa we sponsor a small business award where
nominations for outstanding service come from local radio station
listeners. Sage South Africa also supports The Life College
Xchange, a non-profit educational centre which encourages
the development of entrepreneurial skills. Students launch their
own businesses and are judged on their innovation and profitability.
In North America, we gave free accounting software to 4,500
schools last year and in Malaysia we also gave free software
to educational and non-profit organisations.
The report focuses on business confidence and the economy,
each country as a place to do business, the role of government,
business challenges and the role of technology.
For more information on The Sage Business Index, see page 26.
Supporting local businesses and organisations
Helping non-profit organisations with free business software is an
important part of what we do. In North America we partner with
TechSoup, a body which helps charities manage their operations.
In the past year, we have given more than 1,000 organisations
software to the value of $459,000.
We also encourage our business partners to serve their local
communities through volunteering and charity work. For example,
every year in North America we select a partner for a Sage
Community Service Award.
We also provide valuable, free information to small businesses
on how they can prepare for legislative change, such as the
forthcoming changes to Pay as You Earn reporting in the UK.
Doing business
More than ever, in an increasingly crowded market place, we need
a clear point of difference. That’s the Sage brand. It’s what we
stand for and how we act and behave. We pride ourselves on our
integrity and professionalism in all our dealings with customers,
suppliers and other third parties. Our Guiding Principles and our
Code of Ethics show that we do business responsibly and in line
with all relevant laws and regulations as a minimum.
With customers, we act with honesty, integrity and openness.
Customer data is handled sensitively and with respect, in a way
that meets the requirements of Data Protection laws in the
countries in which we operate and ensures that it is safe and
secure in our hands. For example, all our operating companies’
policies as a minimum cover methods and safeguards to be
adopted to adhere to local Data Protection laws and regulations,
a named person responsible for Data Protection issues and a
process for informing employees on steps necessary to ensure
compliance with the policy and any training to be provided.
Understanding and knowing our customers inside and out gives
them reassurance that the basics are taken care of – simply and
safely – so they can get on with growing their business.
46
Corporate Responsibility
Community
We want our involvement in local communities to be more than about business, so our
Corporate Responsibility policy empowers each operating company to set their own
targets and goals where they know locally that it will really make a difference. No Group
level requirements are set for Community. This is because we truly want to make the
communities in which we trade better places to be. So, if we can make a positive contribution
we will – through fundraising, sponsorship or giving our time.
Giving our time
Organisations tell us that Sage volunteers are important to their
business. Our employees tell us that our volunteering programme
is a chance to share their skills and experience with charities or
local bodies that reflect our commitment to education, the
community and the environment. It is also a personal development
opportunity for our people, some of whom take extra paid leave to
volunteer. In North America for example, Employee Volunteer Day
Benefit is offered so our people can take a day off to volunteer for
a local charity. 111 people exercised their right to a volunteer day
this year which amounted to a total of 850 hours donated.
In Europe, volunteering in Spain takes place during working hours
and the UK offers our people two days per year to volunteer. This
year, UK staff gave more than 3,800 hours to many good causes,
including 1,000 hours working with more than 200 children as part
of the Right to Read literacy programme.
Helping charities
Every year our employees all around the world take the same day
every July to celebrate “Sage Day”. The day is an opportunity to
raise money for charity and get involved in local communities
where they work.
In the UK alone, employees raised £60,000 for a national cancer
charity. In North America, employees again gave through our
“Giving is Living” payroll programme last year. Sage matched their
contributions by 50% to give a total of $93,810 to charities. Our
North America employees also support local charities close to
their offices through initiatives including food bank volunteer
programmes and working in local schools.
As well as raising funds, sometimes a relatively small effort can
make a big difference. For example, our US and Canada
employees gave away nearly 4,000 unwanted pieces of business
clothing to local charity donation centres.
In Spain, our employees turned a major office move into an
opportunity to work with community groups in Barcelona. They
donated old office furniture and equipment to charities and hired in
catering services from a foundation that employs disabled people.
Investing in young people
Supporting young people often from disadvantaged backgrounds
is an important focus for us. We concentrate on their education and
helping them with vital life and business skills.
We provide educational bursaries across our locations. We also
design and run internal undergraduate and internship programmes
to give young people the chance to succeed academically while
considering their careers.
This year in Poland we sponsored a competition for gifted young
scientists concentrating on algorithms and computer science.
In Spain, we ran a summer training programme to introduce
unemployed 16 to 24-year-olds to the workplace, and also
supported “e-skills week”, where 13-year-old students visited
the office and learned about future career skills.
In South Africa, our people volunteer their time to help to equip
school children from disadvantaged backgrounds with essential life
and business skills before they leave school. We also work closely
there with a local charity involved in six of the most impoverished
communities to help disadvantaged and vulnerable children.
Investing in young people is also an important focus for our UK
teams, where 12 apprentices aged between 17 and 20 years old
are working in the business to help them learn essential
business skills.
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The Sage Group plc | Annual Report & Accounts 2012
47
Corporate Responsibility
Environment
Our aim is to reduce the energy our business uses and make the most of recycling
opportunities. Our operating companies can choose to focus where they feel they can
have the greatest impact, while complying with local laws as a minimum. Sage continues
to take part in the global Carbon Disclosure Project, an independent non-profit organisation
focusing on the reduction of greenhouse gas emissions and sustainable water use by
business and cities. We are also a member of the FTSE4Good Index.
Data on carbon emissions
We work hard to keep down our carbon footprint by raising
awareness among our employees to reduce energy and water
use, minimise travel and by switching to green energy suppliers
wherever possible. We continue to monitor our carbon footprint
and have published data on our carbon emissions since 2009.
This year we recorded a carbon footprint of 24,493 tonnes CO2
equivalent, achieving a reduction of 4.8% compared with 2011.
During 2012 we installed Telepresence equipment at key locations
to work collaboratively while reducing the need to travel. In
addition, we have signed a Group-wide WebEx deal which enables
us to work globally on Instant Messenger and meetings with up
to 1,000 attendees. Open…, our global enterprise platform, also
enables our employees to work in virtual teams and reduces
the need to travel.
Sage Group’s global carbon footprint from
energy (tCO2e)
Scope 1 (gas)
6%
Scope 2 (electricity) 94%
MWh of energy used within Sage business
2010
2011
2012
2
2
,
4
1
7
2
0
,
7
8
7
1
8
,
6
3
6
1
6
,
8
9
0
1
6
,
8
9
7
1
6
,
1
5
4
5
,
7
2
1
4
,
9
6
9
4
,
9
0
9
4
,
8
2
6
4
,
6
7
6
4
,
4
7
5
4
,
9
2
8
4
,
1
4
6
3
,
8
7
0
3
,
8
6
1
3
,
8
4
4
3
,
5
3
8
North
America
UK &
Ireland
France
Spain
South
Africa
Other
countries
48
All our operating companies are focused on ways to reduce their
environmental impact locally. In the US, we reduced electricity by
consolidating servers or installing virtual ones, using one dedicated
server location for associated ventilation and air conditioning on site.
The UK installed LED lighting which uses 75% less energy. Motion
sensors were installed in car parks so electric lights turn off when
not in use. We continue to highlight energy efficient measures
during office re-fits. In Spain, two new “intelligent” offices also
exploit natural light and reduce the use of gas and electricity. The
air con system works with water instead of gas and there are
sectored spaces for more efficient energy use. Light, temperature
and humidity levels are measured twice a month in common zones
to control optimum efficiency and low consumption. Solar panels
provide hot water to the building. In Australia, window tinting is
applied to reduce heating and air conditioning requirements.
Total CO2 emissions from energy (in nearest
whole tonnes)
Europe
North America
AAMEA
Total
2012
9,621
9,295
5,577
24,493
2011*
9,795
10,885
5,044
25,725
* 2011 North American data has been restated to align with more accurate
emissions factors used for the Canadian and US operations this year.
Scope 1 and scope 2 carbon emissions are measured from the electricity
and gas consumption paid for, together with the emissions factors provided
by the UK’s Department for Energy and Climate Change (“DECC”) in order
to calculate our carbon footprint from this usage.
It is our policy to report on offices with more than 25 Sage employees. This
excludes companies acquired during the year.
Reducing waste
We look for ways to promote recycling and the use of recycled
materials, as well as increase electronic materials to reduce print
and packaging. Open…, our global enterprise platform, means we
can store vital content electronically, so it is accessible to those
who need it wherever they are located. During 2012, the number of
Open… users increased by 88%, and there are 1,100 active teams
across Sage. Most of our software user guides are also now online
and we continue to reduce the use of paper wherever we can.
We are making progress in cutting down on our in-house waste
and, this year, we have achieved zero waste to landfill at our
Newcastle headquarters. In South Africa, employees have to enter
a PIN to print documents and payslips are emailed. The target is to
progress to a paperless environment, and all recyclable paper goes
to Afrika Tikkun, a local charity that works with children.
North America eliminated printing of an additional 15,000
downloaded documents, while the Sage Summit Tote bag replaced
paper again in 2012. There have been many good initiatives around
Sage, for example in the US we have tested a paper towel dispenser
that conserves waste and re-uses waste products and the UK is
harvesting used water for use on gardens and flower beds.
Corporate governance
Introduction
Dear fellow shareholder
Statement of compliance
Throughout the year ended 30 September 2012, the Company has
complied with the provisions of the UK Corporate Governance Code
(“the Code”) published in May 2010.
Good corporate governance is about helping to run the Company well.
It involves ensuring that an effective internal framework of systems and controls is put
in place which clearly defines authority and accountability and which promotes success
whilst permitting the management of risk to appropriate levels. It involves the exercise of
judgement as to the definitions of success, the appropriateness of risk and the levels of
delegation to the executive. The exercise of this judgement is the responsibility of the
Board and involves consideration of processes and assumptions as well as outcomes.
It also involves the creation of a sensitive interface for the views of shareholders and other
stakeholders to be given appropriate consideration when reaching these judgements.
The Financial Services Authority requires UK listed companies to explain how they have
applied the main principles set out in the UK Corporate Governance Code (“the Code”)
and whether they have complied with the principles set out within the Code throughout the
financial year. This report, therefore, sets out how we have applied the Code and confirms
our compliance with it throughout the year.
I trust you will find the report informative and helpful.
Donald Brydon, CBE, Chairman
The Sage Group plc | Annual Report & Accounts 2012
49
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Board of directors
Committed leadership
Donald Brydon CBE
Guy Berruyer
Paul Harrison
Tamara Ingram OBE
Ruth Markland
Ian Mason
Mark Rolfe
50
The Board of Sage is committed to the
highest standards of corporate governance.
It provides leadership to the business as a
whole, having regard to the interests and
views of its shareholders
Donald Brydon CBE
Chairman
Donald joined the Board in July 2012 and succeeded Tony Hobson as
Chairman on 1 September 2012. He is Chairman of the Royal Mail Group and
Smiths Group plc. Donald had a 20-year career with Barclays Group, during
which time he was Chairman and Chief Executive of BZW Investment
Management and acting Chief Executive of BZW, followed by 15 years with
the AXA Group, including holding the posts of Chairman and Chief Executive
of AXA Investment Managers and Chairman of AXA Framlington. He has also
recently been Chairman of the London Metal Exchange, Amersham plc,
Taylor Nelson Sofres plc and the ifs School of Finance and a Director of Allied
Domecq plc and Scottish Power plc. He is a past Chairman of EveryChild.
Nomination Committee – Chairman, Remuneration Committee
Guy Berruyer
Chief Executive Officer
Guy joined Sage in 1997 to run its French operation. He was appointed to the
Board in January 2000 as CEO for its Mainland Europe business and in 2005
also took charge of its Asian operations. Prior to joining Sage he was Country
Manager and then European Managing Director for Intuit, the US software
company. Previously he worked at the French hardware company, Groupe Bull,
where he was a Director of Marketing, and Claris, as Southern European
General Manager. On 2 October 2012, Guy became a non-executive director of
Meggitt PLC, a leading international company specialising in high performance
components and sub-systems for the aerospace, defence and energy markets.
Paul Harrison
Chief Financial Officer
A chartered accountant, Paul joined Sage in 1997 from Price Waterhouse to
become Group Financial Controller. He joined the Board in April 2000 as Chief
Financial Officer. Following the aquisition of Folhamatic, Paul was given
additional responsibility for the Brazil operation. In May 2007, Paul was
appointed to the Board of Hays plc as a Non-Executive Director and, in
November 2011, became the Senior Independent non-executive director.
Tamara Ingram OBE
Independent non-executive
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, and sits on the Development
Board for the Almeida Theatre.
Audit Committee, Nomination Committee, Remuneration Committee
Ruth Markland
Senior Independent non-executive
Ruth is a non-executive director of Standard Chartered plc and a member
of the Supervisory Board of Arcadis NV. She was formerly Managing Partner,
Asia for the international law firm Freshfields Bruckhaus Deringer. Ruth was
appointed to the Board in September 2006, becoming its Senior Independent
director in March 2011.
Audit Committee, Nomination Committee, Remuneration Committee – Chairman
Ian Mason
Independent non-executive
Ian joined the Board in November 2007. He is Group Chief Executive
of Electrocomponents plc and has previously worked for McKinsey and
The Boston Consulting Group (BCG). He has an MBA from INSEAD.
Audit Committee, Nomination Committee, Remuneration Committee
Mark Rolfe
Independent non-executive
Mark joined the Board in December 2007. 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, Barratt Developments plc and
Debenhams plc and Chairman of Lane, Clark and Peacock LLP.
Audit Committee – Chairman, Nomination Committee, Remuneration Committee
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The Sage Group plc | Annual Report & Accounts 2012
51
Corporate governance report
Our governance framework
The various elements which comprise our governance framework are listed
below, along with an overview of their responsibilities.
Shareholders
Other
stakeholders
Board of directors
1 Chairman
2 Executive directors
4 Independent non-executive directors
Nomination
Committee
Remuneration
Committee
Audit
Committee
Company
Secretary
Executive Committee
Risk management
and Internal audit
External audit
Group
functions
Group policies
The Board
The Board is responsible for the overall management of the Company, its
strategy and long-term objectives. It provides leadership to the Company,
having regard to the interest of shareholders.
Nomination Committee
This Committee reviews the composition of the Board to ensure it remains
appropriate for the needs of the business and plans for its progressive
refreshing. It leads the process for the identification and selection of new
directors and makes recommendations to the Board in respect of such
appointments. The Committee also makes recommendations to the Board on
the membership of its committees.
Remuneration Committee
This Committee determines the policy for the remuneration of the Chairman,
executive directors, Company Secretary and senior executives of the Group.
Further details on the Group’s remuneration policy are provided in the
Remuneration report on pages 64 to 73.
Audit Committee
The Audit Committee oversees the Company’s financial reporting, risk
management and internal control procedures, and the work of its internal and
external auditors. Further details on the activities of the Audit Committee are
provided on pages 55 to 56.
Company Secretary
The role of the Company Secretary is to ensure good information flows to the
Board and its committees and between senior management and non-executive
directors. He facilitates the induction of new directors and assists with
professional development as required. He also ensures Board procedures
are complied with and that applicable rules and regulations are followed.
The Company Secretary is available to all directors to provide advice and
assistance, and is responsible for providing governance advice to the Board.
Risk management and Internal audit
The risk management and internal audit function facilitates the identification
of risks and carries out reviews and testing of the controls that are in place to
mitigate those risks. Further details of the work of internal audit are provided
on page 55.
External audit
The external audit function provides independent audit and review. Further
details of the work of external audit are provided on page 56.
Executive Committee
This Committee is chaired by the Chief Executive and is responsible for
overseeing operations in the Group’s regions and the Group’s functional areas.
It comprises the senior executives within the Group. Further details of the work
of the Executive Committee are provided on pages 18 and 19.
Group functions
Certain specific administrative functions are controlled centrally at Group level
and report to the Board via various members of the Executive Committee.
For example, Finance, Investor Relations, Tax and Treasury report through
the Chief Financial Officer. Procedures are clearly defined to ensure that the
activities of these functions reduce the risk profile of the organisation.
Group policies
The Board is responsible for ensuring that adequate policies and procedures
are in place. These are reviewed and amended as required to ensure that they
remain in line with legislation and regulations and are sufficiently robust to ensure
appropriate internal controls are maintained, whilst also providing a suitable
framework within which the businesses and Group functions can operate.
52
How our governance framework operates
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The Board
The Board is responsible for the overall management of the Company, its
strategy and long-term objectives. It provides leadership to the Company,
having regard to the interest of shareholders and other stakeholders.
women and the Company would expect to maintain a similar balance through
2013 to 2015 as the Board is refreshed during this period. The Board must
continue to provide strong leadership at Sage and, therefore, the Company
continues to appoint only the most appropriate candidates.
Board meetings
The Chairman, in conjunction with the Chief Executive and Company
Secretary, plans the agenda for each Board meeting. That agenda is issued
with supporting papers typically during the week before the meeting is held.
These supporting papers provide the Board with appropriate information it
needs to enable the Board as a whole to discharge its duties.
Board meetings are held both inside and outside the United Kingdom at
operating companies of the Group. Directors are also encouraged to visit
overseas operations on a regular basis. This provides the Board and individual
directors with the opportunity to broaden their understanding of the business
and the key markets in which it operates.
The Board meets formally not less than six times a year, reviewing trading
performance, ensuring adequate funding, setting and monitoring strategy,
examining major acquisition opportunities and reviewing regular reports to
shareholders. In the year under review the Board met on ten occasions, of
which four such meetings were held at short notice. All directors in office at
the time attended all of these Board meetings, other than one meeting, held
at short notice, which Ms Markland was unable to attend.
Board composition
The Board currently comprises the Chairman, the Chief Executive, one other
executive director and four 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.
As can be seen from the directors’ biographies on page 51, the directors
have a range of experience and can bring independent judgement to bear
on issues of strategy, performance, resources and standards of conduct,
which is vital to the success of the Group. It is the balance of skills, experience,
independence and knowledge evidenced by the biographies which ensures
the duties and responsibilities of the Board and its Committees are discharged
effectively. To give them a full understanding of the business on appointment,
new members of the Board undergo a full, formal and tailored induction to the
Board. Mr D H Brydon joined the Board in July 2012 and became Chairman
of the Board on 1 September 2012. The Board considered Mr Brydon to be
independent on his appointment both to the Board and to the role of Chairman.
All directors are subject to re-election at each Annual General Meeting.
The Board is responsible to shareholders for the proper management of the
Group. To assist in this, training is also made available to directors and training
needs are assessed as part of the evaluation procedure of the Board, which is
discussed below. 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 Company is also very supportive of the aims and objectives of The Davies
Report on Women on Boards. The Board of Sage currently comprises 29%
Board evaluation
The Board recognises the importance of reviewing its practices and
performance on a regular basis. To achieve this, the Board has evaluated its
performance and that of its committees and individual members. In the past,
the Board has evaluated its performance through the completion of detailed
questionnaires and discussions between individual directors and the Chairman.
The Code encourages the Board to seek the assistance of a third-party in
its evaluation at least once in every three years. In the year under review,
therefore, the directors were assisted in their evaluation by an independent
third-party, Dr Tracy Long of Boardroom Review. Dr Long is entirely
independent of the Group and performs no services for the Group other
than assisting in directors’ evaluations. Dr Long met each of the directors
for an in-depth interview and attended Board and strategy meetings to view
the Board in action. She also reviewed the papers prepared for the Board.
Following this review, she prepared a summary of the Board’s strengths and
weaknesses, her observations and recommendations. These were shared with
all members of the Board and discussed with the Chairman, Chief Executive
and Senior Independent director. As a result of the review, the Board is
considering practices in a number of areas.
Board practices
The Board has formally adopted a schedule of matters 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.
Under the Companies Act 2006 a director must avoid a situation where he
or she has, or could 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. In order
to address this issue, at the commencement of each Board meeting, the Board
considers a register of interests and potential conflicts of directors and gives,
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. These procedures on conflict
have been followed throughout the year and the Board considers the approach
to operate effectively.
The Chairman
The role of Chairman carries a particular responsibility to monitor and assess
the corporate governance practices of the Group. The terms of reference for
the Chairman 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. To
ensure a proper dialogue with directors, the Chairman holds meetings with the
non-executive directors without the executive directors to assess their views.
The Sage Group plc | Annual Report & Accounts 2012
53
Corporate governance report continued
In addition, the non-executive directors have met without the Chairman present
to appraise the Chairman’s performance. The Chairman also ensures that
shareholder communications and responses are discussed at each meeting of
the Board and that all shareholders have access to the non-executive directors,
through a request to the Chairman or the Secretary.
The Senior Independent director
The role of Senior Independent director provides a point of contact for those
shareholders who wish to raise issues with the Board, other than through the
Chairman. Ms R Markland, who undertakes this role in the Company, is
available to consult with shareholders and also chairs meetings of the
non-executive directors without the Chairman present.
Committees of the Board
The three committees of the Board deal with specific aspects of the Group’s
affairs. These are the Remuneration Committee, the Audit Committee and the
Nomination Committee. Further details of these Committees are set out below.
Whilst the Board notes that all independent non-executive directors (other than
the Chairman) are members of all Board committees, it considers that the
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. The Secretary acts as secretary to all the Committees.
Remuneration Committee
The Remuneration Committee is chaired by Ms R Markland.
The other members of the Committee are the Chairman,
Mr D H Brydon, and the other independent non-executive
directors, Ms T Ingram, Mr I Mason and Mr M E Rolfe.
This Committee determines the policy for the remuneration of the Chairman,
executive directors, Company Secretary and senior executives of the Group.
Further details on the Group’s remuneration policy are provided in the
Remuneration report on pages 64 to 73.
The Committee is responsible for making recommendations to the Board,
within agreed terms of reference, on the Company’s framework of executive
remuneration. It 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. The Committee also monitors remuneration
for those senior executives below Board level. Independent remuneration
consultants advise the Committee. The Board itself determines the
remuneration of the non-executive directors.
Under its terms of reference, the Committee meets at least four times in the
year. In the year under review, eight meetings of the Committee were held of
which five were held on full notice and three were shorter meetings held by
telephone on short notice. All members in office at the time attended all the
meetings other than on two occasions when Ms Ingram was unable to attend
meetings held on full notice and one occasion when each of Mr Brydon and
Ms Ingram were unable to attend meetings held on short notice. All directors
receive Board and committee papers in advance of any meeting and have the
opportunity to comment on them prior to the relevant meeting. The Chief
Executive may, by invitation of the Committee, attend meetings (except when
his own performance or remuneration is under review) but he is not a member
of the Committee.
In the year under review, the Committee addressed the remuneration issues
related to a number of senior executive appointments and the retirement of
an executive director. As seen in the Remuneration report on pages 64 to 73,
the Committee undertook a full review of remuneration policy and related
consultation with shareholders. It paid particular attention to bonus
arrangements in support of the goals of the Group set out on pages 8 and 9.
Details of the Company’s policies on directors’ remuneration are given
in the Remuneration report, together with further details of the
Remuneration Committee.
54
Audit Committee
The Audit Committee is chaired by Mr M E Rolfe. The other
members of the Committee are independent non-executive
directors, 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 under the provisions of the Code. The other members of
the Committee have a wide range of business experience, which is evidenced
in their biographies on page 51.
The Audit Committee oversees the Company’s financial reporting, risk
management and internal control procedures, and the work of its internal and
external auditors.
The main duties of the Committee, set out in its terms of reference, are to:
• 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 and advise the Board on the effectiveness of the Company’s
internal control environment, including its “whistleblowing” procedures;
• 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;
• make recommendations on the appointment and remuneration of external
auditors and to monitor their performance and independence; and
• 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.
In order to fulfil its duties, the Committee receives sufficient, reliable and timely
information from management. The terms of reference of the Committee
are reviewed on an annual basis and are available at www.sage.com. In its
most recent review the Committee was satisfied that the terms enabled the
Committee to fulfil its responsibilities and determined that no material changes
were necessary.
The Board makes appointments 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.
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Work of the Committee in the financial year
In the financial year, the Audit Committee met four times with all members
present on each occasion (except one meeting which Ms Markland was unable
to attend and one meeting which Ms Ingram was unable to attend) 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 invites executive directors, management, external and internal
auditors to attend meetings as it considers appropriate for the matters
being discussed.
The Committee discharged its obligations in respect of the financial year in
the following ways:
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 considered 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 and discussions with senior
management. The Committee monitored the effectiveness of the Group’s risk
management process, which considered 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.
Risk topics
At specific Audit Committee meetings, time is allowed for deep dive reviews
of particular risk topics. Topics reviewed in the year include the finance
organisation, risks within the strategy and the provision of online services.
Internal audit
Internal audit activities and responsibilities are provided by an in-house internal
audit team, supplemented under co-source agreements by third-party
providers. The role of Head of Internal Audit is undertaken by the Group Risk
and Assurance Director who has a direct reporting line to the Audit Committee
and its Chairman in order to ensure 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.
The scope of work covered by internal audit provides assurance coverage
across both key risks to Sage and the main functions within Sage. Over and
above financial and IT control reviews, areas of coverage during the year
included compliance, online services, treasury, source code storage and
business continuity.
The Sage Group plc | Annual Report & Accounts 2012
55
Corporate governance report continued
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 Chief Financial Officer.
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 £0.8m, of which
£0.6m was attributable to tax compliance services, £0.1m to tax advisory
services and £0.1m to other services. Further details of fees paid to auditors
are set out on page 90.
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 2013. 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 most recent change of audit partner occurred in the year to 30 September
2010 and, therefore, formal consideration of an audit tender process took place
during the course of that year.
The Committee gave full consideration to the performance and independence
of the auditors and after this review considered that a tender process was not
required given the processes already in place to ensure independence and the
performance to date of the current auditors.
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’ reports.
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 or other factors 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 most recent 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, 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 informing
the Audit Committee regularly 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. In the year under review, all non-audit services
provided by the external auditors were in accordance with these rules. It is the
policy of the Committee to require that acquisition due diligence be undertaken
by firms other than the auditors unless conflicts of interest for comparable
firms make this impractical. At each meeting, the Committee receives a report
from the external auditors providing an update on the fees for non-audit
services incurred since the previous meeting. Where the cumulative non-audit
fees 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 2012 the audit fee was £2.0m.
56
Nomination Committee
The Nomination Committee is chaired by the Chairman,
Mr D H Brydon and consists of the Chairman and four
independent non-executive directors, 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.
This Committee reviews the composition of the Board to ensure it remains
appropriate for the needs of the business and plans for its progressive
refreshing, having regard to its balance and structure. It also considers issues
of succession. Recruitment consultants are used to assist in the process. It
leads the process for the identification and selection of new directors and
makes recommendations to the Board in respect of such appointments. The
Committee also makes recommendations to the Board on the membership
of its committees.
The Nomination Committee is responsible for a number of matters relating to
the composition of the Board and its committees. The Nomination Committee
is also responsible for reviewing the structure of the Board, evaluating the
balance of skills, knowledge, experience and diversity of 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 terms of reference of the Committee, available on www.sage.com, require
the Committee to have regard to diversity in considering appointments to the
Board. In making its decisions it has regard to the diversity policy referred to
on page 44.
The Nomination Committee meets not less than once a year. Three 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 Ingram was unable to attend.
In the year under review, the Committee dealt with a number of issues
including the appointment of a new Chairman, a number of senior executive
appointments and the retirement of an executive director from the Board. The
then Chairman took no part in the discussion at meetings of the Committee
relating to his successor. In identifying a potential new Chairman, the
Committee retained the services of an executive search consultant. That
consultant provided a list of potential candidates having regard to the policies
of the Group and the terms of reference of the Committee. A number of
candidates on that list met members of the Committee, who then determined
to approach the current Chairman. The current Chairman was independent
on his appointment to the Board. The Committee settled the terms of his
appointment which were recommended to the Board.
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 and
Assurance 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 governance framework for
risk management and the key procedures, which the directors have
established with a view to providing effective internal control, are set out below.
Risk management processes and responsibilities
The processes to identify and manage the key risks to the success of the
Group are an integral part of the internal control environment.
Audit
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Group
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The Sage Group plc | Annual Report & Accounts 2012
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Corporate governance report continued
1 Executive Committee
The Executive Committee is responsible for the identification, reporting
and ongoing management of risks and for the stewardship of the risk
management approach.
The Executive Committee identifies and assesses the key strategic risks to
the Group on at least an annual basis. The output of the assessment is sent to
the Group Board for review and to the country CEOs for inclusion in their risk
assessment exercises.
2 Country CEOs and Functional Heads
Country CEOs and functional heads are responsible for the identification,
reporting and ongoing management of risks in their respective countries
and functions.
The country CEOs and functional heads facilitate their risk assessment
exercise to review the key strategic risks and to identify the top local risks
within their country of function. The output of the assessment is sent to
regional management and the Group Risk and Assurance Director for review
and challenge.
3 Regional management and Group management
Regional management and Group management are responsible for the
reporting, challenge and ongoing management of risks in their respective
regions and functions.
Regional management, with support from the Group Risk and Assurance
Director, review and challenge the risk information from the countries and
agree the top regional risks and the regional response to the key strategic risks.
Group management, facilitated by the Group Risk and Assurance Director,
identify top risks from central functions (for example, tax and treasury) for
inclusion in the functional level risk report.
4 Group Risk and Assurance Director
The Group Risk and Assurance Director is responsible for the facilitation and
implementation of the risk management approach throughout the Group.
The Group Risk and Assurance Director consolidates the regional risk reports
and creates the Group Risk Report containing top local risks and the
responses to the key strategic risks for the Group as a whole. The Group
Risk Report is sent to the Executive Committee for review and challenge.
5 Audit Committee
The Audit Committee is responsible for the independent review and challenge
of the adequacy and effectiveness of the risk management approach.
The Audit Committee review and challenge the Group Risk Report. The
Group Risk Report is then submitted to the Group Board for review.
6 Group Board
The Group Board has overall responsibility for risk management and
implementation of the risk management policy.
