The Sage Group PLC
Annual Report and Accounts 2015
RE-IMAGINING
BUSINESS
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Strategic report
Performance highlights
02 Our business at a glance
04 Our business model
06 Company fundamentals
08 Chairman’s statement
10 Chief Executive’s review
14 Our market
16 Our strategy
28 Key performance indicators
30 Our strategy applied
36 Principal risks and uncertainties
44 Financial and operating review
50 Corporate Responsibility
Governance
59 Chairman’s introduction to Governance
60 Board of directors
62 Executive committee
64 Corporate governance report
74 Directors’ remuneration report
92 Directors’ report
Financial statements
99 Independent auditors’ report to the
members of The Sage Group plc
104 Group financial statements
110 Notes to the Group financial statements
157 Company financial statements
163 Shareholder information
Discover more about Sage online
www.sage.com
All images used within this Annual Report and
Accounts are those of real customers and colleagues.
About our non-GAAP
measures and why we
use them
Throughout the strategic
report we quote two kinds
of non-GAAP measure:
underlying and organic.
We use these measures in
monitoring performance
and incentivising
management.
Underlying – underlying
measures exclude certain
one-off and non-operational
items, and prior year
underlying measures are
retranslated at the current
year exchange rates to
neutralise the effect of
currency fluctuations.
Underlying measures allow
management and investors
to compare performance
without the potentially
distorting effects of foreign
exchange movements.
Organic – in addition to
the adjustments made
to underlying measures,
organic measures exclude
part-year contributions from
acquisitions, disposals and
products held for sale in the
current and/or prior years.
This allows management
and investors to understand
the like-for-like performance
of the business.
Reconciliations of statutory
revenue, operating profit
and basic earnings per
share to their underlying
and organic equivalents
are in the Financial and
operating review starting
on page 44.
During the year we have
made several revenue
reporting changes.
You can read about these
changes and non-GAAP
definitions on pages 44
and 163 respectively.
2015 Financial highlights
Organic revenue growth
6%
%
6
%
5
Organic operating margin
27.1%
%
5
6
2
.
%
1
.
7
2
14
15
14
15
Underlying basic EPS growth
12.6%
Underlying cash conversion
106%
%
6
2
1
.
%
2
8
.
%
6
0
1
%
1
0
1
14
15
14
15
Strategic progress
– Winning in the market with global products:
– Increased paying subscriptions for Sage One
to 173,000 (FY14: 86,000)
– Increased Sage X3 organic revenue by 11%
– Sage Live developed in 26 weeks from idea to launch
– Growing software subscription revenues organically
by 29%, demonstrating traction in our transition to
higher quality, sustainable revenue growth
– Supporting customers for life with the
contract renewal rate increasing to 84%
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WE ENERGISE THE
SUCCESS OF BUSINESSES
supporting the ambitions of the world’s
entrepreneurs as they power the global economy.
Read our feature on product strategy on page 30
to discover how we meet business needs
The Sage Group plc | Annual Report & Accounts 2015
1
1
Our business at a glance
What we do and where
As a global technology company we energise the success of businesses and their
communities around the world through the use of smart technology and the imagination
of our people. We work with a thriving community of accountants, partners, developers
and entrepreneurs, the engine room of economies around the world.
OUR PRODUCT FOCUS
The “Golden Triangle” represents the strong value proposition
we can provide to our customers in three mission critical
areas – Accounting, Payroll & HR and Payments – through
solutions that are seamlessly integrated to automate
workflow and the movement of money. Our ecosystem
enables integration with our other applications, including
mobile applications and features as a service so that
customers can tailor our offering to their needs.
More information online at
sage.com/products
Developing ever closer integration of our growth products is a
key focus of our investment. We are also investing in products
with open application programming interface (“API”), such as
Sage Live, so that independent software vendors (“ISVs”) can
develop their applications to integrate with our core product
as standard, maximising customer choice and driving
customer experience.
Payroll & HR
Our Payroll & HR solutions are simple,
secure and efficient, helping our
customers to remain compliant, pay their
employees accurately and on time, and to
deliver a great employee experience.
The Golden
Triangle
Payments
Our payments offerings enable
our customers to take payments
through their websites, in person
using a card reader, or directly
from electronic invoices.
Accounting
Our range of desktop or cloud accounting
solutions allows customers to issue
invoices, analyse business performance
and manage cashflow, taxes, stock,
budgets and more.
2
The Sage Group plc | Annual Report & Accounts 2015 SMALL & MEDIUM BUSINESSES
We are focused on delivering a consistently exceptional experience to all of our four million
customers, working to provide the most appropriate products and services to suit their needs.
We don’t believe in labelling customers but we do think it is helpful to understand the
characteristics of different sizes of business in order to better serve them:
0 to 9 employees
Ranging from sole traders to small employers,
these entities constitute the vast majority of all
businesses in our top geographies, numbering
around 68 million. It is estimated that only
around one in ten of these businesses uses
a packaged software solution to manage
their business. Adoption of software in this
size range is being driven by affordable,
mobile ready, easy-to-use cloud solutions
like Sage One.
10 to 200 employees
Ranging from small owner managed
businesses to larger entities with multiple
layers of organisational structure, adoption
of software to manage finances is much
more common in this size range where the
population of entities is around four million
in our top geographies. Businesses typically
rely on software to maintain appropriate
records and to perform multiple functions
with a number of packaged solutions being
run, either independently or integrated. Data
sharing between functions can be particularly
powerful in organisations of this size and
Sage Live is designed with that in mind.
200+ employees
Larger businesses, where their scale and
organisational complexity mean they
practically all use business management
solutions in some form. The packaged
solutions used by these entities may be more
extensive, performing additional functions
of business management and potentially
required to deal with cross-border operations.
Sage X3 is our global product for businesses
with these characteristics where modules
can be used to perform everything from
monitoring the sales pipeline and customer
relationships to managing inventory.
OUR GLOBAL REACH
Our established market positions and presence in 23 countries around the world
provides a platform to bring products and services to both new and existing customers.
Our investment focuses on our growth product portfolio which consists of our cloud
deployable global products and our local growth products (see page 30 for more on product
portfolio management).
32%
North America
Total revenue £450m
Recurring revenue mix 58%
* Charts represent regional proportion of group organic revenue
Europe
Total revenue £745m
Recurring revenue mix 75%
53%
46%
15%
International
Total revenue £206m
Recurring revenue mix 65%
3
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our business model
The model we apply to create value
Our business model is the means by which we can deliver on our strategic objectives. As with
everything we do, the customer is at the heart of our business model which aligns with the
customer journey and experience.
KEY INPUTS TO OUR BUSINESS MODEL
Our business model operates effectively utilising key inputs that are fundamental to our
success as follows:
Talented people
We rely on the collaboration
and technology expertise of
over 13,000 of our people
around the world.
Trusted brand
Small & Medium
Businesses are at the heart
of our economies and Sage
is their champion.
Market and
technology insight
Our constant focus
on technology over the
last 30 years has developed
a deep understanding
of what is important to
our customers.
Resource allocation
Focusing our resources on
growth products enriches
the functionality of our
flagship products and
maximises the technology
opportunity.
Local knowledge
Our deep knowledge of
the regulatory landscapes
we operate in not only
ensures our customers
remain compliant but lets
us plan for new legislation
on the horizon.
VALUE CREATED FROM OUR BUSINESS MODEL
Group Organic Revenue Growth
Organic Revenue
£1,400m
Revenue streams:
– Recurring: Revenue on a contract basis predominantly for
maintenance and support services or bundled subscription
services
– Software and related services (SSRS): Software licences and related
products and services (e.g. training, implementation or hardware)
– Processing: Revenue for processing services which is volume driven
(e.g. payments or payroll processing)
Full definitions of our revenue streams are on page 163
Organic Operating Profit
£380m
Shareholder Returns
Dividends and share repurchases
£146m
Society
Tax charge for the year
Community
Employees enabled to volunteer
£90m
5 days
per annum
4
The Sage Group plc | Annual Report & Accounts 2015 Routes to market
Our multi-channel
approach is supported
by a network of direct
sales channels, business
partners and accountants.
T
C
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ACTIVATE
Attract new customers by
winning in the market,
offering customer choice,
supporting a strong
partner and accountant
ecosystem and
providing first
class support
Develop deeper customer
relationships by bringing
the latest technology
and other benefits of
subscription to inactive
customers
OUR
CUSTOMER
JOURNEY
Grow with our
customers by
revolutionising
business,
providing additional
features and services.
Identify when a customer
would benefit from
migrating up to the next
product solution
Create
exceptional
customer
experiences to
earn customers
for life.
The lifecycle is supported
by our One Sage culture
and Capacity for Growth
strategic pillars
RETAIN
W
O
R
G
Read our strategy
on page 16
One
Sage
Winning in the
market
Revolutionise
business
Customers for life
Capacity for growth
5
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Company fundamentals
Our investment case
We believe in delivering superior shareholder returns through a commitment
to doing business the right way.
A GLOBALLY RECOGNISED BRAND
We have established a strong and trusted local brand in
each of our markets as the champion of Small & Medium
Businesses, the lifeblood of our economies. Millions
of customers trust Sage to support them based on our
understanding of the Small & Medium Business space
and local regulatory landscapes, gained through over
30 years of operational experience.
23 countries
Supporting millions of customers globally from our
presence in 23 countries and generating revenues
of £1.4 billion
IN A MARKET WITH ENORMOUS POTENTIAL
72 million potential customers
There are 72 million Small & Medium Businesses in our
current geographies* and an estimated 10% of them use
packaged software solutions to manage their business.
The opportunity to expand the addressed market through
intuitive, smart technology solutions is vast.
FOCUSING INVESTMENT IN OUR CUSTOMER
VALUE PROPOSITION
Our product focus is on Accounting, Payroll & HR and
Payments solutions and we seek to maximise our customer
value proposition through our portfolio investment
strategy. By concentrating our resources on growth
products, including global products and local growth
products, we seek to ensure that functionally rich
solutions exist for all customers, regardless of how
they choose to deploy their software.
* Analysis covering Sage current top ten geographies measured by physical presence
0 – 9
employees
68m
10 – 199
employees
200+
employees
4m
150k
R&D and S&M spend in FY15
90%
Growth products
Heritage products
10%
6
The Sage Group plc | Annual Report & Accounts 2015
GENERATING SUSTAINABLE REVENUE GROWTH
We have increased our organic revenue growth rate
since FY12 from 2% to 6% in FY15. As we continue to
transition towards a higher quality revenue model,
we have confidence in maintaining our revenue growth
by attracting new customers and delivering greater value,
functionality and features to our existing customers.
2%
FY12
6%
FY15
STRONG FREE CASH FLOW
Our attention to underlying cash conversion and a
disciplined approach to capital expenditure yields strong
levels of free cash flow (“FCF”). Generating strong FCF
is important in order to fund shareholder returns and
we aim to generate FCF as a proportion of revenue in
the 15% to 20% range.
FCF to revenue
20.6%
14
15
16.9%
20.6%
AND A PROGRESSIVE DIVIDEND
We remain focused on shareholder returns and believe
that sustainable earnings growth, a disciplined approach
to capital allocation and progressive dividend policy,
will drive superior returns for shareholders. Central to
our shareholder returns is the annual dividend which
has increased every year since we joined the FTSE 100.
15 year dividend history
13.10p
Growing the annual dividend
per share
2000 2001
2002
2003
2004 2005 2006
2007
2008 2009
2010
2011
2012
2013 2014 2015
The Sage Group plc | Annual Report & Accounts 2015
7
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Chairman’s statement
We have met our long-term
financial targets for 2015
and are focussed on the
next phase of long-term
sustainable growth
Chairman,
Donald Brydon,
looks back on
this year progress.
8
The Sage Group plc | Annual Report & Accounts 2015 Read more about
the Board on pages
60 and 61
2015 is a cornerstone year for Sage. We have seen another
year of improvement and I am pleased to announce that we
have met our long term key financial targets. Supporting
this headline progress, our recurring revenue growth,
driven by the move to subscription, underlines the quality
of our reported growth. This performance provides solid
foundations from which to build as we redefine our
ambition and target the next phase of growth.
When I joined Sage in 2012 I highlighted in my first report
that I was impressed by the fundamentals of Sage’s
business; our leading franchise with Small & Medium
Businesses, the recurring nature of revenues and the
strong cash generation. These remain core strengths for
Sage and are central to our plans for creating shareholder
value in the future. However, internally, I considered we
could improve the speed of decision making and our
go-to-market processes, and identified the need to leverage
the Group’s assets if Sage was to be more than just the sum
of its international parts.
The Board
The composition of the board has been reconstructed
over recent years as we have sought to rebalance the
collective skillset, adding more technology knowledge,
more international experience, more understanding of
change management at pace and more financial depth.
The current board membership also provides options
for succession.
When Guy Berruyer stepped down as CEO at the start of
the financial year, we conducted a focused and rapid search
looking for growth technology leadership skills, pace, drive
and ambition. From a global field of candidates I am
delighted that we found and appointed Stephen Kelly.
He has deep experience in running successful software
companies, complemented by his focus on addressing
the needs of Small & Medium Businesses and putting
customers first. Together with Steve Hare as CFO, we
have two executive directors with proven track records
of successfully leading organisations through change.
Stephen is responsible for driving the next phase of our
strategy and he started by leading a comprehensive 100 day
review programme to inform our ambition and plans for the
future. The main learning point from this rigorous exercise
was that the existing strategy was soundly based but
execution needed to improve and accelerate. Put simply,
we need to raise our ambition. Stephen has reshaped his
executive committee and has added the requisite global
experience whilst also ensuring continuity for our
customers by building on our existing talent pool.
Refreshed strategy to drive shareholder returns
Our strategy has been refreshed and remains consistent
with our belief in generating strong cash flows in order
to invest in the business and drive sustainable, profitable
growth. Our strong cash flow also continues to support
both our ability to grow with bolt-on acquisitions and our
progressive dividend policy.
The strategy comprises five strategic pillars which have
been agreed by the Board and are explored in detail within
the Strategy section of this Annual Report. This evolved
strategy recognises that we need to move from being a
decentralised product-centric organisation to a customer-
centric model that leverages our global scale. This is a
model based on earning customers for life and winning
market share, ultimately driving growth and shareholder
returns. New ways of working are required in order to realise
our potential, with a greater emphasis on international
collaboration, agile working and executing with measured
but determined pace. The development of Sage Live, our
brand new cloud solution for growing businesses with a
mobile first mind set, is the embodiment of these working
practices. Sage’s traditional development cycles were
redefined, as the product was taken by a multi country
team from idea to launch in just 26 weeks.
Above all, it is the strength of our relationships with
customers, existing and new, and our ability to meet their
needs, which differentiates us in the market and provides
us with compelling opportunities to grow. This is where
investment will be prioritised. A key tenet therefore of
the strategy is to redeploy investment to strengthen our
capability to win in the market, but to do so in a manner
which is readily scalable.
The work we are doing also underpins the financial profile
of the business – driving organic recurring revenue growth
and maintaining margins whilst improving efficiency and
generating cash.
In summary
Nothing stands still at Sage; it has been a year of further
progress, particularly financially, but also a year of raising
our ambition and planning accordingly. There is a genuine
sense of anticipation throughout the organisation,
heightened by a measured injection of pace into the
decision making and implementation timelines. Much
work lies ahead in order to effect this transition, however
the opportunities to grow successfully are compelling.
As ever, we can only be successful with excellent people
and, on behalf of the Board, I would like to thank all our
employees and partners for their very considerable efforts
in the past year. I would also like to record the Board’s
appreciation for the work of Guy Berruyer who set the first
signals for the Group’s future development. Finally, I would
like to thank our customers and look forward to building
on the momentum established in FY15, as we continue to
champion their cause.