The Group Board reviews the output from the Executive Committee.
During the year the risk management processes and procedures set to ensure
that risks are identified from a top down strategic perspective as well as a
bottom up local perspective, have operated as described above. Facilitated
risk workshops have been completed with the Executive Committee and major
territories around the Group. Results from risk management activities have
been reported to and discussed directly with the Executive Committee
during the year.
Whistleblowing
A “whistleblowing” telephone hotline service operates 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 exist in France, Germany and Spain and the Group continues to seek
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. As a result of
these structures, the Board considers that it receives 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
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 the provision of subsequent training and development.
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 within which individual responsibilities
are identified and can be monitored. The management of the Group as a
whole is delegated to the Chief Executive, the executive directors and the
Executive Committee.
The Executive Committee meets regularly to agree strategy, monitor
performance and consider key business issues. As part of its review, it
considers the risks associated with the delivery of strategy and important
governance issues within the operating companies. Within the Group team,
based in Newcastle upon Tyne, there are a number of central administrative
functions such as Group Treasury, Corporate Communications, Group Legal
and Business Development. These functions report to the Board through its
executive members and the members of the Executive Committee. A number
of Group-wide policies issued by the central Group team and administered
both centrally and at local level, ensure compliance with key governance
standards. These policies cover areas such as finance, data protection and
mergers and acquisitions.
The conduct of Sage’s individual businesses is delegated to the local
executive management teams. Details of the authority delegated to local
and regional management is set out in a delegation of authority matrix which
is communicated to management throughout the business. 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.
58
Internal audit
The Group has an in-house internal audit team supplemented under
co-source agreements with third-party providers 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.
Relations with shareholders
Communication with shareholders is given high priority. A full Annual Report
& Accounts is sent to all shareholders who wish to receive one. The Company
also has a website (www.sage.com) which contains up-to-date information
on Group activities, published financial results and the Annual Report and
Accounts. 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.
Information included in the Directors’ report
Certain information that fulfils the requirements of the Corporate Governance
Statement can be found in the Directors’ report in the sections headed
“Substantial shareholdings”, “Deadlines for voting rights”, “Repurchase
of Shares”, “Amendment of the Company’s articles of association”,
“Appointment and replacement of directors” and “Powers of the directors”
and are incorporated into this corporate governance section by reference.
By order of the Board
M J Robinson, Secretary
5 December 2012
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The Sage Group plc | Annual Report & Accounts 2012
59
Directors’ report
The directors present their report together with the audited consolidated
financial statements for the year ended 30 September 2012.
Principal activities
The Sage Group plc is a leading global provider of business management
software to small and medium sized companies. Sage has over six million
customers and more than 13,500 employees in 24 countries covering the
UK & Ireland, mainland Europe, North America, South Africa, Australia, Asia
and Brazil.
Business review
The Group achieved a profit before income tax of £334.3m on revenue from
continuing operations of £1,340.2m.
The Companies Act 2006 requires us to present a fair review of the business
of the Group during the year to 30 September 2012 and of the position of the
Group at the end of the financial year and a description of the principal risks
and uncertainties facing the Group. The information that fulfils the Companies
Act requirements can be found in the business review which is incorporated
by reference. The business review can be found on pages IFC to 48.
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 are set out on page 70. Dividends paid and proposed
are set out on page 87. The Board proposes a final dividend of 6.67p per share
(2011: 7.07p per share) taking the proposed full year dividend to 10.15p per
share (2011: 9.75p per share).
Compliance with the UK Corporate Governance Code
and Corporate Governance Statement
The Company has been in full compliance with the provisions set out in the
UK Corporate Governance Code throughout the year. The Code is publicly
available at the website of the FRC, www.frc.org.uk. Information that fulfils
the requirements of the Corporate Governance Statement can be found in
the Corporate governance report on pages 49 to 58 and is incorporated into
this Directors’ report by reference.
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.
Research and development
During the year, the Group invested £159.4m (2011: £151.9m) in research
and development.
Charitable contributions and political donations
During the year, charitable contributions totalling £0.4m were made.
No political donations were made in the year.
Directors and their interests
A list of directors, their interests in the ordinary share capital of the Company,
their interest in its long-term performance share plan and details of their
options over the ordinary share capital of the Company are given in the
Remuneration report on pages 64 to 73. 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 2012, 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 42 to 44.
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
those terms. Creditor days for the Group have been calculated at 44 days
(2011: 49 days).
The Company has no trade creditors (2011: £nil).
60
Substantial shareholdings
At 29 November 2012, 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:
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 Articles):
Name
Direct shares
%
Indirect
shares
% Total shares
%
• divide among the members in specie the whole or any part of the assets
of the Company; or
BlackRock, Inc.
Aviva plc
Lloyds Banking
Group plc
–
66,981,616
– 75,700,610
–
5.07
5.74 75,700,610
– 66,981,616
5.74
5.07
–
– 61,336,505
5.00 61,336,505
5.00
Future developments
The Group’s future developments are described in the business review on
pages IFC to 48.
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 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, except that a proxy has one vote for and one vote against a
resolution if the proxy has been appointed by more than one member and
has been given conflicting voting instructions by those members, or has
been given discretion as to how to 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 1
March 2013 will be 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.
• 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 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 (although not so as to prevent dealings in shares taking place
on an open and proper basis) 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 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 Articles).
Repurchase of shares
The Company obtained shareholder authority at the last Annual General
Meeting (held on 29 February 2012) to buy back up to 131,353,609 ordinary
shares, which remains outstanding until the conclusion of the next Annual
General Meeting on 1 March 2013.
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).
On 30 September 2012 the Group appointed Deutsche Bank AG to manage an
irrevocable buyback programme during the close period which commenced on
1 October 2012 and will run up to 5 December 2012. From 1 October 2012 to
29 November 2012, the latest practical date prior to publication of the Annual
Report & Accounts, 17,925,641 ordinary shares of 1p each were repurchased
through Deutsche Bank AG at a weighted average price of 308.89p per share.
The highest and lowest prices paid for these shares were 322.00p per share
and 298.70p per share respectively. The purchased shares have not been
cancelled and are held as treasury shares. The total number of ordinary shares
in issue (excluding shares held as treasury shares) at 29 November 2012 is
1,210,714,269.
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.
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Directors’ report continued
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 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.
Under the Articles, at every Annual General Meeting of the Company, every
director shall 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 or her
term of office. The office of director shall be vacated if: (i) he or she resigns;
(ii) he or she has become physically or mentally incapable of acting as a
director and may remain so for more than three months, or by reason of his
or her mental health a court has made an order that prevents the director from
acting and, in either case, the Board resolves that his or her office is vacated;
(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 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
Articles of Association, the Companies Act 2006 and any ordinary resolution
of the Company.
Shares held in the Employee Benefit Trust
The trustee of The Sage Group plc Employee Benefit Trust (“EBT”) has agreed
not to vote any shares held in the EBT at any general meeting. If any offer is
made to shareholders to acquire their shares the trustee will not be obliged to
accept or reject the offer in respect of any shares which are at that time subject
to subsisting awards, but will have regard to the interests of the award holders
and will have power to consult them to obtain their views on the offer. Subject to
the above the trustee may take the action with respect to the offer it thinks fair.
Significant agreements
The following significant agreements contain provisions entitling the
counterparties to exercise termination or other rights in the event of a change
of control of the Company:
Under a dual tranche US$271,000,000 and €214,000,000 five year multi-
currency revolving credit facility agreement dated 24 August 2010 between,
amongst others, the Company and Lloyds Banking Group plc (as facility
agent), on a change of control, if any individual lender so requires 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 commitment of that lender
and declare the participation of that lender in all outstanding loans, together
with accrued interest and all other amounts accrued under the finance
documents, immediately due and payable, whereupon the commitment of that
lender will be cancelled and all such outstanding amounts will become
immediately due and payable.
Under a note purchase agreement dated 11 March 2010 relating to
US$200,000,000 senior notes, Series A, due 11 March 2015, US$50,000,000
senior notes, Series B, due 11 March 2016 and US$50,000,000 senior notes,
Series C, due 11 March 2017 between the Company and the note holders, on
a change of control, the Company will not take any action that consummates
or finalises a change of control unless at least 15 business days prior to such
action it shall have given to each holder of notes written notice containing and
constituting an offer to prepay all notes on a date specified in such offer which
shall be a business day occurring subsequent to the effective date of the
62
change of control which is not less than 30 days or more than 60 days after
the date of the notice of prepayments. Where a holder of notes accepts the
offer to prepay, the prepayment shall be 100% of the principal amount of the
notes together with accrued and unpaid interest thereon and shall be made
on the proposed prepayment date. No prepayment under a change of control
shall include any premium of any kind.
Under the terms of both agreements, a “change of control” occurs if any
person or group of persons acting in concert gains control of the Company.
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 (“EU”) and the parent Company
financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable
law). Under company law the directors must not approve the financial
statements unless they are satisfied that they 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 these financial statements the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the EU, and applicable UK Accounting
Standards have been followed, subject to any material departures
disclosed and explained in the Group and parent Company financial
statements respectively; and
• prepare the financial statements on the going concern basis, unless it is
inappropriate to presume that the Company will continue in business.
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 on pages 50 and 51, 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.
Financial risk management
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 13.2 of the accounts.
The Group’s US Dollar denominated borrowings are designated as a hedge
of the net investment in its subsidiaries in the US. The foreign exchange
movements on translation of the borrowings into Sterling have been
recognised in the translation reserve.
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 entity involved. At 30 September 2011 and 30 September 2012, these
exposures were immaterial to the Group.
By Order of the Board
M J Robinson, Secretary
5 December 2012
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Capital risk
The Group’s objectives when managing capital (defined as net debt plus
equity) are to safeguard the Group’s ability to continue as a going concern in
order to provide returns to shareholders and benefits for other stakeholders,
while optimising return to shareholders through an appropriate balance of debt
and equity funding. The Group manages its capital structure and makes
adjustments to it with respect to changes in economic conditions and the
strategic objectives of the Group. The Group have set a minimum leverage
target of one times net debt to EBITDA and are working towards achieving this.
Further detail is provided in the Financial review on pages 28 and 30.
Liquidity risk
The Group manages its exposure to liquidity risk by reviewing the cash
resources required to meet its business objectives through both short and
long-term cash flow forecasts. The Group has committed facilities which are
available to be drawn for general corporate purposes including working capital.
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 operational credit risk due to the transactions being
principally of a high volume, low value and short maturity. The Group has no
significant concentration of operational 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 2012 the Group did not see
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 interest rate risk on floating rate deposits and
borrowings. The US private placement loan notes, which comprise 93% of
borrowings, are at fixed interest rates and bank debt, which comprises 7%
of borrowings, are at floating interest rates. At 30 September 2012, the Group
had £61.6m of cash and cash equivalents.
The Group regularly reviews forecast debt, cash and cash equivalents and
interest rates to monitor this risk. Interest rates on debt and deposits are fixed
when management decides this is appropriate. At 30 September 2012, the
Group’s principal borrowings comprised US private placement loan notes
of £185.8m (2011: £192.6m), which have an average fixed interest rate of
4.58% and bank debt of £15.0m (2011: £nil), which has an average floating
interest rate of 1.73%.
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 within these subsidiaries. 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.
The Group is also exposed to a foreign exchange transaction exposure from
the conversion of surplus cash generated by its principal overseas subsidiaries,
which would be hedged where appropriate.
The Sage Group plc | Annual Report & Accounts 2012
63
Remuneration Report
Letter from the Chairman
Dear fellow shareholder
It is my pleasure to present this year’s Remuneration Report for the year
ended 30 September 2012.
Remuneration overview
As stated in last year’s report, during the year the Remuneration
Committee commissioned a review of the short and long-term incentive
arrangements, to ensure that these continue to meet the needs of the
business and provide an appropriate and effective incentive to deliver
on the Group’s strategic objectives.
In addition, during the year management reviewed and realigned the
strategy of the business to accelerate organic revenue growth, drive
margins and improve EPS performance. This strategy was articulated
at the Investor Day held in July 2012.
I was delighted to be able to engage with many of our major investors
and representative bodies on the incentive changes proposed by the
Remuneration Committee in response to these strategic aims.
Following the extensive consultation, we have made a number of
changes to our remuneration framework to further align with the Group’s
strategic objectives.
Key changes to the operation of the bonus plan for 2012/13 onwards are:
• Introduction of strategic performance measures.
• Simplification and extended scope of our deferral policy.
Key changes to the operation of the Performance Share Plan for 2012/13 onwards are:
• Introduction of an organic revenue growth performance measure and simplification of the measurement approach in respect of the
EPS and TSR performance measures.
• Reduction of the level of award that will be available for stretch performance (i.e. the level of vesting for meeting targets consistent
with the level of stretch under our 2011 framework) from 210% to 200%. Introduction of an additional 50% of base salary to reward
exceptional performance (i.e. for exceptional performance, the maximum award would be 250% of base salary; this would remain
within the overall Plan limit of 300% of base salary).
We have also extended our shareholding guideline policy to all members of our Executive Committee. Further details of the proposed
changes are set out on page 66.
Remuneration for 2011/12
For the year ending 30 September 2012, underlying pre-tax profit increased by 4%, organic revenue growth was 2% and the profit
underpin for annual bonus purposes was achieved; this resulted in annual bonus payments of between 26% and 30% of base salary for
the executive directors.
Performance share awards granted in 2010 are primarily based on EPS targets; these targets were not met during the year and therefore
no part of the awards will vest in March 2013.
Remuneration disclosure
We are committed to maintaining an open dialogue with shareholders.
We have made a number of improvements to the Remuneration Report this year and have sought to make our disclosure more
transparent. Notably we have added a single figure of remuneration for each executive director.
I hope that you find the report clear and informative.
Ruth Markland
Chairman of the Remuneration Committee
64
Remuneration report
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 Schedule 8 of The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 and also
meets the requirements of the Listing Rules of the UK Listing Authority.
Composition and terms of reference of the
Remuneration Committee
The Remuneration Committee consists of non-executive directors considered
by the Board to be independent, and the Chairman.
The current members of the Remuneration Committee are Ms R Markland
(Chair), Ms T Ingram, Mr I Mason, Mr M E Rolfe and Mr D H Brydon.
Mr A J Hobson was a member of the Committee during the year until
1 September 2012 when he ceased to be a director. All current members
of the Committee have been members throughout the year except for
Mr D H Brydon who was appointed on 6 July 2012 and succeeded
Mr A J Hobson as Company Chairman on 1 September 2012.
The Committee advises the Board on remuneration policy, and defines
remuneration packages for executive directors, the Chairman and other
members of senior management. The Committee’s terms of reference
are reviewed every year and are available on request from the Company
Secretary and on the Company’s website at www.sage.com.
Advisers to the Remuneration Committee
The Remuneration Committee continues to receive advice from Deloitte, an
independent firm of remuneration consultants appointed by the Committee
after consultation with the Board. During the year, Deloitte’s executive
compensation advisory practice advised the Committee on developments
in market practice, corporate governance and institutional investor views and
in the development of the Company’s incentive arrangements. Deloitte is a
founding member of the Remuneration Consultants Group and adheres to
its Code in relation to executive remuneration consulting in the UK. During
the year, the wider Deloitte business provided limited tax advice, specific
corporate finance support in the context of merger and acquisition activity
and unrelated corporate advisory services.
The Committee receives assistance from Ms K Geary (Group Human
Resources Director), Ms R Fyffe (Director of Performance and Reward) and
Mr M J Robinson (Company Secretary) and other members of management,
who may attend meetings by invitation, except when matters relating to their
own remuneration are being discussed. The Company Chairman does not
participate in discussions relating to his own remuneration. The Committee
met eight times during the year. Attendance is detailed on page 54.
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 line with 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, by receiving information on
bonus levels and base salary reviews for other managers around the Group.
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 and a strong
alignment of interest with shareholders.
The chart below illustrates the anticipated mix between each element of pay
for executive directors under Sage’s remuneration policy from 2013.
Reflecting our pay for performance policy, bonus and share awards are linked
to performance conditions with pre-determined thresholds. No payment
is made below threshold levels of performance and over 70% of total
compensation value is delivered through performance-related incentives
at stretch levels of performance.
Exceptional
Stretch
Target
Below threshold
Salary
Annual bonus (including any deferred amounts)
Long-term incentives
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The Sage Group plc | Annual Report & Accounts 2012
65
Remuneration report continued
Table 1 – Executive director compensation summary
Component
Alignment with strategy/purpose
Operation for 2011/12
Operation for 2012/13
Base salary
Set at an appropriate level for the role and
skills of the individual.
Increased by 1.5%-3% in line with the
wider employee population to:
Increased by 1.5% in line with the wider
employee population to:
Reviewed by reference to companies of a
similar size and international scope to Sage,
in particular those within the FTSE 100
(excluding the top 30).
CEO: £711,000
CFO: £437,750
CEO: £721,750
CFO: £444,500
Annual bonus
Bonus deferral
Performance share plan
Pay decisions are made in the context of
corporate and individual performance and
pay increases for employees throughout
the Group, and any increases apply
from January.
Designed to reward performance against
pre-determined financial and quantifiable
metrics that demonstrate the delivery of
the business strategy.
Maximum of 125% of base salary
(target 75%)
Performance measures:
55% profitability (PBTA)
45% organic revenue growth (with
PBTA underpin) for the CEO and
the CFO.
No changes to incentive opportunity.
Performance measures:
50% profitability (PBTA)
30% organic revenue growth with
PBTA underpin
20% strategic measures
Strengthens the link between short-term
decision making and reward with long-term
value creation.
Supports shareholding requirements.
Executive directors must defer up to
25% of any bonus in excess of 75%
of base salary into shares if they have
not achieved the target shareholding
guideline of 150% of base salary.
20% of any bonus will be deferred
until the executive meets the target
shareholding guideline.
Establishes a motivational and performance-
orientated structure that focuses on the
creation of shareholder value, through the
delivery of strong financial and market
performance aligned with the long-term
business strategy.
Overall individual limit: 300% of
base salary.
Performance assessed against three
independently measured metrics:
Core award of up to 140% of base
salary depending on EPS growth
in excess of RPI.
Award potentially increased to up to
210% of base salary for upper quartile
TSR performance against a comparator
group of industry peers.
1/3 organic revenue growth with
a margin underpin
1/3 EPS growth
1/3 relative TSR performance against
the FTSE 100 (excluding financial
services and extraction companies)
Up to 200% of base salary available
for stretch performance (reduced
from 210%).
An additional 50% of base salary
(i.e. overall award of up to 250% of
base salary) will be available for the
achievement of exceptional targets.
Provides a competitive retirement benefit,
in a way that manages the overall cost to
the Company.
All the executive directors’ pension arrangements are defined contribution, with a
contribution rate of 25% of base salary. Individuals may elect to receive a portion
of their pension contribution as a cash allowance.
Provides a competitive and cost-effective
benefits package appropriate to the role
and location.
Directors are entitled to a car benefit (or cash equivalent), private medical
insurance, permanent health insurance, and life assurance.
Pension
Benefits
66
Remuneration report continued
Table 1 – Executive director compensation summary
Component
Base salary
Alignment with strategy/purpose
Operation for 2011/12
Operation for 2012/13
Set at an appropriate level for the role and
Increased by 1.5%-3% in line with the
Increased by 1.5% in line with the wider
skills of the individual.
wider employee population to:
employee population to:
Reviewed by reference to companies of a
CEO: £711,000
similar size and international scope to Sage,
in particular those within the FTSE 100
CFO: £437,750
CEO: £721,750
CFO: £444,500
(excluding the top 30).
Pay decisions are made in the context of
corporate and individual performance and
pay increases for employees throughout
the Group, and any increases apply
from January.
Annual bonus
Designed to reward performance against
Maximum of 125% of base salary
No changes to incentive opportunity.
pre-determined financial and quantifiable
(target 75%)
metrics that demonstrate the delivery of
the business strategy.
Performance measures:
55% profitability (PBTA)
Performance measures:
50% profitability (PBTA)
30% organic revenue growth with
45% organic revenue growth (with
PBTA underpin
PBTA underpin) for the CEO and
the CFO.
20% strategic measures
Bonus deferral
Strengthens the link between short-term
Executive directors must defer up to
20% of any bonus will be deferred
decision making and reward with long-term
25% of any bonus in excess of 75%
until the executive meets the target
value creation.
of base salary into shares if they have
shareholding guideline.
Supports shareholding requirements.
not achieved the target shareholding
guideline of 150% of base salary.
Performance share plan
Establishes a motivational and performance-
Overall individual limit: 300% of
Performance assessed against three
orientated structure that focuses on the
base salary.
independently measured metrics:
creation of shareholder value, through the
delivery of strong financial and market
performance aligned with the long-term
business strategy.
Core award of up to 140% of base
1/3 organic revenue growth with
salary depending on EPS growth
a margin underpin
in excess of RPI.
Award potentially increased to up to
210% of base salary for upper quartile
TSR performance against a comparator
group of industry peers.
1/3 EPS growth
1/3 relative TSR performance against
the FTSE 100 (excluding financial
services and extraction companies)
Up to 200% of base salary available
for stretch performance (reduced
from 210%).
An additional 50% of base salary
(i.e. overall award of up to 250% of
base salary) will be available for the
achievement of exceptional targets.
Pension
Provides a competitive retirement benefit,
All the executive directors’ pension arrangements are defined contribution, with a
in a way that manages the overall cost to
contribution rate of 25% of base salary. Individuals may elect to receive a portion
the Company.
of their pension contribution as a cash allowance.
Benefits
Provides a competitive and cost-effective
Directors are entitled to a car benefit (or cash equivalent), private medical
benefits package appropriate to the role
insurance, permanent health insurance, and life assurance.
and location.
Base salary increases in line with the wider workforce
In considering any potential salary increases, the Committee takes full account
of proposed pay increases for employees throughout the Group. Accordingly,
executive directors will receive salary increases of 1.5% from January 2013;
this is a similar level of increase as was awarded for 2012 and reflects the level
of salary budget increases in our key employment markets. The salary levels
for 2012/13 are £721,750 for the CEO and £444,500 for the CFO.
Annual bonus outcome for 2012
The bonus structure is summarised in table 1 on page 66. The Committee
considered the level of performance achieved against targets set at the start
of the year. Performance was between threshold and target. The bonus paid
to each director is shown in the table on page 70.
Simplified bonus deferral policy
As highlighted in table 1 on page 66, we have simplified our deferral policy so
that from 2013, 20% of any annual bonus will be deferred into shares if the
executive director has not yet achieved the target holding of shares.
Deferred shares 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.
Performance Share Plan better aligned with our strategy
The Committee established the Performance Share Plan (“the Plan” or “PSP”)
as the Group’s main long-term equity incentive to drive financial and market
performance. The structure of awards is summarised in table 1 on page 66.
Further details on performance conditions and targets for 2012 and 2013 are
provided below.
Policy for 2012 and prior years
As outlined in table 1 on page 66, for awards made in 2012, 25% of the core
award vests at the end of the period if the increase in EPS exceeds RPI by 9%
over the period; 100% of the award vests at that time only if RPI is exceeded
in that period by 27%. Awards vest on a straight-line basis in between.
Awards are then subject to a Total Shareholder Return (“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). The
multiplier is:
0.75 if Sage’s TSR is ranked at lower quartile and below;
1 if Sage’s TSR is ranked at median; and
1.5 if Sage’s TSR is ranked at upper quartile or above.
Performance in between these points is calculated on a straight-line basis.
Wherever used in this Remuneration report, EPS refers to earnings per share
before amortisation or impairment of intangible assets, exceptional items, or
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 Committee considers this to be
consistent with the presentation and assessment of results to shareholders.
The comparator group for awards made in the year to 30 September 2012
for TSR purposes comprised the following companies:
Adobe Systems
ARM Holdings
Blackbaud
Cap Gemini
Cegid
Dassault Systèmes
Exact
Intuit
Logica
Micro Focus International
International
Microsoft
Oracle
Salesforce.com
SAP
Software AG
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TSR is calculated in local currency.
EPS growth in respect of share awards granted in 2010 was 12.3%, and
therefore 0% of the awards will vest in March 2013.
Policy for 2013
As summarised in table 1 on page 66, we have amended the measures and
targets under our PSP and performance for each measure will be assessed
independently and account for vesting of up to one-third of the total award:
Organic revenue growth (with margin underpin) We have introduced an
organic revenue growth measure to further align the remuneration policy
with our strategy.
EPS growth We have removed RPI from the EPS measurement approach
recognising that Sage is an international business therefore the link to UK
RPI is less relevant.
TSR against the FTSE 100 (excluding financial services and extraction
companies) TSR is considered to be a key measure of performance for a
number of our shareholders. Measurement against the FTSE 100 (excluding
financial services and extraction companies) recognises the difficulty in
defining an appropriate sector TSR peer group of sufficient size.
The performance targets for awards to be made in 2013 are as follows:
Measure
Between target and
stretch
Between stretch and
exceptional
Compound EPS growth Between 6% and 12% Between 12% and 15%
Performance targets
Relative TSR
Compound Organic
Revenue Growth
% of base salary
vesting in respect of
each performance
measure
Overall % of base
salary receivable
(or above)
Between median
and upper quartile
Between upper quartile
and upper decile (or above)
Between 4% and 8% Between 8% and 10%
Pro-rata on a straight-
line basis between
16.7% and 66.7% of
base salary
50% of base salary if
all targets met; 200%
if all stretch targets
are met
(or above)
Additional pro-rata
between 0% and 16.7%
of base salary
250% of base salary
if all exceptional targets
are met
Pension
All the executive directors’ pension arrangements are defined contribution,
with a standard contribution rate of 25% of base salary subject, where
appropriate, to limits set by HM Revenue & Customs (“HMRC”). An individual
may elect to receive some of their pension contribution as a cash allowance
(which is not consolidated with base salary, and does not impact bonus or
LTI award levels). No components of remuneration, other than base salary,
are pensionable.
Benefits
Benefits at executive director and senior executive level reflect local market
norms, and typically comprise a car benefit (or cash equivalent), private
medical insurance, permanent health insurance and life assurance.
The Sage Group plc | Annual Report & Accounts 2012
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Remuneration report continued
Fees of non-executive directors
The remuneration policy for 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, and will next be reviewed in 2013.
No changes to the fee levels and structure were made in 2012.
During the year we have extended these shareholding guidelines to key
management below the main board, to align further the interests of
management with those of shareholders.
The table below summarises the executive directors’ shareholdings as at
30 September 2012:
Non-executive director
Basic fee
Chairman of the Audit Committee
Chairman of the Remuneration Committee
Senior Independent Director
Fees
£55,000
£17,000
£13,000
£10,000
Mr D H Brydon was appointed to the Board on 6 July 2012 and received
the same basic fee (pro-rata) as other non-executive directors until his
appointment as Chairman on 1 September 2012. The Chairman’s fees
have been set at £360,000 per annum and have been fixed for five years.
Non-executive directors are not entitled to participate in any bonus, long-term
incentive or pension schemes.
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 held units granted under the Sage Plan
d’Epargne d’Entreprise (“PEE”), which is an all-employee plan designed to
enable French employees to invest in shares in the Company at a discounted
price under terms comparable to those offered to UK employees under the
SAYE Scheme.
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. In addition to the bonus deferral arrangements described above,
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.
Executive director
G S Berruyer
P S Harrison
Total owned
663,360
278,277
Shareholding
requirements met?
Yes
Yes
Service contracts
At every Annual General Meeting of the Company, every director shall retire
from office (but shall be eligible for election or re-election by the shareholders).
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, 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.
The appointment of the non-executives is for a fixed term of three years,
during which period the appointment may be terminated by the Board on
notice of six months, with the exception of Mr D H Brydon whose term is fixed
for five years subject to notice of termination of six months.
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. 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
Non-executive directors
D H Brydon
A J Hobson
T Ingram
R Markland
I Mason
M E Rolfe
Date of contract
1 October 2010
25 July 2007
1 April 2000
6 July 2012
30 September 2010
25 November 2010
10 September 2012
30 September 2010
25 November 2010
Unexpired term of contract
on 30 September 2012,
or on date of contract if later
12 months
0 months
12 months
5 years
0 months
1 year
3 years
1 year
1 year
Notice period under contract
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 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
Notes:
• D H Clayton ceased to be a director on 29 February 2012 and his contract of employment ended on 30 June 2012.
• A J Hobson ceased to be a director on 1 September 2012 and his contract for services ended on 30 September 2012.
• There are no other benefits in the contracts relevant to termination payments.
68
Remuneration report continued
Fees of non-executive directors
The remuneration policy for 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, and will next be reviewed in 2013.
No changes to the fee levels and structure were made in 2012.
During the year we have extended these shareholding guidelines to key
management below the main board, to align further the interests of
management with those of shareholders.
The table below summarises the executive directors’ shareholdings as at
Non-executive director
Basic fee
Chairman of the Audit Committee
Chairman of the Remuneration Committee
Senior Independent Director
Fees
£55,000
£17,000
£13,000
£10,000
30 September 2012:
Executive director
G S Berruyer
P S Harrison
Service contracts
Total owned
663,360
278,277
Shareholding
requirements met?
Yes
Yes
Mr D H Brydon was appointed to the Board on 6 July 2012 and received
At every Annual General Meeting of the Company, every director shall retire
the same basic fee (pro-rata) as other non-executive directors until his
from office (but shall be eligible for election or re-election by the shareholders).
appointment as Chairman on 1 September 2012. The Chairman’s fees
have been set at £360,000 per annum and have been fixed for five years.
All executive directors have service contracts, which may be terminated by
the Company for breach by the executive or by giving 12 months’ notice.
Non-executive directors are not entitled to participate in any bonus, long-term
There are no pre-determined special provisions for directors with regard to
incentive or pension schemes.
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 held units granted under the Sage Plan
d’Epargne d’Entreprise (“PEE”), which is an all-employee plan designed to
enable French employees to invest in shares in the Company at a discounted
incentive plans.
price under terms comparable to those offered to UK employees under the
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, 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
SAYE Scheme.
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. In addition to the bonus deferral arrangements described above,
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;
The appointment of the non-executives is for a fixed term of three years,
during which period the appointment may be terminated by the Board on
notice of six months, with the exception of Mr D H Brydon whose term is fixed
for five years subject to notice of termination of six months.
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. 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
shares resulting (net of exercise costs) from the exercise of share options
are set out below:
granted from December 2004 onwards; and
performance shares received under the PSP.
Non-executive directors
Director
Executive directors
G S Berruyer
D H Clayton
P S Harrison
D H Brydon
A J Hobson
T Ingram
R Markland
I Mason
M E Rolfe
Notes:
Unexpired term of contract
on 30 September 2012,
Date of contract
or on date of contract if later
Notice period under contract
1 October 2010
25 July 2007
1 April 2000
6 July 2012
30 September 2010
25 November 2010
10 September 2012
30 September 2010
25 November 2010
12 months
0 months
12 months
5 years
0 months
1 year
3 years
1 year
1 year
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 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
• D H Clayton ceased to be a director on 29 February 2012 and his contract of employment ended on 30 June 2012.
• A J Hobson ceased to be a director on 1 September 2012 and his contract for services ended on 30 September 2012.
• There are no other benefits in the contracts relevant to termination payments.
Single figure of total remuneration for 2012
The table below provides a single figure of total remuneration for 2012 for
executive directors.
Element of remuneration
Base salary1
Benefits2
Pension3
Bonus4
Long-term incentives5
Total
G S Berruyer
£‘000
P S Harrison
£‘000
708
125
177
186
–
1,196
435
20
109
114
–
678
1 Salary and fees: cash paid in respect of the year.
2 Benefits: taxable value of all benefits in respect of the year.
3 Pensions: cash value of defined contributions.
4 Bonus: bonus payable in respect of the financial year including any deferred element
at face value at date of award.
5 Long-term incentives: estimated value of PSP vesting for the cycle ending
30 September 2012 which will vest in March 2013.
Executive changes
A J Hobson and D H Clayton
Mr A J Hobson stepped down as Chairman on 1 September 2012 and, to
ensure a smooth handover, was paid until 30 September 2012. He received
no further compensation.
As announced on 15 December 2011, Mr D H Clayton stepped down from the
Board as Director of Strategy and Corporate Development at the AGM in
February 2012, although he continued to work in an executive capacity for
the Group until his employment with the Group ceased on 30 June 2012.
Mr D H Clayton’s appointment terms provided for a 12 month contractual
notice period from the date of announcement, with an entitlement to receive
his base salary and the value of contractual benefits only. Such payments are
made by the Company on a phased (monthly) basis and in accordance with
the mitigation provisions which apply. Payments to Mr D H Clayton ceased
with effect from 30 June 2012 when his employment ended.
Mr D H Clayton received a bonus in respect of 2012 as set out in the table of
emoluments. The payment was based on performance measures established
at the start of the year and was pro-rata to his last date of employment.
The PSP awards made in March 2010 and March 2011 will lapse entirely.
The performance targets for PSP awards made in March 2009 were partially
met and Mr D H Clayton received vested awards in March 2012 as shown
on page 73.
External appointments
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 S Harrison
is a non-executive and the Senior Independent Director of Hays plc.
Fees received by the directors in their capacity as directors of these
companies are retained, reflecting the personal responsibility they undertake
in these roles. In the year under review, these fees were £66,480 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 Nomination Committee is required on behalf
of the Board.
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. 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.
150
125
100
75
50
)
£
(
e
u
a
V
l
30-Sep-07
30-Sep-08
30-Sep-09
30-Sep-10
30-Sep-11 30-Sep-12
Sage
FTSE 100 Index
Source: Kepler Associates
This graph shows the value, by 30 September 2012, of £100 invested in The
Sage Group plc on 30 September 2007 compared with the value of £100
invested in the FTSE 100 index. The other points plotted are the values at
intervening financial year ends.
Directors’ remuneration
The information set out on the following page has been subject to audit as
required by part 3 of Schedule 8 of the Companies Act 2006.
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Remuneration report continued
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 “Remuneration policy”
on page 65.
Director
Executive directors
G S Berruyer
D H Clayton
P S Harrison
Non-executive directors
A J Hobson
D H Brydon
T Ingram
R Markland
I Mason
M E Rolfe
Notes:
Salary
and fees
£‘000
Bonus
deferred into
shares1
£‘000
Bonus
£‘000
708
268
435
270
38
55
78
55
72
186
81
114
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Benefits
in kind
£‘000
125
13
20
–
–
–
–
–
–
2012
Total
£‘000
1,019
362
569
270
38
55
78
55
72
2011
Total
£‘000
2012
Pension
contributions2
£‘000
2011
Pension
contributions
£‘000
1,395
668
791
270
–
55
74
55
72
177
67
109
–
–
–
–
–
–
175
89
106
–
–
–
–
–
–
1 No part of bonus was deferred into shares in respect of 2012.
2 Pension contributions were accruing to three directors (2011: four). All pension contributions accrued under money purchase schemes. An individual may elect to receive some
of their pension contributions as a cash allowance, taxed as income.
• 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 £2,518,000 (2011: £4,245,000).
• No other payments (including non-cash benefits) were made to third parties in respect of the services of a person who served as a director of the Company at any time during the
financial year.
• Including gains on share options, the total emoluments of the highest paid director were £1,019,000 (2011: £1,395,000).
Directors’ share awards (audited information)
There are limits on the number of newly issued and treasury 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 29 November 2012 (the last practical date prior to publication of 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
4.83%
5.54%
The Company has previously satisfied all awards under the Performance Share Plan through the market purchase of shares or transfer of treasury shares and will
continue to consider which is the most appropriate approach, based on the relevant factors at the time.
Remuneration report continued
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 “Remuneration policy”
on page 65.
Director
Executive directors
G S Berruyer
D H Clayton
P S Harrison
Non-executive directors
A J Hobson
D H Brydon
T Ingram
R Markland
I Mason
M E Rolfe
Notes:
Salary
and fees
£‘000
Bonus
deferred into
shares1
£‘000
Bonus
£‘000
2012
Pension
2011
Pension
contributions2
contributions
£‘000
£‘000
2011
Total
£‘000
Benefits
in kind
£‘000
125
13
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2012
Total
£‘000
1,019
362
569
270
38
55
78
55
72
1,395
668
791
270
–
55
74
55
72
177
67
109
–
–
–
–
–
–
175
89
106
–
–
–
–
–
–
708
268
435
270
38
55
78
55
72
186
81
114
–
–
–
–
–
–
1 No part of bonus was deferred into shares in respect of 2012.
of their pension contributions as a cash allowance, taxed as income.
2 Pension contributions were accruing to three directors (2011: four). All pension contributions accrued under money purchase schemes. An individual may elect to receive some
• 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 £2,518,000 (2011: £4,245,000).
• No other payments (including non-cash benefits) were made to third parties in respect of the services of a person who served as a director of the Company at any time during the
financial year.
• Including gains on share options, the total emoluments of the highest paid director were £1,019,000 (2011: £1,395,000).
Directors’ share awards (audited information)
There are limits on the number of newly issued and treasury 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 29 November 2012 (the last practical date prior to publication of 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
5.54%
4.83%
The Company has previously satisfied all awards under the Performance Share Plan through the market purchase of shares or transfer of treasury shares and will
continue to consider which is the most appropriate approach, based on the relevant factors at the time.
Executive share options (audited information)
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
P S Harrison
Total
171.00p
198.00p
258.50p
270.00p
171.00p
198.00p
258.50p
270.00p
175,438
189,082
122,630
62,008
549,158
128,654
133,838
96,324
49,777
408,593
957,751
Shares under
option at
30 September
2012
number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
175,438
24 December 2006 – 24 December 2013
189,082
122,630
62,008
549,158
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
10 January 2010 – 10 January 2017
128,654
24 December 2006 – 24 December 2013
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
10 January 2010 – 10 January 2017
133,838
96,324
49,777
408,593
957,751
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.
• The market price of a share of the Company at 28 September 2012 was 313.40p and the lowest and highest market price during the year was 247.70p and 324.80p respectively.
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Remuneration report continued
All-employee share scheme (audited information)
In relation to the SAYE Scheme, the outstanding options granted to each director of the Company are as follows:
149.00p
201.00p
6,140
–
6,140
–
4,477
4,477
(6,140)
–
(6,140)
–
–
–
–
1 August 2012 – 31 January 2013
4,477
4,477
1 August 2015 – 31 January 2016
Shares under
option at
30 September
2012
number
Director
P S Harrison
Total
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 referred to in the paragraph headed “All-employee share schemes” above, Mr Berruyer held units in a French mutual fund which holds, inter-alia shares in the
Company. The units must be held for no less than 5 years (except in limited circumstances). Having ceased to be employed in France 10,234 units and 4,755 units in the fund were
realised on Mr Berruyer’s behalf on 20 February 2012 and 6 March 2012 at values of 4.39 and 4.37 Euros per unit respectively.
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
Total
Notes:
745,649
507,280
737,795
–
1,990,724
438,282
303,593
264,053
1,005,928
438,282
325,278
314,349
–
1,077,909
4,074,561
–
–
–
476,062
476,062
–
–
–
–
–
–
–
293,103
293,103
769,165
(457,037)
(288,612)
Awarded
30 September
2012
number
–
507,280
737,795
476,062
1,721,137
–
–
–
–
–
325,278
314,349
293,103
932,730
8 March 2012
4 March 2013
10 March 2014
12 March 2015
8 March 2012
4 March 2013
10 March 2014
8 March 2012
4 March 2013
10 March 2014
12 March 2015
–
–
–
(288,612)
(169,645)
(303,593)
(264,053)
(737,291)
(169,645)
–
–
–
(169,645)
(1,195,548)
2,653,867
–
–
–
(457,037)
(268,637)
–
–
(268,637)
(268,637)
–
–
–
(268,637)
(994,311)
• No variations were made in the terms of the awards in the year.
• The market price of a share on 12 March 2012, the date of the awards made in the year ended 30 September 2012 was 297.90p.
• The market price of a share on 8 March 2012, the date the above awards vested in the year ended 30 September 2012 was 298.60p. The market price of a share on 3 March 2009,
the date on which these awards were granted was 162.10p.
• The vesting of awards granted prior to 2009 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 in March 2008, 25% 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. The performance condition for awards made in March 2009, 2010 and 2011 is set out on page 67.
• Mr D H Clayton ceased to be a director of the company on 29 February 2012.
• For awards made in 2009, TSR performance was such that 56% of the shares originally awarded to executive directors vested.
72
Remuneration report continued
Shares under
option at
30 September
2012
number
4,477
4,477
Awarded
30 September
2012
number
–
507,280
737,795
476,062
1,721,137
–
–
–
–
–
325,278
314,349
293,103
932,730
–
–
–
–
–
–
–
–
–
Director
P S Harrison
Total
Notes:
Director
G S Berruyer
D H Clayton
P S Harrison
Total
Notes:
149.00p
201.00p
6,140
–
6,140
–
4,477
4,477
(6,140)
–
(6,140)
–
1 August 2012 – 31 January 2013
1 August 2015 – 31 January 2016
• These options are not subject to performance conditions since these do not apply to this type of all-employee share scheme.
• Under the PEE referred to in the paragraph headed “All-employee share schemes” above, Mr Berruyer held units in a French mutual fund which holds, inter-alia shares in the
Company. The units must be held for no less than 5 years (except in limited circumstances). Having ceased to be employed in France 10,234 units and 4,755 units in the fund were
realised on Mr Berruyer’s behalf on 20 February 2012 and 6 March 2012 at values of 4.39 and 4.37 Euros per unit respectively.
Performance Share Plan (audited information)
The outstanding awards granted to each director of the Company under the Performance Share Plan are as follows:
745,649
507,280
737,795
–
1,990,724
438,282
303,593
264,053
1,005,928
438,282
325,278
314,349
–
1,077,909
4,074,561
–
–
–
–
–
–
–
–
–
–
476,062
476,062
293,103
293,103
769,165
(457,037)
(288,612)
(457,037)
(268,637)
(268,637)
(268,637)
(288,612)
(169,645)
(303,593)
(264,053)
(737,291)
(169,645)
–
–
–
–
–
–
–
–
(268,637)
(994,311)
(169,645)
(1,195,548)
2,653,867
8 March 2012
4 March 2013
10 March 2014
12 March 2015
8 March 2012
4 March 2013
10 March 2014
8 March 2012
4 March 2013
10 March 2014
12 March 2015
• No variations were made in the terms of the awards in the year.
• The market price of a share on 12 March 2012, the date of the awards made in the year ended 30 September 2012 was 297.90p.
• The market price of a share on 8 March 2012, the date the above awards vested in the year ended 30 September 2012 was 298.60p. The market price of a share on 3 March 2009,
the date on which these awards were granted was 162.10p.
• The vesting of awards granted prior to 2009 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 in March 2008, 25% 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. The performance condition for awards made in March 2009, 2010 and 2011 is set out on page 67.
• Mr D H Clayton ceased to be a director of the company on 29 February 2012.
• For awards made in 2009, TSR performance was such that 56% of the shares originally awarded to executive directors vested.
All-employee share scheme (audited information)
In relation to the SAYE Scheme, the outstanding options granted to each director of the Company are as follows:
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
D H Clayton
P S Harrison
Total
Notes:
12,716
12,404
25,120
9,062
–
9,062
9,709
–
9,709
43,891
–
–
–
–
2,186
2,186
–
2,602
2,602
4,788
(12,716)
–
(12,716)
–
–
–
–
–
–
–
–
–
(9,062)
(2,186)
(11,248)
–
–
–
(12,716)
(11,248)
Shares at
30 September
2012
number
–
12,404
12,404
–
–
–
9,709
2,602
12,311
24,715
10 December 2011
10 January 2014
10 January 2014
12 December 2014
10 January 2014
12 December 2014
• 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.
• Mr D H Clayton ceased to be a director of the company on 29 February 2012.
• The market price of a share on 9 December 2011, the date before awards above vested in the year ended 30 September 2012 was 286.60p. The market price of a share on
10 December 2008, the date on which these awards were granted was 178.70p.
Interests in shares
The interests of each person who was a director of the Company as at 30 September 2012 (together with interests held by his or her connected persons) were:
Director
G S Berruyer
P S Harrison
D Brydon
T Ingram
R Markland
I Mason
M E Rolfe
Total
Notes:
Ordinary
shares at
30 September
2012
number
663,360
278,277
40,000
3,600
5,000
10,000
10,000
411,289
143,145
–
3,600
5,000
10,000
10,000
1,010,237
583,034
• There have been no changes in the directors’ holdings in the share capital of the Company, as set out in the table above, between 30 September 2012 and the date of this report.
Significant awards to past directors
No 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
5 December 2012
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The Sage Group plc | Annual Report & Accounts 2012
73
Contents
Group financial statements
Group financial statements
Our Group financial statements provide a complete picture
of our 2012 performance.
Notes to the Group financial statements
Supplementary notes to the Group financial statements.
Independent auditors’ report to the members of The Sage Group plc
75
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Group accounting policies
Results for the year
1. Segment information
2. Profit before income tax
3. Income tax expense
4. Earnings per share and dividends
Operating assets and liabilities
5. Intangible assets
6. Property, plant and equipment
7. Working capital
8. Post-employment benefits
9. Deferred income tax
10. Operating lease commitments
11. Contingent liabilities
Net debt and capital structure
12. Cash flow and net debt
13. Financial instruments
14. Equity
Other notes
15. Discontinued operations and non-current assets held for sale
16. Acquisitions and disposals
17. Related party transactions
18. Events after the reporting period
19. Principal subsidiaries
76
77
78
79
80
81
87
90
91
92
94
97
99
101
103
104
104
105
107
110
118
119
122
122
123
74
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 2012 which comprise the Consolidated income
statement, the Consolidated statement of comprehensive income, the
Consolidated balance sheet, the Consolidated statement of changes in equity,
the Consolidated statement of cash flows and the related notes. The financial
reporting framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (“IFRS”) 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 62 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 and express an opinion on 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 Chapter 3 of Part 16 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. In addition, we read all the financial and non-financial information
in the Annual Report & Accounts to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report.
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 2012 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.
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 60 in relation to going concern;
the part of the Corporate governance statement relating to the
Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review; and
certain elements of the report to shareholders by the Board on
directors’ remuneration.
Other matters
We have reported separately on the parent Company financial statements
of The Sage Group plc for the year ended 30 September 2012 and on
the information in the Remuneration report that is described as having
been audited.
The maintenance and integrity of The Sage Group plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
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Charles Bowman (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
5 December 2012
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 49 to 59 with respect to internal control and risk management
systems and about share capital structures is consistent with the
financial statements.
The Sage Group plc | Annual Report & Accounts 2012
75
1.1
1.2, 2.1
2.3
2.3
2.3
3
15.2
14.5
14.6
2012
£m
1,340.2
(84.3)
1,255.9
(911.0)
344.9
2.6
(13.2)
(10.6)
334.3
(95.4)
238.9
57.8
296.7
296.6
0.1
296.7
1,334.1
(85.6)
1,248.5
(905.2)
343.3
1.9
(14.4)
(12.5)
330.8
(74.8)
256.0
(67.0)
189.0
189.0
–
189.0
1.2
366.4
365.5
4.1
4.1
4.1
4.1
18.63p
18.60p
23.14p
23.10p
19.44p
19.29p
14.35p
14.24p
Consolidated income statement
For the year ended 30 September 2012
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Operating profit
Finance income
Finance costs
Finance costs – net
Profit before income tax
Income tax expense
Profit for the year from continuing operations
Profit/(loss) for the year from discontinued operations
Profit for the year
Profit attributable to:
– Owners of the parent
– Non-controlling interest
EBITA†
Earnings per share attributable to the owners of the parent (pence)
From continuing operations
– Basic
– Diluted
From continuing and discontinued operations
– Basic
– Diluted
† EBITA measure (Earnings before interest, tax and adjustments) excludes the effects of:
• amortisation of acquired intangible assets;
• amortisation of software development expenditure; and
• acquisition-related items.
76
Consolidated income statement
For the year ended 30 September 2012
Consolidated statement of comprehensive income
For the year ended 30 September 2012
Selling and administrative expenses
Exchange differences recycled to the income statement in respect of the disposal of foreign operations
Profit for the year
Other comprehensive (expense)/income:
Exchange differences on translating foreign operations
Actuarial (loss)/gain on post-employment benefit obligations
Deferred tax credit on actuarial loss on post-employment benefit obligations
Cash flow hedges
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
– Owners of the parent
– Non-controlling interest
Total comprehensive income/(expense) attributable to owners of the parent arising from:
– Continuing operations
– Discontinued operations
Revenue
Cost of sales
Gross profit
Operating profit
Finance income
Finance costs
Finance costs – net
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
– Owners of the parent
– Non-controlling interest
Profit for the year from continuing operations
Profit/(loss) for the year from discontinued operations
EBITA†
– Basic
– Diluted
– Basic
– Diluted
Earnings per share attributable to the owners of the parent (pence)
From continuing operations
From continuing and discontinued operations
† EBITA measure (Earnings before interest, tax and adjustments) excludes the effects of:
• amortisation of acquired intangible assets;
• amortisation of software development expenditure; and
• acquisition-related items.
1.2, 2.1
1.1
2.3
2.3
2.3
3
15.2
14.5
14.6
2012
£m
1,340.2
(84.3)
1,255.9
(911.0)
344.9
2.6
(13.2)
(10.6)
334.3
(95.4)
238.9
57.8
296.7
296.6
0.1
296.7
1,334.1
(85.6)
1,248.5
(905.2)
343.3
1.9
(14.4)
(12.5)
330.8
(74.8)
256.0
(67.0)
189.0
189.0
–
189.0
1.2
366.4
365.5
4.1
4.1
4.1
4.1
18.63p
18.60p
23.14p
23.10p
19.44p
19.29p
14.35p
14.24p
14.4
14.4
14.5
3
14.4
14.6
2012
£m
296.7
(66.6)
(55.7)
(2.6)
1.0
–
(123.9)
189.0
6.5
–
1.0
–
1.0
8.5
172.8
197.5
172.7
0.1
172.8
170.6
2.1
172.7
197.5
–
197.5
264.5
(67.0)
197.5
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The Sage Group plc | Annual Report & Accounts 2012
77
Consolidated balance sheet
As at 30 September 2012
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents (excluding bank overdrafts)
2012
£m
1,814.4
1,736.3
139.8
142.2
10.0
118.1
146.4
20.7
2,106.4
2,021.5
2.5
302.8
61.6
366.9
2.5
285.4
182.8
470.7
5.1
5.2
6
9
7.1
7.2
12.3
Non-current assets classified as held for sale
15.4
–
251.1
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Other financial liabilities
Deferred consideration
Deferred income
2,473.3
2,743.3
7.3
(259.0)
(261.2)
12.4
13.5
7.4
(29.7)
(8.4)
(60.0)
(10.0)
(420.3)
(787.4)
(47.4)
(1.7)
(50.0)
(2.0)
(404.7)
(767.0)
Liabilities directly associated with non-current assets classified as held for sale
15.4
–
(49.7)
Non-current liabilities
Borrowings
Other financial liabilities
Post-employment benefits
Deferred income tax liabilities
Total liabilities
Net assets
Equity attributable to owners of the parent
Ordinary shares
Share premium
Other reserves
Retained earnings
Non-controlling interest
Total equity
12.4
13.5
8
9
14.1
14.3
14.4
14.5
14.6
(200.8)
(68.3)
(14.3)
(29.5)
(312.9)
(192.4)
–
(11.7)
(14.7)
(218.8)
(1,100.3)
1,373.0
(1,035.5)
1,707.8
13.3
524.5
76.5
760.8
1,375.1
(2.1)
1,373.0
13.2
513.2
266.8
914.6
1,707.8
–
1,707.8
The consolidated financial statements on pages 76 to 123 were approved by the Board of directors on 5 December 2012 and are signed on their behalf by:
G S Berruyer
Director
P S Harrison
Director
78
Consolidated balance sheet
As at 30 September 2012
Consolidated statement of changes in equity
For the year ended 30 September 2012
Attributable to owners of the parent
Ordinary
shares
£m
13.2
Share
premium
£m
513.2
Other
reserves
£m
266.8
Retained
earnings
£m
Non-
controlling
interest
£m
Total
£m
Total
equity
£m
914.6
1,707.8
–
1,707.8
–
–
–
–
–
–
–
–
–
–
–
–
–
296.6
296.6
0.1
296.7
(66.6)
(55.7)
–
–
–
–
(2.6)
(66.6)
(55.7)
(2.6)
1.0
1.0
–
–
–
–
(66.6)
(55.7)
(2.6)
1.0
(122.3)
295.0
172.7
0.1
172.8
Cash and cash equivalents (excluding bank overdrafts)
Non-current assets classified as held for sale
15.4
–
251.1
Liabilities directly associated with non-current assets classified as held for sale
15.4
–
(49.7)
At 1 October 2011
Profit for the year
Other comprehensive (expense)/income:
Exchange differences on translating foreign operations
Exchange differences recycled to the income statement in
respect of the disposal of foreign operations
Actuarial loss on post-employment benefit obligations
Deferred tax credit on actuarial loss on post-employment
benefit obligations
Total comprehensive (expense)/income
for the year ended 30 September 2012
Transactions with owners:
Employee share option scheme:
– Proceeds from shares issued
– Value of employee services
– Equity movement of deferred income tax
Purchase of treasury shares
Expenses related to purchase of treasury shares
Close period share buyback programme
Put and call arrangement
Non-controlling interest arising on business combination
Dividends paid to owners of the parent
Total transactions with owners
for the year ended 30 September 2012
At 30 September 2012
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Other financial liabilities
Deferred consideration
Deferred income
Non-current liabilities
Borrowings
Other financial liabilities
Post-employment benefits
Deferred income tax liabilities
Total liabilities
Net assets
Ordinary shares
Share premium
Other reserves
Retained earnings
Non-controlling interest
Total equity
Equity attributable to owners of the parent
2,473.3
2,743.3
7.3
(259.0)
(261.2)
1,814.4
1,736.3
2,106.4
2,021.5
2012
£m
139.8
142.2
10.0
2.5
302.8
61.6
366.9
(29.7)
(8.4)
(60.0)
(10.0)
(420.3)
(787.4)
(200.8)
(68.3)
(14.3)
(29.5)
(312.9)
118.1
146.4
20.7
2.5
285.4
182.8
470.7
(47.4)
(1.7)
(50.0)
(2.0)
(404.7)
(767.0)
(192.4)
–
(11.7)
(14.7)
(218.8)
(1,100.3)
1,373.0
(1,035.5)
1,707.8
13.3
524.5
76.5
760.8
1,375.1
(2.1)
1,373.0
13.2
513.2
266.8
914.6
1,707.8
–
1,707.8
5.1
5.2
6
9
7.1
7.2
12.3
12.4
13.5
7.4
12.4
13.5
8
9
14.1
14.3
14.4
14.5
14.6
The consolidated financial statements on pages 76 to 123 were approved by the Board of directors on 5 December 2012 and are signed on their behalf by:
G S Berruyer
Director
P S Harrison
Director
At 1 October 2010
13.2
499.8
259.3
877.1
1,649.4
Profit for the year
Other comprehensive income:
Exchange differences on translating foreign operations
Actuarial gain on post-employment benefit obligations
Cash flow hedges
Total comprehensive income
for the year ended 30 September 2011
Transactions with owners:
Employee share option scheme:
– Proceeds from shares issued
– Value of employee services
– Equity movement of deferred income tax
Close period share buyback programme
Dividends paid to owners of the parent
Total transactions with owners
for the year ended 30 September 2011
At 30 September 2011
The Sage Group plc | Annual Report & Accounts 2012
–
–
–
–
–
–
–
–
–
–
–
13.2
–
–
–
–
–
13.4
–
–
–
–
13.4
513.2
–
6.5
–
1.0
7.5
–
–
–
–
–
–
266.8
189.0
189.0
–
1.0
–
6.5
1.0
1.0
190.0
197.5
–
3.2
(1.7)
(50.0)
(104.0)
13.4
3.2
(1.7)
(50.0)
(104.0)
(152.5)
914.6
(139.1)
1,707.8
0.1
11.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
13.3
11.3
524.5
–
–
–
–
–
–
(68.0)
–
–
(68.0)
76.5
–
1.2
(1.7)
11.4
1.2
(1.7)
(299.8)
(299.8)
(2.0)
(10.0)
–
–
(2.0)
(10.0)
(68.0)
–
(136.5)
(136.5)
(448.8)
760.8
(505.4)
1,375.1
Attributable to owners of the parent
–
–
–
–
–
–
–
(2.2)
–
(2.2)
(2.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
11.4
1.2
(1.7)
(299.8)
(2.0)
(10.0)
(68.0)
(2.2)
(136.5)
(507.6)
1,373.0
1,649.4
189.0
6.5
1.0
1.0
197.5
13.4
3.2
(1.7)
(50.0)
(104.0)
(139.1)
1,707.8
79
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Consolidated statement of cash flows
For the year ended 30 September 2012
Cash flows from operating activities
Cash generated from continuing operations
Interest paid
Income tax paid
Operating cash flows (used in)/generated from discontinued operations
Net cash generated from operating activities
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired
Disposal of subsidiaries, net of cash disposed
Purchases of intangible assets
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Investing cash flows generated from discontinued operations, net of cash disposed
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Purchase of treasury shares and related expenses
Finance lease principal payments
Proceeds from borrowings
Repayments of borrowings
Dividends paid to owners of the parent
Net cash used in financing activities
Net (decrease)/increase in cash, cash equivalents and bank overdrafts
(before exchange rate movement)
Effects of exchange rate movement
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
2012
£m
383.8
(11.5)
(95.2)
(2.3)
274.8
(162.8)
0.1
(10.8)
(19.3)
0.6
2.6
198.9
9.3
11.4
(297.5)
(0.7)
15.3
(0.7)
(136.5)
(408.7)
(124.6)
(3.0)
(127.6)
182.0
54.4
12.1
15.3
16.1
16.6
5.2
6
2.3
16.5
4.2
12.2
12.2
12.2
12.2
405.1
(13.0)
(92.5)
15.4
315.0
(1.4)
2.0
(9.3)
(23.0)
2.4
1.9
–
(27.4)
13.4
–
(0.6)
0.6
(83.4)
(104.0)
(174.0)
113.6
(2.2)
111.4
70.6
182.0
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Consolidated statement of cash flows
For the year ended 30 September 2012
Cash flows from operating activities
Cash generated from continuing operations
Interest paid
Income tax paid
Operating cash flows (used in)/generated from discontinued operations
Net cash generated from operating activities
Investing cash flows generated from discontinued operations, net of cash disposed
Net cash generated from/(used in) investing activities
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired
Disposal of subsidiaries, net of cash disposed
Purchases of intangible assets
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Purchase of treasury shares and related expenses
Finance lease principal payments
Proceeds from borrowings
Repayments of borrowings
Dividends paid to owners of the parent
Net cash used in financing activities
Net (decrease)/increase in cash, cash equivalents and bank overdrafts
(before exchange rate movement)
Effects of exchange rate movement
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
2012
£m
383.8
(11.5)
(95.2)
(2.3)
274.8
(162.8)
0.1
(10.8)
(19.3)
0.6
2.6
198.9
9.3
11.4
(297.5)
(0.7)
15.3
(0.7)
(136.5)
(408.7)
(124.6)
(3.0)
(127.6)
182.0
54.4
12.1
15.3
16.1
16.6
5.2
6
2.3
16.5
4.2
12.2
12.2
12.2
12.2
405.1
(13.0)
(92.5)
15.4
315.0
(1.4)
2.0
(9.3)
(23.0)
2.4
1.9
–
(27.4)
13.4
–
(0.6)
0.6
(83.4)
(104.0)
(174.0)
113.6
(2.2)
111.4
70.6
182.0
Notes to the Group financial statements
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Group accounting policies
General information
The Sage Group plc (“the Company”) and its subsidiaries (together “the
Group”) is a leading global provider of business management software to small
and medium sized companies. The Group has over six million customers and
more than 13,500 employees in 24 countries covering Europe, Americas,
Africa, Australia, Middle East 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 5 December 2012.
a Basis of preparation
The consolidated financial statements of The Sage Group plc have been
prepared in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union (“EU”) and International Financial
Reporting Standards Interpretations Committee (“IFRIC”) interpretations as
adopted by the EU. The consolidated financial statements have been prepared
under the historical cost convention, except where adopted IFRS require
an alternative treatment. The principal variations from the historical cost
convention relate to derivative financial instruments which are measured at
fair value through profit or loss.