Donald Brydon
Chairman
9
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Chief executive’s review
Re-imagining business
Chief Executive Officer,
Stephen Kelly, sets
the agenda for 2016
and beyond
10
The Sage Group plc | Annual Report & Accounts 2015 “ We are pleased to have met the financial targets set three
years ago. We have already begun the transformation
outlined at the Capital Markets Day in June 2015 and
highlight today clear signs of early progress.
Transformation is rarely linear and it is clear we have
much to do as we manage the operational risks. Our
balanced and sequenced approach, the experience
of the management team, and the strong underlying
characteristics of the business give me confidence in
the delivery of long term, sustainable, high quality growth.”
Performance
In line with our financial targets we achieved 6% organic
revenue growth for the full year. Consistent with the
strategy, we have continued to drive growth through
recurring revenue, particularly software subscription
revenue which grew by 29% for the year to £315m.
We are attracting customers with the compelling
benefits of subscription relationships.
Growth in the adoption of software subscription was
buoyed by both Sage One globally and Sage 50 in North
America and Europe. Total recurring revenue of £953m
represents 68% of Group organic revenue.
The SSRS organic revenue decline of 1% to £287m reflects
the continued substitution effect from the transition to a
predominantly recurring revenue model. Growth was 2%
to £161m in processing revenue and is reported separately
for the first time.
Our disciplined approach to managing costs has increased
the organic margin to 27.1% (FY14: 26.5%), achieved despite
incurring the costs of initial investments to support the
next phase of sustainable growth.
Progress with global products
We have increased Sage One paying subscriptions by over
100% to 173,000, supported by a strong performance in the
UK where subscriptions increased to 92,000. Sage One
is emerging as the accounting product of choice for UK
start-up businesses in terms of new monthly subscribers.
Sage One was launched in Brazil, Malaysia and Australia
during the year and global rollout will continue in FY16.
We are investing in our digital presence to enhance
awareness of Sage One as we target the opportunity
of Small & Medium Businesses which are not currently
using a software solution to run their business.
Read more about
our global products
on pages 32 and 33
Our development of Sage Live, a product which we took
from idea to launch in just 26 weeks, continues at pace
with early adopter customers.
We are winning in the market with Sage X3 and have
improved global revenue by 11% (FY14: 7%), demonstrating
focus on growing our market share. Outside our most
mature market for X3, highlights were revenue growth
of 19% in North America, 33% in International and 19%
in Europe excluding France. Accelerating double digit
revenue growth remains the ambition for X3 and we are
concentrating on both mature and emerging markets to
achieve that level of overall growth. Continued investment
in X3 was evidenced with the launch of Sage X3 cloud,
accessed via web-browser and which also provides
customers with rich functionality.
Strategy
One of my first priorities as CEO was to undertake a
thorough review of the business. As part of our review, we
gathered extensive market and external data and engaged
with customers, partners, accountants and colleagues to
develop a long-term plan for sustainable and improved
quality growth. We presented the findings and outlook
to all 13,000 colleagues in April 2015. The FY16 annual
planning cycle was integrated with the refreshed strategy
and activity was directed to growing the value of installed
customer base; new customer acquisition; technology
innovation and taking a market leading position as
Champion for Entrepreneurs and Small & Medium
Businesses. We are now evolving the business model
and moving from federated and disparate product &
country operations to ‘One Sage’ as a means to leverage
our scale where it is meaningful to so do.
Technology disruption has accelerated. The market
opportunity is growing through cloud-platform, mobile-first
applications, browser access to information and big data
analytics. Within this context, we are prioritising new
customer acquisition to capture increased market
share. Sage is seeking to ‘leap-frog’ first generation cloud
competitors through integrated latest generation cloud-
platform products and through scalable digital distribution
channels. Digital presence is a vital enabler so we are also
improving our digital marketing, including by reducing the
number of website domains we operate from over 50 in
support of a compelling and consistent experience.
11
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Chief executive’s review continued
Progress of execution
At our Capital Markets day in June, we presented the five
pillars of our strategy. We are already implementing each
of them and embedding the supporting behaviours and
structures that make the strategy sustainable.
Customers for Life
– We have increased the contract renewal rate to 84%
(FY14: 83%) by focussing on deeper subscription
relationships with new and existing customers.
– We are investing in migration tools to Growth products
to enable seamless pathways for customers that are
growing and require the next level of product to best
suit their needs.
– Customers have welcomed our commitment to halt
‘end of life’ and ‘forced migrations’ which have typified
most technology companies’ history.
– One of Sage’s unique selling points is a focus on
providing accounting, payroll, HR and payments systems
to businesses from start-up as they grow to thousands of
employees, providing customer choice from on-premise
deployed products, to native cloud software as a service
(SaaS) and hybrids of the two.
Winning in the Market
– A relentless focus on gaining new customers is being
established throughout Sage.
– We have created Customer Business Centres (CBCs)
in Atlanta and Dublin which bring together all teams
involved in digital marketing, lead qualification, sales,
service and renewals. The CBCs foster collaboration
and provide a platform for accelerated growth.
– We are attracting new customers particularly with
global products and this is evidenced with Sage One
subscription additions which ran at around 10,000 per
month in the second half.
– To drive growth in global products, we have cut
complexity for our partner ecosystem by creating a single
Global Partner Programme (GPP) for all new partners that
want to sell our global products, over time replacing the
different programmes in each country. The GPP will
harmonise and simplify the way we work with partners
and better support them to drive sales to new customers.
– We celebrated the success of partners and customers at
Sage Summit, our flagship event and one of the largest
gatherings of Entrepreneurs in the world. In 2015, Summit
was bigger than ever before with over 24,000 participants
on-line and in person.
12
Revolutionise Business
– During the year, 87% of our research and development
spend was concentrated on growth products, which now
number less than 100 and from which we are deriving all
of our revenue growth.
– Our development cycles are also reducing as we focus
on providing additional value to customers more
regularly, evidenced by approximately 250 product
launches or feature releases for our growth products
throughout FY15. Sage Impact, our global product for
accountants was created in just 51 days.
– In testament to our increasing pace of development,
we received recognition for our product innovation from
a raft of industry commentators, including EXPERTON
in Germany for the Cloud Leader award, Muy Pymes in
Spain for the Best Cloud Solution, and K2 in the US for
the Best Mobile Strategy, Best use of Social Media,
Best New Cloud Products and the PRIME overall award.
– To support our golden triangle product proposition, we
are saving time for our customers and helping them to
get paid faster by optimising the integration of payments
products in the UK with our accounting and payroll
solutions. Sage Payments enables customers to take full
control of the movement of money from their business,
complementing the existing service to receive payments.
It was launched during the year and is a revolutionary new
solution to initiate payments to customers and suppliers
directly from Sage accounting and payroll software.
Capacity for Growth
– We are implementing our target global operating model
by embedding common procedures and information
systems, driving consistency and supporting growth.
A functional model has been introduced whereby our
colleagues in Finance, HR, IT, Legal, Marketing and
Communications report to global functional heads.
– As an example of greater consistency, we reduced the
number of sales compensation plans from 129 to four.
Countries have been empowered to take primary
responsibility for customers and market facing sales,
support and services.
– The functional model will yield efficiency as well as
improving the quality of delivery. General and
Administrative expenses (“G&A”) represents 19% of
organic revenue and we are committed to reducing this
level by improving efficiency. Our scalable finance function
will be run using Sage X3, which is being introduced
throughout the business as part of the overall program.
– Increased accountability with appropriate delegated
authority and common objectives have been introduced
throughout all newly established global functions.
– The Sage management team has been strengthened
both geographically and functionally. Of the top 100
leaders, 38 have been changed during FY15 with 24
recruited from outside and 14 promoted internally.
The Sage Group plc | Annual Report & Accounts 2015 One Sage
– Historically, Sage products and operating businesses
were federated and disparate. Barriers between teams
are being removed across the business.
– The strategic review established the foundations for
sustainable, improved quality growth based on the five
strategic pillars (upon which we will report regularly on
KPIs). It also provides the framework for an integrated
FY16 business plan and is the basis on which objectives
for the top 100 leaders are cascaded and embedded
throughout the Group.
– These objectives have been re-enforced through a series
of consistent kick-off meetings which were delivered in
October 2015 in all major locations. When we surveyed
our people after these meetings, 83% of them were
proud of the achievements in FY15. We also introduced
consistent performance management to drive a culture
of high performance.
– The development of Sage Live is a practical example of
the One Sage way of working, where over 600 partners
and customers provided input to the multi-functional
Sage project team.
– We launched Chatter, our social collaboration tool this
year, successfully rolling it out to all colleagues within
60 days and registering over 100,000 posts and
comments since April.
At the half year we identified three specific areas of the
business that we would target for improved performance:
Our products suited to larger businesses in Europe
(Enterprise Europe):
– In common with our other products and to better
leverage the local experience of the teams closest to
our customers, the business has been reorganised.
Responsibility for sales has been moved from a separate
regional organisation to the Managing Director in each
country. Organic revenue declined for the full year 1% to
£115m, slowing from a decline of 3% at the half year. The
decline is due to our heritage Enterprise products, with
organic revenue for Sage X3 growing by 5% for the year
as we continue to focus on growing our X3 pipeline.
Our products suited to medium sized businesses in
North America (SMB North America):
– Full year organic revenue grew by 4% to £147m,
increasing from growth of 3% at the half year. The
improvement has been supported by increasing
renewal rates on growth products.
– In addition, modernised versions of our most popular
solutions, Sage 100 and Sage 300, have been developed
and launched at Sage Summit to enable customers to
experience the rich functionality of these products
with the cloud.
– We also relaunched the incentive programme for existing
resellers and implementation partners in North America to
focus on partners and new customer acquisition in FY16.
Our payments products in North America (Payments
North America):
– The revenue performance for the full year was stable
at £116m whilst we took targeted actions to improve
performance in FY16.
– The partner channel has been developed with the
addition of around 30 resellers in the second half.
– An internal sales team has been established, dedicated
to cross-selling the payments solution to our accounts
and payroll base.
– We increased the monthly run rate of new accounts
additions by over 30% through the last quarter to
1,000 providing momentum entering FY16.
Investment and resource allocation
Our strategy demands that we transform our business and
flawlessly execute to realise our long term growth plans.
We have therefore moved from a fragmented, decentralised
organisation to a co-ordinated functional model. In order to
avoid duplicated effort and so enable the business to scale
effectively, we regularly review the investments across
the business to ensure agile, co-ordinated investment for
growth. We are implementing changes to realise at least
£50m of run-rate annualised savings by the end of FY16
and so re-invest in growth. We anticipate incurring an
exceptional cost in order to realise the savings with an
expected payback period of around two years.
Outlook
We entered FY16 with momentum and expect to deliver
organic revenue growth of at least 6% whilst continuing
the acceleration of sustainable and recurring revenue.
With the revised revenue definitions applied for FY15, we
are targeting an organic operating margin for FY16 of at
least 27% and expect to reinvest throughout 2016 with
an investment bias towards the first half of FY16.
The Sage model of quality revenue and earnings growth,
strong cash flows and progressive dividend, remains at
the heart of our strategy.
Stephen Kelly
Chief Executive Officer
13
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our market
Understanding our market
Small & Medium Businesses are the lifeblood of the global economy and make
up an estimated 99% of all businesses. They have led the way in terms of job creation
in recent times and are a key element of the global economic recovery.
CURRENT ADDRESSED MARKET
Population of Small & Medium Businesses
One in ten of the 72 million Small & Medium Businesses in our markets
uses a purchased business management application for either
Accounting, Payroll & HR, Payments, or a full suite of business
management solutions.*
Most software packages are either installed and hosted locally on
customer hardware (“on-premise deployed”) or hosted on a public server
and consumed via a web-browser (“cloud deployed”). Cloud adoption in
the current addressed market is not uniform between countries, with
the US showing the highest prevalence of cloud adoption whilst other
country markets are less mature.
WHITE SPACE OPPORTUNITY
Most Small & Medium Businesses use alternative means of managing
their records, such as pen and paper, or spreadsheets; these businesses
represent the white space opportunity.
Cloud applications are key to reaching this white space, allowing the
consumer to purchase instantly via the internet, without installation,
via a standard browser and with easy configuration.
GROWING THE ADDRESSED MARKET
IDC forecasts that cloud spending will grow at a rate of c.17% per annum
to 2017, however this growth is largely attributable to expansion in the
market rather than displacement of traditional software spending,
which is expected to stay broadly flat.
Analysis indicates that both forms of deployment will remain material
components of the overall market for the foreseeable future.
We are committed to our three million customers and will continue to
support them, however they choose to deploy their software, by investing
in smart technology for both cloud and on-premise deployment.
x 1m
One in 10 – adopting packaged solutions
Nine in 10 – the white space opportunity
+17%
Growth in public cloud spend year on year*
* Market analysis performed by IDC for our top ten geographies and for the end user market of businesses in the 0 to 1,999 employee range.
14
The Sage Group plc | Annual Report & Accounts 2015 MARKET FRAGMENTATION & LOCAL
KNOWLEDGE
Sage operates in a relatively fragmented market, with the top
three providers accounting for only one quarter of market spend.
Whilst individual competitors are strong in a small number of
geographies, there is no provider yet dominating on a truly global scale.
Relative market fragmentation combined with our global reach and
deep-set local knowledge position us well to capture the white
space opportunity.
A STRATEGY REACTIVE TO THE MARKET
OPPORTUNITY
Our privileged and trusted position with Small & Medium
Businesses is enhanced by the 30,000+ conversations we
have with our customers each day.
This has led to a deep understanding of their demand drivers,
which were integral to developing our strategy.
The five most consistent themes we hear from our customers
are shown opposite.
Our strategy responds to market opportunity whilst at the same
time addressing the customer demand drivers via a combination
of intuitive technology solutions and exceptional levels of
customer support and advice.
Turn to pages 16 to 27 for more
on our strategy
Top 3 providers
account for only
1⁄4of market spend
Access to a knowledgeable
person for support
Peace of mind around
legislative compliance
Appealing and intuitive software
Control to achieve
success and grow
More efficient working
15
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our strategy
Our plan for growth
TRUTHS OF TODAY
Despite the progress made and key financial targets being met we have not
fully and effectively executed the 2012 strategy which is summarised by our
Truths of Today.
Truth one: Fragmentation has become an anchor on growth
Our historic strategy to grow via acquisitions of local market leaders has
served us well and provided global scale, however it has also led to a
decentralised and fragmented model being formed.
We have over 200 products on around 70 code bases, which presents
challenges in allocating portfolio spend.
Our Response
We are creating a global operating model that scales and enables us to
concentrate on delivering an exceptional customer experience and
winning more customers.
Truth two: Pace of market growth
In a growing market, we are not expanding our share as new customer
acquisition has not been a focus.
Our Response
We have developed a full suite of cloud and on-premise deployed products
to win market share and drive accelerated new customer acquisition.
Truth three: Inconsistent digital capability
The “zero touch selling” approach driven by digital, internet originated
sales, with consistent service and marketing has not been harnessed
effectively at Sage.
Our Response
A renewed digital marketing strategy and redesigned digital consumer
experience, applied consistently everywhere that we operate.
Truth four: Slow execution of cross-sell opportunity
Execution of the cross-sell opportunity identified in the 2012 strategy
has been slow, with low penetration of our payments solution into
the accounts base.
Our Response
Dedication of development resource to optimise product integration
and creation of behaviours and incentives to drive cross-sell success.
Truth five: No consistent global market leader
Disruptive technologies will change this and our experience suggests
that a global category leader will emerge. We see this as both a challenge
and an opportunity.
Our Opportunity
To leverage our global platform and local expertise to consolidate our
position in the market.