The preparation of the consolidated financial statements in conformity with
IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s
accounting policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in note B.
The directors are satisfied that the Group has sufficient resources to
continue in operation for the foreseeable future, a period of not less than
12 months from the date of this report. Accordingly, the consolidated
financial statements have been prepared on a going concern basis and
in accordance with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
Standards, amendments and interpretations effective in 2012
The following standards, amendments and interpretations to standards have
been adopted in the financial statements. None had any impact on the Group
results or financial position:
IFRIC interpretations
amendment to IFRIC 14, “Prepayments of a Minimum Funding Requirement”
Amendments to existing standards
Annual Improvements to IFRSs 2010
amendment to IFRS 1, “First-time Adoption of IFRS”
amendment to IFRS 7, “Financial Instruments: Disclosures”
amendment to IAS 24 (revised 2011), “Related Party Disclosures”
There are no other IFRS or IFRIC interpretations that are not yet effective that
would be expected to have a material impact on the Group.
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 end of the reporting period. The accounting policies have
been consistently applied across the Group. 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 comprehensive
income and Consolidated statement of cash flows 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.
The Group treats transactions with non-controlling interests as transactions
with equity owners of the Group. The difference between fair value of any
consideration paid and the relevant share acquired of the carrying value of
net assets of the subsidiary is recorded in equity.
Where the Group enters into put and call arrangements over shares held by a
non-controlling interest, the Group continues to recognise the non-controlling
interest until the ownership risks and rewards of those shares transfer to
the Group.
The results of discontinued operations are shown as a single amount on the
face of the income statement comprising the post-tax profit or loss of
discontinued operations and the post-tax gain or loss recognised either on
measurement to fair value less costs to sell or on the disposal of the
discontinued operation.
c Business combinations
The acquisition of subsidiaries is accounted for using the acquisition 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. The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 (Revised), “Business
Combinations” are recognised at their fair values at the acquisition date.
Any contingent consideration to be transferred by the Group is recognised
at fair value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration that is deemed to be an asset or liability is
recognised in the income statement. Contingent consideration that is classified
as equity is not re-measured, and its subsequent settlement is accounted for
within equity.
Goodwill represents the excess of the consideration transferred, the amount of
any non-controlling interest in the acquiree and the acquisition date fair value
of any previous equity interest in the acquiree over the fair value of the Group’s
share of the identifiable net assets acquired. 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 difference is recognised directly in the Consolidated income
statement. Any subsequent adjustment to reflect changes in consideration
arising from contingent consideration amendments is recognised in the
Consolidated income statement.
On an acquisition by acquisition basis, the Group recognises any
non-controlling interest in the acquiree either at fair value or at the non-
controlling interest’s proportionate share of the acquiree’s net assets.
Acquisition-related items are expensed as incurred.
d Segment reporting
The Group’s segmental analysis has been derived using the information used
by the chief operating decision maker. The Group’s Executive Committee has
been identified as the chief operating decision maker as the Committee is
responsible for the allocation of resources to operating segments and
assessing their performance.
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,
The Sage Group plc | Annual Report & Accounts 2012
81
Group accounting policies continued
d Segment reporting continued
post-employment 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. The profit measure used by the Executive Committee
is Earnings before interest, tax and adjustments (“EBITA”) which excludes
the effects of amortisation of acquired intangible assets, the amortisation of
software development expenditure and acquisition-related items on a constant
currency basis. The operating segments are reported in a manner which is
consistent with the operating segments produced for internal management
reporting. At 30 September 2012 the Group was organised into geographical
segments based on the location of assets.
e 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 services
(payment processing) and hosted products; and
software and software-related services revenue, which includes software
licences, sale of professional services, business forms, hardware and training.
Subscription – revenue is recognised on a straight-line basis over the term of
the subscription contract (including non-specified upgrades when included).
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 specified 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 to the Group; 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 end of the reporting period. 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;
82
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.
f Goodwill
Goodwill arising from the acquisition of a subsidiary represents the excess
of the consideration transferred, the amount of any non-controlling interest
in the acquiree and the acquisition date fair value of the Group’s share of the
identifiable net assets acquired over the fair value of the Group’s share of
the identifiable net assets. In the case of a bargain purchase, when the
consideration is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the Consolidated statement
of comprehensive income. Goodwill is carried at cost less accumulated
impairment losses.
Goodwill is allocated to cash-generating units (“CGUs”) expected to benefit
from the synergies of the combination, and the allocation represents the
lowest level at which goodwill is monitored.
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 include 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).
g Impairment of assets
Goodwill is allocated to CGUs for the purposes of impairment testing. The
recoverable amount of the CGU 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 CGU 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 CGUs 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 CGU or asset that have not already been included in the estimate of
future cash flows.
h 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
Group accounting policies continued
d Segment reporting continued
the state of completion of the transaction at the balance sheet date can
post-employment benefit obligations, tax liabilities and certain borrowings that
can be attributed to the segment but exclude borrowings that are for general
be measured reliably; and
corporate purposes.
Capital expenditure comprises additions to property, plant and equipment
and intangible assets. The profit measure used by the Executive Committee
is Earnings before interest, tax and adjustments (“EBITA”) which excludes
the effects of amortisation of acquired intangible assets, the amortisation of
software development expenditure and acquisition-related items on a constant
currency basis. The operating segments are reported in a manner which is
consistent with the operating segments produced for internal management
reporting. At 30 September 2012 the Group was organised into geographical
segments based on the location of assets.
e 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 services
(payment processing) and hosted products; and
the costs incurred for the transaction and the costs to complete the
transaction can be measured reliably.
f Goodwill
Goodwill arising from the acquisition of a subsidiary represents the excess
of the consideration transferred, the amount of any non-controlling interest
in the acquiree and the acquisition date fair value of the Group’s share of the
identifiable net assets acquired over the fair value of the Group’s share of
the identifiable net assets. In the case of a bargain purchase, when the
consideration is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the Consolidated statement
of comprehensive income. Goodwill is carried at cost less accumulated
impairment losses.
Goodwill is allocated to cash-generating units (“CGUs”) expected to benefit
from the synergies of the combination, and the allocation represents the
lowest level at which goodwill is monitored.
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 include 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).
software and software-related services revenue, which includes software
licences, sale of professional services, business forms, hardware and training.
g Impairment of assets
Subscription – revenue is recognised on a straight-line basis over the term of
the subscription contract (including non-specified upgrades when included).
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 specified 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
Goodwill is allocated to CGUs for the purposes of impairment testing. The
recoverable amount of the CGU 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 CGU 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
usually associated with ownership nor effective control over the goods sold;
exceeds the recoverable amount.
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction
will flow to the Group; and
measured reliably.
the costs incurred or to be incurred in respect of the transaction can be
future cash flows.
In determining CGUs 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 CGU or asset that have not already been included in the estimate of
Where appropriate the Group provides a reserve for estimated returns under
the standard acceptance terms at the time the revenue is recorded.
h 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
Where software is sold with after-sales service, the consideration is allocated
acquired on a business combination, and their fair value can therefore
between the different elements on a relative fair value basis. The revenue
be measured reliably.
allocated to each element is recognised as outlined above.
Other products (which includes business forms and hardware) – revenue is
accumulated amortisation and impairment losses if applicable.
recognised as the products are shipped.
Amortisation of intangible assets is charged to the income statement on a
Other services (which includes the sale of professional services and training) –
straight-line basis over the estimated useful lives of each intangible asset.
revenue associated with the transaction is recognised by reference to the
Intangible assets are amortised from the date they are available for use.
stage of completion of the transaction at the end of the reporting period. The
outcome of a transaction can be estimated reliably when all the following
The estimated useful lives are as follows:
Intangible assets arising on business combinations are stated at cost less
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;
Brand names
Technology/In process R&D (IPR&D)
Customer relationships
– 3 to 20 years
– 3 to 7 years
– 4 to 15 years
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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
financial statements.
i 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.
j 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.
k Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and impairment losses if applicable. Depreciation on property,
plant and equipment is provided on a straight-line basis down to an asset’s
residual value over its useful economic life as follows:
Freehold buildings
– 50 years
Long leasehold buildings and improvements
– over period of lease
Plant and equipment
Motor vehicles
Office equipment
Freehold land is not depreciated.
– 2 to 7 years
– 4 years
– 5 to 7 years
Residual values and useful lives are reviewed and adjusted, if appropriate,
at the end of each reporting period.
l 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.
n Non-current assets held for sale
Non-current assets (or disposal groups) are classified as assets held for sale
when their carrying amount is to be recovered principally through a sale
transaction and a sale is considered highly probable. They are stated at the
lower of carrying amount and fair value less costs to sell. Assets and liabilities
of disposal groups classified as held for sale are shown separately on the face
of the balance sheet.
o 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 end of the reporting period. These are classified as non-current assets.
The Group’s loans and receivables comprise trade and other receivables
(excluding prepayments and accrued income) (note p) and cash and cash
equivalents in the balance sheet (note m).
p Trade receivables and trade payables
Trade receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less provision
for impairment.
A provision for impairment of trade receivables is established when there
is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of the receivables. Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy
or financial reorganisation, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. The amount
of the provision is the difference between the asset’s carrying amount and
the present value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is reduced through
the use of an allowance account, and the amount of the loss is recognised
in the income statement within selling and administrative expenses. When
a trade receivable is uncollectible, it is written-off against the allowance
account for trade receivables. Subsequent recoveries of amounts previously
written-off are credited against selling and administrative expenses in the
income statement.
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
q Income tax
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 Consolidated 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 end of the reporting period.
m Cash and cash equivalents
For the purpose of preparation of the Consolidated statement of cash flows
and the Consolidated 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.
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit and are accounted for using
the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised. Such assets
and liabilities are not recognised if the temporary difference arises from
The Sage Group plc | Annual Report & Accounts 2012
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Group accounting policies continued
q Income tax continued
goodwill or from the initial recognition (other than in a business combination) of
other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
The 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.
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 the end of each
reporting period 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 end of the reporting period.
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.
r Financial liabilities
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.
Hedge accounting
The Group uses derivative financial instruments to manage exposures where
appropriate. All derivatives are initially recognised at fair value, and are
subsequently remeasured to fair value at the end of the reporting period.
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 the underlying 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 underlying exposures. 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 in other comprehensive income and subsequently recognised in
the income statement in the same period that the hedged item affects income.
When a hedging instrument is closed out, 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 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 in other comprehensive income. 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.
Shares repurchased for cancellation
The Group also makes use of contingent contracts for the purchase of its own
shares. These derivative contracts are accounted for as equity transactions
and the contracts are not stated at their market values. The present value
of the obligation to purchase the shares is recognised in full at the inception
of the contract, even when that obligation is conditional. Any subsequent
reduction in the total obligation arising from the early termination of a contract
is credited back to equity at the time of termination.
Put and call arrangement granted to non-controlling interest
Where put and call agreements are in place in respect of shares held by
a non-controlling interest, the put element of the liability is measured in
accordance with the requirements of IAS 32, “Financial Instruments:
Presentation”. At the end of each period, the valuation of the liability is
reassessed with any changes recognised in the income statement.
s 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 the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at the end of the reporting
period. 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 settlements 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 outside profit or loss. For such
non-monetary items, any exchange component of that gain or loss is also
recognised outside profit or loss.
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 at the end of the
reporting period. 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 recognised in other comprehensive income 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.
84
Group accounting policies continued
q Income tax continued
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 the end of each
reporting period 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 end of the reporting period.
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.
r Financial liabilities
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.
Hedge accounting
The Group uses derivative financial instruments to manage exposures where
appropriate. All derivatives are initially recognised at fair value, and are
subsequently remeasured to fair value at the end of the reporting period.
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 the underlying 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 underlying exposures. 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 in other comprehensive income and subsequently recognised in
the income statement in the same period that the hedged item affects income.
When a hedging instrument is closed out, 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 in other comprehensive income. 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.
Shares repurchased for cancellation
The Group also makes use of contingent contracts for the purchase of its own
shares. These derivative contracts are accounted for as equity transactions
and the contracts are not stated at their market values. The present value
of the obligation to purchase the shares is recognised in full at the inception
of the contract, even when that obligation is conditional. Any subsequent
reduction in the total obligation arising from the early termination of a contract
is credited back to equity at the time of termination.
Put and call arrangement granted to non-controlling interest
Where put and call agreements are in place in respect of shares held by
a non-controlling interest, the put element of the liability is measured in
accordance with the requirements of IAS 32, “Financial Instruments:
Presentation”. At the end of each period, the valuation of the liability is
reassessed with any changes recognised in the income statement.
s 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 the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at the end of the reporting
period. 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 settlements 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 outside profit or loss. For such
non-monetary items, any exchange component of that gain or loss is also
recognised outside profit or loss.
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 at the end of the
reporting period. 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 recognised in other comprehensive income 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.
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When a foreign operation is partially disposed of or sold, exchange differences
that were recorded in other comprehensive income are recycled 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”.
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 8.
w 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 the end of the reporting period, 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.
x Dividends
Dividends on ordinary shares are recognised as a liability in the period in which
they are approved by the Company’s shareholders.
y 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, when it can be
reliably measured 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.
z Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable
to the issue of new ordinary shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Where any Group company purchases the Company’s equity share capital
(treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity attributable
to the owners of the Company until the shares are cancelled or reissued.
t Borrowings
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 Consolidated income
statement over the period of borrowing on an effective interest basis.
u 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.
v Post-employment benefits
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 defined benefit pension scheme and other
post-employment benefit schemes. The assets of these 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 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 cost/income in the income statement.
Differences between the actual and expected return on assets, changes
in the post-employment benefit obligation due to experience and changes in
actuarial assumptions are included in the statement of comprehensive income
in full in the period in which they arise.
The liability recognised in the balance sheet in respect of the defined benefit
pension scheme is the present value of the defined benefit obligation and
unrecognised past service cost and future administration costs at the end of
the reporting period 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
The Sage Group plc | Annual Report & Accounts 2012
85
Group accounting policies continued
A Adoption of new and revised IFRS
New and amended standards not yet mandatory for the Group
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.
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 5.1).
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.
International Accounting Standards (“IAS”)
IAS 27 (revised 2011), “Separate Financial Statements”
IAS 28 (revised 2011), “Investments in Associates and Joint Ventures”
International Financial Reporting Standards (“IFRS”)
IFRS 9, “Financial Instruments”
IFRS 10, “Consolidated Financial Statements”
IFRS 11, “Joint Arrangements”
IFRS 12, “Disclosures of Interests in Other Entities”
IFRS 13, “Fair value Measurement”
Amendments to existing standards
amendment to IFRS 1, “First-time Adoption of IFRS”
amendment to IFRS 7, “Financial Instruments: Disclosures”
amendments to IFRS 10, 11 and 12 on transition guidance
amendment to IAS 1, “Presentation of Financial Statements”
amendment to IAS 12, “Income Taxes”
amendment to IAS 19, “Employee Benefits”
amendment to IAS 32, “Financial Instruments: Presentation”
Annual improvements to IFRSs 2011
It is considered that the above standards, amendments and interpretations
will not have a significant effect on the results or net assets of the Group but
will increase the level of disclosure to be made in the financial statements.
The amendments to IAS 19 and IAS 1 are the only amendments endorsed
by the EU at the date of approval of these consolidated financial statements.
The other new and amended standards are not yet endorsed.
B 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 5.1).
86
International Accounting Standards (“IAS”)
IAS 27 (revised 2011), “Separate Financial Statements”
IAS 28 (revised 2011), “Investments in Associates and Joint Ventures”
International Financial Reporting Standards (“IFRS”)
IFRS 9, “Financial Instruments”
IFRS 10, “Consolidated Financial Statements”
IFRS 11, “Joint Arrangements”
IFRS 12, “Disclosures of Interests in Other Entities”
IFRS 13, “Fair value Measurement”
Amendments to existing standards
amendment to IFRS 1, “First-time Adoption of IFRS”
amendment to IFRS 7, “Financial Instruments: Disclosures”
amendments to IFRS 10, 11 and 12 on transition guidance
amendment to IAS 1, “Presentation of Financial Statements”
amendment to IAS 12, “Income Taxes”
amendment to IAS 19, “Employee Benefits”
amendment to IAS 32, “Financial Instruments: Presentation”
Annual improvements to IFRSs 2011
It is considered that the above standards, amendments and interpretations
will not have a significant effect on the results or net assets of the Group but
will increase the level of disclosure to be made in the financial statements.
The amendments to IAS 19 and IAS 1 are the only amendments endorsed
by the EU at the date of approval of these consolidated financial statements.
The other new and amended standards are not yet endorsed.
B 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 5.1).
Group accounting policies continued
Results for the year
A Adoption of new and revised IFRS
Impairment reviews
New and amended standards not yet mandatory for the Group
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.
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 5.1).
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.
1 Segment information
In accordance with IFRS 8, “Operating Segments”, information for the Group’s operating segments has been derived using the information used by the chief
operating decision maker. The Group’s Executive Committee has been identified as the chief operating decision maker as the Committee is responsible for the
allocation of resources to operating segments and assessing their performance. The profit measure used by the Executive Committee is Earnings before interest,
tax and adjustments (“EBITA”) which excludes the effects of amortisation of acquired intangible assets, the amortisation of software development expenditure
and acquisition-related items on a constant currency basis. Operating segments are reported in a manner which is consistent with the operating segments
produced for internal management reporting.
The North America operating segment has been renamed to Americas. For the year ended 30 September 2012 this includes operations in Brazil which have
arisen from acquisitions made during the year (note 16).
The Group is organised into three operating segments. The UK is the home country of the parent. The main operations in the principal territories are as follows:
Europe (France, UK & Ireland, Spain, Germany, Switzerland, Poland and Portugal)
Americas (US, Brazil and Canada)
AAMEA (Africa, Australia, Middle East and Asia)
The Africa operations are principally based in South Africa, the Middle East and Asia operations are principally based in Singapore, Malaysia, UAE and India.
The revenue analysis in the table below is based on the location of the customer which is not materially different from the location where the order is received
and where the assets are located.
The tables below show a segmental analysis of the results for continuing operations. For information relating to discontinued operations refer to note 15.
1.1 Revenue by segment
Year ended 30 September 2012
IFRS
statutory
£m
Organic
revenue
adjustment1
£m
Non-
GAAP
organic
£m
IFRS
statutory
£m
Currency
impact2
£m
Year ended 30 September 2011
Non-
GAAP
organic
constant
currency
£m
Organic
revenue
adjustment1
£m
Underlying
at constant
currency
£m
Change
Non-
GAAP
organic
constant
currency
%
IFRS
statutory
%
Underlying
at constant
currency
%
Subscription revenue by segment
Europe
Americas
AAMEA
Subscription revenue
Software and software-related
services (“SSRS”) revenue by
segment
Europe
Americas
AAMEA
SSRS revenue
Total revenue by segment
Europe
Americas
AAMEA
Total revenue
516.1
324.2
82.4
922.7
(5.1)
(23.0)
(0.1)
(28.2)
511.0
301.2
82.3
894.5
500.9
299.7
75.9
876.5
(16.0)
3.8
(4.3)
(16.5)
484.9
303.5
71.6
860.0
–
(14.7)
(0.3)
(15.0)
484.9
288.8
71.3
845.0
3%
8%
9%
5%
259.7
87.5
70.3
417.5
775.8
411.7
152.7
–
(9.3)
(0.5)
(9.8)
(5.1)
(32.3)
(0.6)
259.7
294.8
(14.6)
280.2
78.2
69.8
91.2
71.6
1.1
(5.0)
92.3
66.6
–
(9.1)
(1.8)
83.2
64.8
280.2
-12%
407.7
457.6
(18.5)
439.1
(10.9)
428.2
770.7
379.4
152.1
795.7
390.9
147.5
(30.6)
4.9
(9.3)
765.1
395.8
138.2
–
(23.8)
(2.1)
765.1
372.0
136.1
1,340.2
(38.0)
1,302.2
1,334.1
(35.0)
1,299.1
(25.9)
1,273.2
-4%
-2%
-9%
-3%
5%
4%
0%
6%
7%
15%
7%
-7%
-5%
6%
-5%
1%
4%
10%
3%
5%
4%
15%
6%
-7%
-6%
8%
-5%
1%
2%
12%
2%
1 Organic revenue adjustment includes the contributions of current and prior year acquisitions, disposals and non-core products.
2 Foreign currency results for the prior year ended 30 September 2011 have been retranslated based on the average exchange rates for the year ended 30 September 2012
of $1.58/£1 and €1.22/£1 to facilitate the comparison of results.
The Sage Group plc | Annual Report & Accounts 2012
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Results for the year continued
1 Segment information continued
1.2 Profit by segment
Year ended 30 September 2012
IFRS
statutory
operating
profit
£m
Adjustment1
£m
Non-GAAP
EBITA
£m
IFRS
statutory
operating
profit
£m
Adjustment1
£m
Year ended 30 September 2011
Underlying
Non-GAAP
EBITA
constant
currency
£m
Currency
impact2
£m
Non-GAAP
EBITA
reported
£m
IFRS
statutory
operating
profit
%
Non-GAAP
EBITA
reported
%
Change
Underlying
Non-GAAP
EBITA
constant
currency
%
Profit by segment
Europe
Americas
AAMEA
Total profit
207.8
11.3
96.8
40.3
9.3
0.9
219.1
106.1
41.2
213.7
94.2
35.4
344.9
21.5
366.4
343.3
15.6
5.5
1.1
22.2
229.3
99.7
36.5
365.5
(8.4)
1.2
(2.3)
(9.5)
220.9
100.9
34.2
356.0
-3%
3%
14%
0%
-4%
6%
13%
0%
-1%
5%
20%
3%
1 Adjustment includes the effects of amortisation of acquired intangible assets, amortisation of software development expenditure and acquisition-related items.
2 Foreign currency results for the prior year ended 30 September 2011 have been retranslated based on the average exchange rates for the year ended 30 September 2012 of
$1.58/£1 and €1.22/£1 to facilitate the comparison of results.
Year ended 30 September 2012
The results by segment from continuing operations were as follows:
Note
Europe
£m
Americas
£m
AAMEA
£m
Group
£m
Revenue
Segment operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
775.8
207.8
411.7
96.8
152.7
40.3
2.3
2.3
3
No single customer contributed more than 10% of the Group’s revenue in the current or prior year.
219.1
(10.8)
(0.5)
207.8
106.1
(5.4)
(3.9)
96.8
41.2
(0.9)
–
40.3
Note
Europe
£m
Americas
£m
AAMEA
£m
795.7
213.7
390.9
94.2
147.5
35.4
2.3
2.3
3
Reconciliation of Non-GAAP EBITA† to IFRS statutory operating profit
Non-GAAP EBITA†
Amortisation of acquired intangible assets
Acquisition-related items
Operating profit
† EBITA measure (Earnings before interest, tax and adjustments) excludes the effects of:
• amortisation of acquired intangible assets;
• amortisation of software development expenditure; and
• acquisition-related items.
Year ended 30 September 2011
The results by segment from continuing operations were as follows:
Revenue
Segment operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
88
1,340.2
344.9
2.6
(13.2)
334.3
(95.4)
238.9
366.4
(17.1)
(4.4)
344.9
Group
£m
1,334.1
343.3
1.9
(14.4)
330.8
(74.8)
256.0
Results for the year continued
1 Segment information continued
1.2 Profit by segment
Year ended 30 September 2012
Year ended 30 September 2011
IFRS
statutory
operating
IFRS
statutory
operating
Non-GAAP
profit
Adjustment1
£m
£m
EBITA
£m
profit
Adjustment1
£m
£m
Non-GAAP
EBITA
reported
£m
Currency
impact2
£m
Underlying
Non-GAAP
EBITA
constant
currency
£m
IFRS
statutory
operating
profit
%
Non-GAAP
EBITA
reported
%
Change
Underlying
Non-GAAP
EBITA
constant
currency
%
207.8
11.3
96.8
40.3
9.3
0.9
219.1
106.1
41.2
213.7
94.2
35.4
344.9
21.5
366.4
343.3
15.6
5.5
1.1
22.2
229.3
99.7
36.5
365.5
(8.4)
1.2
(2.3)
(9.5)
220.9
100.9
34.2
356.0
-3%
3%
14%
0%
-4%
6%
13%
0%
-1%
5%
20%
3%
1 Adjustment includes the effects of amortisation of acquired intangible assets, amortisation of software development expenditure and acquisition-related items.
2 Foreign currency results for the prior year ended 30 September 2011 have been retranslated based on the average exchange rates for the year ended 30 September 2012 of
$1.58/£1 and €1.22/£1 to facilitate the comparison of results.
Year ended 30 September 2012
The results by segment from continuing operations were as follows:
Note
Europe
£m
Americas
£m
AAMEA
£m
Group
£m
775.8
207.8
411.7
96.8
152.7
40.3
No single customer contributed more than 10% of the Group’s revenue in the current or prior year.
Reconciliation of Non-GAAP EBITA† to IFRS statutory operating profit
Non-GAAP EBITA†
Amortisation of acquired intangible assets
Acquisition-related items
Operating profit
† EBITA measure (Earnings before interest, tax and adjustments) excludes the effects of:
• amortisation of acquired intangible assets;
• amortisation of software development expenditure; and
• acquisition-related items.
Year ended 30 September 2011
The results by segment from continuing operations were as follows:
219.1
(10.8)
(0.5)
207.8
106.1
(5.4)
(3.9)
96.8
41.2
(0.9)
–
40.3
Note
Europe
£m
Americas
£m
AAMEA
£m
795.7
213.7
390.9
94.2
147.5
35.4
Profit by segment
Europe
Americas
AAMEA
Total profit
Revenue
Segment operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Revenue
Segment operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
1,340.2
344.9
2.6
(13.2)
334.3
(95.4)
238.9
366.4
(17.1)
(4.4)
344.9
Group
£m
1,334.1
343.3
1.9
(14.4)
330.8
(74.8)
256.0
2.3
2.3
3
2.3
2.3
3
Year ended 30 September 2011
Reconciliation of Non-GAAP EBITA† to IFRS statutory operating profit
Non-GAAP EBITA†
Amortisation of acquired intangible assets
Amortisation of software development expenditure
Acquisition-related items
Operating profit
1.3 Assets and liabilities by segment
Year ended 30 September 2012
The assets and liabilities by segment were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
– Corporate borrowings
Total net assets
Other segment information by segment was as follows:
Capital expenditure – property, plant and equipment
Capital expenditure – intangible assets
Depreciation
Amortisation of intangible assets
Other non-cash expenses – share-based payments
Europe
£m
229.3
(15.3)
(0.1)
(0.2)
213.7
Americas
£m
AAMEA
£m
99.7
(5.5)
–
–
94.2
36.5
(0.9)
–
(0.2)
35.4
Group
£m
365.5
(21.7)
(0.1)
(0.4)
343.3
Note
Europe
£m
Americas
£m
AAMEA
£m
Group
£m
1,109.8
(502.7)
607.1
1,248.8
(315.0)
933.8
114.7
(83.4)
31.3
6
5.2
6
5.2
14.2
11.1
5.3
13.8
13.1
1.2
5.1
5.5
5.7
11.6
(0.2)
3.1
–
2.2
0.9
0.3
2,473.3
(901.1)
1,572.2
(199.2)
1,373.0
19.3
10.8
21.7
25.6
1.3
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, post-employment benefit obligations, tax liabilities, financial instruments 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.
Year ended 30 September 2011
The assets and liabilities by segment were as follows:
Segment assets
Segment liabilities
Segment net assets
Unallocated liabilities
– Non-current assets classified as held for sale
– Non-current liabilities classified as held for sale
– Corporate borrowings
Total net assets
Other segment information by segment was as follows:
Capital expenditure – property, plant and equipment
Capital expenditure – intangible assets
Depreciation
Amortisation of intangible assets
Other non-cash expenses – share-based payments
Note
Europe
£m
Americas
£m
AAMEA
£m
Group
£m
1,261.4
(518.1)
743.3
1,111.7
(204.4)
907.3
119.1
(73.4)
45.7
14.9
2.5
14.0
17.2
2.0
8.2
6.8
5.6
10.0
0.8
2.4
–
2.2
0.9
0.4
2,492.2
(795.9)
1,696.3
251.1
(49.7)
(189.9)
1,707.8
25.5
9.3
21.8
28.1
3.2
15.4
15.4
6
5.2
6
5.2
14.2
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89
Results for the year continued
2 Profit before income tax
2.1 Operating profit
The following items have been included in arriving at operating profit
Staff costs
Cost of inventories recognised as an expense (included in cost of sales)
Depreciation of property, plant and equipment
Amortisation of intangible assets
(excluding amortisation of development expenditure)
Amortisation of development expenditure
Loss/(profit) on disposal of property, plant and equipment
Profit on disposal of intangible assets
Other operating lease rentals payable
Repairs and maintenance expenditure on property, plant and equipment
Net foreign exchange losses
Acquisition-related items
Research and development expenditure
Note
2.2
7.1
6
5.2
5.2
12.1
12.1
6
Continuing
operations
2012
£m
Discontinued
operations
2012
£m
Continuing
operations
2011
£m
Discontinued
operations
2011
£m
610.0
12.0
21.7
25.6
–
0.2
(1.4)
30.9
2.1
0.2
4.4
7.2
1.5
–
–
–
(0.2)
–
–
–
–
–
611.6
12.7
21.8
28.0
0.1
2.5
(1.3)
30.0
2.3
0.4
0.4
159.4
1.6
151.9
66.7
9.0
0.7
8.7
–
–
–
1.9
0.1
–
–
14.0
2011
£m
2.0
0.2
2.2
1.4
–
–
3.6
Services provided by the Group’s auditor and network firms
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:
Fees payable to the Group’s auditor for the audit of parent Company and consolidated accounts
Fees payable to the Group’s auditor for audit-related assurance services
Total audit fees
Tax compliance services
Tax advisory services
Other non-audit services
Total fees
The total audit fee for the Group, including the audit of overseas subsidiaries, was £2.0m (2011: £2.2m).