2012 STRATEGY RECAP
In 2012 we set out a strategy to:
– Focus our business by divesting of non-core
products and concentrating investment on the
products in the portfolio with the best growth
prospects
– Capitalise on the latest technology trends to
deliver enhanced experiences to our customers
– Transition our customer base towards more
active subscription relationships
T h
e b
e n e fi t s of subscriptio
h e t e chnology op
g t
p
n
Capturin
Fo c u
o
r
t
u
n
i
t
y
s i n g our busin
e
s
s
Rigorous
resource
and capital
allocation
The key financial targets set as part of the
2012 strategy were:
– To deliver organic revenue growth of 6%
– To improve the operating margin by
at least 100bps
16
Key financial targets achievedThe Sage Group plc | Annual Report & Accounts 2015 STRATEGIC PILLARS
Our strategy is a direct response to the market opportunity
we are targeting and places weight on offering customers the most intuitive
and relevant technology solutions whilst maintaining choice.
The strategy is captured by five key pillars which are explored in detail
on the following pages.
G
O
V
E
R
N
A
N
C
E
I
F
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N
A
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C
A
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S
T
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M
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S
O n e Sage
c i t y for Grow
t
h
a
p
C a
Our culture, supporting
the entire strategy and
defining what it means
to work at Sage.
See page 18
n
W i n
i n g in the M
ar
k
e
t
Building a global operating
model that scales, leveraging
our global footprint.
See page 26
Outpacing market growth
to gain market share and
realise our ambition to
be the market leader.
See page 20
t o mers for Life
s
u
C
o l u t i onise Busin
e
s
s
R e v
Putting our customers
at the heart of everything
we do to provide
exceptional experiences.
See page 24
Using smart technology
to make our customers’
lives easier, giving them
more time to focus on
creating value.
See page 22
The Sage Group plc | Annual Report & Accounts 2015
17
STRATEGIC REPORT
Strategy continued
One Sage
New ways of working collaboratively, at pace
We identified in 2012 the need for global skills, for example global expertise in
pricing, and sharing what works well locally on a global basis. We also recognised
the value of establishing group-wide priorities such as developing global products and
leveraging a unified brand. Some progress has been made in these areas, for instance
the establishment of a global pricing team which shares best practice between
countries and the launch in 2014 of a global brand campaign. We will celebrate
measured success where it has been achieved but recognise that we have further
to go in developing a consistent One Sage culture to support our strategy.
Our priorities
Our key priority is embedding the principles which guide a One Sage
culture, starting with putting customers at the heart of everything we do
and focusing on their success. One Sage is about working with pace and
agility, which helps us to not just deliver, but to overachieve. We have
introduced a global performance management system to harmonise
how we measure performance and set objectives (read more at page
53). Doing the right thing and making a difference extends beyond our
customers to our colleagues and communities, and we are increasing
engagement in this area with the launch of Sage Foundation (read more
at page 51). To deliver on our strategy, innovation has to be the new
normal. We are developing new ways of working collaboratively to
deliver compelling solutions and to focus on positive outcomes for our
customers. Chatter, an online social tool for colleagues to communicate,
has been introduced globally to facilitate collaboration; all of our people
on one platform sharing data and ideas.
Why it’s important
Establishing a global culture unlocks the power of our people and having
them all driving towards a common set of goals and principles enables
us to realise our ambition efficiently. Without a common culture,
success occurs in isolated pockets and progress is slow. We have
a privileged position serving so many customers and One Sage will
enable us to consistently delight them all.
The risks that could impact our success
As we introduce new ways of working, there is a risk of inconsistency
developing in our culture, which is relevant to all of our principle risks.
For example, our global brand must deliver a consistently excellent
customer experience at every touchpoint. Read more about our
Sage Brand principal risk at page 41.
How we will measure our progress
Internally we will use multiple qualitative measures, surveys and
focus groups to track progress in areas such as brand strength
and employee engagement. One Sage supports our entire strategy
and enables all the other strategic pillars, therefore does not have
association with any single measure in the KPI suite.
“One Sage empowers our colleagues to live our values and place customers at the
heart of our thinking and actions. Our winning culture drives ambition, simplification
and bias for action. We feel immense pride in putting our customers first.”
— Stephen Kelly, CEO
18
The Sage Group plc | Annual Report & Accounts 2015 G
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Sage Live: 26 weeks
from idea to customer
test-drive
Case study – New product development
The development of Sage Live is the embodiment of
the One Sage way of working. Sage Live is a cloud
proposition that combines social, mobile and real-time
technologies with a state-of-the-art accounting engine
to provide business management to a new generation
of entrepreneurs and fast growing companies.
Read more about Sage Live on page 32.
In December 2014, the challenge was set to create
a next generation proposition in time for launch at Sage
Summit. The pace of the project was a departure from
established development cycles and raised our ambition
enormously. The product concept was established in
January 2016. A small team of experts within Sage was
gathered from five countries, all with a distinguished
background, great expertise of accounting and a
complete determination to succeed. The project team
employed agile working practices and instilled a rapid
pace of collaboration across Sage, without country
boundaries. A working practice of “co-creation” was
established with customers, partners and experts
to refine the product and accelerate to the right solution.
The team averaged three customer collaboration
sessions per week where product development progress
was reviewed. Over 685 prospective customers, partners
and experts participated and we announced availability
at Sage Summit in July 2015.
Jennifer Ku owns and manages LaundryLaundry,
a clothes servicing business which focuses on its
customers by providing pick-up and drop-off services:
“ The mobility and flexibility of Sage Live allows me to run
my business from anywhere. Access to real-time
information has allowed us to focus more on our
customers.”
Jennifer Ku, LaundryLaundry.com
The Sage Group plc | Annual Report & Accounts 2015
19
STRATEGIC REPORT
Strategy continued
Winning in the Market
Growing our share of an expanding market
The importance of the cloud was recognised in the 2012 strategy, however we need
to accelerate our development activities to continue to capitalise on the potential
of cloud technologies. Focusing our business and the need to invest in fewer core
products was also recognised in the 2012 strategy and we have made some progress in
that area, however there is more we can do to reduce the number of Growth products
we identify to benefit from a greater share of sales and marketing and R&D spend.
Our priorities
We are continuing to focus our business and concentrate our
investment on Growth products. Our portfolio of cloud deployed
products caters for all sizes of Small & Medium Businesses. These global
products will be our growth engine in the medium term and will be the
default product choice for new customers unless their particular needs
are better served by a Local growth product. Our priority is to make the
entire customer sales experience from enquiry to product
deployment as seamless as possible. We have established regional
Customer Business Centres (CBCs) to coordinate the sales of our global
products to new customers and to maintain relationships with
customers as they grow (see page 27 for details). We are also investing in
digital to ensure a consistent, modern and user-friendly online presence
across Sage and are developing targeted, effective digital marketing
campaigns. Sage Impact, our online portal for accountants and our
Global Partner Programme have both been launched to support our
community of partners.
Why it’s important
As business management software solutions evolve in a mobile first,
cloud age, they become even more appealing and intuitive for Small &
Medium Businesses to exploit. There is a huge white space opportunity
of software non-adopters, which we can open up by addressing business
needs with smart technology solutions. We must continue to respond to
the evolving needs of end users in an expanding market to win new
customers and realise our ambition.
The risks that could impact our success
Developing enhanced core product functionality, product integration
and a compelling commercial proposition are all features which help to
drive a competitive advantage but which present execution risks. Read
more about our Competitive Positioning and Product Development, and
Market Intelligence principal risks at page 40.
How we will measure our progress
As we aim for increased market share, the primary measure for winning
in the market is the level of adoption of our global products. Read more
about our KPIs at page 28.
“Winning in the market means building market share by earning more customers and a
greater share of wallet. We will do this by delivering innovative solutions and creating
value for customers throughout their entire life, from startup to large multinational.”
— Santiago Solanas, CMO
20
The Sage Group plc | Annual Report & Accounts 2015 G
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Sage One paying
subscriptions increased
by over 100% to 173,000
Customer Case Study – Beauty Bike
We are using smart technology solutions to appeal to
new customers. Alice Bailleul runs Beauty Bike, a mobile
beauty treatment business in France. Alice cycles with
her equipment to her customers around Bordeaux so is
travelling or busy providing treatments most of the time.
She uses Sage One on her tablet in order to keep on top
of her business data and to issue quotes to customers
when she is on the road.
“ It’s really simple, everything is on the cloud, so I can use
it from anywhere, and what reassures me is that all my
data is stored somewhere and I know that I can always
get it back.
When I’m at my customer’s house it’s really fast, I just
connect to her Wifi, do her a quote and email it.
There is a dashboard which allows me to see where
I stand for the month, the quarter or the year. That
means I’ve got a complete picture of my accounts
thanks to Sage One.”
Alice Bailleul, Owner of Beauty Bike
See more of Alice’s story at www.sage.com/investors
Alice Bailleul, Beauty Bike, France
The Sage Group plc | Annual Report & Accounts 2015
21
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Strategy continued
Revolutionise Business
Smart technology that simplifies our customers’ lives
Capturing the technology opportunity was a cornerstone of our 2012 strategy and
revolutionising business builds on our solid technology foundations. Where we have
implemented this 2012 cornerstone, it has been executed soundly however we must
continue to innovate as the market evolves. For instance, we developed Sage One,
our global SaaS solution for start-up and small businesses, which is an intuitive,
customer demand driven solution available in 14 countries.
Our programme of core product modernisation has brought the power of the cloud
to on-premise customers (read more opposite). Our ambition is to progress further
and faster with our development.
Our priorities
We believe emphatically in bringing the power of the cloud and
connected services to all of our customers, but will continue to offer
them choice in method of deployment of their core system. We will take
the very best technology and features of our global products and apply
them to local growth products which will serve existing customers and
some new customers. We will continue to select the most appropriate,
industry leading development platforms for each of our products in
order to broaden our ecosystem of partners and integrated services.
For instance, we recently developed Sage Live, a real-time integrated
accounting solution, on the Salesforce1 platform. An open application
program interface (API) approach has been adopted which allows
independent software vendors (ISVs) to develop pre-integrated vertical
solutions which interact seamlessly with Sage Live. Small & Medium
Businesses will be able to adopt best-of-breed combinations on
a single platform.
requirements can be best and most efficiently met by consuming a suite
of integrated best-in-class applications rather than an expensive, one
size fits all single enterprise resource planning (“ERP”) solution.
Revolutionising businesses not only responds to all of these market
trends but also anticipates how the future needs of Small & Medium
Businesses will evolve and can be best served. It is critical in maintaining
the competitive position of our product range and growing our share of
wallet by delivering additional features and services.
The risks that could impact our success
Working collaboratively and with agility is key to ensuring our product
development can outpace an evolving market. We also need to work
tirelessly to support our ecosystem and partner network so that
our customers can integrate our products with other solutions
to suit. Read more about our Competitive Positioning and Product
Development, and Strategic Partnership principal risks at page 41.
Why it’s important
Worldwide data creation is growing exponentially but only a fraction of it
is being efficiently analysed and exploited. Accounting reports, although
backward looking, often take days or weeks to produce and even then
are often not shared and exploited widely by businesses. A new
generation of entrepreneurs is emerging – the millennials – who
represent a technology savvy, mobile first consumer base. More
and more businesses are realising that their particular needs and
How we will measure our progress
"Revolutionise business" strongly supports our business model growth
drivers of Activate and Grow (see page 4 for the business model).
Whether new technology is delivered to existing customers via Features
as a Service (“FaaS”) or additional users are added to Sage Live contracts
as front and back office divides are removed, the lead indicator that we
are delivering on the strategy is our annualised software subscription
base (“ASB”).
“Revolutionising business means not only meeting our customers’ needs, but changing
the game for them completely. The Sage ecosystem will be businesses’ indispensable
ally and the go-to source for advice. We’ll surpass our customers’ expectations with
solutions to enable them to work faster, smarter and more profitably.”
— Klaus Michael Vogelberg, CTO
22
The Sage Group plc | Annual Report & Accounts 2015 Sage 50 + Drive
Customer Case Study – Davora
We are bringing the power of the cloud and our best
features to growth products however they are deployed.
The latest version of Sage 50 Accounts in the UK was
enhanced in December 2014 with the addition of Drive,
a feature which liberates desktop data to the cloud in
order to back-up and share information with colleagues
via web-interfaces. The feature is central to our program
of core product modernisation and is also available in
France, Germany, Spain and Canada. Rajeev Arora runs
Davora cards, a leading ethnic greeting card publisher.
He upgraded to Sage 50 after his business expanded,
having outgrown a previous package.
“ Sage 50 Accounts with Sage Drive gives us the best
of both worlds. It gives us a very robust accountancy
package which can help with the operation of our
business from end to end and it allows us the flexibility
to work remotely. I’m on the road a lot at exhibitions
and have the tracker app on my phone, so I can access
my Sage account data and all my customers’ records,
supplier records, anywhere in a secure manner. We took
on a sales manager who is based remotely and she
takes orders through Sage Drive. I wouldn’t have been
able to hire her without it. Sage 50 is the backbone of
our business.”
Rajeev Arora, MD Davora Ltd, UK
See more of Rajeev’s story at www. sage.com/investors
Rajeev Arora, Davora Ltd, UK
The Sage Group plc | Annual Report & Accounts 2015
23
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Strategy continued
Customers for Life
Knowledgeable support and advice, any time
We’ve been listening to customers and responding to their needs for more than
30 years. In 2012, we identified the numerous benefits of subscription, both for Sage
and for our customers. Subscription relationships including support will continue
to offer great value and benefits to our customers and over time we expect more
and more customers to adopt subscription. Our transition to subscription has never
involved forced migration however and offering a choice to our customers is an
example of how we support them for life.
Our priorities
We have a privileged position with our existing customers and an
opportunity to grow with them by continuing to provide additional value
and making their lives easier. Our priorities are to deliver more integrated
solutions, implement hassle-free migration for customers who are ready
to move up to the next product solution and to relentlessly drive
exceptional levels of customer service.
Why it’s important
Providing Accounting, Payroll & HR and Payments services to customers
who have a need for all those services represents a compelling value
proposition; the Golden Triangle of money movement made effortless
with seamlessly integrated solutions.
Recognising when customers have outgrown their product and offering
simple migration pathways is important to enable us to bring maximum
and appropriate functionality to our customers and to help them to
grow further.
Putting customers at the heart of everything we do to drive exceptional
levels of service and support delights them and enables everyone to
benefit from the continuity of a long-term partnership.
The risks that could impact our success
Failing to recognise the changing needs of our customers and
the evolving compliance landscapes faced by customers in our
geographies would inhibit our ability to satisfy their needs. If the move
to a subscription delivery model is not executed collaboratively then
we risk alienating customers. Read more about our Market Intelligence
and Licensing Model Transition principal risks on page 40.
How we will measure our progress
If we succeed in delighting our customers, they will respond by
continuing to use our services, so our KPI linked to this pillar is
our contract renewal rate. Read more about our KPIs on page 28.
“Irrespective of product, location or size of business, we’re passionate about
our customers and want to serve them for life: providing unparalleled choice,
indispensable advice and the right solutions for them. The principle of supporting
customers for life is at the heart of everything we do.”
— Brendan Flattery, President Europe
24
The Sage Group plc | Annual Report & Accounts 2015
30,000+ Calls answered
every day
Customer support
We know from speaking to our customers that two
of their most critical demand drivers are access to a
knowledgeable person for support and peace of mind
around legislative compliance. Whether it is help with
completing the monthly payroll or advice on tackling a
significant change in legislation, our customers rely on
our support every day and we are available for them
online, over the phone or even in person. Most
entrepreneurs don’t go into business to be a bookkeeper
or tax specialist, yet maintaining good records and
complying with regulations is important. We know how
strongly valued our telephone support for Sage One is
amongst start-ups where an owner manager might only
get around to performing the pay-run on Sunday
evening; local knowledge and support is always on
hand to help them succeed.
Liam Watson runs Canny, a naturally flavoured milk
brand and has experienced Sage One support first hand:
“ One of the best features of Sage One is the support.
Always available, 24/7, I can’t get enough of that.”
Liam Watson, Canny, UK
The Sage Group plc | Annual Report & Accounts 2015
25
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Strategy continued
Capacity for Growth
A global operating model that scales
We identified the opportunity to focus our business within the 2012 strategy in order
to better leverage our resources. Certain products were identified as non-core and
disposed of and remaining products were categorised as Invest, Harvest or Sunset in
order to direct resources in relation to priorities. We also recognised the requirement
for disciplined execution in areas such as application of our brand and strategic
partnering. Our successes in executing on this cornerstone have tended to be local
successes, mainly as a result of our decentralised structure. Strategic priorities are
now defined globally, whereby, for instance, we are replicating the success of local
product marketing with global campaigns.
Our priorities
We will continue to focus our investment on our strongest and
most promising products but will only use two categories, Growth
and Heritage products. Growth products include both global products
and local on-premise growth products. Read more about our product
portfolio strategy on page 30.
As well as focusing our investment on the Growth product category, we
will also focus our spending by function and establish a global operating
model. The model starts with the customer who will continue to be the
responsibility of the country managing director (“MD”) who leads the
sales and service experience and this will be their primary focus.
The country MD will also represent Sage in the country and as the
champion of Small & Medium Business.
Marketing, Product Delivery and Technology will be run globally but
will be strongly connected to the country and the customer. This allows
a more effective deployment of our investment and will over time drive
a stronger return on investment.
The support functions will be run globally and will be targeted to improve
both service and efficiency. Transaction-processing costs will be reduced
and processes and systems re-designed. Country MDs will be internal
customers for our global back-office functions and will no longer be
burdened with having to oversee these functions.
We are working to reduce the number of legacy systems and are
implementing best in class systems globally, including the Salesforce
CRM solution as well as our own X3 general ledger.
Why it’s important
There are many facets to implementing our Capacity for Growth
plans but ultimately, this pillar of our strategy is centred on improving
efficiency to drive a consistently exceptional customer experience.
Spreading our investment too thinly between too many products
restricts our ability to truly revolutionise business. A global operating
model is essential to leverage our resources and achieve our ambition
of winning in the market to gain market share.
The risks that could impact our success
Business Model transition has been identified as a principal risk
considered on page 39.
How we will measure our progress
Our KPI linked to capacity for growth is the ratio of general and
administration spending as a percentage of revenue (G&A%). We will
work more efficiently in order to release savings into global front office
functions such as marketing. Reshaping the structure of our operating
margin will ensure that our organisation has capacity for growth.
Read more about our KPIs on page 28.
“Sage will be organised to best serve our customers, removing duplication of effort,
simplifying processes and working together as one team. We will share data, expertise
and resource to accelerate innovation and delight our customers.”
— Steve Hare, CFO
26
The Sage Group plc | Annual Report & Accounts 2015 Building deeper customer relationships
CBCs opened in Atlanta and Dublin
We have opened the first of our new Customer Business Centres (CBCs) to revolutionise the way we attract and support customers around
the world. CBCs will establish a new benchmark for customer support and service, under the One Sage global operating model. Marking an
end to working in silos, teams will be able to collaborate to serve customers quickly and effectively. The CBC in Dublin will serve the Europe
region and the CBC in Atlanta will serve North America as well as serving as our North American headquarters.
This is the first step to building deeper, life-long relationships with customers globally. CBCs house all teams involved in marketing, lead
qualification, sales, service and renewals in one place, with a combined focus on providing outstanding service to our customers. Working
on the Salesforce1 platform, the teams are collaborating to make sure that customers have a fantastic experience from enquiry to sale and
beyond. Initially, the CBCs are supporting customers of Sage Live.
The Sage Group plc | Annual Report & Accounts 2015
27
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Key performance indicators
Measuring our progress
The measurement of progress in delivering our strategy is important. We track a range of KPIs
to measure performance. Our top level KPIs have been refined in line with our refreshed strategy.
ONE SAGE
WINNING IN THE MARKET
Adoption
of Sage One
Paying subscriptions
Adoption
of Sage X3
Revenue growth
173,000
FY14: 86,000
11%
FY14: 7%
REVOLUTIONISE BUSINESSES
£344m
Annualised Software
Subscription
Base (“ASB”)
FY14: £268m
We use numerous qualitative methods internally to monitor our people engagement
and understanding of the strategy, such as the global people survey (read more at page
53). The One Sage strategic pillar enables the entire strategy and as such is associated
with all KPIs rather than a single measure.
Description:
We are using global products to attract new customers. Our KPI considers the revenue
generating global products and includes the number of paying subscriptions at the end of
the year for Sage One (all editions) and revenue growth for Sage X3. Adoption of Sage Live
will be included during FY16 once the product has been available for a full financial period.
Performance:
The Sage One global roll-out has continued throughout the year, driving the number of
paying subscriptions up by 100% to 173,000. X3 adoption has continued to progress with
11% revenue growth for the year. Growth was particularly strong in the International and
North America regions. Sage Live was fully launched during Q4 leading to a small number
of paying customers as at year-end.
Description:
ASB is the leading indicator for how our move to subscription is progressing. Growth is
supported by our latest technology features, which are delivered on subscription. ASB is
the amount of organic software subscription revenue in the last month of the period
multiplied by twelve.
Performance:
Our progressive move to subscription continues as evidenced by growth in ASB of 28%
for the year to £344m. Multiple initiatives are driving the growth in software subscription,
however we have had particular success with core product modernisation during the year.
Introducing mobile data sharing features, on subscription, to products such as Sage 50
enabling customers to work more effectively.
CUSTOMERS FOR LIFE
Renewal
rate
84%
FY14: 83%
Description:
If we are successful in delighting customers with technology and service levels, they will
respond when it is time to renew their contracts. Calculated as the number of contracts
successfully renewed in the year as a percentage of those that were due for renewal.
Performance:
Our renewal rate has been consistently high at over 80% for a number of years, which
is testament to the value customers place on our service.
Software subscription drives even closer relationships and the continuation of our
transition to subscription has helped to drive our renewal rate up to 84%.
* As with all financial measures throughout this report, KPIs (both current and prior year) are stated after accounting changes described on page 44.
28
The Sage Group plc | Annual Report & Accounts 2015 CAPACITY FOR GROWTH
19%
General and Administrative
Expense Ratio (“G&A%”)
FY14: 19%
FINANCIAL MEASURES
Underlying
EPS growth
12.6%
FY14: 8.2%
Underlying
Cash Conversion
106%
FY14: 101%
Description:
Our general and administrative expense for the period expressed as a percentage
of our total revenue for the period.
Performance:
Our G&A% is 19% for FY15. We have begun the transition towards our target global
operating model, having established leaders for each global function during the year. We
have established a baseline from which to drive savings from. As these structures develop
through FY16, savings achieved in our G&A expense will be reinvested in areas which have
the best potential to drive growth and enhance the customer experience.
Description:
Underlying basic EPS is defined as underlying profit after tax divided by the weighted
average number of ordinary shares in issue during the year, excluding those held as
treasury shares. Underlying profit after tax is defined as profit attributable to owners
of the parent excluding:
– Recurring items including amortisation of acquired intangible assets, acquisition
related items, fair value adjustments and imputed interest
– Non-recurring items that management judge to be one-off or non-operational
All of these adjustments are net of tax. The impact of foreign exchange is neutralised
in prior year figures.
For a reconciliation of underlying basic EPS to statutory basic EPS, turn to page 45.
Performance:
Underlying EPS growth primarily reflects growth in underlying operating profit, a decrease
in the weighted average share base due to the repurchase of shares during the year, and
a reduction in the effective rate of tax.
Description:
Underlying cash conversion is underlying cash flow from operating activities divided by
underlying operating profit. Underlying cash flow from operating activities is statutory
cash flow from operating activities less net capital expenditure and adjusted for
movements on foreign exchange rates and non-recurring cash items. In the prior
year, underlying cash flow from operating activities was calculated before net capital
expenditure and included movements on foreign exchange, which would have shown
underlying cash conversion of 110% in FY15 (FY14: 106%).
Performance:
Underlying cash conversion has increased by 5% in FY15.
29
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our strategy applied
Product portfolio management
Effectively managing our product portfolio generates capacity for growth and focuses our investment
to truly revolutionise business.
FRAMEWORK FOR PRODUCT
MANAGEMENT
We apply a framework for managing our product portfolio
which enables us to focus on the drivers that will influence
growth. Allocation of investment is particularly important
for directing our Sales and Marketing (“S&M”) and Research
and Development (“R&D”) spend.
We previously used three product groups, Invest, Harvest
and Sunset, to categorise products based on their potential
to create value via revenue growth or profitability. Product
prioritisation remains essential to our strategy, and has led
to refinement of the categorisation from three to two.
We now categorise products as Growth or Heritage.
There is no pressure on our customers to migrate to
a Growth product – our aim is to protect and support
our customer base and be there as a trusted partner
throughout their business life. We are developing migration
tools for our growth products, such that if a customer
decides to move, the process is seamless.
Growth products
Growth products include both Global products and
Local growth products.
In these products, we will invest the majority of our
R&D resources to increase features and functionality,
and nearly all of our S&M spend.
There will typically be one Growth product for each
category of offering (Accounting, Payroll & HR, Payments)
in a country for each size of business that we serve.
Heritage products
All products not classified as Growth products are Heritage
products. We will not end-of-life any product which has
satisfied on-plan customers. There will, however, be
minimum S&M investment as it is not our intention to grow
these products. R&D will be limited to compliance, minor
enhancements, bug fixes and building migration tools. Over
time, it is our expectation that customers will opt to migrate
to a Growth product to obtain enhanced functionality.
R&D and S&M spend in FY15
90%
10%
Growth products
Heritage products
GROWTH PRODUCTS
Global products
Global products are our primary tool to attract new customers unless
we establish through the sales process that their needs would be better
met by a Local growth product.
More detail on pages 32 to 33
Local growth products
Under our target global operating model, the commercial proposition
of a Local growth product is owned by Global Marketing, which works
with each country to ensure consistency. This includes the pricing of
the product and the way in which it is sold.
These Local growth products are popular, functionally rich solutions
in their local market. We have no immediate intentions to migrate
customers from these to our Global products, unless they themselves
choose to do so.
The best features of the Global products will be applied to the Local
growth products, and vice versa. Examples of this are Contaplus in
Spain, Ciel in France, Symphonia in Poland, and Sage 50 in the UKI,
Germany and Canada all having been significantly modernised. Sage
Drive will continue to be rolled out across Europe and North America
throughout FY16, delivering value to our on-premise customers that
still love their well-known on-premise software whilst wanting to
leverage the benefits of collaboration and mobility.
For our larger customers, we are continuing to invest in cloud versions
of our business management solutions such as Sage 200 in the UKI,
Sage Murano in Spain, Sage Office Line in Germany, Sage 100 in
France, and Sage 100 and 300 in North America. These products offer
customers a clear migration path to the cloud whilst retaining
a familiar user experience.
30
The Sage Group plc | Annual Report & Accounts 2015 Growth Product Portfolio – UKI Illustration
Our customers in the UKI range from sole traders and small owner managed businesses through to larger multi-national businesses.
We don’t believe in labelling our customers, but we understand their characteristics and have a portfolio of products to suit any size or complexity
of Small & Medium Business.
Our product range functionalities grow with the customer. To demonstrate the choice of Growth products in the UKI, we have considered
an illustrative customer lifecycle and the solutions Sage can offer depending on where in the cycle the customer sits.
G
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One Accounting
50 Accounts
One Payroll
Live
Payments
Pay
50 Payroll
200 Standard Online
X3
HR Online
Increasing employee numbers/geographic spread/complexity of organisation
Our illustrative business is starting out in fashion retail, selling via social media; Sage One is the ideal solution
to manage this start-up.
– Automatic bank feeds and a business performance dashboard allow the business owner to focus on their success.
– Integrating Sage One Accounting with Sage Pay enables them to take online payments via their website and using
a virtual terminal.
– Sage One Payroll allows the business owner to pay employees with ease, providing automated payroll calculations
and straight-forward legislative compliance.
Now selling goods from two premises and online, the business has grown its employee base.
– Sage 50 Accounts, Sage Live or Sage 200 could be used to manage business finances, depending upon the
requirements of the customer and how they prefer to deploy their software.
– Sage 50 Payroll can handle a larger employee base, allowing customisable payroll reports, management of holidays
and automatic calculation of wages. The pensions module is a useful add-on, allowing the customer to easily comply
with UK Pensions Auto Enrolment legislation.
– Sage Payments can be integrated with Sage 50 Accounts or Payroll to simplify paying suppliers and employees.
Payees can be added and approved directly from the Sage software package and payments are released from an
e-money account securely, saving time and administration.
Having grown significantly and now with an extended offering, the business operates out of five locations
in the UK and three in Europe.
– Sage X3, our global business management solution, would be an ideal product choice. The business needs to react
to changing conditions, rapidly, and Sage X3 allows them to do just that.
– Sage X3 handles cross border transaction between group companies. The flexible accounting structure enables
a real-time global view of the business, while accommodating local operational requirements.
31
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Our strategy applied continued
Global products
We are using global products to appeal to new customers as we target winning in the market.
Our cloud deployed global product which is ideally suited to
start-ups and businesses up to around 10 employees in size.
Everything that Sage One does as a product is designed to
make customers’ lives easier, for example connecting to bank
accounts and automatically reconciling records to make
tracking expenses and income easy. Intuitively designed
with a mobile first mind-set, the Sage One Accounting
mobile app lets users create and send invoices and access
their data from anywhere with an internet connection.
The Sage One global roll out has extended to 14 counties
and the product complies with local regulations as
standard. During the year we introduced our global
accounting core (“GAC”), a common technology stack
which enables a global accounting application to deliver
the core product with limited local compliance tailoring.
Updates, which are principally customer demand driven,
are made live via the GAC every 14 days. GAC is already
the basis of the product in the UK and North America
with further roll-outs planned for 2016.
“With Sage One I can have an office on a beach. It’s that
easy to use”
Our cloud deployed global product which is ideally suited
to Small & Medium Businesses with around 10 to 200
employees. Launched in summer 2015, Sage Live breaks
down the walls between the front and the back office,
creating one office where business owners, their
accountant, and everyone either serving customers or
helping to serve customers, contribute to the business.
At the heart of Sage Live is a next generation accounting
engine designed for real-time processing and with social
collaboration and mobile access in mind; users can see
and enter information in real-time on their smartphones,
watches and connected devices.
Developed in partnership with Salesforce, Sage Live
is built on the Salesforce1 platform, which enables
businesses to run completely in the cloud, integrating
seamlessly with Salesforce CRM tools and a multitude
of other third party applications.
“How I engage my customers is very important, the social
integration has given me the ability to bring our
customers into the conversation”
– Eduardo Caperta, Geckosurfhouse, Portugal
– Jody Padar, New Vision CPA Group, US
Live updates delivered every
14 days
Via the global accounting core
One
Office
No more front and back office divide
MAKES ACCOUNTING AND INVOICING
SIMPLE FOR STARTUPS
THE START OF A REAL-TIME, SOCIAL
ACCOUNTING REVOLUTION FOR
SMALL & MEDIUM BUSINESSES
32
The Sage Group plc | Annual Report & Accounts 2015 Our global business management solution is ideally
suited to larger businesses. Unlike traditional ERP
systems, Sage X3 simplifies business processes with
rich functionality, offering multi-currency, multi-company,
multi-language and multi-legislation support. It is sold
globally, both direct by Sage and with the support of
our network of business partners.