The Board’s policy in respect of the procurement of non-audit services for the Group’s auditor is set out on page 56.
2.2 Employees and directors
2012
£m
1.9
0.1
2.0
0.6
0.1
0.1
2.8
Average monthly number of people employed (including directors)
By geographical location:
Europe
Americas
AAMEA
Continuing
operations
2012
number
Discontinued
operations
2012
number
Continuing
operations
2011
number
Discontinued
operations
2011
number
7,992
3,066
2,037
13,095
–
98
–
98
7,806
2,754
1,825
12,385
–
1,180
–
1,180
90
Results for the year continued
2 Profit before income tax
2.1 Operating profit
The following items have been included in arriving at operating profit
Staff costs
Cost of inventories recognised as an expense (included in cost of sales)
Depreciation of property, plant and equipment
Amortisation of intangible assets
(excluding amortisation of development expenditure)
Amortisation of development expenditure
Loss/(profit) on disposal of property, plant and equipment
Profit on disposal of intangible assets
Other operating lease rentals payable
Repairs and maintenance expenditure on property, plant and equipment
Net foreign exchange losses
Acquisition-related items
Research and development expenditure
Services provided by the Group’s auditor and network firms
Continuing
operations
Discontinued
operations
Continuing
operations
Discontinued
operations
Note
2.2
7.1
6
5.2
5.2
12.1
12.1
6
2012
£m
610.0
12.0
21.7
25.6
–
0.2
(1.4)
30.9
2.1
0.2
4.4
2012
£m
7.2
1.5
(0.2)
–
–
–
–
–
–
–
–
2011
£m
611.6
12.7
21.8
28.0
0.1
2.5
(1.3)
30.0
2.3
0.4
0.4
2012
£m
1.9
0.1
2.0
0.6
0.1
0.1
2.8
2011
£m
66.7
9.0
0.7
8.7
–
–
–
–
–
1.9
0.1
2011
£m
2.0
0.2
2.2
1.4
–
–
3.6
Continuing
operations
Discontinued
operations
2012
number
2012
number
Continuing
operations
2011
number
Discontinued
operations
2011
number
7,992
3,066
2,037
13,095
–
98
–
98
7,806
2,754
1,825
12,385
–
–
1,180
1,180
Fees payable to the Group’s auditor for the audit of parent Company and consolidated accounts
Fees payable to the Group’s auditor for audit-related assurance services
Total audit fees
Tax compliance services
Tax advisory services
Other non-audit services
Total fees
The total audit fee for the Group, including the audit of overseas subsidiaries, was £2.0m (2011: £2.2m).
The Board’s policy in respect of the procurement of non-audit services for the Group’s auditor is set out on page 56.
2.2 Employees and directors
Average monthly number of people employed (including directors)
By geographical location:
Europe
Americas
AAMEA
Staff costs (including directors on service contracts)
Wages and salaries
Social security costs
Post-employment benefits
Share-based payments
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
Note
8
14.2
Continuing
operations
2012
number
Discontinued
operations
2012
number
Continuing
operations
2011
number
Discontinued
operations
2011
number
499.9
96.9
11.9
1.3
610.0
6.3
0.9
0.1
(0.1)
7.2
502.7
93.9
11.8
3.2
611.6
2012
£m
5.0
0.5
0.7
6.2
55.1
10.3
1.2
0.1
66.7
2011
£m
7.3
1.0
1.7
10.0
159.4
1.6
151.9
14.0
2.3 Finance income and costs
The key management figures given above include directors. Key management personnel are deemed to be members of the Executive Committee as shown
on page 19.
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:
Finance income: interest income on short-term deposits
Finance costs:
Finance costs on bank borrowings
Finance costs on US senior loan notes
Amortisation of issue costs
Imputed interest on put and call arrangement to acquire non-controlling interest and deferred consideration
Finance costs
Finance costs – net
3 Income tax expense
Analysis of charge in the year
Current tax
– Current tax on profit for the year
– Adjustment in respect of prior years
Current tax
Deferred tax
– Origination and reversal of temporary differences
– Adjustment in respect of prior years
Deferred tax
Income tax expense
2012
£m
2.6
(3.0)
(8.6)
(1.1)
(0.5)
(13.2)
2011
£m
1.9
(4.3)
(8.7)
(1.4)
–
(14.4)
(10.6)
(12.5)
2012
£m
115.4
(15.0)
100.4
–
(5.0)
(5.0)
2011
£m
110.5
(37.5)
73.0
(2.0)
3.8
1.8
95.4
74.8
Note
9
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The majority of the current tax adjustment in respect of prior years of £15.0m (2011: £37.5m) reflects the resolution of a number of historical tax matters with the
tax authorities.
The Sage Group plc | Annual Report & Accounts 2012
91
Results for the year continued
3 Income tax expense continued
Tax on items credited to other comprehensive income
Deferred tax credit on actuarial loss on post-employment benefit obligations
Tax on items charged to equity
Deferred tax charge on share options
Total tax on items charged to other comprehensive income/equity
The tax for the year is higher (2011: lower) than the standard rate of corporation tax in the UK of 25% (2011: 27%)
The differences are explained below:
Profit on ordinary activities before income tax
Profit on ordinary activities multiplied by rate of corporation tax in the UK of 25% (2011: 27%)
Tax effects of:
Adjustment in respect of prior years
Adjustment in respect of foreign tax rates
Non-deductible expenses and permanent items net of non-taxable income and other credits
Total income tax
4 Earnings per share and dividends
Note
14.5
2012
£m
(1.0)
1.7
0.7
2012
£m
334.3
83.6
(20.0)
21.0
10.8
95.4
2011
£m
–
1.7
1.7
2011
£m
330.8
89.3
(33.7)
17.4
1.8
74.8
4.1 Earnings per share
Basic earnings per share is calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue during the year, excluding
those held as treasury shares (note 14.5), 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.
For performance-related share plans, a calculation is performed to determine the satisfaction, or otherwise, of the forecast performance conditions at the
end of the reporting period, and the number of shares which would be issued based on the forecast status at the end of the reporting period.
Underlying
2012
Underlying
2011
Statutory
2012
Statutory
2011
254.6
1.2
255.8
1,282.2
1.9
1,284.1
19.86
0.09
19.95
19.83
0.09
19.92
267.0
11.3
278.3
1,316.7
10.4
1,327.1
20.28
0.86
21.14
20.12
0.85
20.97
238.9
57.8
296.7
1,282.2
1.9
1,284.1
18.63
4.51
23.14
18.60
4.50
23.10
256.0
(67.0)
189.0
1,316.7
10.4
1,327.1
19.44
(5.09)
14.35
19.29
(5.05)
14.24
Reconciliations of the earnings and weighted average number of shares
Earnings (£m)
Profit for the year from continuing operations
Profit/(loss) for the year from discontinued operations
Number of shares (millions)
Weighted average number of shares
Dilutive effects of shares
Earnings per share
Basic earnings per share (pence)
Continuing operations
Discontinued operations
Diluted earnings per share (pence)
Continuing operations
Discontinued operations
92
Results for the year continued
3 Income tax expense continued
Tax on items credited to other comprehensive income
Deferred tax credit on actuarial loss on post-employment benefit obligations
Tax on items charged to equity
Deferred tax charge on share options
Total tax on items charged to other comprehensive income/equity
The tax for the year is higher (2011: lower) than the standard rate of corporation tax in the UK of 25% (2011: 27%)
Profit on ordinary activities multiplied by rate of corporation tax in the UK of 25% (2011: 27%)
The differences are explained below:
Profit on ordinary activities before income tax
Tax effects of:
Adjustment in respect of prior years
Adjustment in respect of foreign tax rates
Total income tax
4 Earnings per share and dividends
4.1 Earnings per share
Non-deductible expenses and permanent items net of non-taxable income and other credits
Note
14.5
2012
£m
(1.0)
1.7
0.7
2012
£m
334.3
83.6
(20.0)
21.0
10.8
95.4
2011
£m
–
1.7
1.7
2011
£m
330.8
89.3
(33.7)
17.4
1.8
74.8
Basic earnings per share is calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue during the year, excluding
those held as treasury shares (note 14.5), 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.
For performance-related share plans, a calculation is performed to determine the satisfaction, or otherwise, of the forecast performance conditions at the
end of the reporting period, and the number of shares which would be issued based on the forecast status at the end of the reporting period.
Reconciliations of the earnings and weighted average number of shares
Earnings (£m)
Profit for the year from continuing operations
Profit/(loss) for the year from discontinued operations
Number of shares (millions)
Weighted average number of shares
Dilutive effects of shares
Earnings per share
Basic earnings per share (pence)
Continuing operations
Discontinued operations
Diluted earnings per share (pence)
Continuing operations
Discontinued operations
Underlying
2012
Underlying
2011
Statutory
2012
Statutory
2011
254.6
1.2
255.8
1,282.2
1.9
1,284.1
19.86
0.09
19.95
19.83
0.09
19.92
267.0
11.3
278.3
1,316.7
10.4
1,327.1
20.28
0.86
21.14
20.12
0.85
20.97
238.9
57.8
296.7
1,282.2
1.9
1,284.1
18.63
4.51
23.14
18.60
4.50
23.10
256.0
(67.0)
189.0
1,316.7
10.4
1,327.1
19.44
(5.09)
14.35
19.29
(5.05)
14.24
Reconciliation between statutory and underlying earnings per share
IFRS statutory profit for the year from continuing operations
Adjustments:
Earnings – trading from discontinued operations
Intangible amortisation excluding amortisation of computer software
Acquisition-related items
Imputed interest on put and call arrangement to acquire non-controlling interest and deferred consideration
Taxation on adjustments
Net adjustments
Earnings – underlying (before exchange movement)
Exchange movement
Taxation on exchange movement
Net exchange movement
2012
£m
238.9
1.9
17.1
4.4
0.5
(7.0)
16.9
255.8
–
–
–
2011
£m
256.0
18.9
21.8
0.4
–
(11.3)
29.8
285.8
(9.8)
2.3
(7.5)
Earnings – underlying (after exchange movement)
255.8
278.3
Exchange movement relates to the retranslation of prior year results to current year exchange rates as shown in the table on page 28 within the financial review.
4.2 Dividends
Final dividend paid for the year ended 30 September 2011 of 7.07p per share
(2011: final dividend paid for the year ended 30 September 2010 of 5.22p per share)
Interim dividend paid for the year ended 30 September 2012 of 3.48p per share
(2011: interim dividend paid for the year ended 30 September 2011 of 2.68p per share)
2012
£m
92.1
–
44.4
–
136.5
2011
£m
–
68.7
–
35.3
104.0
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2012 of 6.67p per share which will absorb an
estimated £78.2m of shareholders’ funds. It will be paid on 8 March 2013 to shareholders who are on the register of members on 15 February 2013. These
financial statements do not reflect this dividend payable.
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Operating assets and liabilities
5 Intangible assets
5.1 Goodwill
Cost at 1 October
– Additions
– Disposals
– Reclassification to assets held for sale
– Exchange movement
At 30 September
Impairment at 1 October
– Impairment in the year
– Reclassification to assets held for sale
At 30 September
Net book amount at 30 September
Note
16.9
16.9
15.4
15.2
15.4
2012
£m
1,736.3
150.0
–
–
(71.9)
1,814.4
–
–
–
–
2011
£m
2,031.1
0.7
(1.3)
(304.6)
10.4
1,736.3
–
(121.5)
121.5
–
1,814.4
1,736.3
Details of acquisitions and disposals in the year are shown in note 16. During the year, goodwill was reviewed for impairment in accordance with IAS 36. For the
purposes of this impairment review, goodwill for continuing operations has been valued on the basis of discounted future cash flows arising in each relevant
cash-generating unit.
In the prior year an agreement to sell Sage Software Healthcare, LLC was reached, resulting in an impairment loss on goodwill of £121.5m.
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.
During the year new CGUs were created for Brazil, Sage Pay Europe (previously reported in UK & Ireland) and Portugal (previously reported in France). The
following table shows the allocation of the carrying value of goodwill at the end of the reporting period by CGU:
France
UK & Ireland
Spain
Sage Pay Europe
Germany
Switzerland
Poland
Portugal
North America
– Sage Business Solutions Division
– Sage Payment Solutions Division
Brazil
South Africa
Australia
Asia
2012
£m
253.7
195.4
124.2
27.4
25.2
33.6
6.4
4.7
765.2
156.6
133.5
44.0
24.2
20.3
2011
£m
272.6
195.3
134.2
17.0
27.2
35.9
6.5
5.1
793.7
160.6
–
42.4
25.7
20.1
1,814.4
1,736.3
The main movement in goodwill by CGU was the acquisition of Folhamatic Tecnologia em Sistemas S.A. (“Folhamatic”) in Brazil; the majority of all other
movements compared to prior year were due to the impact of foreign currency exchange movements.
94
Operating assets and liabilities
5 Intangible assets
5.1 Goodwill
Cost at 1 October
– Additions
– Disposals
– Exchange movement
At 30 September
Impairment at 1 October
– Impairment in the year
– Reclassification to assets held for sale
– Reclassification to assets held for sale
At 30 September
Net book amount at 30 September
cash-generating unit.
Goodwill impairment tests
France
UK & Ireland
Spain
Sage Pay Europe
Germany
Switzerland
Poland
Portugal
North America
Brazil
South Africa
Australia
Asia
– Sage Business Solutions Division
– Sage Payment Solutions Division
Note
16.9
16.9
15.4
15.2
15.4
2012
£m
1,736.3
150.0
(71.9)
1,814.4
–
–
–
–
–
–
2011
£m
2,031.1
0.7
(1.3)
(304.6)
10.4
1,736.3
(121.5)
121.5
–
–
1,814.4
1,736.3
2012
£m
253.7
195.4
124.2
27.4
25.2
33.6
6.4
4.7
765.2
156.6
133.5
44.0
24.2
20.3
2011
£m
272.6
195.3
134.2
17.0
27.2
35.9
6.5
5.1
793.7
160.6
–
42.4
25.7
20.1
1,814.4
1,736.3
Details of acquisitions and disposals in the year are shown in note 16. During the year, goodwill was reviewed for impairment in accordance with IAS 36. For the
purposes of this impairment review, goodwill for continuing operations has been valued on the basis of discounted future cash flows arising in each relevant
In the prior year an agreement to sell Sage Software Healthcare, LLC was reached, resulting in an impairment loss on goodwill of £121.5m.
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.
During the year new CGUs were created for Brazil, Sage Pay Europe (previously reported in UK & Ireland) and Portugal (previously reported in France). The
following table shows the allocation of the carrying value of goodwill at the end of the reporting period by CGU:
The main movement in goodwill by CGU was the acquisition of Folhamatic Tecnologia em Sistemas S.A. (“Folhamatic”) in Brazil; the majority of all other
movements compared to prior year were due to the impact of foreign currency exchange movements.
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 (EBITA) 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 end of the reporting period
and the risks specific to the CGU. The discount rates applied to CGUs were in the range of 7.3% (2011: 6.8%) to 22.7% (2011: 19.9%).
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 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 21% (2011: 21%) to
62% (2011: 50%).
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 1.8% (2011: 1.6%) to 5.5% (2011: 5.5%).
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 CGU to exceed its
recoverable amount.
The value-in-use calculations are sensitive to changes in discount rates. The discount rates used are based on estimated weighted average costs of capital
in each country before tax and reflect specific risks relating to the relevant CGUs.
The largest CGU is Sage Business Solutions Division, which constitutes approximately 42% of the carrying value of goodwill at the end of the reporting period.
The discount rates applied to this CGU would have to increase by 54% to result in a value-in-use equal to the carrying value of the goodwill. This assumes all
other key assumptions applied within the value-in-use calculations remain constant.
5.2 Other intangible assets
Cost at 1 October 2011
Continuing operations
– Additions
– Acquisition of subsidiaries
– Disposals
– Exchange movement
At 30 September 2012
Accumulated amortisation at 1 October 2011
Continuing operations
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2012
Net book amount at 30 September 2012
Brands
£m
35.9
–
6.8
–
(2.2)
40.5
16.3
3.1
–
(1.0)
18.4
22.1
Technology
£m
81.9
–
20.5
–
(4.5)
97.9
61.2
6.6
–
(3.5)
64.3
33.6
Acquired
IPR&D
£m
0.4
Internal
IPR&D
£m
5.6
Computer
software
£m
Customer
relationships
£m
52.5
108.2
–
–
–
–
0.4
0.4
–
–
–
0.4
–
–
–
–
–
5.6
5.6
–
–
–
5.6
–
6.9
0.6
(5.2)
(1.9)
52.9
10.8
8.5
(5.1)
(0.3)
13.9
39.0
Total
£m
284.5
10.8
42.2
(5.2)
(13.8)
318.5
3.9
14.3
–
(5.2)
121.2
72.1
166.4
7.4
–
(3.4)
76.1
25.6
(5.1)
(8.2)
178.7
45.1
139.8
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Operating assets and liabilities continued
5 Intangible assets continued
5.2 Other intangible assets continued
Cost at 1 October 2010
Continuing operations
– Additions
– Acquisition of subsidiaries
– Disposals
– Exchange movement
Discontinued operations
– Additions
– Disposals
– Reclassification to non-current assets
classified as held for sale
At 30 September 2011
Accumulated amortisation at 1 October 2010
Continuing operations
– Charge for the year
– Disposals
– Exchange movement
Discontinued operations
– Charge for the year
– Disposals
– Reclassification to non-current assets
classified as held for sale
At 30 September 2011
Net book amount at 30 September 2011
Brands
£m
43.9
Technology
£m
96.5
Acquired
IPR&D
£m
0.4
Internal
IPR&D
£m
5.6
Computer
software
£m
Customer
relationships
£m
66.2
152.7
–
–
–
–
–
–
(8.0)
35.9
16.4
2.2
–
0.2
0.6
–
(3.1)
16.3
19.6
–
–
–
(0.3)
1.9
–
(16.2)
81.9
60.1
9.6
–
(0.2)
2.0
–
(10.3)
61.2
20.7
–
–
–
–
–
–
–
0.4
0.3
0.1
–
–
–
–
–
0.4
–
–
–
–
–
–
–
–
5.6
5.5
0.1
–
–
–
–
–
5.6
–
Total
£m
365.3
9.3
0.3
(6.9)
1.1
2.7
(0.1)
4.0
0.3
(6.9)
0.7
0.8
(0.1)
5.3
–
–
0.7
–
–
(12.5)
52.5
(50.5)
108.2
(87.2)
284.5
20.3
83.6
186.2
6.3
(6.6)
0.3
1.2
(0.1)
(10.6)
10.8
9.8
–
0.8
4.9
–
(27.0)
72.1
28.1
(6.6)
1.1
8.7
(0.1)
(51.0)
166.4
41.7
36.1
118.1
All amortisation charges relating to continuing operations 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.
96
Operating assets and liabilities continued
5 Intangible assets continued
5.2 Other intangible assets continued
Cost at 1 October 2010
Continuing operations
– Additions
– Acquisition of subsidiaries
– Disposals
– Exchange movement
Discontinued operations
– Additions
– Disposals
– Reclassification to non-current assets
classified as held for sale
At 30 September 2011
Continuing operations
– Charge for the year
– Disposals
– Exchange movement
Discontinued operations
– Charge for the year
– Disposals
– Reclassification to non-current assets
classified as held for sale
At 30 September 2011
Brands
Technology
Acquired
IPR&D
£m
0.4
Internal
IPR&D
£m
5.6
Computer
software
Customer
relationships
£m
152.7
£m
43.9
–
–
–
–
–
–
(8.0)
35.9
16.4
2.2
–
0.2
0.6
–
(3.1)
16.3
19.6
£m
96.5
–
–
–
(0.3)
1.9
–
(16.2)
81.9
60.1
9.6
–
(0.2)
2.0
–
(10.3)
61.2
20.7
0.4
0.3
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
5.6
5.5
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
5.6
£m
66.2
4.0
0.3
(6.9)
0.7
0.8
(0.1)
(12.5)
52.5
6.3
(6.6)
0.3
1.2
(0.1)
(10.6)
10.8
5.3
0.7
–
–
–
–
9.8
–
0.8
4.9
–
(27.0)
72.1
Total
£m
365.3
9.3
0.3
(6.9)
1.1
2.7
(0.1)
28.1
(6.6)
1.1
8.7
(0.1)
(51.0)
166.4
Accumulated amortisation at 1 October 2010
20.3
83.6
186.2
Net book amount at 30 September 2011
41.7
36.1
118.1
All amortisation charges relating to continuing operations 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.
6 Property, plant and equipment
Cost at 1 October 2011
Continuing operations
– Additions
– Disposals
– Acquisition of subsidiaries
– Exchange movement
At 30 September 2012
Land and
buildings
£m
Plant and
equipment
£m
98.2
141.4
2.4
(0.4)
0.1
(0.8)
99.5
11.3
(8.2)
1.0
(3.6)
141.9
Motor vehicles
and office
equipment
£m
56.4
5.6
(4.5)
0.4
(2.6)
55.3
Total
£m
296.0
19.3
(13.1)
1.5
(7.0)
296.7
Accumulated depreciation at 1 October 2011
10.4
101.2
38.0
149.6
(50.5)
108.2
(87.2)
284.5
Continuing operations
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2012
3.8
(0.2)
(0.2)
13.8
11.9
(8.0)
(2.6)
102.5
6.0
(4.1)
(1.7)
38.2
21.7
(12.3)
(4.5)
154.5
Net book amount at 30 September 2012
85.7
39.4
17.1
142.2
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Operating assets and liabilities continued
6 Property, plant and equipment continued
Cost at 1 October 2010
Continuing operations
– Additions
– Disposals
– Acquisition/disposal of subsidiaries
– Exchange movement
Discontinued operations
– Additions
– Disposals
– Reclassification to non-current assets classified as held for sale
At 30 September 2011
Land and
buildings
£m
100.3
Plant and
equipment
£m
151.4
–
(0.7)
–
0.4
–
–
(1.8)
98.2
18.6
(23.4)
(0.1)
(0.7)
0.6
(0.2)
(4.7)
141.5
Accumulated depreciation at 1 October 2010
10.0
109.5
Continuing operations
– Charge for the year
– Disposals
– Exchange movement
Discontinued operations
– Charge for the year
– Disposals
– Reclassification to non-current assets classified as held for sale
At 30 September 2011
1.9
(0.7)
0.1
0.1
–
(1.0)
10.4
14.5
(18.4)
(0.6)
0.4
(0.2)
(3.9)
101.3
Motor vehicles
and office
equipment
£m
61.6
6.9
(10.1)
–
(0.4)
–
–
(1.5)
56.5
44.2
5.4
(10.2)
(0.3)
0.2
–
(1.2)
38.1
Total
£m
313.3
25.5
(34.2)
(0.1)
(0.7)
0.6
(0.2)
(8.0)
296.2
163.7
21.8
(29.3)
(0.8)
0.7
(0.2)
(6.1)
149.8
Net book amount at 30 September 2011
87.8
40.2
18.4
146.4
Depreciation expenses from continuing operations of £21.7m (2011: £21.8m) have been charged through selling and administrative expenses (note 2.1).
Lease rentals amounting to £30.9m (2011: £30.0m) relating to the lease of plant and machinery and property have also been charged through selling and
administrative expenses (note 2.1).
Assets held under finance leases have the following net book amount:
Cost
Accumulated depreciation
Net book amount
2012
£m
3.9
(1.7)
2.2
2011
£m
3.6
(1.1)
2.5
Included in assets held under finance leases are plant and equipment with a net book amount of £2.1m (2011: £2.4m) and vehicles £0.1m (2011: £0.1m).
98
Operating assets and liabilities continued
6 Property, plant and equipment continued
– Acquisition/disposal of subsidiaries
Cost at 1 October 2010
Continuing operations
– Additions
– Disposals
– Exchange movement
Discontinued operations
– Additions
– Disposals
At 30 September 2011
Continuing operations
– Charge for the year
– Disposals
– Exchange movement
Discontinued operations
– Charge for the year
– Disposals
At 30 September 2011
administrative expenses (note 2.1).
Cost
Accumulated depreciation
Net book amount
– Reclassification to non-current assets classified as held for sale
Accumulated depreciation at 1 October 2010
10.0
109.5
Land and
buildings
£m
100.3
Plant and
equipment
£m
151.4
Motor vehicles
and office
equipment
7 Working capital
7.1 Inventories
Materials
Finished goods
2012
£m
0.6
1.9
2.5
2011
£m
0.7
1.8
2.5
The Group consumed £12.0m (2011: £12.7m) of inventories, included in cost of sales, during the year. There was no material write down of inventories during the
current or prior year.
7.2 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
2012
£m
300.5
(30.3)
270.2
14.9
17.7
302.8
2011
£m
279.6
(29.2)
250.4
14.7
20.3
285.4
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 considers 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.
– Reclassification to non-current assets classified as held for sale
Net book amount at 30 September 2011
87.8
40.2
18.4
146.4
Trade and other receivables by geographical location:
Europe
Americas
Depreciation expenses from continuing operations of £21.7m (2011: £21.8m) have been charged through selling and administrative expenses (note 2.1).
AAMEA
Lease rentals amounting to £30.9m (2011: £30.0m) relating to the lease of plant and machinery and property have also been charged through selling and
Assets held under finance leases have the following net book amount:
Movements on the Group provision for impairment of trade receivables were as follows:
Included in assets held under finance leases are plant and equipment with a net book amount of £2.1m (2011: £2.4m) and vehicles £0.1m (2011: £0.1m).
At 1 October
Acquisition of subsidiaries
Disposal of subsidiaries
Increase in provision for receivables impairment
Receivables written-off during the year as uncollectible
Unused amounts reversed
Exchange movement
Reclassification to non-current assets classified as held for sale
At 30 September
2012
£m
203.2
62.4
19.5
285.1
2012
£m
29.2
0.5
–
9.9
(3.3)
(4.1)
(1.9)
–
30.3
2011
£m
199.8
49.7
15.6
265.1
2011
£m
27.4
–
(0.5)
9.3
(4.5)
(2.2)
(0.2)
(0.1)
29.2
(0.7)
0.4
–
–
–
–
(1.8)
98.2
1.9
(0.7)
0.1
0.1
–
(1.0)
10.4
18.6
(23.4)
(0.1)
(0.7)
0.6
(0.2)
(4.7)
141.5
14.5
(18.4)
(0.6)
0.4
(0.2)
(3.9)
101.3
£m
61.6
6.9
(10.1)
(0.4)
–
–
–
(1.5)
56.5
44.2
5.4
(10.2)
(0.3)
0.2
–
(1.2)
38.1
2012
£m
3.9
(1.7)
2.2
Total
£m
313.3
25.5
(34.2)
(0.1)
(0.7)
0.6
(0.2)
(8.0)
296.2
163.7
21.8
(29.3)
(0.8)
0.7
(0.2)
(6.1)
149.8
2011
£m
3.6
(1.1)
2.5
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Operating assets and liabilities continued
7 Working capital continued
7.2 Trade and other receivables continued
In determining the recoverability of a trade receivable, the Group considers the ageing of each receivable and any change in the circumstances of the individual
receivables. The directors believe that there is no further provision required in excess of the allowance for doubtful debts.
The creation and release of provision for impaired receivables have been included in selling and administrative expenses in the income statement. Amounts
charged to the allowance account are generally written-off when there is no expectation of recovering additional cash.
At 30 September 2012, trade receivables of £36.4m (2011: £33.0m) were either partially or fully impaired.
The ageing of these receivables was as follows:
Not due
Less than six months past due
More than six months past due
Trade receivables which were past their due date but not impaired at 30 September 2012 were £44.8m (2011: £54.9m).
The ageing of these receivables was as follows:
Less than six months past due
More than six months past due
2012
£m
3.7
7.7
25.0
36.4
2012
£m
41.0
3.8
44.8
The maximum exposure to credit risk at the end of the reporting period 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.
7.3 Trade and other payables
Trade payables
Other tax and social security payable
Other payables
Accruals
7.4 Deferred income
Deferred income
2012
£m
40.2
64.3
31.3
123.2
259.0
2012
£m
420.3
2011
£m
3.5
7.7
21.8
33.0
2011
£m
49.5
5.4
54.9
2011
£m
47.5
65.0
24.2
124.5
261.2
2011
£m
404.7
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.
100
Operating assets and liabilities continued
7 Working capital continued
7.2 Trade and other receivables continued
In determining the recoverability of a trade receivable, the Group considers the ageing of each receivable and any change in the circumstances of the individual
receivables. The directors believe that there is no further provision required in excess of the allowance for doubtful debts.
The creation and release of provision for impaired receivables have been included in selling and administrative expenses in the income statement. Amounts
charged to the allowance account are generally written-off when there is no expectation of recovering additional cash.
At 30 September 2012, trade receivables of £36.4m (2011: £33.0m) were either partially or fully impaired.
Trade receivables which were past their due date but not impaired at 30 September 2012 were £44.8m (2011: £54.9m).
The maximum exposure to credit risk at the end of the reporting period 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.