Since the launch of the latest version in Summer 2015, X3
can now be deployed either on-premise or in the cloud with
the same rich functionality from either service. We offer
the cloud service in addition to the traditional on-premise
service to maximise customer choice and ultimately we
will deliver whichever solution is right for the customer.
Our global product solution for accountants. Launched
in May 2015, Sage Impact is the result of collaboration
with accountants and bookkeepers to review and rethink
the changing role of accounting professionals, as core
areas such as tax and compliance have become more
automated. It brings together many of the everyday tools
that accountants and bookkeepers need to manage their
business in a single online interface, generating efficiencies
for accountants and enabling them to broaden the range
of services they can offer to clients. Developed on an open
platform, the product integrates with many of the everyday
tools that accountants currently use to run their businesses.
As it is accessible on any device, it enables accountants to
access their practice and client information wherever they
go. Sage Impact is free to use for accountants and its
integration with Sage products is intended to bring
more accountants into our network, which numbers
around 100,000, in order to make customer collaboration
more efficient and ultimately to promote Sage products.
“Planning production on Sage X3 has saved us a lot of time,
and we’re much more accurate.”
“Sage Impact is my one stop online resource. I have all my
Sage One client information and Accountant apps in one
place together with my diary so I don’t forget anything.”
– David Sher, Universal Papers and Plastics, South Africa
– Cyd Smith, CS Accounting, UK
Maximum
Customer Choice
Consume on-premise or as a cloud service
Designed to support
100k
Accountants currently in our network
TAKES THE COMPLEXITY OUT
OF RUNNING MID-SIZED AND LARGER
BUSINESSES
ALL OF THESE TOOLS YOU NEED TO RUN
YOUR PRACTICE IN ONE PLACE
33
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our strategy applied continued
Lifting our eyes to the future
We anticipate the shape of our business will evolve as we implement our strategy and will remain
focused on generating strong free cash flow supporting our progressive dividend policy throughout.
TRANSITION PHASE
Priorities:
– Earn customers for life by maintaining and enhancing our customer experience through
the transition
– Continue our progressive transition to subscription relationships
– Implement our target global operating model to generate capacity for growth
– Revolutionise business by investing in Global and Local growth products, optimising product
integration and creating seamless migration pathways for growing customers
Revenue mix
Subscription revenue growth is expected to outpace overall recurring revenue growth via
a combination of new and existing customers opting for subscription and a corresponding
reduction in revenue generated by stand alone maintenance and support contracts. SSRS
revenues are expected to decline, but eventually flatten. We expect that there will always be
some demand for SSRS pricing of software, especially amongst larger customers, as well
as professional services and training, which will continue to be a feature of our value proposition.
Revenue growth
We expect to continue to grow organic revenues at around 6%, but will drive the quality of the
growth by delivering more value to customers. The sources of this growth will be execution of the
cross-sell, migration and reactivation initiatives amongst our on-plan and off-plan installed
customer base and growth in new customers.
Recurring
Subscription
Traditional maintenance
and support
Software and software
related services
Processing
Organic revenue growth
of at least
6%
Margin
We will see a shift in our spending mix through the transition phase. The implementation of
our global operating model will introduce some savings, for example leveraging our purchasing
power through a newly established global procurement function. These savings will be reinvested
in other global priorities, such as enhancing our digital presence within the global marketing
function. We therefore expect to maintain an operating margin of at least 27%, it will become
a better quality margin with greater efficiency and capacity for growth.
Organic operating profit
of at least
27%
34
The Sage Group plc | Annual Report & Accounts 2015 ACCELERATION PHASE
Priorities
– Continue to put customers at the heart of everything we do
– Leverage our global operating model to accelerate new customer acquisition
– Drive efficient development cycles to continue to bring the latest technologies
and features to our customers
Revenue mix
The transition of relevant relationships towards subscription is expected to be largely
complete, with a base of SSRS and standalone maintenance and support revenue remaining.
Global product uptake and cross-selling of multiple services is expected to accelerate, further
contributing to subscription and processing within the revenue mix.
Recurring
Subscription
Revenue growth
Revenue from Local growth products is expected to continue to grow at mid-single digit
rates, while revenue from Global products is expected to become more material due to the
anticipated acceleration of new customer acquisition. The suppressing effect of migrating
SSRS revenues to a predominantly subscription model is expected to diminish as the transition
progresses to an advanced stage. These features combined are expected to yield overall revenue
growth in excess of 6%.
Traditional maintenance
and support
Software and software
related services
Processing
Organic revenue growth
>6%
Increasing
Margin
After the transition phase, the heightened investment in marketing functions as a proportion
of revenue is expected to diminish as we leverage the newly installed global operating model.
Disciplined spending combined with accelerating revenue growth is expected to lead to margin
expansion from 27%.
Organic operating margin
>27%
Increasing
35
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Principal risks and uncertainties
Balancing risks and rewards
We are transitioning the business to bring together all parts of the organisation as a connected whole
(“One Sage”), while at the same time the external risk environment in which we operate continues
to evolve. In light of this transition and these changes, we seek to ensure that the risk management
framework continues to develop to meet our global needs. We have continued to implement a number
of enhancements during the year to drive greater consistency in activity, and improve governance
surrounding these activities. This ensures that risks continue to be managed appropriately and within
agreed appetites. As part of this process, the directors have carried out an assessment of the principal
risks facing the Company, including those that would threaten its business model, future performance,
solvency or liquidity.
Risk environment
Risk is inherent within our business activities, and we continue to prioritise and develop our risk management capability in
recognition of this. Timely identification of risks, combined with their appropriate management and escalation, enables us
to successfully run our business and deliver strategic change, whilst ensuring that the likelihood and / or impact associated
with such risks is understood and managed within our defined risk appetite.
Risk governance
We operate a formal governance structure to manage risk, which has been supplemented during 2015 with the introduction
of two tiers of Risk Committee.
Audit and Risk Committee
Executive Committee
Board
Read pages 69-72
for Audit and Risk
Committee Report
Group Risk and Assurance
Director
Global Risk Committee
Global Risk Team
Regional Risk Committees
36
The Sage Group plc | Annual Report & Accounts 2015 Board
The Board has overall responsibility for risk management,
the setting of the overarching risk appetite and the
implementation of the risk management policy. The
Board reviews the output from Global Risk with focus
on the identified principal risks.
Its membership includes representatives from the key
support functions, and primary external facing business
stakeholders, including marketing and the three regional
presidents. Further to the defined membership, both the
Chief Executive Officer and Chairman of the Audit and
Risk Committee may attend as they desire.
Regional Risk Committees
Three Regional Risk Committees have been identified, one
in each of the three business regions, Europe, International
and North America. One committee was established in
Europe during 2015, and the remaining two will be
established in 2016. They will meet quarterly in advance
of the Global Risk Committee and have responsibility for
supporting the operation of the Global Risk Committee
and the management of principal and local risks within
their regions. In addition to managing regional risk, they
also monitor the deployment of risk management activities
throughout the countries within their regions, and provide
associated escalation and reporting.
Group Risk and Assurance Director
The Group Risk and Assurance Director is responsible for
the facilitation and implementation of the risk management
approach across Sage. The Group Risk and Assurance
Director chairs the Global Risk Committee, and is
responsible for consolidating the risk reports from the
Regional Risk Committees, and the creation of the output
from Global Risk for the Global Risk Committee, the Audit
and Risk Committee, and the Executive Committee. The
Group Risk and Assurance Director attends the quarterly
Audit and Risk Committee meetings, and also meets with
the Chairman of the Audit and Risk Committee outside the
formal confines of the Audit and Risk Committee during
the year.
Global Risk
Global Risk consists of a network of risk colleagues,
throughout the organisation, who work together and
are co-ordinated from a single point. It works to support
the operation of the committees at both a regional and
global level, and further to guide, support and challenge
the business, and embed risk management within
business activities.
Audit and Risk Committee
The remit of the Audit Committee was formally expanded
during 2015 to become the Audit and Risk Committee.
The Committee reviews and challenges output from Global
Risk, which is submitted to the Board. It reviews all principal
risks and associated appetite statements and metrics
at each meeting, ensuring these remain aligned to the
achievement of Sage’s strategic objectives, and assesses
the adequacy of assurance delivered. The Audit and Risk
Committee is responsible for the independent review of
the effectiveness of risk management systems and related
internal controls, and to ensure that issues that have arisen
are properly dealt with, and that going forward systems are
fit for purpose.
Its membership includes five non-executive directors
and it is also attended by the Chair of the Board, the
Chief Executive Officer and the Chief Financial Officer.
Executive Committee
The Executive Committee is responsible for establishing the
risk agenda, for the reporting and on-going management
of risks and for the stewardship of the risk management
approach. The Executive Committee identifies and assesses
Sage’s principal risks on an on-going basis, and for each
principal risk, ownership is assigned to a member of the
Executive Committee. The outputs of these assessments
are communicated with each country for inclusion in their
local risk assessment activities.
Global Risk Committee
The Global Risk Committee was introduced during 2015,
with responsibility for the risk agenda, providing direction
and support to Global Risk in transforming and embedding
risk across ‘One Sage’. It meets on a quarterly basis and
works to:
– Oversee cultural change
– Establish clear governance and accountability for
risk, and any associated (remediation) activities
– Provide global direction to regions and countries,
including creation and deployment of common
methodologies and practices
– Provide a point of escalation
– Ensure inclusion of the wider business in risk
management decision making
– Drive the inclusion of risk management into
performance management
– Enable the Company to effectively operate as ‘One Sage’
– Provide the Board and Audit and Risk Committee with
sufficient effective information to enable them to
discharge their risk reporting requirements.
37
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Principal risks and uncertainties continued
How we manage risk
Our risk management framework has been built to identify,
evaluate, analyse, manage and mitigate those risks which
threaten the successful achievement of our business
strategy and objectives, within tolerable appetites. Risks are
owned and managed within the business, and formally
reviewed on a quarterly basis.
To supplement business as usual risk management
activities, Global Risk undertakes a number of targeted
in-depth reviews against identified risks each year. In 2015
these were conducted against three of the principal risks,
namely Third Party Reliance, Information Management and
Protection (including cyber), and Legal and Regulatory
Framework. The results of these reviews feed into the
quarterly reporting cycle.
Risks continue to be owned and managed within the
business, and are overseen and supervised through the
Global and Regional Risk Committees. During 2015 risk
resources around the business were brought together to
operate as a global function. This move seeks to drive
greater consistency, and to avoid any conflicts of interest
between local reporting lines and global requirements.
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Our risk management activities
The Board is responsible for maintaining and reviewing the
effectiveness of our risk management activities from a
financial, operational and compliance perspective. These
activities are designed to identify and manage, rather than
eliminate, the risk of failure to achieve business objectives
or to successfully deliver the business strategy. Our risk
management strategy supports the successful running
of the business by identifying and managing risks to an
acceptable level and delivering assurance on these.
Culture
The Board is aware that the effectiveness of risk
management is dependent on behaviours. During 2015
we launched a revised Code of Ethics, re-enforcing our
required values and behaviours, and in turn strengthening
our risk culture. This is now supported by our ethics and
compliance programme, which aims to ensure compliance
with our ethical standards.
In parallel, Sage recognises the behavioural benefits that
clear expectations bring to the business, and as such is
re-enforcing a 100% compliance culture with policies and
procedures across the business, and wrapping this within
a broader ‘Sage Way’ of working. Oversight of compliance
is reported through Global Risk and Assurance, and during
2016 plans are in place to enhance existing capabilities
through the formation of a dedicated Compliance function.
How we identify risk
Our risk identification processes follow a dual
approach, seeking:
– To identify risks using a top down approach at the
global level. These principal risks are those which
threaten delivery of our Strategy.
– To identify risks using a bottom up approach at the
country level. Such risks are those which threaten local
business activity, and they are managed at the local level.
To provide visibility of wider issues within the business,
these are consolidated at the global level. To further
improve the visibility of local risks at a regional and
global level, the Risk Management Policy was revised
during 2015, and formal requirement for escalation
of higher rated risks to the Regional and Global Risk
Committees was introduced.
Our risk appetite
We use an assessment of the level of risk and our
associated risk appetite to ensure that appropriate focus
is placed on the risks we face. Identified risks are measured
on a gross and net risk basis using our pre-defined scoring
matrix. Risks are then prioritised for mitigation by
considering these scores against our risk appetite.
The principal risks, of which there are currently ten, are
reviewed by the Board on an on-going basis, and monitored
and managed through the Audit and Risk Committee
and Global Risk Committee.
To assist with the monitoring and management of these
identified principal risks, work was undertaken with risk
sponsors and owners to establish a set of Risk Appetite
Statements for each identified principal risk. Behind each
statement a series of Risk Metrics and their measurement
were identified and agreed, in order to provide oversight of
whether we are working within identified tolerance, and
whether additional executive attention may be required.
These metrics have been incorporated within our quarterly
reporting activities.
38
The Sage Group plc | Annual Report & Accounts 2015 Principal risks
We continue to evolve our risk management process and associated reporting activities.
The Directors have carried out an assessment of the principal risks
facing the Company, including those that would threaten its business
model, future performance, solvency or liquidity, and these risks are
further detailed below. We continue to monitor the risk environment,
and review the appropriateness of the principal risks to the business,
and these are formally reviewed at the beginning of each year.
At a global level we formally report against these principal risks on a
quarterly basis, as well as escalated local and regional risks. During 2015
we have enhanced our reporting activities, with the definition of clear
appetite statements for each principal risk and identification of
supporting metrics which can be reported. Risk dashboards have been
revised to incorporate these changes. In addition we have revised
our Risk Management Policy to simplify risk rating and facilitate the
escalation of local risks. This is further supported through the Global
and Regional Risk Committees. Moving forward we will further develop
our metric driven risk reporting.
The risk landscape continues to change as both the business and
marketplace evolve. The pace of change, and need for greater visibility
across the organisation, continue to grow and the risk function and
practices are developing to meet these challenges.
The creation of the Global and Regional Risk Committees is seen as a
significant step in embedding consistent activities across the business,
enhancing the ability to respond, and support the move to a global
operating model. The membership of the Risk Committees reflects
and represents all relevant facets of the business, ensuring that risk
is considered and developed within the wider considerations of the
business, and that market pressures and changes are considered
in a timely manner.
Currently there are ten principal risks which we monitor and report
against at a global level. The risks are arranged according to their
alignment, seven are aligned to successful delivery of the Strategy
(risks 1-7 below), and three are aligned operationally (risks 8-10 below).
A number of measures are in place to manage and mitigate these risks,
while other activities are in the process of being developed or deployed,
and are marked below as in progress.
Principal Risk
Risk Background
Management and Mitigation
1. Business Model Transition
Sage does not successfully
manage the transition of its
business to a global
operating model
Primary strategic alignment:
Capacity for Growth
Sage has historically operated as a federated set of
Operating Companies across multiple geographies,
each with significant local autonomy.
– Functional reporting for all support functions established to a
global level to allow consistency of direction, and removal of
any global / local conflicts
In order to avoid duplication of effort, drive greater
consistency and efficiency in processes, and provide
clearer governance, Sage is moving to a new global
operating model.
This risk is an evolution from 2014. During 2015,
organisational and structural changes have been
successfully made, alongside planning for the wider
transition, including governance. Transition
implementation will run through 2016.
– An approved global Business Model Transition Strategy, supported
by an overarching plan which details the goal,
overall time plan, and scheduled adoption by countries
– Clear governance around strategy and overarching plan through
Executive Committee and programme steering committee
– Identification of a programme authority lead to manage
the transition
In progress:
– Alignment of transition frameworks for each country / region /
function which are integrated to the overarching plan,
and approved by the programme steering committee
– Monitoring of implementation through the programme
management office
39
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Principal risks continued
Principal Risk
Risk Background
Management and Mitigation
2. Licensing Model Transition
Sage does not successfully
move to a target
subscription licensing
model, and adapt its
customer approach to
reflect the change to
this model
Primary strategic alignment:
Customers for Life
3. Market Intelligence
Sage does not understand
or anticipate changes in the
external environment
(including areas such as
customer needs, emerging
market trends, competitor
strategies and regulatory /
legal requirements)
Primary strategic alignment:
Customers for Life
Winning in the Market
– New products are being offered on a subscription only basis
– An approved licensing model transition strategy is in place,
with defined targets and timescales
– A series of approved targets have been defined, which span
multiple years and support successful delivery of our Strategy
– Ongoing monitoring and review of the approved targets is taking
place at country, regional and global levels in order to proactively
manage the licence transition, and revenue figures
In progress:
– Creation of further Customer Business Centres, with staged
adoption of global products, to better manage on-going
customer relationships and the sales cycle
Sage wishes to continue to shift its licensing
model towards subscription, where customers pay
a monthly charge to use a licence, and in doing so are
entitled to upgrade to the most recent release.
Subscription licensing is perceived as beneficial
within the software industry for a variety of
reasons, including increased customer contact
and predictability of cash flow. Any transition
process must, however, be controlled in order
to manage potential impacts, including short
term revenue figures.
This risk is an evolution from 2014. Through 2015,
a dual approach has been followed to ensure
achievement of revenue figures, while moving
towards subscription. In parallel to these activities,
the first of a number of Customer Business Centres
have been opened for global products, which
co-locate teams (digital marketing, sales, service
operations) enabling them to operate collaboratively
and serve customers quickly and efficiently.
Sage has focused resources and management
attention on successfully delivering revenue and
margin growth while at the same time maintaining
a broad product range. This has been underpinned
by local market intelligence.
In order to develop a consolidated understanding
of its market and customer needs, Sage is developing
a global market intelligence capability.
The risk was identified in 2015. The initial focus
has been to develop appropriate structures which
will enable competitive positioning and product
development, and 2016 will see the introduction
of further operational practices to support this.
With a growing emphasis on global products
within Sage, this activity will become increasingly
relevant in the successful development of Sage’s
customer solutions.
– A Marketing Operations group has been established
across the organisation, which has overall responsibility
for Market Intelligence
– Annual completion of a global market intelligence survey,
to identify market opportunities
– Annual completion of a brand health survey to understand
customer perception of the Sage brand and its products
In progress:
– Prioritisation of resources and effort on products with a lifecycle
status of ‘Growth’
– Ongoing development of standard templates for use by
market intelligence managers to allow information capture to
be enhanced across countries, and reported on a periodic basis
– Definition of a feedback loop to allow continual refinement of
standard templates, ensuring they remain effective, and capture
relevant information
40
The Sage Group plc | Annual Report & Accounts 2015 Principal Risk
Risk Background
Management and Mitigation
4. Competitive Positioning and Product Development
Sage is unable to clearly
identify its approach to
the market, and support
it with strategies that
drive competitive
advantage, including
product development
Primary strategic alignment:
Winning in the Market
The competitive environment in which Sage operates
has seen significant developments in recent years
with the emergence of new players and a shift to
delivering functionality via the cloud. These new
players include venture capital funded organisations
whose primary goal is to attain market share
irrespective of profit, and a number of US listed
companies with similar goals. Cloud products and
digital sales and marketing strategies (zero touch
sales) are reducing barriers to entry.
Sage must be able to translate market intelligence
into appropriate strategies that target attractive
market segments with relevant products.
Whilst Sage transitions towards global products,
a number of which have been launched, in the short-
to mid-term there remains the need to manage and
evolve the local growth products in tandem with its
longer-term aspirations.
This risk was identified in 2015.
Capacity for Growth
5. Sage Brand
Sage does not deliver clear
and consistent branding to
the market
Primary strategic alignment:
One Sage
– A Global Marketing team has been established to oversee
competitive positioning and product development
– Product lifecycle classifications have been created, and all
products have been assigned a classification of ‘Heritage’
or ‘Growth’, to define whether research and development
resources may be expended on them
– Governance has been established over the creation of
global products, to ensure effective prioritisation of resources
– Accountability for the maintenance of documented strengths
and weaknesses has been defined, and for global products
this resides with the Global Marketing Operations team
In progress:
– All ‘Growth’ products must have their strengths and weaknesses
against competition documented, and the priority areas for
development identified
– Defined authorisation channels to control all research and
development expenditure, and to ensure these resources are most
effectively targeted
Work continues towards building the global
Sage brand following several years of acquisitions
around the world. The Sage brand is currently
well recognised and trusted by customers in
many of its core markets, however, on a global scale
inconsistency exists in brand awareness across
certain territories.
A clear and consistent brand assists customers
in identification of the values Sage stands for, and
provides uniformity of message to the market. The
importance of such messaging is increasing with
the adoption of global products.
Activity has continued during 2015 to both strengthen
the brand and drive greater consistency in messaging.
This risk is an evolution from 2014.
– All countries must comply with Sage’s Brand Governance and
Brand Guidelines, which have been designed to execute the Sage
Masterbrand Strategy. Timeframes for compliance of all products
are defined, and any exceptions must be approved through the
Global Brand team
– Ongoing review of customer experience is performed
(Net Promoter Scores), and output reviewed across countries
and products to identify variance
– Where no specific brand guidance has been provided by
the Global Brand team, a defined approval route is in place
through the team, and approval must be obtained in advance
of publication
In progress:
– All branded assets must be uploaded to the Brand Library,
and any exceptions from brand guidelines reported to the
Chief Marketing Officer and Audit and Risk Committee
6. Strategic Partnerships
Sage fails to identify, build
and maintain strategic
relationships
Primary strategic alignment:
Revolutionise Business
In the federated model, Sage countries operated
in a semi-autonomous manner, with limited global
direction, or co-ordination, and relied on internal
resource to go to market.
However, the market and Sage’s competitors have
become ever more agile, and specific resources
harder to attract.
As such, there are an increasing number of instances
where developing strategic partnerships may be of
benefit to Sage. Those instances where the use of
strategic partners is permitted, and the governance
around such engagement, needs to be controlled as
well as the on-going management of any eco-system.
This risk is an evolution from 2014.
– A Partner Management team has been established to
oversee the selection and management of Strategic Partners
– Definitions are in place to ensure clarity over what constitutes
a Strategic Partner
– All contracts must comply with the Material Contracts policy, and
be approved through legal
– Inclusion of defined legal provisions is required. Any variance from
such provisions must be recorded as part of the formal contract
approval process
– All Strategic Partners are assigned an individual within the Partner
Management team who is responsible for actively managing the
relationship
In progress:
– In line with the business model transition and revised working
practices, a Strategic Partner Management policy is planned
during 2016 to enhance the consistency of selection and
on-boarding of all our Strategic Partners
41
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Principal risks continued
Principal Risk
Risk Background
Management and Mitigation
7. Third Party Reliance
Sage fails to adequately
understand and effectively
manage the third party
environment that supports
its business
Primary strategic alignment:
Revolutionise Business
Sage offers a set of products and services to
customers, for which it will be held accountable
should problems occur. Many key parts of Sage’s
service offerings to its customers are now delivered
using third parties, and while activities may be
outsourced, the risks associated with their use
cannot be.
To allow risks to be managed within Sage’s appetite,
this third party estate must be understood and
effectively managed.
This risk was identified in 2015. As part of the
move to 'One Sage’ and the new global operating
model, organisational and structural changes
have been made during 2015, designed to enhance
Sage’s global approach to third party management.
– A global procurement function has been established to ensure
key controls are applied in the selection and on-boarding
of third parties
– The business remains responsible for defining its needs
and requirements
– The global procurement function supports the business with
the selection of third parties and negotiation of contracts
– Legal resources are used in contract negotiation
– Management review and control is applied through the
Delegation of Authority process, and appropriate approval
is required before any expenditure can be authorised
In progress:
– As part of the transition to the global operating model, and
through the Excellence in Governance initiative to support
this transition, a Third Party Lifecycle Governance Framework
will be established during 2016
8. Supporting Control Environment
Sage’s underlying control
environment (business
processes and technology
infrastructure) do not
support the efficient
operation of the business
and do not support the
control framework
Sage has historically grown through a process of
acquisition. Each acquisition has arrived with its
own control environment (systems and processes,
including technology infrastructure).
Sage is moving to a new global operating
model, and to allow this the control environment
(systems, processes, technology infrastructure
and applications) must support the efficient
operation of the business – through the timely
provision of accurate and appropriate information.
This risk is an evolution from 2014.
– Business requirements are defined across the business
– New best in class systems have been installed, including
Salesforce CRM and Sage’s X3 General Ledger
– Salesforce CRM has been installed for use within the new
Customer Business Centres as the primary CRM system to
underpin their operation and expansion. All new customers
for Customer Business Centre supported products are
being entered directly into these systems
In progress:
– X3 General Ledger has been installed both in Customer Business
Centres and separately for wider General Ledger activities.
In scope systems have been identified, and a planned migration
by Finance Operations will occur
– Any deviation from the migration plan must be approved
through the Finance Implementation Steering Committee
– As part of business model transition activities and the
establishment of revised ways of working, an Excellence in
Governance initiative is being undertaken to ensure consistency
and enhance effectiveness
– Expansion in scope of Customer Business Centre supported
products is planned as part of a gradual move to global products
42
The Sage Group plc | Annual Report & Accounts 2015 Principal Risk
Risk Background
Management and Mitigation
9. Information Management and Protection (including cyber)
Sage fails to adequately
understand, manage and
protect data
During the period of acquisition many established
processes, whilst appropriate to smaller businesses,
did not develop in line with Sage’s growth.
This risk is an evolution from 2014. During 2015,
organisational and structural changes have been
made to manage the risk and to transition to the
new ways of working.
– Creation of a global ‘OneIT’ function reporting to the global
Chief Information Officer, to support the operation of
'One Sage’ through common supporting IT infrastructure,
practices and systems
– A network of Information Security Officers oversees compliance
with the IT Controls Framework, which defines
the key controls which are required
– Maintenance of formal certification schemes, such as PCI,
across specific parts of the business, with internal and external
validation of compliance
– On-going assurance activities are performed across the estate
by Internal Audit against the IT Controls Framework. Results
are tracked and reported to the Audit and Risk Committee
In progress:
– Global incident management procedures including rating
of incidents and escalation, as required
– Excellence in Governance initiative being undertaken across
revised ways of working and policies to enhance effectiveness
10. Regulatory and Legal Framework
Sage fails to understand
and effectively operate
within the legal and
regulatory framework
applying to its services
Sage operates in an increasingly complex external
environment, while at the same time continuing to
evolve its service offerings to the market. Many of
Sage’s activities and services are subject to legal
and regulatory influences, which continue to
develop in parallel.
It is therefore essential to monitor the evolving legal
and regulatory environment, understand in a timely
manner how this applies to the business, and take
appropriate steps to ensure compliance.
This risk is an evolution from 2014.
– All legal resources across Sage report directly to the global
Legal Director
– The legal function uses internal and external resources
to monitor planned and realised changes in legislation
– All product contracts are reviewed and approved through
the global legal function
– A suite of policies are in place to support key legislation,
including Data Protection and anti-Bribery
– A Code of Ethics policy is in place across the business which
provides clarity over how colleagues are expected to behave.
On-line training is provided to support it, and to record levels
of understanding
– A Group Whistleblowing policy and arrangements are in operation,
to allow colleagues to raise issues without fear of recrimination,
and to provide early oversight of issues
In progress:
– Development and communication of the 'Sage Way' of working,
and on-going drive towards a 100% compliance culture
Developing the financial viability statement
In developing the financial viability statement, it was determined that a five year period should be used, consistent with the period of the Group’s
strategic plan and reflecting a typical life of on-premise products without upgrade.
Management reviewed the principal risks, and considered which of these risks might threaten the Group’s viability. It was determined that none of
the individual risks would in isolation compromise the Group’s viability, and so a number of different severe but plausible principal risk combinations
were considered.
Having identified the severe but plausible risk combinations, a cross functional group of senior managers, including representatives from Finance,
Risk, IT, Product Marketing and Legal, estimated the monetary impact of each scenario. These impacts were based on similar examples in the public
domain and internal estimates of remediation costs.
The impacts were modelled for both year one and year four of the forecast period to ensure that expected changes in the Group’s product mix,
through migration towards a greater proportion of cloud based products, did not adversely impact on the Group’s viability.
As set out in the Audit and Risk Committee’s report on page 70, the Directors reviewed and discussed the process undertaken by management,
and also reviewed the results of reverse stress testing performed to provide an illustration of the reduction in revenue that would be required to
break the Group’s covenants or exhaust all available cash.
The Directors’ financial viability statement is contained in the Directors’ Report on page 93.
43
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Financial and operating review
Financial targets achieved with
momentum for sustainable growth
Chief Financial Officer,
Steve Hare, analyses
the 2015 financial
performance
Throughout the year we have conducted a complete review of the business, including our products, organisational structure, operating model and
policies in order to prepare for next phase of long-term sustainable growth. We have simplified our three existing product categories to Growth and
Heritage and have initiated organisational transformation in order to implement our target operating model and realise cost savings to re-invest for
growth. Our revenue category definitions have refined and we have amended the application of the revenue recognition policy to certain products
enabling stakeholders to clearly and transparently track performance. None of the updates impact cash generation and the financial summary below
is included for comparability to previous announcements. All subsequent figures and metrics are prepared on the revised basis.
Impact of changes to revenue reporting:
As we enter the next phase of growth, the definitions of revenue categories have been refined and we have amended the application of the
revenue recognition policy to certain products to enable stakeholders to clearly and transparently track performance. None of the changes
impact cash generation.
Continuing operations
Previous basis
Revenue reporting changes:
– SSRS/Recurring reclassification1
– Referral commissions treatment2
– Separate presentation of Processing3
Revised basis
SSRS
£m
348
(58)
(3)
287
Recurring
£m
Processing
£m
1,010
55
46
(158)
953
–
–
–
161
161
Total
Revenue
£m
1,357
Operating
costs
£m
(974)
(3)
46
–
–
(46)
–
1,400
(1,020)
Operating
profit
£m
383
(3)
–
–
380
Margin
%
28.2
(0.2)
(0.9)
27.1
1.
2.
3.
We have assessed the categorisation of revenue between Software and Software Related Services (SSRS) (recognised immediately) and Recurring (recognised over initial
contract duration). Upfront revenue associated with time limited products is now being pro-rated over the initial contract life. The impact is to reclassify some revenue
from SSRS to Recurring. The difference between revenue deferred in FY14 and FY15 results in a £3m decrease in the revenue and operating profit for FY15.
We also considered the accounting for arrangements with business partners that refer customers to the Group, such as Independent Sales Organisations (ISOs) in the
North America Payments business. We have concluded that payments made to these business partners are better reflected as costs and not as deductions to revenue.
The impact is an equal increase in revenue and costs, therefore having no effect on the operating profit figure, but decreases the operating profit percentage.
In order to enhance disclosure, a separate category has been introduced for Processing revenue, which is volume based and relates to payments and some payroll
processing services. The impact is to disclose this revenue separately from SSRS and Recurring revenue, with no change to total revenue or the operating margin.
44
The Sage Group plc | Annual Report & Accounts 2015 Group performance
The Group delivered organic revenue growth of 6% (FY14: 5%) and
increased the organic operating profit margin to 27.1% (FY14: 26.5%).