The ageing of these receivables was as follows:
Not due
Less than six months past due
More than six months past due
The ageing of these receivables was as follows:
Less than six months past due
More than six months past due
7.3 Trade and other payables
Other tax and social security payable
Trade payables
Other payables
Accruals
7.4 Deferred income
Deferred income
to be recognised in future periods.
2012
£m
3.7
7.7
25.0
36.4
2012
£m
41.0
3.8
44.8
2012
£m
40.2
64.3
31.3
123.2
259.0
2012
£m
420.3
2011
£m
3.5
7.7
21.8
33.0
2011
£m
49.5
5.4
54.9
2011
£m
47.5
65.0
24.2
124.5
261.2
2011
£m
404.7
Revenue not recognised in the income statement under the Group accounting policy for revenue recognition is classified as deferred income in the balance sheet
8 Post-employment benefits
The Group has established a number of pension schemes around the world covering many of its employees. All of these schemes are defined contribution
schemes with the exception of a small defined benefit pension scheme in Switzerland and another post-employment defined 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.
Pension costs
Defined contribution schemes
Defined benefit plans
Note
2.2
Defined benefit plans
The most recent actuarial valuations of the post-employment benefit plans were performed by Ernst & Young in October 2012.
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
Mortality rate assumptions made by the actuaries
Average life expectancy for 65-year-old male
Average life expectancy for 65-year-old female
Average life expectancy for 45-year-old male
Average life expectancy for 45-year-old female
Amounts recognised in the balance sheet
Present value of funded obligations
Fair value of plan assets
Net liability recognised in the balance sheet
2012
£m
10.0
1.9
11.9
2012
%
2.90
0.00
2.80
1.50
2.10
2012
years
20.0
24.7
32.5
39.0
2012
£m
(30.8)
16.5
(14.3)
The expected return on plan assets is based on market expectation at the beginning of the period for returns over the entire life of the benefit obligation.
Major categories of plan assets as a percentage of total plan assets
Bonds
Equities
Property
Other
£m
9.3
2.3
1.1
3.8
2012
%
56.4
13.9
6.7
23.0
16.5
100.0
£m
11.4
2.9
1.5
2.0
17.8
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2011
£m
9.8
2.0
11.8
2011
%
2.80
0.00
2.80
1.60
2.50
2011
years
19.9
24.4
32.9
39.0
2011
£m
(29.5)
17.8
(11.7)
2011
%
64.1
16.3
8.4
11.2
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 at the end of the reporting period. 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 2013 are £0.6m (2011: expected contributions year ending
30 September 2012 £0.8m).
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.
The Sage Group plc | Annual Report & Accounts 2012
2012
£m
(0.9)
0.4
(1.4)
(1.9)
2011
£m
(0.9)
0.4
(1.5)
(2.0)
101
Operating assets and liabilities continued
8 Post-employment benefits continued
Changes in the present value of the defined benefit obligation
At 1 October
Exchange movement
Service cost
Plan participant contributions
Interest cost
Reclassification
Actuarial (loss)/gain on benefit obligation
At 30 September
Changes in the fair value of plan assets
At 1 October
Exchange movement
Expected return on plan assets
Employer’s contributions
Employee’s contributions
Actuarial loss on plan assets
At 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 reduction on plan assets was £1.7m (2011: £0.1m reduction).
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
Cumulative actuarial gains and losses recognised outside profit or loss
At 1 October
Actuarial (losses)/gains recognised in the year (before tax)
At 30 September
102
2012
£m
(29.5)
2.2
(1.4)
(0.7)
(0.9)
–
(0.5)
(30.8)
2012
£m
17.8
(1.2)
0.4
0.9
0.7
(2.1)
16.5
2012
£m
(11.7)
1.0
(1.9)
0.9
–
(2.6)
(14.3)
2009
£m
(31.7)
19.9
(11.8)
(0.2)
0.5
2012
£m
1.3
(2.6)
(1.3)
2011
£m
(26.2)
(1.4)
(1.5)
(0.7)
(0.9)
(0.3)
1.5
(29.5)
2011
£m
14.9
1.4
0.4
0.9
0.7
(0.5)
17.8
2011
£m
(11.3)
–
(2.0)
0.9
(0.3)
1.0
(11.7)
2008
£m
(20.0)
16.1
(3.9)
(3.5)
0.7
2011
£m
0.3
1.0
1.3
2012
£m
(30.8)
16.5
(14.3)
0.5
2.1
2011
£m
(29.5)
17.8
(11.7)
(1.5)
0.5
2010
£m
(26.2)
14.9
(11.3)
0.1
0.2
Operating assets and liabilities continued
8 Post-employment benefits continued
Changes in the present value of the defined benefit obligation
At 1 October
Exchange movement
Service cost
Plan participant contributions
Interest cost
Reclassification
At 30 September
Actuarial (loss)/gain on benefit obligation
Changes in the fair value of plan assets
At 1 October
Exchange movement
Expected return on plan assets
Employer’s contributions
Employee’s contributions
Actuarial loss on plan assets
At 30 September
Analysis of the movement in the balance sheet liability
Total expense as recognised in the income statement
At 1 October
Exchange movement
Contributions paid
Reclassification
Actuarial (loss)/gain
At 30 September
The reduction on plan assets was £1.7m (2011: £0.1m reduction).
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
Cumulative actuarial gains and losses recognised outside profit or loss
Actuarial (losses)/gains recognised in the year (before tax)
At 1 October
At 30 September
2012
£m
(29.5)
2.2
(1.4)
(0.7)
(0.9)
–
(0.5)
(30.8)
2012
£m
17.8
(1.2)
0.4
0.9
0.7
(2.1)
16.5
2012
£m
(11.7)
1.0
(1.9)
0.9
–
(2.6)
(14.3)
2009
£m
(31.7)
19.9
(11.8)
(0.2)
0.5
2012
£m
1.3
(2.6)
(1.3)
2011
£m
(26.2)
(1.4)
(1.5)
(0.7)
(0.9)
(0.3)
1.5
(29.5)
2011
£m
14.9
1.4
0.4
0.9
0.7
(0.5)
17.8
2011
£m
(11.3)
–
(2.0)
0.9
(0.3)
1.0
(11.7)
2008
£m
(20.0)
16.1
(3.9)
(3.5)
0.7
2011
£m
0.3
1.0
1.3
9 Deferred income tax
Deferred income tax has been calculated at 23% (2011: 25%) in respect of UK companies (being the corporation tax rate at which timing differences
are expected to reverse) and at the prevailing rates for the overseas subsidiaries.
The Finance Act 2012, which was substantively enacted on 3 July 2012, includes legislation reducing the main rate of UK corporation tax to 23% from
1 April 2013. As such deferred tax balances at 30 September 2012 have been calculated using a rate of 23%.
The movement on the deferred tax account is as shown below:
At 1 October
Income statement credit/(charge)
Acquisition of subsidiaries
Income tax on discontinued operations
Exchange movement
Other comprehensive income/equity movement in deferred tax
Transfer from current income tax liabilities
At 30 September
2012
£m
6.0
5.0
(10.7)
(16.2)
(0.1)
(0.7)
(2.8)
(19.5)
2011
£m
(29.2)
(1.8)
0.6
38.6
(0.1)
(1.7)
(0.4)
6.0
Deferred tax assets have been recognised in respect of tax losses and other temporary differences giving rise to deferred tax assets because it is probable that
these assets will be recovered. These have been included within the ‘Other’ category.
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.
Assets
At 1 October 2011
Income statement credit
Acquisition of subsidiaries
Reclassification to deferred tax liability
Reclassification to other deferred tax
Income tax on discontinued operations
Exchange movement
At 30 September 2012
Liabilities
At 1 October 2011
Income statement credit/(charge)
Acquisition of subsidiaries
Reclassification from deferred tax asset
Reclassification to other deferred tax
Exchange movement
Other comprehensive income/equity movement in deferred tax
Transfer from current income tax liabilities
At 30 September 2012
Net deferred tax (liability)/asset at 30 September 2012
Intangible
assets
£m
(21.6)
0.1
(0.2)
(10.9)
(0.5)
31.9
–
(1.2)
(21.6)
6.0
(16.6)
10.9
(0.5)
1.9
–
–
(19.9)
(21.1)
Other
£m
42.3
0.7
0.1
15.8
0.5
(48.1)
(0.1)
11.2
6.9
(1.8)
6.0
(15.8)
0.5
(1.9)
(0.7)
(2.8)
(9.6)
1.6
Total
£m
20.7
0.8
(0.1)
4.9
–
(16.2)
(0.1)
10.0
(14.7)
4.2
(10.6)
(4.9)
–
–
(0.7)
(2.8)
(29.5)
(19.5)
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2012
£m
(30.8)
16.5
(14.3)
0.5
2.1
2011
£m
(29.5)
17.8
(11.7)
(1.5)
0.5
2010
£m
(26.2)
14.9
(11.3)
0.1
0.2
The Sage Group plc | Annual Report & Accounts 2012
103
Operating assets and liabilities continued
9 Deferred income tax continued
Assets
At 1 October 2010
Income statement charge
Reclassification from deferred tax liability
Reclassification to other deferred tax
Income tax on discontinued operations
Exchange movement
At 30 September 2011
Liabilities
At 1 October 2010
Income statement credit/(charge)
Acquisition of subsidiaries
Reclassification to deferred tax asset
Reclassification to other deferred tax
Exchange movement
Equity movement of deferred income tax
Transfer from current income tax liabilities
At 30 September 2011
Intangible
assets
£m
(1.2)
(0.2)
(17.2)
3.8
(6.4)
(0.4)
(21.6)
(42.5)
3.2
–
17.2
0.4
0.1
–
–
(21.6)
Other
£m
11.6
(3.7)
(7.0)
(3.8)
45.0
0.2
42.3
2.9
(1.1)
0.6
7.0
(0.4)
–
(1.7)
(0.4)
6.9
Total
£m
10.4
(3.9)
(24.2)
–
38.6
(0.2)
20.7
(39.6)
2.1
0.6
24.2
–
0.1
(1.7)
(0.4)
(14.7)
Net deferred tax (liability)/asset at 30 September 2011
(43.2)
49.2
6.0
The deferred tax liability due after more than one year is £19.9m (2011: £21.6m).
10 Operating lease commitments
Total future minimum lease payments under non-cancellable operating leases falling due for payment as follows:
Within one year
Later than one year and less than five years
After five years
2012
Property,
vehicles,
plant and
equipment
£m
36.9
110.3
61.0
208.2
2011
Property,
vehicles,
plant and
equipment
£m
35.6
108.6
69.5
213.7
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.
11 Contingent liabilities
The Group had no contingent liabilities at 30 September 2012 (2011: none).
104
Operating assets and liabilities continued
Net debt and capital structure
9 Deferred income tax continued
Assets
At 1 October 2010
Income statement charge
Reclassification from deferred tax liability
Reclassification to other deferred tax
Income tax on discontinued operations
Exchange movement
At 30 September 2011
Liabilities
At 1 October 2010
Income statement credit/(charge)
Acquisition of subsidiaries
Reclassification to deferred tax asset
Reclassification to other deferred tax
Exchange movement
Equity movement of deferred income tax
Transfer from current income tax liabilities
At 30 September 2011
Intangible
assets
£m
(1.2)
(0.2)
(17.2)
3.8
(6.4)
(0.4)
(21.6)
(42.5)
3.2
–
17.2
0.4
0.1
–
–
(21.6)
Other
£m
11.6
(3.7)
(7.0)
(3.8)
45.0
0.2
42.3
2.9
(1.1)
0.6
7.0
(0.4)
–
(1.7)
(0.4)
6.9
Total
£m
10.4
(3.9)
(24.2)
–
38.6
(0.2)
20.7
(39.6)
2.1
0.6
24.2
–
0.1
(1.7)
(0.4)
(14.7)
2012
Property,
vehicles,
plant and
equipment
£m
36.9
110.3
61.0
208.2
2011
Property,
vehicles,
plant and
equipment
£m
35.6
108.6
69.5
213.7
Net deferred tax (liability)/asset at 30 September 2011
(43.2)
49.2
6.0
The deferred tax liability due after more than one year is £19.9m (2011: £21.6m).
10 Operating lease commitments
Total future minimum lease payments under non-cancellable operating leases falling due for payment as follows:
Within one year
After five years
Later than one year and less than five years
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.
11 Contingent liabilities
The Group had no contingent liabilities at 30 September 2012 (2011: none).
12 Cash flow and net debt
12.1 Cash flow generated from continuing operations
Reconciliation of profit for the year to cash generated from continuing operations
Profit for the year
Adjustments for:
Income tax
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 movement
Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries)
– Decrease in inventories
– Increase in trade and other receivables
– (Decrease)/increase in trade and other payables
– Increase in deferred income
Cash generated from continuing operations
12.2 Net debt
Reconciliation of net cash flow to movement in net debt (inclusive of finance leases)
(Decrease)/increase 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
Acquisitions
Non-cash movements
Exchange movement
Movement in net debt in the year
Net debt at 1 October
Net debt at 30 September
2012
£m
238.9
95.4
(2.6)
13.2
25.6
21.7
0.2
(1.4)
1.3
(4.4)
0.3
(16.0)
(1.0)
12.6
383.8
2012
£m
(124.6)
(13.9)
(138.5)
(0.3)
(1.1)
3.3
(136.6)
(24.9)
(161.5)
2011
£m
256.0
74.8
(1.9)
14.4
28.1
21.8
2.5
(1.3)
3.2
(2.7)
0.3
(34.0)
14.0
29.9
405.1
2011
£m
113.6
83.4
197.0
1.0
(1.2)
(1.9)
194.9
(219.8)
(24.9)
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Numerical financial instruments disclosures are set out below and also in note 13.
Analysis of change in net debt (inclusive of finance leases)
Cash and cash equivalents
Bank overdrafts
Cash, cash equivalents and bank overdrafts
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
2011
£m
182.8
(0.8)
182.0
(0.9)
(190.0)
(2.4)
(13.6)
(24.9)
Cash flow
£m
Acquisitions
£m
Non-cash
movements
£m
Exchange
movement
£m
At
30 September
2012
£m
(118.2)
(6.4)
(124.6)
0.7
(14.8)
–
0.2
(138.5)
–
–
–
(0.2)
(0.1)
–
–
(0.3)
–
–
–
(0.8)
(1.1)
0.8
–
(1.1)
(3.0)
–
(3.0)
–
6.8
–
(0.5)
3.3
61.6
(7.2)
54.4
(1.2)
(199.2)
(1.6)
(13.9)
(161.5)
Included in cash above is £13.9m (2011: £13.6m) relating to cash collected from customers, which the Group is contracted to pay on to another party.
A liability for the same amount is included in trade and other payables on the balance sheet and is classified within net debt above.
The Sage Group plc | Annual Report & Accounts 2012
105
Net debt and capital structure continued
12 Cash flow and net debt continued
12.3 Cash and cash equivalents (excluding bank overdrafts)
Cash at bank and in hand
Short-term bank deposits
2012
£m
61.3
0.3
61.6
The effective interest rate on short-term deposits was 7.0% (2011: 0.7%) and these deposits have an average maturity of 90 days (2011: 29 days).
The Group’s credit risk on cash and cash equivalents is limited because the counterparties are well established banks with high credit ratings.
12.4 Borrowings
Current
Bank overdrafts
Finance lease obligations
Non-current
US senior loan notes – unsecured
Bank loans – unsecured
Finance lease obligations
2012
£m
7.2
1.2
8.4
2012
£m
185.3
13.9
1.6
200.8
2011
£m
64.3
118.5
182.8
2011
£m
0.8
0.9
1.7
2011
£m
189.9
0.1
2.4
192.4
Included in loans above is £199.2m (2011: £190.0m) of unsecured loans (after unamortised issue costs). These borrowings were taken out in connection
with acquisitions.
The Group has US$300.0m (£185.8m, 2011: £192.6m) of US senior loan notes, which were issued into the US private placement market. These notes mature
US$200.0m (£123.8m, 2011: £128.4m) in 2015, US$50.0m (£31.0m, 2011: £32.1m) in 2016 and US$50.0m (£31.0m, 2011: £32.1m) in 2017 and carry interest
coupons of 4.39%, 4.78% and 5.15% respectively.
There were £15.0m drawings (2011: £nil) under the multi-currency revolving credit facility of £338.3m (2011: £358.3m) expiring on 31 August 2015, which
consists both of US$271.0m (£167.8m, 2011: £174.0m) and of €214.0m (£170.5m, 2011: £184.3m) tranches.
Unsecured bank loans were drawn in the following currencies: Sterling £15.0m (2011: £nil), US Dollar £nil (2011: £nil), Euro £nil (2011: £0.1m), which bear
an average fixed interest rate of 1.73% (2011: 4.2%).
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £1.6m (2011: £2.7m). The Group has incurred total issue costs
amounting to £4.4m (2011: £4.4m) in respect of these facilities. These issue costs were paid during the year ended 30 September 2010, no issue costs were
incurred during the current financial year. These costs are allocated to the income statement over the term of the facility using the effective interest method.
106
The effective interest rate on short-term deposits was 7.0% (2011: 0.7%) and these deposits have an average maturity of 90 days (2011: 29 days).
The Group’s credit risk on cash and cash equivalents is limited because the counterparties are well established banks with high credit ratings.
Net debt and capital structure continued
12 Cash flow and net debt continued
12.3 Cash and cash equivalents (excluding bank overdrafts)
Cash at bank and in hand
Short-term bank deposits
12.4 Borrowings
Current
Bank overdrafts
Finance lease obligations
Non-current
US senior loan notes – unsecured
Bank loans – unsecured
Finance lease obligations
with acquisitions.
2012
£m
61.3
0.3
61.6
2012
£m
7.2
1.2
8.4
2012
£m
185.3
13.9
1.6
200.8
2011
£m
64.3
118.5
182.8
2011
£m
0.8
0.9
1.7
2011
£m
189.9
0.1
2.4
192.4
Included in loans above is £199.2m (2011: £190.0m) of unsecured loans (after unamortised issue costs). These borrowings were taken out in connection
The Group has US$300.0m (£185.8m, 2011: £192.6m) of US senior loan notes, which were issued into the US private placement market. These notes mature
US$200.0m (£123.8m, 2011: £128.4m) in 2015, US$50.0m (£31.0m, 2011: £32.1m) in 2016 and US$50.0m (£31.0m, 2011: £32.1m) in 2017 and carry interest
coupons of 4.39%, 4.78% and 5.15% respectively.
There were £15.0m drawings (2011: £nil) under the multi-currency revolving credit facility of £338.3m (2011: £358.3m) expiring on 31 August 2015, which
consists both of US$271.0m (£167.8m, 2011: £174.0m) and of €214.0m (£170.5m, 2011: £184.3m) tranches.
Unsecured bank loans were drawn in the following currencies: Sterling £15.0m (2011: £nil), US Dollar £nil (2011: £nil), Euro £nil (2011: £0.1m), which bear
an average fixed interest rate of 1.73% (2011: 4.2%).
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £1.6m (2011: £2.7m). The Group has incurred total issue costs
amounting to £4.4m (2011: £4.4m) in respect of these facilities. These issue costs were paid during the year ended 30 September 2010, no issue costs were
incurred during the current financial year. These costs are allocated to the income statement over the term of the facility using the effective interest method.
13 Financial instruments
Numerical financial instruments disclosures are set out below and also in note 12.
13.1 Fair values of financial instruments
For the following financial assets and liabilities: long-term borrowings, short-term borrowings, trade and other payables excluding tax and social security, trade
and other receivables excluding prepayments and accrued income, short-term bank deposits, cash at bank and in hand and other financial liabilities, the carrying
amount approximates the fair value of the instrument with the exception of long-term borrowings due to these bearing interest at fixed rates which are currently
higher than floating rates.
Long-term borrowings
Fair value of other financial assets and financial liabilities
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 and accrued income
Short-term bank deposits
Cash at bank and in hand
Other financial liabilities
Book
value
£m
(200.8)
(8.4)
(194.7)
285.1
0.3
61.3
2012
Fair
value
£m
(218.1)
(8.4)
(194.7)
285.1
0.3
61.3
(128.3)
(128.3)
Book
value
£m
(192.4)
(1.7)
(196.2)
265.1
118.5
64.3
(50.0)
2011
Fair
value
£m
(207.6)
(1.7)
(196.2)
265.1
118.5
64.3
(50.0)
Note
12.4
12.4
7.3
7.2
12.3
12.3
13.5
13.2 Risk management
The Group’s Treasury function seeks to reduce exposures to interest rate, foreign exchange and other financial risks, to ensure liquidity is available to meet the
foreseeable needs of the Group and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments and
transacts only in relation to underlying business requirements. The Group’s treasury policies and procedures are periodically reviewed and approved by the
Audit Committee and are subject to regular Group Internal Audit review.
Capital risk
The Group’s objectives when managing capital (defined as net debt (note 12.2) 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 has net debt of £161.5m (2011: £24.9m) and access to undrawn credit facilities of £323.3m (2011: £358.3m). 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 and senior loan notes, being 3.0 times. At 30 September 2012 this ratio was 0.4 times (2011: 0.1 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. The Group have set a
minimum leverage target of 1 times net debt to EBITDA and are working towards achieving this.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its exposure to liquidity risk by
reviewing the cash resources required to meet its business objectives through both short and long-term cash flow forecasts. The Group has committed facilities
which are available to be drawn for general corporate purposes including working capital.
The Group’s Treasury function has a policy of optimising the level of cash in the business in order to minimise external borrowings.
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 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 operational credit risk due to the transactions being principally of a high volume, low value and short
maturity. The Group has no significant concentration of operational 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 2012 the Group did not see 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.
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The Sage Group plc | Annual Report & Accounts 2012
107
Net debt and capital structure continued
13 Financial instruments continued
Interest rate risk
The Group is exposed to interest rate risk on floating rate deposits and borrowings. The US private placement loan notes, which comprises 93% of borrowings,
are at fixed interest rates and bank debt, which comprises 7% of borrowings, are at floating interest rates. At 30 September 2012, the Group had £61.6m
(2011: £182.8m) of cash and cash equivalents.
The Group regularly reviews forecast debt, cash and cash equivalents and interest rates to monitor this risk. Interest rates on debt and deposits are fixed when
management decides this is appropriate. At 30 September 2012, the Group’s principal borrowings comprised US private placement loan notes of £185.8m
(2011: £192.6m), which have an average fixed interest rate of 4.58% and bank debt of £15.0m (2011: £nil), which has an average floating interest rate of 1.73%.
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.
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 within these subsidiaries. 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. The Group is also exposed to a foreign exchange transaction exposure from the conversion
of surplus cash generated by its principal overseas subsidiaries, which would be hedged where appropriate.
The Group’s US Dollar denominated borrowings are designated as a hedge of the net investment in its subsidiaries in the US. The foreign exchange movements
on translation of the borrowings into Sterling have been recognised in the translation reserve.
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 entity involved.
At 30 September 2011 and 30 September 2012, these exposures were immaterial to the Group.
13.3 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 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
In more than five years
Borrowings
£m
Trade and
other payables
£m
Other financial
liabilities
£m
9.2
2.4
228.2
–
239.8
259.0
–
–
–
259.0
60.0
–
68.3
–
128.3
Borrowings
£m
Trade and
other payables
£m
Other financial
liabilities
£m
2.6
3.4
155.6
83.5
245.1
261.2
50.0
–
–
–
–
–
–
261.2
50.0
2012
Total
£m
328.2
2.4
296.5
–
627.1
2011
Total
£m
313.8
3.4
155.6
83.5
556.3
13.4 Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at 30 September in respect of which all conditions precedent had been met
at that date:
Expiring in more than two years but not more than five years
2012
£m
323.3
2011
£m
358.3
The facilities have been arranged to help finance the 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 and has also utilised the US private placement market.
108
Net debt and capital structure continued
13 Financial instruments continued
Interest rate risk
(2011: £182.8m) of cash and cash equivalents.
The Group is exposed to interest rate risk on floating rate deposits and borrowings. The US private placement loan notes, which comprises 93% of borrowings,
are at fixed interest rates and bank debt, which comprises 7% of borrowings, are at floating interest rates. At 30 September 2012, the Group had £61.6m
The Group regularly reviews forecast debt, cash and cash equivalents and interest rates to monitor this risk. Interest rates on debt and deposits are fixed when
management decides this is appropriate. At 30 September 2012, the Group’s principal borrowings comprised US private placement loan notes of £185.8m
(2011: £192.6m), which have an average fixed interest rate of 4.58% and bank debt of £15.0m (2011: £nil), which has an average floating interest rate of 1.73%.
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.
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 within these subsidiaries. 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. The Group is also exposed to a foreign exchange transaction exposure from the conversion
of surplus cash generated by its principal overseas subsidiaries, which would be hedged where appropriate.
The Group’s US Dollar denominated borrowings are designated as a hedge of the net investment in its subsidiaries in the US. The foreign exchange movements
on translation of the borrowings into Sterling have been recognised in the translation reserve.
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 entity involved.
At 30 September 2011 and 30 September 2012, these exposures were immaterial to the Group.
13.3 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 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
In more than five years
13.4 Borrowing facilities
at that date:
Borrowings
other payables
liabilities
Trade and
Other financial
259.0
128.3
Borrowings
other payables
liabilities
Trade and
Other financial
£m
9.2
2.4
228.2
–
239.8
£m
2.6
3.4
155.6
83.5
245.1
£m
259.0
–
–
–
–
–
–
£m
261.2
£m
60.0
68.3
–
–
£m
50.0
–
–
–
261.2
50.0
2012
Total
£m
328.2
2.4
296.5
–
627.1
2011
Total
£m
313.8
3.4
155.6
83.5
556.3
The Group has the following undrawn committed borrowing facilities available at 30 September in respect of which all conditions precedent had been met
Expiring in more than two years but not more than five years
The facilities have been arranged to help finance the 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 and has also utilised the US private placement market.
2012
£m
323.3
2011
£m
358.3
13.5 Other financial liabilities
Current: Close period share buyback programme
Non-current: Put and call arrangement to acquire non-controlling interest
Total other financial liabilities
Assets
£m
–
–
–
2012
Liabilities
£m
(60.0)
(68.3)
(128.3)
Assets
£m
–
–
–
2011
Liabilities
£m
(50.0)
–
(50.0)
Current other financial liabilities relate to outstanding liabilities of £60.0m (2011: £50.0m) arising under an irrevocable close period buyback agreement for the
purchase of the Company’s own shares which was outstanding at 30 September. The fair value has been calculated based on the value of the contractual legal
agreement with Deutsche Bank AG, which is also equal to the book value. Refer to note 18.1 for further details of the buyback.
Non-current other financial liabilities relate to a put and call arrangement to acquire the remaining non-controlling interest’s 25% share in Folhamatic in Brazil
during 2015. The liability is estimated at £71.0m (2011: £nil), which is £68.3m (2011: £nil) after discounting to present value of the estimated redemption amount.
The redemption amount is calculated based on a multiple of expected EBITDA for the year ending 31 December 2014.
The present value of the estimated redemption amount was initially recognised at £68.0m (2011: £nil), movements on charging the discount of £0.3m (2011: £nil)
have been recognised within finance costs.
13.6 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
Sterling, US Dollar and Euro interest rates, and Sterling/US Dollar and Sterling/Euro 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 Sterling/US Dollar and Sterling/Euro 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.
Income
(losses)/gains
£m
2012
Equity
(losses)/gains
£m
Income
(losses)/gains
£m
2011
Equity
(losses)/gains
£m
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
13.7 The minimum lease payments under finance leases fall due as follows:
(1.9)
1.9
(5.4)
(6.0)
5.9
6.6
(1.9)
1.9
(41.6)
(26.1)
45.8
28.7
In less than one year
In more than one year but not more than five years
Future finance charges on finance leases
Present value of finance lease liabilities
(2.0)
2.0
(5.1)
(7.4)
5.6
8.1
2012
£m
1.3
1.7
3.0
(0.2)
2.8
(2.0)
2.0
(62.4)
(31.6)
68.7
34.8
2011
£m
1.0
2.6
3.6
(0.3)
3.3
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The Sage Group plc | Annual Report & Accounts 2012
109
Net debt and capital structure continued
14 Equity
14.1 Ordinary shares
Authorised
1,860,000,000 (2011: 1,860,000,000) ordinary shares of 1p each
Issued and fully paid
At 1 October
Proceeds from shares issued
At 30 September
2012
£m
18.6
2011
shares
2012
shares
2012
£m
1,323,837,836
13.2
1,317,360,582
5,679,734
0.1
6,477,254
1,329,517,570
13.3
1,323,837,836
2011
£m
18.6
2011
£m
13.2
–
13.2
Potential issues of ordinary shares
Executive Share Option Scheme
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 134.00p to 270.00p 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
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
Exercise price
pence
228.50
134.00
147.00
171.00
172.00
198.00
206.00
258.50
270.00
248.00
214.00
Exercise period
2 January 2005 – 2 January 2012
31 December 2005 – 31 December 2012
12 May 2006 – 12 May 2013
2012
number
–
100,980
108,033
24 December 2006 – 24 December 2013
1,517,245
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
37,791
863,216
901,595
1,823,515
1,268,375
22,604
174,496
2011
number
1,187,105
452,468
262,634
2,438,714
90,117
1,373,034
1,101,446
2,654,089
1,933,437
30,014
430,532
6,817,850
11,953,590
Under the above scheme, 4,618,463 1p ordinary shares were issued during the year for aggregate proceeds of £9.8m.