Momentum in recurring revenue remains the primary driver of organic
revenue, growing by 9% (FY14: 7%) for the full year. Within this category,
software subscription revenue grew strongly by 29% (FY14: 25%).
Organic figures neutralise the impact of foreign currency fluctuations
and exclude the contribution from current and prior period acquisitions.
A reconciliation of organic operating profit to statutory operating profit
is shown on page 116.
Statutory performance has been impacted by movements in key
exchange rates during the year, particularly in Europe, the US and Brazil.
Statutory figures also include the contribution of acquisitions and
disposals. The current year statutory operating profit includes a £62m
goodwill impairment relating to our Brazilian operations. The impact is
non-cash and notwithstanding the challenging economic environment,
we remain confident about our growth prospects in Brazil, generating
8% organic revenue growth during FY15.
The operating margin has been achieved despite incurring the initial,
unplanned costs associated with transforming towards the global
operating model and implementing investments to support the
execution of our strategy.
Total organic spending on Research and Development (“R&D”) was
£139 million, which represents 10% of total organic revenue (FY14: 10%).
The proportion of R&D expenditure on Growth products was 87% and
demonstrates focussed resource allocation. All R&D expenditure
incurred this year was expensed in line with our policy. The percentage
of revenue spent on general and administrative expenses (“G&A”) was
19% on an organic basis. As we transition to our target global operating
model, the G&A% is an important measure to monitor our progress in
redirecting our investment towards activities which contribute most
to growth, particularly sales and marketing.
In order to aid comparison with some competitors, particularly those
based in the US, it should be noted that organic operating profit is
stated after incurring share based payments of £9m and depreciation
and amortisation of £29m. An equivalent non-GAAP EBITDA would
therefore be £418m, representing an organic EBITDA margin of 30%.
Revenue mix
Segmental reporting
As part of Sage 2020 and preparing for the next phase of growth, an
assessment of our regional structure has been undertaken resulting
in the AAMEA region being expanded to include Latin America,
specifically Brazil. The new region will be known as ‘International’ and
will sit alongside Europe and North America as one of our three regions.
Recurring revenue
The Group has delivered an improvement in organic recurring revenue
growth to 9% (FY14: 7%), of which software subscription growth
accounted for 90% of the year-on-year increase.
Organic recurring revenue represents 68% of the Group’s total organic
revenue (FY14: 66%) with the contract renewal rate at 84% (FY14: 83%).
Both existing and new subscription initiatives are maintaining a
long-running strategic movement towards higher quality revenue,
building on the recurring revenues derived from our maintenance
and support contract base. Subscription contracts also typically
attract higher renewal rates than stand-alone maintenance and
support contracts.
Processing revenue
Processing revenue, reported separately for the first time for enhanced
transparency, has grown organically by 2% (FY14: 2%). Strong growth
came from payments in Europe with a flat performance recorded in
North America.
SSRS revenue
Organic SSRS revenue declined modestly during the year at -1%
(FY14: Flat), due to the substitution effect of the gradual transition
towards subscription relationships, offset partially by growth in
Malaysia. Within SSRS, revenue from perpetual licenses is less than
12% of Group revenue and demonstrates the continued emphasis
on subscription and recurring revenue relationships.
Revenue
Statutory revenue grew by 6% to £1,436m. The growth reflects organic
growth in the business and the contribution from two acquisitions,
offset by adverse foreign exchange movements experienced in FY15.
The average exchange rates used to translate the consolidated income
statement for the year are set out on page 47.
Operating profit
Organic operating profit margin excludes the contribution from
acquisitions made in Germany and the US in Q4 2014 and Q1 2015
respectively. A reconciliation of the reported FY15 underlying margin
of 26.5% to the FY15 organic margin of 27.1% is shown above.
Organic operating profit increased by 8% to £380m (FY14: £350m), and
the organic operating profit margin increased to 27.1% (FY14: 26.5%).
Statutory operating profit was broadly flat due to an impairment charge.
The operating profit margin has benefited from an improvement in
operating leverage as a result of revenue growth and a disciplined
approach to managing the cost base.
Earnings per share
Underlying basic earnings per share increased by 12.6% to 25.00p
(FY14: 22.19p) due to a lower effective tax rate and a reduction in
the average number of shares in issue to 1,073.0m (FY14: 1,089.0m),
resulting from share repurchases.
Basic earnings per share (“EPS”) reconciliation
Underlying basic EPS
Impact of foreign exchange
Underlying basic EPS (as reported)
Recurring items
Non-recurring items
Statutory basic EPS
2015
Pence
25.00
–
25.00
1.10
5.79
18.11
Restated
2014
Pence
22.19
0.72
22.19
(1.45)
(4.20)
17.26
Statutory basic earnings per share increased to 18.11p (FY14: 17.26p),
which reflects the factors set out above.
Net finance cost
Net finance cost at 30 September 2015 was £21.4m (FY14: £20.9m).
The increase over prior year is due to increased average debt balances
driven by the Paychoice acquisition, partly offset by the refinancing
of $200m (4.39%) of maturing USPP debt in the year at lower rates of
3.73% for 10 years.
45
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Financial and operating review continued
Revenue
Europe
North America
International
Group
Operating profit
Group
Margin
Revenue mix
Organic
Europe
North America
International
Group
% of total organic revenue
FY15
£753m
£477m
£206m
Statutory
FY14
£748m
£409m
£197m
£1,436m
£1,354m
Change
+0.7%
+16.6%
+4.4%
+6.1%
FY15
£745m
£450m
£206m
Organic
FY14
£708m
£433m
£181m
£1,400m
£1,321m
FY15
£297m
20.7%
Statutory
FY14
£300m
22.1%
Change
–0.8%
–140bps
FY15
£380m
27.1%
Organic
FY14
£350m
26.5%
Recurring revenue
Processing revenue
SSRS revenue
FY15
£560m
£260m
£133m
£953m
68%
FY14
£519m
£238m
£117m
£874m
66%
Change
+7.8%
+9.0%
+13.7%
+9.0%
FY15
£32m
£120m
£8m
£161m
11%
FY14
£30m
£122m
£7m
£158m
12%
Change
+9.0%
–1.0%
+18.1%
+1.7%
FY15
£153m
£69m
£64m
£287m
20%
FY14
£159m
£73m
£57m
£289m
22%
Organic to statutory reconciliations
Organic
Organic adjustments1
Underlying
Impact of foreign exchange2
Underlying (as reported)
Recurring items3
Non–recurring items4
Statutory
FY15
Revenue Operating profit
£1,400m
£36m
£1,436m
–
£1,436m
–
–
£1,436m
£380m
–
£380m
–
£380m
(£21m)
(£62m)
£297m
Margin
27.1%
26.5%
26.5%
FY14
Revenue Operating profit
£1,321m
£1m
£1,322m
£32m
£1,354m
–
–
£350m
–
£350m
£11m
£361m
(£16m)
(£45m)
£300m
20.7%
£1,354m
Change
+5.3%
+3.9%
+13.6%
+6.0%
Change
+8.3%
+60bps
Change
–3.6%
–4.9%
+12.7%
–0.7%
Margin
26.5%
26.5%
26.5%
22.1%
Impact of retranslating FY14 results at FY15 average rates.
1 Organic adjustments comprise contributions from acquisitions, disposals and products held for sale.
2
3 Recurring items comprise amortisation of acquired intangible assets, acquisition–related items and fair value adjustments.
4 Non-recurring items comprise items that management judge to be one-off or non–operational.
Taxation
The statutory income tax expense was £82m (FY14: £90m). The effective
tax rate on statutory profit before tax was 30% (FY14: 32%). The effective
tax rate on underlying profit before tax was 25% (FY14: 27%). The
reduction is driven by a general reduction in tax rates including the
UK tax rate, as well as a number of one off items arising as a result of
corporate simplifications and prior year items.
The income tax charge and the total tax paid in the year are underpinned
by Sage’s tax policy, which is aligned with the overall goals of the business
including Sage’s vision, strategy, code of ethics and guiding values. We
seek to manage our tax affairs in a responsible and transparent manner,
to comply with relevant legislation and with due regard to our reputation.
Our approach is in line with the principles issued by the Confederation
of British Industry (CBI). Sage’s tax policy has been agreed by the Board,
with progress being monitored by the Group Audit and Risk Committee.
The policy has been shared with the UK tax authorities.
46
The Sage Group plc | Annual Report & Accounts 2015 Cash flow and net debt
Cash flow
Underlying operating profit
Exchange rate translation movements
Underlying operating profit (as reported)
Non-recurring items
Depreciation/amortisation/profit on disposal
Share-based payments
Working capital and balance sheet movements
Exchange rate translation movements
Statutory cash flow from operating activities
Net interest
Tax paid
Net capital expenditure
Free cash flow
Statutory cash flow from operating activities
Non-recurring cash items
Net capital expenditure
Eliminate exchange rate translation movements
Underlying cash flow from operating activities
Underlying cash conversion1
FY15
FY14
£380m £351m
£10m
–
£380m £361m
(£2m)
£29m
£8m
(£3m)
(£11m)
–
£29m
£9m
£5m
(£5m)
£419m £382m
(£19m)
(£18m)
(£107m)
(£85m)
(£27m)
(£20m)
£296m £229m
£419m £382m
£2m
(£27m)
£10m
–
(£20m)
£5m
£403m £366m
106%
101%
1
Underlying cash conversion is underlying cash flow from operating activities
divided by underlying operating profit. Underlying cash flow from operating
activities is statutory cash flow from operating activities less net capital
expenditure and adjusted for movements on foreign exchange rates and
non-recurring cash items. In the prior year, underlying cash flow from operating
activities was calculated before net capital expenditure and included movements
on foreign exchange, which would have shown underlying cash conversion of 110%
in FY15 (FY14: 106%). Refer to the inside front cover and page 163 for information
on Non-GAAP measures.
The Group remains highly cash generative with underlying cash flows
from operating activities of £403m, which represents strong underlying
cash conversion of 106% (FY14: 101%).
A total of £149m (FY14: £217m) was returned to shareholders through
ordinary dividends paid of £134m (FY14: £126m) and share repurchases
of £15m (FY14: £91m). Net debt stood at £425m at 30 September 2015
(30 September 2015: £437m), which is equivalent to 1 times rolling
12-month EBITDA.
Treasury management
The Group continues to be able to borrow at competitive rates and
currently deems this to be the most effective means of raising finance.
The current Group’s syndicated bank multi-currency Revolving Credit
Facility (RCF), expires in June 2019 with facility levels of £525.2m
(US$551m and €218m tranches). At 30 September 2015, £81.6m
(FY14: £111m) of the RCF was drawn. RCF drawings were used to
fund the US Paychoice acquisition in October 2015.
Total USPP loan notes at 30 September 2015 were £525.4m (US$700m
and EUR€85m) (2014: £432m, US$700m). Approximately £135m
(US$200m) of USPP borrowings were repaid in March 2015. This maturity
was refinanced in the USPP market in January 2015, via the issuance of
loan notes of US$200m (£132.2m) at 3.73% fixed until 2025, €55m (£40m)
at 1.89% fixed until 2022 and €30m (£22m) at 2.07% fixed until 2023.
Acquisitions
On 16 October 2014, the Group acquired 100% of the share capital of
PayChoice, a provider of payroll and HR services in the US, for total
consideration of US$157.8m (£98m).
Foreign exchange
The Group does not hedge foreign currency profit and loss translation
exposures and the statutory results are therefore impacted by
movements in exchange rates.
The average rates used to translate the consolidated income statement
and to neutralise foreign exchange in prior year underlying and organic
figures are as follows:
Average exchange rates (equal to gbp1)
Euro (€)
US Dollar ($)
South African Rand (ZAR)
Australian Dollar (A$)
Brazilian Real (R$)
FY15
1.35
1.54
18.55
1.97
4.64
FY14
Change
1.23
1.66
17.65
1.81
3.81
+9%
-8%
+5%
+8%
+18%
Capital structure and dividend
With consistent and strong cash flows, the Group retains considerable
financial flexibility going forward. The Board’s main strategic priority
remains an acceleration of growth, both organically and through
targeted acquisitions. This growth underpins the Board’s sustainable,
progressive dividend policy, with surplus capital being returned to
shareholders from time to time. Consistent with this policy, the Board
is proposing an 8% increase in the total ordinary dividend per share for
the year to 13.10p per share (FY14: 12.12p per share). The ordinary dividend
for the year is covered 1.9 times by underlying earnings per share.
Archer Capital
In November 2011, the Group reported a claim for damages made by
the former shareholders of MYOB (including funds managed by Archer
Capital (“the Applicants”) following the termination of discussions
between the Group and the Applicants relating to the potential purchase
of MYOB. The claim was heard by the Court in late 2013 and judgment
was received in respect of the claim in August 2015. The Applicants’
claims were dismissed on all counts and steps are being taken to
recover costs incurred by the Group in defending the proceedings.
Steve Hare
Chief Financial Officer
2 December 2015
47
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT France – momentum building with subscription initiatives
In France, organic revenue grew by 5% (FY14: 4%) to £222m, with growth
excluding the Enterprise market of 7% to £165m. Strong subscription
momentum was maintained, with software subscription revenue
growing by 22% to £106m in the year.
It was another successful year for the i7 upgrade which was applied
to the Sage Paie payroll solution in September 2014, having previously
been applied to Sage 100 Accounts. The i7 upgrade, only available on
subscription, delivers increased functionality compared to previous
product versions and also addresses additional legislation concerning
the submission of real-time information to the local tax authorities. The
uptake within our existing Sage Paie base reached 78% by the end of the
year, supporting growth in subscription revenue to £63m (FY14: £52m)
across Sage Paie and Sage 100. Whilst the migration opportunity is
diminishing going forward for Sage Paie, penetration of the i7 initiative
within our Sage 100 base stands at 55% as at year end with scope for
further progress in FY16.
Smaller businesses have continued to embrace the Sage Ciel Flex
subscription offering, which offers enhanced functionality and features.
The majority of subscribers have opted for the highest tier, which
includes mobile data sharing via the cloud, supporting growth in
subscription revenue to £10m across the Ciel range. Flex is an example
of revolutionising business, encouraging subscription by delivering
additional value. Of the customers which subscribed this year, 58%
were reactivated from off-plan status.
Both i7 and Ciel Flex highlight the attraction of subscription to Small &
Medium Businesses and offset the weakness experienced in Enterprise
which was flat for the year.
Spain – rate of revenue growth increasing
Organic revenue in Spain grew 3% to £85m (FY14: 1%). The revenue
growth rate throughout the year has improved as we have focussed
marketing efforts on growth products. Sage Murano, our flagship product
for medium sized businesses in Spain grew organic revenues by 8%.
Over two thirds of the growth was generated by Murano Online, the
connected version of the product, which is accessed via web-browser.
Germany – improved software recurring revenue growth
In Germany, organic revenue of £79m represents organic growth of
4% (FY14: 3%). Through our programme of core product modernisation,
Sage Drive was introduced to Sage 50 in Germany, adopted by both
new and existing customers. Increased focus on the business partner
channel has helped to drive 9% revenue growth for Office Line, our
flagship local product for medium sized businesses.
Financial and operating review continued
EUROPE
Organic revenue growth
UKI
France
Spain
Germany
Rest of Europe
Europe
FY15
+7%
+5%
+3%
+4%
-1%
+5%
FY14
+6%
+4%
+1%
+3%
+4%
+4%
Revenue in Europe grew organically by 5%, with organic recurring
revenue growth of 8% (FY14: 7%). The acceleration in revenue growth
was achieved despite the underperformance of the Enterprise Europe
segment which contracted by 1% for the period.