Performance Share Plan
Under the Group’s Performance Share 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
3 March 2009
4 March 2010
10 March 2011
8 September 2011
12 March 2012
26 June 2012
2012
number
2011
number
–
11,379,360
Vesting date
3 March 2012
4 March 2013
10 March 2014
8 September 2014
7,333,241
7,547,001
84,413
12 March 2015
4,151,025
26 June 2015
12,538
7,842,033
7,998,296
84,413
–
–
Restricted Share Plan
The Group’s Restricted Share Plan is a long-term incentive plan used in limited circumstances and usually on a one-off basis. During the year the following
awards have been made:
19,128,218
27,304,102
Date of award
5 December 2011
26 June 2012
110
Vesting date
5 December 2013
26 June 2015
2012
number
369,818
350,018
719,836
2011
number
–
–
–
Net debt and capital structure continued
14 Equity
14.1 Ordinary shares
Authorised
1,860,000,000 (2011: 1,860,000,000) ordinary shares of 1p each
Issued and fully paid
At 1 October
Proceeds from shares issued
At 30 September
Potential issues of ordinary shares
Executive Share Option Scheme
2012
shares
2012
£m
1,323,837,836
13.2
1,317,360,582
5,679,734
0.1
6,477,254
1,329,517,570
13.3
1,323,837,836
2012
£m
18.6
2011
shares
2011
£m
18.6
2011
£m
13.2
–
13.2
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 134.00p to 270.00p 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
Exercise price
pence
228.50
134.00
147.00
171.00
172.00
198.00
206.00
258.50
270.00
248.00
214.00
Exercise period
2 January 2005 – 2 January 2012
31 December 2005 – 31 December 2012
12 May 2006 – 12 May 2013
24 December 2006 – 24 December 2013
1,517,245
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
2012
number
–
100,980
108,033
37,791
863,216
901,595
1,823,515
1,268,375
22,604
174,496
2011
number
1,187,105
452,468
262,634
2,438,714
90,117
1,373,034
1,101,446
2,654,089
1,933,437
30,014
430,532
6,817,850
11,953,590
Under the above scheme, 4,618,463 1p ordinary shares were issued during the year for aggregate proceeds of £9.8m.
Performance Share Plan
Under the Group’s Performance Share 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:
The Group’s Restricted Share Plan is a long-term incentive plan used in limited circumstances and usually on a one-off basis. During the year the following
Vesting date
3 March 2012
4 March 2013
10 March 2014
8 September 2014
2012
number
2011
number
–
11,379,360
7,333,241
7,547,001
84,413
7,842,033
7,998,296
84,413
12 March 2015
4,151,025
26 June 2015
12,538
19,128,218
27,304,102
Vesting date
5 December 2013
26 June 2015
2012
number
369,818
350,018
719,836
–
–
–
–
–
2011
number
given below:
Date of grant
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
Date of award
3 March 2009
4 March 2010
10 March 2011
8 September 2011
12 March 2012
26 June 2012
Restricted Share Plan
awards have been made:
Date of award
5 December 2011
26 June 2012
Savings-related Share Option Scheme
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 2005
1 August 2006
1 August 2006
1 August 2007
1 August 2007
1 August 2008
1 August 2008
1 August 2008
1 August 2009
1 August 2009
1 August 2009
1 August 2010
1 August 2010
1 August 2010
1 August 2011
1 August 2011
1 August 2011
1 August 2012
1 August 2012
1 August 2012
Exercise price
pence
157.00
184.00
184.00
203.00
203.00
177.00
177.00
177.00
149.00
149.00
149.00
190.00
190.00
190.00
234.00
234.00
234.00
201.00
201.00
201.00
Exercise period
1 March 2012 – 31 August 2012
1 August 2011 – 31 January 2012
1 August 2013 – 31 January 2014
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
1 August 2013 – 31 January 2014
1 August 2015 – 31 January 2016
1 August 2017 – 31 January 2018
1 August 2014 – 31 January 2015
1 August 2016 – 31 January 2017
1 August 2018 – 31 January 2019
1 August 2015 – 31 January 2016
1 August 2017 – 31 January 2018
1 August 2019 – 31 January 2020
2012
number
–
–
18,397
2,945
10,734
–
125,850
9,068
98,858
276,508
27,072
406,990
128,473
14,684
458,349
77,087
14,534
1,212,554
177,486
21,908
2011
number
10,701
15,446
20,999
62,747
18,525
67,812
132,836
9,462
1,077,740
292,261
28,392
463,975
142,620
18,099
621,743
95,540
20,348
–
–
–
3,081,497
3,099,246
Under the above scheme, 1,061,271 1p ordinary shares were issued during the year for aggregate proceeds of £1.6m.
The market price of the shares of the Company at 30 September 2012 was 313.40p and the highest and lowest prices during the year were 324.80p and
247.70p respectively.
14.2 Share-based payments
The total charge for the year relating to employee share-based payment plans was £1.3m (2011: £3.2m), all of which related to equity-settled share-based
payment transactions. After deferred tax, the total charge was £3.0m (2011: £4.9m). A reconciliation of share movements for options granted after 7 November
2002 to which IFRS 2, “Share-based payment” is applicable is shown on the following pages.
Executive Share Option Scheme
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 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 the Retail Prices Index (“RPI”) by 15%
(an average of 5% per year) and 100% of those options will vest at that time only if the RPI is exceeded in that period by 27% (an average of 9% per year).
Between those targets, options will vest on a straight-line basis. If those targets are not met at the end of the three-year period, then no further retesting of the
performance criteria will be undertaken and the options will lapse.
Options were valued using the Black-Scholes option-pricing model. 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.
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111
Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
A reconciliation of option movements over the year is shown below:
Outstanding at 1 October
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
£
1.34 – 2.70
2012
Weighted
average
exercise
price
£
2.17
2.36
2.07
2.21
2.21
Number
’000s
10,766
(380)
(3,568)
6,818
6,818
2011
Weighted
average
exercise
price
£
2.13
2.18
1.90
2.17
2.17
Number
’000s
22,888
(8,348)
(3,774)
10,766
10,486
2012
Weighted average
remaining life years
2011
Weighted average
remaining life years
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
2.21
6,818
–
2.8
2.17
10,766
–
3.7
The weighted average share price during the period for options exercised over the year was 294.05p (2011: 282.20p).
The Sage Group Performance Share Plan
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 2012 comprised the following companies:
− Adobe Systems
− ARM Holdings
− Blackbaud
− Cap Gemini
− Cegid
− Logica
− Salesforce.com
− Dassault Systèmes
− Micro Focus International
− SAP
− Exact
− Intuit
− Microsoft
− 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 and 1.5, 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:
112
Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
A reconciliation of option movements over the year is shown below:
Outstanding at 1 October
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
£
1.34 – 2.70
of the annual results.
2012
Weighted
average
exercise
price
£
2.17
2.36
2.07
2.21
2.21
Number
’000s
10,766
(380)
(3,568)
6,818
6,818
Number
’000s
22,888
(8,348)
(3,774)
10,766
10,486
2011
Weighted
average
exercise
price
£
2.13
2.18
1.90
2.17
2.17
2011
2012
Weighted average
remaining life years
Weighted average
remaining life years
Weighted
average
exercise
price
Number
of shares
’000s
Expected Contractual
£
’000s
Expected Contractual
6,818
–
2.8
2.17
10,766
–
3.7
Weighted
average
exercise
price
£
2.21
Number
of shares
The weighted average share price during the period for options exercised over the year was 294.05p (2011: 282.20p).
The Sage Group Performance Share Plan
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
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 2012 comprised the following companies:
− Adobe Systems
− ARM Holdings
− Blackbaud
− Cap Gemini
− Cegid
− Exact
− Intuit
− Logica
− Microsoft
− Oracle
− Dassault Systèmes
− Micro Focus International
− SAP
− Salesforce.com
− 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 and 1.5, 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
March
2011
£2.70
£0.00
207
September
2011
£2.57
£0.00
1
March
2012
£2.98
£0.00
8
March
2012
£2.98
£0.00
154
7,547,001
84,413
2,083,735
2,067,290
3
31%
3
3
1.6%
0.0%
£2.121
3
29%
3
3
0.6%
0.0%
£1.993
3
24%
3
3
0.5%
0.0%
£2.415
3
24%
3
3
0.5%
0.0%
£2.979
June
2012
£2.60
£0.00
1
12,538
3
24%
3
3
0.5%
0.0%
£2.979
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate of
return is the yield on zero-coupon UK government bonds of a term consistent with the assumed award life.
A reconciliation of award movements over the year is shown below:
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
N/A
2012
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
27,304
4,363
(6,694)
(5,845)
19,128
–
2011
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
24,810
8,586
(4,925)
(1,167)
27,304
–
2012
Weighted average
remaining life years
2011
Weighted average
remaining life years
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
–
19,128
1.3
1.3
–
27,304
1.3
1.3
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The Sage Group plc | Annual Report & Accounts 2012
113
Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
The Sage Group Restricted Share Plan
The Group’s Restricted Share Plan is a long-term incentive plan used in limited circumstances and usually on a one-off basis, under which contingent share
awards are made, usually with specific performance conditions. Executive Directors are not permitted to participate in the plan and shares are purchased in the
market to satisfy vesting awards.
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
December
2011
£2.87
£0.00
1
June
2012
£2.66
£0.00
1
369,818
350,018
2
23%
2
2
0.4%
0.0%
£2.874
3
23%
3
3
0.4%
0.0%
£2.655
Options were valued using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility over the last two or three years,
consistent with the award 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 award life.
A reconciliation of award movements over the year is shown below:
Outstanding at 1 October
Awarded
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
N/A
2012
Weighted
average
exercise
price
£
–
–
–
–
Number
’000s
–
720
720
–
2011
Weighted
average
exercise
price
£
–
–
–
–
Number
’000s
–
–
–
–
2012
Weighted average
remaining life years
2011
Weighted average
remaining life years
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
–
720
1.9
1.9
–
–
–
–
The Sage Group Savings-related Share Option Plan (the “SAYE Plan”)
In February 1996, the Company introduced a HM Revenue & Customs (“HMRC”) approved savings-related share option scheme allowing all UK employees to
apply for an option to acquire ordinary shares in the Company (“Shares”) at a price per Share which was not less than 80% of the market value of those Shares
when invitations for options were made. The acquisition of the Shares was funded by the proceeds of a savings account with a bank or building society. The
original scheme adopted in 1996 continued in accordance with its terms for 10 years and expired in February 2006. A new scheme was approved by the
members at the Annual General Meeting held on 2 March 2006.
Eligibility
All UK employees, including executive directors, of the Company and its participating subsidiaries who have completed at least one year’s continuous service
and are assessable for 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 seven years.
114
Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
The Sage Group Restricted Share Plan
market to satisfy vesting awards.
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
Outstanding at 1 October
Awarded
Outstanding at 30 September
Exercisable at 30 September
December
2011
£2.87
£0.00
June
2012
£2.66
£0.00
369,818
350,018
23%
23%
0.4%
0.0%
£2.874
0.4%
0.0%
£2.655
2011
Weighted
average
exercise
price
Number
’000s
1
3
3
3
£
–
–
–
–
1
2
2
2
–
–
–
–
2012
Weighted
average
exercise
price
£
–
–
–
–
Number
’000s
720
720
–
–
2012
Options were valued using the Black-Scholes option-pricing model. The expected volatility is based on historical volatility over the last two or three years,
consistent with the award 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 award life.
A reconciliation of award movements over the year is shown below:
Weighted average
remaining life years
Weighted
average
exercise
price
Number
of shares
Weighted
average
exercise
price
Number
of shares
2011
Weighted average
remaining life years
The Sage Group Savings-related Share Option Plan (the “SAYE Plan”)
In February 1996, the Company introduced a HM Revenue & Customs (“HMRC”) approved savings-related share option scheme allowing all UK employees to
apply for an option to acquire ordinary shares in the Company (“Shares”) at a price per Share which was not less than 80% of the market value of those Shares
when invitations for options were made. The acquisition of the Shares was funded by the proceeds of a savings account with a bank or building society. The
original scheme adopted in 1996 continued in accordance with its terms for 10 years and expired in February 2006. A new scheme was approved by the
members at the Annual General Meeting held on 2 March 2006.
Eligibility
All UK employees, including executive directors, of the Company and its participating subsidiaries who have completed at least one year’s continuous service
and are assessable for 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 seven years.
The Group’s Restricted Share Plan is a long-term incentive plan used in limited circumstances and usually on a one-off basis, under which contingent share
awards are made, usually with specific performance conditions. Executive Directors are not permitted to participate in the plan and shares are purchased in the
A tax-free bonus (currently equivalent to 1.6x the monthly contribution) will be paid on completion of 84 monthly savings contributions; no bonus is payable on
the 36 or 60 monthly savings.
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).
Exercise price
An employee who applies for the grant of an option to acquire Shares will do so at a price (the “Exercise Price”) which is determined by the directors but which is
not less than the greater of:
80% of the middle market quotation of a Share on the dealing day prior to the date of invitation as derived from the London Stock Exchange Daily Official List
(or, if the directors so decide, 80% of the average of the middle market quotations over the three dealing days prior to the date of the invitation or 80% of the
middle market quotations at such other time or times agreed in advance with HMRC); and
in the case of an option over unissued Shares, the nominal value of a Share.
Grant of options
Each option is granted over a number of Shares which, when multiplied by the Exercise Price, does not exceed the total monthly contributions plus the bonus
payable on the maturity of the SAYE contract. There will be no payment for the grant of an option. Invitations to apply for options must be made within a period of
42 days after:
approval of the SAYE Plan by HMRC; or
the publication by the Company of its interim or final results each year; or
the day after the Company’s Annual General Meeting; or
any day on which any change to the savings-related share option schemes legislation is announced or made; or
if the directors resolve that exceptional circumstances exist which justify the operation of the SAYE Plan.
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:
Range of exercise prices
N/A
£
–
’000s
Expected Contractual
720
1.9
1.9
£
–
’000s
Expected Contractual
–
–
–
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
August
2011
£2.70
£2.34
413
August
2011
£2.70
£2.34
39
458,349
77,087
August
2011
£2.70
£2.34
August
2012
£2.91
£2.01
8
716
14,534 1,212,554
August
2012
£2.91
£2.01
65
August
2012
£2.91
£2.01
10
177,486
21,908
3
29%
3
3
1.0%
4.0%
5
29%
5
5
1.7%
4.0%
7
27%
7
7
2.4%
4.0%
3
24%
3
3
0.2%
4.0%
5
30%
5
5
0.6%
4.0%
7
28%
7
7
1.0%
4.0%
£0.448
£0.497
£0.507
£0.622
£0.687
£0.656
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.
The resulting fair value is expensed over the service period of three, five or seven years on the assumption that 20% of options will lapse over the service period
as employees leave the Group.
The Sage Group plc | Annual Report & Accounts 2012
115
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Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
A reconciliation of option movements over the year is shown below:
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
£
1.49 – 2.34
14.3 Share premium
At 1 October 2010
2012
Weighted
average
price
£
1.81
2.01
2.08
1.54
1.96
1.51
Number
’000s
3,099
1,438
(394)
(1,062)
3,081
102
2011
Weighted
average
price
£
1.68
2.34
1.76
1.78
1.81
1.78
Number
’000s
3,147
757
(328)
(477)
3,099
83
2012
Weighted average
remaining life years
2011
Weighted average
remaining life years
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
Weighted
average
exercise
price
£
Number
of shares
’000s
Expected Contractual
1.96
3,081
2.3
2.8
1.81
3,099
2.0
2.5
£m
499.8
13.4
513.2
11.3
524.5
Total
other
reserves
£m
259.3
6.5
1.0
266.8
(66.6)
(55.7)
(68.0)
76.5
Premium on shares issued during the year under share option schemes
At 1 October 2011
Premium on shares issued during the year under share option schemes
At 30 September 2012
14.4 Other reserves
At 1 October 2010
Exchange differences on translating foreign operations
Cash flow hedges: Fair value losses in the year
At 30 September 2011
Exchange differences on translating foreign operations
Exchange differences recycled to the income statement in respect of the
disposal of foreign operations
Put and call arrangement
At 30 September 2012
Translation
reserve
£m
199.2
6.5
–
205.7
(66.6)
(55.7)
–
83.4
Hedge
reserve
£m
(1.0)
–
1.0
–
–
–
–
–
Merger
reserve
£m
61.1
–
–
61.1
–
–
–
61.1
Other
reserve
£m
–
–
–
–
–
–
(68.0)
(68.0)
Translation reserve
The translation reserve represents the accumulated exchange differences arising since the transition to IFRS from the following sources:
the impact of the translation of subsidiaries with a functional currency other than Sterling; and
exchange differences arising on hedging instruments that are designated hedges of a net investment in foreign operations, net of tax where applicable.
Exchange differences arising prior to the IFRS transition were offset against retained earnings.
Hedge reserve
The hedge reserve records movements on derivative financial instruments designated as cash flow hedges.
116
Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
A reconciliation of option movements over the year is shown below:
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
£
1.49 – 2.34
14.3 Share premium
At 1 October 2010
At 1 October 2011
At 30 September 2012
14.4 Other reserves
Premium on shares issued during the year under share option schemes
Premium on shares issued during the year under share option schemes
2012
Weighted
average
price
£
1.81
2.01
2.08
1.54
1.96
1.51
Number
’000s
3,099
1,438
(394)
(1,062)
3,081
102
Number
’000s
3,147
757
(328)
(477)
3,099
83
2012
Weighted average
remaining life years
Weighted
average
exercise
price
£
1.96
Number
of shares
’000s
Expected Contractual
3,081
2.3
2.8
Weighted
average
exercise
price
£
1.81
Number
of shares
’000s
3,099
Weighted average
remaining life years
Expected Contractual
2.0
2.5
At 1 October 2010
Exchange differences on translating foreign operations
Cash flow hedges: Fair value losses in the year
At 30 September 2011
Exchange differences on translating foreign operations
Exchange differences recycled to the income statement in respect of the
disposal of foreign operations
Put and call arrangement
At 30 September 2012
Translation reserve
Translation
reserve
£m
199.2
6.5
–
205.7
(66.6)
(55.7)
–
83.4
Hedge
reserve
£m
(1.0)
1.0
–
–
–
–
–
–
Merger
reserve
£m
61.1
61.1
–
–
–
–
–
61.1
Other
reserve
£m
–
–
–
–
–
–
(68.0)
(68.0)
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.
Hedge reserve
The hedge reserve records movements on derivative financial instruments designated as cash flow hedges.
2011
Weighted
average
price
£
1.68
2.34
1.76
1.78
1.81
1.78
2011
£m
499.8
13.4
513.2
11.3
524.5
Total
other
reserves
£m
259.3
6.5
1.0
266.8
(66.6)
(55.7)
(68.0)
76.5
Merger reserve
Merger reserve brought forward relates to the merger reserve which was present under UK GAAP and frozen on transition to IFRS.
Other reserve
Other reserve relates to the recognition of a put and call arrangement to acquire the remaining non-controlling interest’s 25% share in Folhamatic.
14.5 Retained earnings
At 1 October
Profit for the year
Value of employee services
Purchase of treasury shares
Expenses related to purchase of treasury shares
Close period share buyback programme
Actuarial (loss)/gain on post-employment benefit obligations
Other comprehensive income/equity movement of deferred income tax
Dividends paid to owners of the parent
At 30 September
2012
£m
914.6
296.6
1.2
(299.8)
(2.0)
(10.0)
(2.6)
(0.7)
(136.5)
760.8
2011
£m
877.1
189.0
3.2
–
–
(50.0)
1.0
(1.7)
(104.0)
914.6
The actuarial loss of £2.6m (2011: gain of £1.0m) is made up of a gain of £0.4m (2011: gain of £0.2m) on post-employment benefits (note 8) and a loss of £3.0m
(2011: gain of £0.8m) on other long-term employee benefits (note 8).
Treasury shares
Purchase of treasury share
Shares purchased under the Group’s buyback programme are not cancelled but are retained in issue and represent a deduction from equity attributable to
owners of the parent. During the year the Group purchased 104,628,376 shares (2011: nil) at a cost of £299.8m (2011: £nil) representing 7.9% of issued share
capital. Shares were repurchased at a weighted average price of 273.60p per share, the highest and lowest prices paid for these shares were 325.00p per share
and 245.40p per share respectively.
Close period share buyback programme
The close period buyback programme for £60.0m (2011: £50.0m) relates to the purchase of the Company’s own shares. Deutsche Bank AG has been appointed
to manage the irrevocable buyback programme during the close period which commenced on 1 October 2012 and will run up until 5 December 2012.
Employee share trust
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
or is gifted them by the Company for use in connection with the Group’s share-based payments arrangements. The Trust holds 710,403 ordinary shares in the
Company (2011: 3,689,182) at a cost of £0.9m (2011: £9.5m) and a nominal value of £7,104 (2011: £36,891).
The Trust originally purchased the shares in 2006, and further shares were acquired by the Trust in 2010 with the cost being reflected in retained earnings.
These shares were acquired by the Trust in the open market using funds provided by the Company. In February 2012 the Company gifted 3,500,000 shares from
purchased treasury shares to the Trust. During the year, 6,478,779 shares were utilised to meet obligations under the Performance Share Plan.
The costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The market
value of the shares at 30 September 2012 was £2.2m (2011: £9.5m).
14.6 Non-controlling interest
Non-controlling interests in equity in the Group balance sheet represent the share of net assets of subsidiary undertakings held outside the Group. The
movement in the year comprises the profit attributable to such interests together with movements in respect of corporate transactions and related
exchange differences.
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At 1 October
Non-controlling interest arising on business combination
Non-controlling interest’s share of profit of the year
At 30 September
The Sage Group plc | Annual Report & Accounts 2012
Note
16.1
2012
£m
–
(2.2)
0.1
(2.1)
117
Other notes
15 Discontinued operations and non-current assets held for sale
15.1 Discontinued operations – Sage Software Healthcare, LLC
The control of Sage Software Healthcare, LLC (“Sage Healthcare”) was passed to Vista Equity Partners on 10 November 2011 for cash proceeds of £204.0m.
The proceeds have been returned to shareholders through a share buyback programme. Further disposal information can be found in note 16.5.
15.2 Discontinued operations – financial performance
Sage Healthcare is reported in the financial statements as discontinued operations. The financial performance for the period is below:
Revenue
Selling and administrative expenses
Operating profit
Finance costs
Profit on disposal of Sage Healthcare
Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal
Impairment of disposal group to fair value less costs to sell
Profit/(loss) before income tax
Income tax (expense)/credit
Profit/(loss) for the year from discontinued operations
Earnings per share information can be found in note 4.1.
15.3 Discontinued operations – Cash flow
The cash flow statement shows amounts related to discontinued operations.
2012
£m
16.5
(14.4)
2.1
(0.2)
0.9
55.7
–
58.5
(0.7)
57.8
2011
£m
149.7
(138.2)
11.5
–
–
–
(121.5)
(110.0)
43.0
(67.0)
15.4 Non-current assets and liabilities classified as held for sale
There are no disposal groups classified as held for sale in the current year. At 30 September 2011 the assets and liabilities relating to Sage Healthcare were
presented as held for sale following the announcement on 22 September 2011 that a definitive agreement to sell Sage Healthcare had been reached.
Goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Non-current assets classified as held for sale
Trade and other payables
Deferred income
Liabilities directly associated with non-current assets classified as held for sale
Net assets classified as held for sale
2012
£m
–
–
–
–
–
–
–
–
–
–
2011
£m
183.1
36.2
1.9
1.0
28.9
251.1
(19.7)
(30.0)
(49.7)
201.4
118
Other notes
15 Discontinued operations and non-current assets held for sale
15.1 Discontinued operations – Sage Software Healthcare, LLC
The control of Sage Software Healthcare, LLC (“Sage Healthcare”) was passed to Vista Equity Partners on 10 November 2011 for cash proceeds of £204.0m.
The proceeds have been returned to shareholders through a share buyback programme. Further disposal information can be found in note 16.5.
15.2 Discontinued operations – financial performance
Sage Healthcare is reported in the financial statements as discontinued operations. The financial performance for the period is below:
Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal
Selling and administrative expenses
Revenue
Operating profit
Finance costs
Profit on disposal of Sage Healthcare
Impairment of disposal group to fair value less costs to sell
Profit/(loss) before income tax
Income tax (expense)/credit
Profit/(loss) for the year from discontinued operations
Earnings per share information can be found in note 4.1.
15.3 Discontinued operations – Cash flow
The cash flow statement shows amounts related to discontinued operations.
15.4 Non-current assets and liabilities classified as held for sale
2012
£m
16.5
(14.4)
2.1
(0.2)
0.9
55.7
–
58.5
(0.7)
57.8
2012
£m
–
–
–
–
–
–
–
–
–
–
2011
£m
149.7
(138.2)
11.5
–
–
–
(121.5)
(110.0)
43.0
(67.0)
2011
£m
183.1
36.2
1.9
1.0
28.9
251.1
(19.7)
(30.0)
(49.7)
201.4
16 Acquisitions and disposals
16.1 Acquisitions made during the year
Folhamatic Tecnologia em Sistemas S.A.
On 25 June 2012 the Group completed the acquisition of 75% share of the share capital of Folhamatic Tecnologia em Sistemas S.A. (“Folhamatic”) based in
Brazil for cash consideration of £122.6m.
The provisional fair value of the liabilities acquired was £9.2m, resulting in provisional goodwill of £129.6m. In the purchase 75% of the voting rights were
acquired. The non-controlling interest has been measured at the non-controlling interest’s proportionate share of the net liabilities of £2.2m.
The Group has entered into a put and call arrangement to acquire the remaining 25% share in Folhamatic. Under the terms of the agreement the price to be
payable is based on a multiple of expected EBITDA for the year ending 31 December 2014 and is estimated at £71.0m, which is £68.3m after discounting to
present value of the estimated redemption amount. This has been included as a non-current financial liability (note 13.5).
The acquisition of Folhamatic represents an important step in building the Group’s presence in key emerging markets. This acquisition is consistent with the
Group’s strategy and was approved following the Board’s evaluation of the potential return on capital. Folhamatic has a leading market position in a large and
growing economy.
Alchemex (Pty) Ltd
The entire share capital of Alchemex (Pty) Ltd (“Alchemex”) was acquired on 1 October 2011 for cash consideration of £2.8m and deferred consideration of
£2.8m. The fair value of the assets acquired was £1.1m, resulting in goodwill of £4.5m.
Integral Computers Limited
The entire share capital of Integral Computers Limited (“Integral”) was acquired on 6 February 2012 for cash consideration of £11.9m and contingent
consideration of £4.0m. The fair value of the assets acquired was £5.6m, resulting in goodwill of £10.3m.
Other
The entire share capital of TML BVBA Ltd (“TML”) was acquired on 1 March 2012 for cash consideration of £2.6m. The fair value of the assets acquired was
£0.9m, resulting in goodwill of £1.7m.
Cenize Informática Ltda. (“Cenize”) was acquired on 24 August 2012 for cash consideration of £1.0m and contingent consideration of £2.9m. The fair value
of the assets acquired was £nil, resulting in goodwill of £3.9m.
There are no disposal groups classified as held for sale in the current year. At 30 September 2011 the assets and liabilities relating to Sage Healthcare were
presented as held for sale following the announcement on 22 September 2011 that a definitive agreement to sell Sage Healthcare had been reached.
There were no other acquisitions made in the year.
The net identifiable assets (including intangible assets) were recognised at their provisional fair values. The residual excess over the net assets acquired has
been recognised as goodwill. Details of net assets acquired and goodwill are as follows:
Summary of acquisitions
Purchase consideration
Cash
Deferred/contingent consideration
Total purchase consideration
Fair value of net identifiable liabilities
Fair value of net identified liabilities attributable to non-controlling interest
Goodwill
£m
140.9
9.7
150.6
1.6
(2.2)
150.0
Liabilities directly associated with non-current assets classified as held for sale
Goodwill represents the fair value of the assembled workforce at the time of acquisition along with potential synergies with the existing Sage business.
Goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Deferred income
Non-current assets classified as held for sale
Net assets classified as held for sale
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The Sage Group plc | Annual Report & Accounts 2012
119
Other notes continued
16 Acquisitions and disposals continued
16.1 Acquisitions made during the year continued
Provisional fair value of acquisitions
Intangible assets – brands, technology and customer relationships
Intangible assets – computer software
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current borrowings
Non-current borrowings
Deferred consideration
Income tax – current
Income tax – deferred
Deferred income
Total net identifiable (liabilities)/assets acquired
Non-controlling interest
Goodwill
Consideration satisfied by:
Cash
Deferred/contingent consideration
Total purchase consideration
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
Cash consideration
Cash and cash equivalents acquired
Borrowings acquired
Deferred consideration acquired, paid post acquisition
Acquisition costs acquired, paid post acquisition
Net cash outflow in respect of acquisitions
The intangible assets acquired as part of these acquisitions can be analysed as follows:
Brands
Technology
Customer relationships
Further details of these are given in note 5.2.
36.4
0.6
1.2
0.1
10.0
0.8
(8.1)
(0.2)
–
(21.8)
(0.3)
(10.1)
(17.8)
(9.2)
2.2
129.6
122.6
–
122.6
(122.6)
0.8
(0.2)
(21.8)
(2.6)
(146.4)
6.8
18.0
11.6
36.4
Folhamatic
£m
Alchemex
£m
Integral
£m
Other
£m
1.0
–
–
–
0.3
0.1
(0.1)
–
–
–
–
(0.1)
(0.1)
1.1
–
4.5
2.8
2.8
5.6
(2.8)
0.1
–
–
–
4.2
–
0.3
0.3
1.0
1.9
(0.6)
–
–
–
–
(0.5)
(1.0)
5.6
–
10.3
11.9
4.0
15.9
(11.9)
1.9
–
–
–
–
–
–
–
1.3
–
(0.3)
–
(0.1)
–
–
–
–
0.9
–
5.6
3.6
2.9
6.5
(3.6)
–
(0.1)
–
–
Total
£m
41.6
0.6
1.5
0.4
12.6
2.8
(9.1)
(0.2)
(0.1)
(21.8)
(0.3)
(10.7)
(18.9)
(1.6)
2.2
150.0
140.9
9.7
150.6
(140.9)
2.8
(0.3)
(21.8)
(2.6)
(2.7)
(10.0)
(3.7)
(162.8)
–
0.8
0.2
1.0
–
1.7
2.5
4.2
–
–
–
–
6.8
20.5
14.3
41.6
16.2 Deferred/contingent consideration
Part of the cash paid on the Folhamatic acquisition is being held in an escrow account pending final determination of the results for the year ending 31 December
2012. The funds held in escrow will be paid out to shareholders in FY13 once the final acquisition price is determined, which is based on a multiple of expected
EBITDA for the year ending 31 December 2012. The cash paid was based on an estimate of the EBITDA for the year ending 31 December 2012.
During the year previously contingent consideration was fixed under the original terms of the agreement and as such is now deferred consideration. Deferred
consideration payable to the former owners of Alchemex of £2.8m has been recognised at fair value; this additional consideration is payable for the years ending
30 September 2012-2014.
Contingent consideration payable to the former owners of Integral of £4.0m has been recognised at fair value; this additional consideration is dependent on
revenue achievement for the year ending 31 December 2012.
Contingent consideration payable to the former owners of Cenize of £2.9m has been recognised at fair value; this additional consideration is contingent on the
EBITDA results for the year ending 31 December 2014.
120
Other notes continued
16 Acquisitions and disposals continued
16.1 Acquisitions made during the year continued
Provisional fair value of acquisitions
Intangible assets – brands, technology and customer relationships
Intangible assets – computer software
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current borrowings
Non-current borrowings
Deferred consideration
Income tax – current
Income tax – deferred
Deferred income
Total net identifiable (liabilities)/assets acquired
Non-controlling interest
Goodwill
Cash
Consideration satisfied by:
Deferred/contingent consideration
Total purchase consideration
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
Cash consideration
Cash and cash equivalents acquired
Borrowings acquired
Deferred consideration acquired, paid post acquisition
Acquisition costs acquired, paid post acquisition
Net cash outflow in respect of acquisitions
The intangible assets acquired as part of these acquisitions can be analysed as follows:
Brands
Technology
Customer relationships
Further details of these are given in note 5.2.
16.2 Deferred/contingent consideration
Folhamatic
Alchemex
Integral
Other
£m
£m
36.4
0.6
1.2
0.1
10.0
0.8
(8.1)
(0.2)
–
(21.8)
(0.3)
(10.1)
(17.8)
(9.2)
2.2
129.6
122.6
–
122.6
(122.6)
0.8
(0.2)
(21.8)
(2.6)
(146.4)
6.8
18.0
11.6
36.4
£m
1.0
0.3
0.1
(0.1)
–
–
–
–
–
–
–
(0.1)
(0.1)
1.1
–
4.5
2.8
2.8
5.6
(2.8)
0.1
–
–
–
–
0.8
0.2
1.0
£m
4.2
–
0.3
0.3
1.0
1.9
(0.6)
–
–
–
–
(0.5)
(1.0)
5.6
–
10.3
11.9
4.0
15.9
(11.9)
1.9
–
–
–
–
1.7
2.5
4.2
Total
£m
41.6
0.6
1.5
0.4
12.6
2.8
(9.1)
(0.2)
(0.1)
(21.8)
(0.3)
(10.7)
(18.9)
(1.6)
2.2
150.0
140.9
9.7
150.6
(140.9)
2.8
(0.3)
(21.8)
(2.6)
6.8
20.5
14.3
41.6
1.3
(0.3)
(0.1)
0.9
5.6
3.6
2.9
6.5
(3.6)
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Part of the cash paid on the Folhamatic acquisition is being held in an escrow account pending final determination of the results for the year ending 31 December
2012. The funds held in escrow will be paid out to shareholders in FY13 once the final acquisition price is determined, which is based on a multiple of expected
EBITDA for the year ending 31 December 2012. The cash paid was based on an estimate of the EBITDA for the year ending 31 December 2012.
During the year previously contingent consideration was fixed under the original terms of the agreement and as such is now deferred consideration. Deferred
consideration payable to the former owners of Alchemex of £2.8m has been recognised at fair value; this additional consideration is payable for the years ending
30 September 2012-2014.
Contingent consideration payable to the former owners of Integral of £4.0m has been recognised at fair value; this additional consideration is dependent on
revenue achievement for the year ending 31 December 2012.
Contingent consideration payable to the former owners of Cenize of £2.9m has been recognised at fair value; this additional consideration is contingent on the
EBITDA results for the year ending 31 December 2014.
16.3 Contribution of acquisitions
From the dates of the acquisitions to 30 September 2012, the acquisitions contributed £17.9m to revenue and £3.5m to profit before income tax. Had these
acquisitions occurred at the beginning of the financial year, contribution to Group revenue would have been £55.4m and Group profit before income tax
would have increased by £1.1m.
16.4 Acquisition-related items
Acquisition-related items of £4.4m (2011: £0.4m) have been included in selling and administrative expenses in the Consolidated income statement. These
acquisition-related items (previously recognised in goodwill prior to IFRS 3 (Revised), “Business Combinations”) relate to completed transactions and include
advisory, legal, accounting, valuation and other professional or consulting.
16.5 Disposal of Sage Software Healthcare, LLC
On 10 November 2011 the Group disposed of Sage Healthcare for £204.0m consideration. Details of net assets disposed of and the profit on disposal are as follows:
Sage Healthcare disposal
Non-current assets classified as held for sale
Liabilities directly associated with non-current assets classified as held for sale
Net assets disposed
The profit on disposal is calculated as follows:
Disposal proceeds
Costs to sell recognised in year
Disposal proceeds, less costs to sell recognised in year
Net assets disposed
Profit on disposal
Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal
Profit on disposal
Carrying value
pre-disposal
£m
249.3
(46.4)
202.9
£m
204.0
(0.2)
203.8
(202.9)
0.9
55.7
56.6
The profit on disposal is reflected in profit for the year from discontinued operations in the Consolidated income statement. In the year ended 30 September 2011
impairment charges and costs to sell totalling £121.5m were recognised in the loss for the year from discontinued operations in the Consolidated income
statement in respect of this transaction. All cash flows occurred in the current year.
The inflow of cash and cash equivalents on the disposal of Sage Healthcare is calculated as follows:
Disposal proceeds, less total costs to sell
Cash disposed
Investing cash flows generated from discontinued operations, net of cash disposed
£m
199.9
(1.0)
198.9
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(2.7)
(10.0)
(3.7)
(162.8)
16.6 Other disposals
On 26 January 2012 the Group disposed of Edibase, a small product line of Sage SAS, for net cash consideration of £0.1m.
16.7 Contribution of disposals
Had the disposals occurred at the beginning of the financial year, Group revenue from continuing operations would have been £1,340.1m, Group profit before
income tax from continuing operations would have been unchanged. Sage Healthcare is reported in the financial statements as discontinued operations, the
financial performance for the period is given in note 15.2.
16.8 Analysis of net outflow of cash in respect of acquisitions and disposals
The outflow of cash and cash equivalents on the acquisitions and disposals is calculated as follows:
Folhamatic
Alchemex
Integral
Other
Acquisitions of subsidiaries
Other
Disposal of subsidiaries
Sage Healthcare
Disposal of discontinued operations
The Sage Group plc | Annual Report & Accounts 2012
Note
16.1
16.1
16.1
16.1
16.1
16.6
16.6
16.5
16.5
£m
(146.4)
(2.7)
(10.0)
(3.7)
(162.8)
0.1
0.1
198.9
198.9
121
Other notes continued
16 Acquisitions and disposals continued
16.9 Analysis of goodwill
The total additions and disposals to goodwill are calculated as follows:
Folhamatic
Alchemex
Integral
Other
Additions
Disposals
Net movement in goodwill on acquisitions and disposals
Note
16.1
16.1
16.1
16.1
16.1
£m
129.6
4.5
10.3
5.6
150.0
–
150.0
17 Related party transactions
The Group’s related parties are its subsidiary undertakings and Executive Committee members. 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. Compensation paid to the Executive
Committee is disclosed in note 2.2.
Supplier transactions occurred during the year between Softline (Pty) Ltd, one of the Group’s subsidiary companies and Ivan Epstein, Chief Executive Officer,
AAMEA. These transactions relate to the lease of three properties in which Ivan Epstein has a minority and indirect shareholding. During the year £0.8m
(2011: £0.8m) relating to these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the
year ended 2012 (2011: £nil).
Supplier transactions occurred during the year between Sage SP, S.L., one of the Group’s subsidiary companies and Álvaro Ramírez, Chief Executive Officer,
Europe. These transactions relate to the lease of a property in which Álvaro Ramírez has a minority shareholding. During the year £0.2m (2011: £0.3m) relating to
these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the year ended 2012 (2011: £nil).
These arrangements are subject to independent review using external advisers to ensure all transactions are at arm’s length.
18 Events after the reporting period
18.1 Share buyback
On 30 September 2012 the Group appointed Deutsche Bank AG to manage an irrevocable buyback programme during the close period which commenced
on 1 October 2012 and will run up to 5 December 2012. From 1 October 2012 to 29 November 2012, the latest practical date prior to publication of the Annual
Report & Accounts, 17,925,641 ordinary shares of 1p each were repurchased through Deutsche Bank AG at a weighted average price of 308.89p per share.
The highest and lowest prices paid for these shares were 322.00p per share and 298.70p per share respectively. The purchased shares have not been cancelled
and are held as treasury shares. The total number of ordinary shares in issue (excluding shares held as treasury shares) at 29 November 2012 is 1,210,714,269.
18.2 Acquisition of EBS Empresa Brasileira de Sistemas Ltda.
On 11 October 2012 the Group acquired EBS Empresa Brasileira de Sistemas Ltda.; a provider of accounting, business management and tax software in Brazil;
for a cash consideration of up to £10.5m, including a payment of £1.8m linked to the future financial performance. The provisional fair value of the assets
acquired was £0.1m, resulting in provisional goodwill of £10.4m.
18.3 Executive Committee change
On 9 October 2012 the Group announced the appointment of Amanda Jobbins as Chief Marketing Officer, who will join Sage’s Executive Committee.
122
Other notes continued
16 Acquisitions and disposals continued
16.9 Analysis of goodwill
The total additions and disposals to goodwill are calculated as follows:
Folhamatic
Alchemex
Integral
Other
Additions
Disposals
Net movement in goodwill on acquisitions and disposals
17 Related party transactions
Note
16.1
16.1
16.1
16.1
16.1
£m
129.6
4.5
10.3
5.6
150.0
–
150.0
The Group’s related parties are its subsidiary undertakings and Executive Committee members. 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. Compensation paid to the Executive
Committee is disclosed in note 2.2.
Supplier transactions occurred during the year between Softline (Pty) Ltd, one of the Group’s subsidiary companies and Ivan Epstein, Chief Executive Officer,
AAMEA. These transactions relate to the lease of three properties in which Ivan Epstein has a minority and indirect shareholding. During the year £0.8m
(2011: £0.8m) relating to these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the
year ended 2012 (2011: £nil).
Supplier transactions occurred during the year between Sage SP, S.L., one of the Group’s subsidiary companies and Álvaro Ramírez, Chief Executive Officer,
Europe. These transactions relate to the lease of a property in which Álvaro Ramírez has a minority shareholding. During the year £0.2m (2011: £0.3m) relating to
these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the year ended 2012 (2011: £nil).
These arrangements are subject to independent review using external advisers to ensure all transactions are at arm’s length.
18 Events after the reporting period
18.1 Share buyback
On 30 September 2012 the Group appointed Deutsche Bank AG to manage an irrevocable buyback programme during the close period which commenced
on 1 October 2012 and will run up to 5 December 2012. From 1 October 2012 to 29 November 2012, the latest practical date prior to publication of the Annual
Report & Accounts, 17,925,641 ordinary shares of 1p each were repurchased through Deutsche Bank AG at a weighted average price of 308.89p per share.
The highest and lowest prices paid for these shares were 322.00p per share and 298.70p per share respectively. The purchased shares have not been cancelled
and are held as treasury shares. The total number of ordinary shares in issue (excluding shares held as treasury shares) at 29 November 2012 is 1,210,714,269.
18.2 Acquisition of EBS Empresa Brasileira de Sistemas Ltda.
On 11 October 2012 the Group acquired EBS Empresa Brasileira de Sistemas Ltda.; a provider of accounting, business management and tax software in Brazil;
for a cash consideration of up to £10.5m, including a payment of £1.8m linked to the future financial performance. The provisional fair value of the assets
acquired was £0.1m, resulting in provisional goodwill of £10.4m.
18.3 Executive Committee change
On 9 October 2012 the Group announced the appointment of Amanda Jobbins as Chief Marketing Officer, who will join Sage’s Executive Committee.
19 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% for all of these subsidiaries with the exception of Folhamatic Tecnologia em Sistemas
S.A. which is 75% and IOB Informações Objetivas Publicações Jurídicas Ltda. which is 100% owed by Folhamatic Tecnologia em Sistemas S.A.. All of these
subsidiaries 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) Ltd
Sage Pay Europe Limited
Sage Hibernia Limited
Sage Pay Ireland Limited
Ciel SAS
Sage SAS
Sage FDC SAS
Sage Holding France SAS
Sage Software GmbH
Sage Bäurer GmbH
Sage Schweiz AG
Sage SP, S.L.
Sage Logic Control, S.L.
Sage sp. z.o.o.
Sage Portugal – Software S.A.
Sage Software, Inc.
Sage Payment Solutions, Inc.
IOB Informações Objetivas Publicações Jurídicas Ltda.
Folhamatic Tecnologia em Sistemas S.A.
Sage Software Canada Ltd
Softline (Pty) Ltd
Micropay Pty Ltd
Handisoft Software Pty Ltd
Sage Business Solutions Pty Ltd
Sage Software Asia Pte Ltd
Sage Software Sdn Bhd
Country of incorporation
UK
UK
Ireland
Ireland
France
France
France
France
Germany
Germany
Switzerland
Spain
Spain
Poland
Portugal
US
US
Brazil
Brazil
Canada
South Africa
Australia
Australia
Australia
Singapore
Malaysia
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The Sage Group plc | Annual Report & Accounts 2012
123
Contents
Company financial statements
Company financial statements
Our Company financial statements provide a complete picture
of our 2012 position.
Notes to the Company financial statements
Supplementary notes to the Company financial statements.
Independent auditors’ report to the members of The Sage Group plc
125
Company balance sheet
Company accounting policies
Results for the year
1. Dividends
Operating assets and liabilities
2. Fixed asset: investments
3. Cash at bank and in hand
4. Debtors
5. Creditors: amounts falling due within one year
6. Operating lease commitments
7. Capital commitments and contingent liabilities
Net debt and capital structure
8. Creditors: amounts falling due in more than one year
9. Equity
Other notes
10. Related party transactions
11. Post balance sheet events
126
127
128
129
129
129
129
129
129
130
131
132
132
124
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 2012 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 62, 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 and express an opinion on
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 Chapter 3 of Part 16 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. In addition, we read all the financial
and non-financial information in the Annual Report & Accounts to identify
material inconsistencies with the audited financial statements. If we become
aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
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 2012;
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.
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 matters
We have reported separately on the Group financial statements
of The Sage Group plc for the year ended 30 September 2012.
The maintenance and integrity of The Sage Group plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
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Charles Bowman (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
5 December 2012
The Sage Group plc | Annual Report & Accounts 2012
125
Company balance sheet
At 30 September 2012
Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)
Fixed assets: investments
Current assets
Cash at bank and in hand
Debtors
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 reserves
Profit and loss account
Total shareholders’ funds
Note
2
2012
£m
1,408.2
2011
£m
1,449.6
3
4
5
8
9.1
9.2
9.2
9.2
0.5
438.5
439.0
(703.3)
(264.3)
121.8
227.8
349.6
(802.9)
(453.3)
1,143.9
996.3
(199.2)
944.7
13.3
524.5
(239.6)
646.5
944.7
(189.9)
806.4
13.2
513.2
51.6
228.4
806.4
The financial statements on pages 126 to 132 were approved by the Board of directors on 5 December 2012 and are signed on their behalf by:
G S Berruyer
Director
P S Harrison
Director
126
Company balance sheet
At 30 September 2012
Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)
Notes to the Company financial statements
Fixed assets: investments
Current assets
Cash at bank and in hand
Debtors
Creditors: amounts falling due within one year
Net current liabilities
Creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Other reserves
Profit and loss account
Total shareholders’ funds
G S Berruyer
Director
P S Harrison
Director
Total assets less current liabilities
1,143.9
996.3
The financial statements on pages 126 to 132 were approved by the Board of directors on 5 December 2012 and are signed on their behalf by:
Note
2
2012
£m
1,408.2
2011
£m
1,449.6
3
4
5
8
9.1
9.2
9.2
9.2
0.5
438.5
439.0
(703.3)
(264.3)
(199.2)
944.7
13.3
524.5
(239.6)
646.5
944.7
121.8
227.8
349.6
(802.9)
(453.3)
(189.9)
806.4
13.2
513.2
51.6
228.4
806.4
Company accounting policies
a Basis of accounting
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 £574.0m (2011: £92.6m). 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 Auditors’ remuneration
The audit fees payable in relation to the audit of the financial statements of the Company are £25,000 (2011: £24,000).
f Share-based payments
The Company issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding
the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments
is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of the shares that will eventually vest allowing for the effect of
non-market-based vesting conditions.
Fair value is measured using the Black-Scholes or the Monte Carlo pricing models. The expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
The Company also provides certain employees with the ability to purchase the Company’s ordinary shares at a discount to the current market value at the
date of the grant. The Company records an expense, based on its estimate of the discount related to shares expected to vest, on a straight-line basis over the
vesting period.
At the end of each reporting period, 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.
g 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 r). This policy is in accordance with FRS 26, “Financial Instruments: Recognition and Measurement”.
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The Sage Group plc | Annual Report & Accounts 2012
127
Results for the year
1 Dividends
Final dividend paid for the year ended 30 September 2011 of 7.07p per share
(2011: final dividend paid for the year ended 30 September 2010 of 5.22p per share)
Interim dividend paid for the year ended 30 September 2012 of 3.48p per share
(2011: interim dividend paid for the year ended 30 September 2011 of 2.68p per share)
2012
£m
92.1
–
44.4
–
136.5
2011
£m
–
68.7
–
35.3
104.0
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2012 of 6.67p per share which will absorb an
estimated £78.2m of shareholders’ funds. It will be paid on 8 March 2013 to shareholders who are on the register of members on 15 February 2013. These
financial statements do not reflect this dividend payable.
128
Results for the year
1 Dividends
Final dividend paid for the year ended 30 September 2011 of 7.07p per share
(2011: final dividend paid for the year ended 30 September 2010 of 5.22p per share)
Interim dividend paid for the year ended 30 September 2012 of 3.48p per share
(2011: interim dividend paid for the year ended 30 September 2011 of 2.68p per share)
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2012 of 6.67p per share which will absorb an
estimated £78.2m of shareholders’ funds. It will be paid on 8 March 2013 to shareholders who are on the register of members on 15 February 2013. These
financial statements do not reflect this dividend payable.
2012
£m
92.1
–
–
44.4
136.5
2011
£m
68.7
–
–
35.3
104.0
Operating assets and liabilities
2 Fixed asset: investments
Equity interests in subsidiary undertakings are as follows:
Cost
At 1 October 2011
Reduction in year
At 30 September 2012
Provision for diminution in value at 30 September 2011 and 2012
Net book value
At 30 September 2012
At 30 September 2011
£m
1,449.6
(41.4)
1,408.2
–
1,408.2
1,449.6
The reduction in the year represents share capital redeemed in an existing subsidiary undertaking. 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 2012, are shown in note 19 of the Group financial statements.
All of these subsidiary undertakings are wholly owned with the exception of Folhamatic Tecnologia em Sistemas S.A. (“Folhamatic”) which is 75% owned and
IOB Informações Objetivas Publicações Jurídicas Ltda. which is 100% owed by Folhamatic Tecnologia em Sistemas S.A.. All subsidiaries are engaged in the
development, distribution and support of business management software and related products and services for small and medium sized businesses.
3 Cash at bank and in hand
Cash at bank and in hand
Short-term bank deposits
2012
£m
0.5
–
0.5
2011
£m
3.5
118.3
121.8
There were no short-term bank deposits at 30 September 2012. In the prior year the effective interest rate on short-term deposits was 0.7% and these deposits
had an average maturity of 28 days. The Company’s credit risk on cash and cash equivalents is limited because the counterparties are well established banks
with high credit ratings.
4 Debtors
Amounts owed by Group undertakings
Other debtors
5 Creditors: amounts falling due within one year
Bank loans and overdrafts
Amounts owed to Group undertakings
Other creditors
Accruals and deferred income
2012
£m
438.3
0.2
438.5
2012
£m
2.6
635.5
60.0
5.2
703.3
2011
£m
227.7
0.1
227.8
2011
£m
0.8
749.2
50.0
2.9
802.9
Other creditors relate to outstanding liabilities of £60.0m (2011: £50.0m) arising under an irrevocable close period buyback agreement for the purchase of the
Company’s own shares. Further details are given in note 8.2.
6 Operating lease commitments
The Company had no operating lease commitments during the year (2011: £nil).
7 Capital commitments and contingent liabilities
The Company had no capital commitments or contingent liabilities at 30 September 2012 (2011: none).
The Sage Group plc | Annual Report & Accounts 2012
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Net debt and capital structure
8 Creditors: amounts falling due in more than one year
In more than two years but not more than five years
US senior loan notes – unsecured
Bank loans – unsecured
In more than five years
US senior loan notes – unsecured
2012
£m
185.3
13.9
–
199.2
2011
£m
157.8
–
32.1
189.9
Included in loans above is £199.2m (2011: £189.9m) of unsecured loans (after unamortised issue costs). These loans were taken out in connection
with acquisitions.
The Company has US$300.0m (£185.8m, 2011: £192.6m) of US senior loan notes, which were issued into the US private placement market. These notes mature
US$200.0m (£123.8m, 2011: £128.4m) in 2015, US$50.0m (£31.0m, 2011: £32.1m) in 2016 and US$50.0m (£31.0m, 2011: £32.1m) in 2017 and carry interest
coupons of 4.39%, 4.78% and 5.15% respectively.
There were £15.0m drawings (2011: £nil) under the multi-currency revolving credit facility of £338.3m (2011: £358.3m) expiring on 31 August 2015, which
consists both of US$271.0m (£167.8m, 2011: £174.0m) and of €214.0m (£170.5m, 2011: £184.3m) tranches.
Unsecured bank loans were drawn in Sterling £15.0m (2011: £nil), which bears an average fixed interest rate of 1.7%.
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £1.6m (2011: £2.7m). The Company has incurred total issue costs
amounting to £4.4m (2011: £4.4m) in respect of these facilities. These issue costs were paid during the year ended 30 September 2010; no issue costs were
incurred during the current financial year. These costs are allocated to the income statement over the term of the facility using the effective interest method.
130
Net debt and capital structure
8 Creditors: amounts falling due in more than one year
In more than two years but not more than five years
US senior loan notes – unsecured
Bank loans – unsecured
In more than five years
US senior loan notes – unsecured
Included in loans above is £199.2m (2011: £189.9m) of unsecured loans (after unamortised issue costs). These loans were taken out in connection
with acquisitions.
The Company has US$300.0m (£185.8m, 2011: £192.6m) of US senior loan notes, which were issued into the US private placement market. These notes mature
US$200.0m (£123.8m, 2011: £128.4m) in 2015, US$50.0m (£31.0m, 2011: £32.1m) in 2016 and US$50.0m (£31.0m, 2011: £32.1m) in 2017 and carry interest
coupons of 4.39%, 4.78% and 5.15% respectively.
There were £15.0m drawings (2011: £nil) under the multi-currency revolving credit facility of £338.3m (2011: £358.3m) expiring on 31 August 2015, which
consists both of US$271.0m (£167.8m, 2011: £174.0m) and of €214.0m (£170.5m, 2011: £184.3m) tranches.
Unsecured bank loans were drawn in Sterling £15.0m (2011: £nil), which bears an average fixed interest rate of 1.7%.
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £1.6m (2011: £2.7m). The Company has incurred total issue costs
amounting to £4.4m (2011: £4.4m) in respect of these facilities. These issue costs were paid during the year ended 30 September 2010; no issue costs were
incurred during the current financial year. These costs are allocated to the income statement over the term of the facility using the effective interest method.
2012
£m
185.3
13.9
–
199.2
2011
£m
157.8
–
32.1
189.9
9 Equity
9.1 Called up share capital
Authorised
1,860,000,000 (2011: 1,860,000,000) ordinary shares of 1p each
Issued and fully paid
At 1 October
Shares issued/proceeds
At 30 September
2012
£m
18.6
2011
shares
1,317,360,582
6,477,254
2012
£m
13.2
0.1
13.3
1,323,837,836
2011
£m
18.6
2011
£m
13.2
–
13.2
2012
shares
1,323,837,836
5,679,734
1,329,517,570
Potential issues of ordinary shares
Certain senior executives hold options to subscribe for shares in the Company at prices ranging from 134.00p to 270.00p 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 14.1 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 those adopted by the Group
under IFRS 2, “Share-based Payment”. For details refer to note 14.2 in the Group financial statements.
9.2 Reserves
At 1 October 2011
New shares issued
Utilisation of treasury shares
Purchase of treasury shares
Expenses related to purchase of treasury shares
Close period share buyback programme
Profit for the financial year
Dividends paid to owners of the Company
Equity-settled transactions
At 30 September 2012
Treasury
shares
£m
(9.5)
–
8.6
(299.8)
–
–
–
–
–
Merger
reserve
£m
61.1
–
–
–
–
–
–
–
–
Total
other
reserves
£m
51.6
–
8.6
(299.8)
–
–
–
–
–
Share
premium
account
£m
513.2
11.3
–
–
–
–
–
–
–
(300.7)
61.1
(239.6)
524.5
Profit and
loss account
£m
228.4
–
(8.6)
–
(2.0)
(10.0)
574.0
(136.5)
1.2
646.5
Total
£m
793.2
11.3
–
(299.8)
(2.0)
(10.0)
574.0
(136.5)
1.2
931.4
Treasury shares
Purchase of treasury shares
Shares purchased under the Group’s buyback programme are not cancelled but are retained in issue and represent a deduction from equity attributable to
owners of the parent. During the year the Group purchased 104,628,376 shares (2011: nil) at a cost of £299.8m (2011: £nil) representing 7.9% of issued share
capital. Shares were repurchased at a weighted average price of 273.60p per share, the highest and lowest prices paid for these shares were 325.00p per share
and 245.40p per share respectively.
Close period share buyback programme
The close period buyback programme for £60.0m (2011: £50.0m) relates to the purchase of the Company’s own shares. Deutsche Bank AG has been appointed
to manage the irrevocable buyback programme during the close period which commenced on 1 October 2012 and will run up until 5 December 2012.
Employee share trust
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
or is gifted them by the Company for use in connection with the Group’s share-based payments arrangements. The Trust holds 710,403 ordinary shares in the
Company (2011: 3,689,182) at a cost of £0.9m (2011: £9.5m) and a nominal value of £7,104 (2011: £36,891).
The Trust originally purchased the shares in 2006, and further shares were acquired by the Trust in 2010 with the cost being reflected in retained earnings. These
shares were acquired by the Trust in the open market using funds provided by the Company. In February 2012 the Company gifted 3,500,000 shares from
purchased treasury shares to the trust. During the year, 6,478,779 shares were utilised to meet obligations under the Performance Share Plan.
The costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The market
value of the shares at 30 September 2012 was £2.2m (2011: £9.5m).
The Sage Group plc | Annual Report & Accounts 2012
131
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Other notes
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 wholly
owned subsidiary undertakings.
Supplier transactions occurred during the year between Folhamatic and The Sage Group Plc. During the year £0.2m (2011: £nil) was charged through selling and
administrative expenses. There were no outstanding amounts payable as at the year ended 2012 (2011: £nil).
11 Post balance sheet events
For details refer to note 18 in the Group financial statements.
132
Other notes
10 Related party transactions
owned subsidiary undertakings.
The Company has taken advantage of the exemption available under FRS 8, “Related Party Disclosures”, not to disclose details of transactions with its wholly
Supplier transactions occurred during the year between Folhamatic and The Sage Group Plc. During the year £0.2m (2011: £nil) was charged through selling and
administrative expenses. There were no outstanding amounts payable as at the year ended 2012 (2011: £nil).
11 Post balance sheet events
For details refer to note 18 in the Group financial statements.
Shareholder information
Financial calendar
Annual General Meeting
Dividend payments
Final payable – year ended 30 September 2012
Interim payable – period ending 31 March 2013
Results announcements
Interim results – period ending 31 March 2013
Final results – year ending 30 September 2013
1 March 2013
8 March 2013
7June 2013
8 May 2013
4 December 2013
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 11 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.
Advisers
Corporate brokers and financial advisers
Deutsche Bank, 1 Great Winchester Street, London, EC2N 2EQ
Citigroup Global Markets, 33 Canada Square, Canary Wharf, London, E14 5LB
Solicitors
Allen & Overy LLP, 1 Bishops Square, London, E1 6AD
Principal Bankers
Lloyds TSB Bank plc, 25 Gresham Street, London, EC2V 7HN
Independent Auditors
PricewaterhouseCoopers LLP, Chartered Accountants and Statutory Auditors,
89 Sandyford Road, Newcastle upon Tyne, NE1 8HW
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)
Calls to this number cost 8p per minute from a BT landline, other providers’
costs may vary. Lines are open 8.30am to 5.30pm UK time, Monday to Friday.
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:
Murdo Montgomery
Director of Investor Relations
Tel: +44 (0)191 294 3000
Fax: +44 (0)191 294 0002
The Sage Group plc
Registered office:
North Park
Newcastle upon Tyne, NE13 9AA.
Registered in England
Company number 2231246
View this report online, visit sage.investors.com
2012 Interactive
Annual Report and Accounts
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NE13 9AA
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