The organisational change implemented disbanding Enterprise Europe
brings together the management of all product solutions within each
country and enables broader and more effective lead generation as well
as clearer focus on migration.
Organic software subscription revenue growth of 29% (FY14: 26%) was
a highlight and helped to drive software subscription revenue to 27%
of total organic revenue in Europe.
Organic processing revenue growth of 9% (FY14: 2%), primarily derived
from the UKI, is a promising result and our ambition is to accelerate this
revenue stream further by concentrating on the opportunity to cross-sell
payments services to our accounts and payroll bases.
Organic SSRS revenue decline of 4% (FY14: decline of 3%) reflects a
sustained substitution effect resulting from subscription growth
particularly in the UKI and France.
UKI – key subscription initiatives continue to drive growth
UKI revenue grew organically by 6% (FY14: 6%) to £279m, supported by
organic subscription revenue growth of 31% to £78m. This performance
continues to be driven by key initiatives within the Sage 50 family of
products. We helped customers to efficiently comply with additional
pension legislation introduced last year, with an automated pension
module, provided on subscription for Sage 50 Payroll. The legislation
is being applied to businesses in stages and of our customers which
were required to comply during FY15, 58% have taken the auto-
enrolment module. Sage 50 Accounts also performed strongly,
supported by enhancements to our subscription value proposition
with the launch of Sage Drive, a cloud enabling feature for on-premise
deployed products. Sage Drive enables users to share data with their
accountants or colleagues via the cloud, accessed on desktop or
mobile devices. The number of Sage Drive installations has increased
over fivefold to around 20,000 during the year. These initiatives have
supported growth in subscription revenue across Sage 50 products
in the UKI to £26m (FY14: £12m).
Sage One paying subscriptions have been increased to 92,000 from
47,000 in September 2014 demonstrating momentum. Sage One is
central to our strategy of addressing the white space opportunity of
Small & Medium Businesses which are not using any means of
accounting software currently.
Processing revenue, primarily related to payments, grew organically
by 9% to £32m. Cross-sell of payments into the accounting installed
base remains a key focus for FY16.
48
The Sage Group plc | Annual Report & Accounts 2015 NORTH AMERICA
Organic revenue growth
North America
FY15
+4%
FY14
+4%
North America delivered organic revenue growth of 4% supported
by organic recurring revenue growth of 9% (FY14: 6%). Organic SSRS
revenue contracted by 5% (FY14: 1% growth) with processing revenue
contracting by 1% (FY14: 1% growth).
Growth maintained but lagging the global growth rate
Organic revenue excluding processing grew by 6% to £329m. The
growth has been maintained by a strong performance from Sage 50
and X3, offset by a weaker performance in our products suited to
medium sized businesses. The release of Sage Drive in Canada and
a marketing focus on subscription across North America has seen
software subscription revenue for Sage 50 in North America grow by
over five-fold, and is a good example of subscription success achieved
by enhancing the value proposition. Sage Drive will also be launched
in the US during FY16 as part of our core product modernisation
programme. Organic revenue growth of 19% for X3 was encouraging
as we target growth in our market share with global products.
The performance of our products suited to medium business (SMB
products) remained a drag on growth for the year, but has improved
modestly in the second half due to a focus on renewal rates. Actions
have been taken to improve performance in FY16, including product
development and a reinvigorated partner programme.
Processing revenue, predominantly relating to payments, contracted
by 1% to £120m compared to growth of 1% in the prior year. During the
second half of the year, the internal sales team has been grown to
focus on executing the cross-sell opportunity of payment solutions
to the accounts and payroll customer base. The Independent Sales
Organisation (“ISO”) channel was also developed with the addition of
around 30 partners during the second half of the year. These changes
are expected to have a positive impact on FY16.
INTERNATIONAL
Organic revenue growth
Africa
Brazil
Australia
Middle East and Asia
International
FY15
+16%
+8%
+5%
+33%
+14%
FY14
+15%
+9%
+6%
+12%
+11%
Organic revenue grew strongly in the International region at 14%
(FY14: 11%), with organic recurring revenue growth of 14% (FY14: 11%)
and organic SSRS revenue growth of 13% (FY14: 11%). An exceptional
performance in Malaysia was supplemented by sustained strong
performance in South Africa.
Africa – double-digit growth performance maintained
Organic revenue of £92m for Africa represents sustained organic
growth of 16% (FY14 15%), supported by double-digit organic growth
in Processing and Recurring revenue. The Enterprise market in Africa
continues to perform well, with all key products delivering double digit
growth. The contribution of revenue from sales outside of South Africa
supported the result, representing 15% of total Africa revenue and
growing 22% organically (FY14: 22%).
Brazil – strong growth despite tough economic conditions
Organic revenue in Brazil grew by 8% (FY14: 9%) to £47m. Double digit
revenue growth was maintained in accounting and payroll software,
but sales of technical learning materials were subdued. The Brazilian
economy is challenging and our focus remains on winning new
customers, supported by our global products. Sage One was launched
in the second half and showed promising early momentum to date.
Australia, Middle East and Asia
In Australia, organic revenue growth of 5% (FY14: 6%) to £40m was
delivered with Micropay and Handisoft the key products. Consistent
with the strategy, the focus is on intensifying new customer acquisition
with the launch of Sage One in the last quarter.
Organic revenue in the Middle East and Asia grew by 33% (FY14: 12%)
to £26m, with Malaysia the key contributor. A goods and services
tax was introduced in Malaysia during the first half of the year, with
a government sponsored compliance scheme available to aid
companies in fulfilling their obligations, which generated around
£4m of non-repeating revenue.
49
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Corporate responsibility
Our Corporate Responsibility policy
Our Corporate Responsibility (“CR”) activities provide support to our customers,
people and communities and are embedded in our One Sage culture.
Our global CR policy focuses on the areas where we believe we can make the
most difference. Whilst local legal standards apply as an absolute minimum, we aim
to achieve best practice in our local markets and share this across the Group. Sage
has been independently assessed against the FTSE4Good criteria and satisfied the
requirements to become a constituent of the FTSE4Good Index Series, which is an
equity index designed to facilitate investment in companies that meet globally
recognised CR standards.
PG 51 TO
READ MORE
PG 52-54 TO
READ MORE
PG 55-56 TO
READ MORE
PG 57 TO
READ MORE
Community
Our local communities are important to us and we want
to see them thrive. During the year, we launched the Sage
Foundation, a global initiative which sets a high benchmark
for corporate philanthropy and makes a solid commitment
to support our communities.
People
Given the nature of our business we have not included
information specifically about human rights issues in
this report. We have a Code of Ethics, available at
www.sage.com, which recognises the importance of
treating all of our employees fairly, covering issues such as
responsible employment, diversity and equal opportunities.
This is an effective way of communicating, at a high level,
the principles which should be applied in the conduct of
our business.
Environment
We continue to analyse our impact on the environment.
We remain committed to reducing our energy consumption
and related emissions where possible, as well as reducing
the wider impact we have through the use of resources
and how much landfill waste we generate.
Championing business
We have tens of thousands of conversations with
our customers around the world every day and have a
privileged position to understand the issues they face and
to provide support to overcome these issues. We leverage
this position to champion Small & Medium Businesses,
the lifeblood of our economy.
Board reporting
Our CR policy has been endorsed by the Board, who
are updated on CR risks and opportunities by the
Company Secretary.
Ethics
We are committed to conducting business in an honest
and ethical manner. We act according to our Code of Ethics,
which is integral to us and sets out a range of principles
we adhere to. In particular, we do not tolerate bribery and
corruption and are committed to acting professionally,
fairly and with integrity in all our business dealings and
relationships. We enforce effective systems and processes
to counter bribery and corruption and we continue to
create new ways for employees to anonymously report
any related concerns.
As a UK company, The Sage Group plc is bound by the
laws of the UK, including the Bribery Act 2010, in respect
of our conduct both at home and abroad. In addition, we
will uphold all laws relevant to countering bribery and
corruption in all the jurisdictions in which we operate.
As well as ensuring our own conduct is appropriate,
we have also put in place procedures to prevent bribery
being committed on our behalf by any associated persons,
particularly in our subsidiaries, and third parties we work
with. Our leaders sign a declaration relating to the Code of
Ethics to ensure that any additional business commitments
or client and supplier relationships they may have are clear
and transparent.
Data protection
We take data security and privacy seriously. Customer
data is handled sensitively, with respect, and in a way
that complies, as a minimum, with the requirements
of data protection laws in the countries in which we
operate and, where appropriate, regional legislation.
We also work with local legislative bodies and data
protection agencies and continuously look to
strengthen our systems and procedures.
50
The Sage Group plc | Annual Report & Accounts 2015 Community
At Sage we feel a responsibility and are dedicated to the communities
which surround us. Our people are heavily involved in volunteering and
grant programmes.
In June we announced the Sage Foundation, which will extend
this work, setting the benchmark for corporate philanthropy around
the world. We want to give our people the tools and encouragement
to go out and work with the organisations and causes they really care
about. We want our people to bring their values and passions into
work with them.
The Sage Foundation is built on a ‘2+2+2’ model: donating 2% of
employee time each year (five days), 2% of free cash flow* to fund the
foundation and award of grants and two of Sage’s smart technology
product licences for charities, social enterprises or non-profit
organisations. This model demonstrates Sage’s commitment to
philanthropic leadership in the FTSE 100 and is driven by Sage’s
ambition to connect its customers, colleagues and communities
within an integrated model.
With tens of thousands of non-profit organisations as existing Sage
customers, the Sage Foundation will enhance Sage’s relationship
with charity and social enterprise. Non-profit organisations will be
able to apply for Sage One, Sage Live or X3 products, through the
newly created donation programme.
The Sage Foundation will provide support to non-profit organisations
and communities around the world by sharing the resources of Sage.
We will help these organisations to create social impact by giving
our time, money, expertise and technology. Sage is at the heart of
millions of businesses around the globe who play a vital role in their
communities. By partnering with the non-profit sector we will free
organisations from operational complexity and enable them to run
efficient, socially-driven organisations.
THE SAGE FOUNDATION IS BUILT ON
A MODEL OF
2
+
2
+
2
DONATING…
– 2% of employee time each year (five days),
– 2% of free cash flow* to fund the foundation and award as grants
– two of Sage’s smart technology product licences for charities,
social enterprises or non-profit organisations.
“It’s fantastic to see Sage not only take up this mantle,
but in doing so, set a new global benchmark for
corporate philanthropy.”
— Baroness Martha Lane-Fox, Founder of digital charity
Go ON UK and lastminute.com
“At Sage we care and are committed to enhancing
the lives of the less fortunate in a meaningful and
sustainable way.”
— Ivan Epstein, Chairman of Sage Foundation and
President, International
* The Sage Foundation will benefit from Sage revenues from the non-profit sector; notionally ‘2%’ of free cash flow is equivalent to revenue gained from non-profit
sector in FY14
SAGE RAISES $30K FOR HURRICANE KATRINA SURVIVORS
Ten years after Hurricane Katrina, Sage staff
rallied behind New Orleans Area Habitat for
Humanity during our global Sage Summit in
New Orleans. Sage staff sold $15,000 worth of
Mardi Gras beads. This sum was matched by
the Sage Foundation, to donate a grand sum
of $30,000 to the organisation. Sage also
committed to a global relationship with
Habitat for Humanity, with Sage colleagues
volunteering in their programmes around
the world through the Sage Foundation.
“ As a business leader, Sage knows
the importance of safe and stable
communities. The Sage investment
in Habitat means that local families
will continue to improve their lives
and their neighbourhoods.”
— Jim Pate, Executive Director
New Orleans Area Habitat for Humanity
SAGE COLLEAGUES SLEEP OUT FOR BOYS & GIRLS TOWN
In South Africa, 135 of our colleagues slept under the stars, in the middle of the winter, in support of Daryl Blundell, General Manager, to help
raise funds for him before he took part in the CEO Sleep Out on 18 June raising funds for Boys & Girls Town.
51
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTThe Sage Group plc | Annual Report & Accounts 2015 Corporate responsibility continued
People
Our vision is to energise the success of business and communities around the
world through the imagination of our people and smart technology. Our people
are passionate about working at Sage, and we are passionate about creating an
environment where talent is recognised and colleagues can exceed their potential.
At the heart of our people strategy is the colleague experience, which is underpinned
by the Sage Academy, a global learning and development platform which provides
all our colleagues with the tools they need to be successful, drive their careers and,
most importantly, empowers them to delight our customers.
Realigning our Guiding Principles – The Sage Values
In FY15 we introduced these values which underpin the way we do things.
CUSTOMERS
FIRST
Our customers are
at the heart
of everything we do;
they are why we are
here and we
wouldn’t exist
without them.
VELOCITY
We are action
oriented and agile;
we keep things
simple, deliver
at pace and
over achieve.
DO THE
RIGHT THING
Our colleagues are
aligned and we trust
each other to do the
right thing to enable
our customers
to succeed.
INNOVATE
We create new ways
of doing things and
deliver innovative
solutions which
our customers
need to help their
business grow.
MAKE A
DIFFERENCE
Sage is a great place
to work and our
colleagues make a
difference to local
communities by
relentlessly
supporting our
customers and their
businesses to
be successful.
52
The Sage Group plc | Annual Report & Accounts 2015 Transforming the way we communicate
Sage Chatter has broken down geographical and
hierarchical barriers to internal communication and has
established itself as fundamental to driving a One Sage
culture. From inception to global launch, Sage Chatter
took just 60 days to implement. Built using the salesforce.
com platform, Chatter is a global online communications
portal which provides our colleagues with the ability
to collaborate through sharing and generating best
practice, ideas, building global relationships and sharing
successes. Since its launch over 100,000 individual posts
and comments have been added and over 1,500 groups
created where colleagues can come together regardless
of their location and communicate with one another
about a specific topic.
Code of Conduct
In June 2015 we launched our first global code of
Conduct to all colleagues. This policy sets out the business
standards expected by Sage and provides a clear set of
rules for all colleagues. Sage is building a great business
the right way and every colleague should demonstrate
the highest ethics. The code of conduct sets out clear
standards of behaviour for everyone in our organisation.
Delivering high performance
Global performance management process will drive us
towards our One Sage culture. It’s crucial that we’re aligned
in assessing performance and through this drive a high
performance culture globally. During FY15 we introduced a
consistent global performance management process. For the
first time we have a consistent way of measuring colleagues’
outputs, which is vital to us in delivering high performance.
Sage Academy: “A foundation block…from leadership
development to product training to all things that allow
us to have the intellectual property and the tools for our
people to be successful.”
— Stephen Kelly, CEO
SAGE GLOBAL PEOPLE SURVEY
Conducted in
February
2015
11,990
returns
representing
a 90%
response rate
76%
of respondents
are proud to
work at Sage
70%
of our people
understand
our business
strategy
Recognising our people
To demonstrate our commitment to driving performance
globally we have launched the ‘Platinum Elite’ incentive
scheme. Platinum Elite was launched as an incentive to
reward Sage’s top sales performers. Top revenue generators
and an additional 20 non-sales exceptional performers along
with their partners will be invited to attend the trip of a lifetime
to St Lucia in January 2016. Well established local recognition
schemes such as the Sage Europe Awards and North
America’s Extraordinary Customer Experience Awards
continue to appreciate the contributions of colleagues,
and celebrate their successes.
Developing our people
On 1 July, Sage Academy was launched. Sage Academy
is a global learning and development platform that
supports colleagues in their career development and
empowers them to win, delight and grow customers.
Colleagues across the globe now have access 24/7 to:
Over 3,500 courses
The Sage Academy hosts a digitalised training platform
offering high-quality learning content. Over 3,500 courses
are available in English (as well as courses in Spanish,
French and German) on everything from web development
to time management. We have partnered with Lynda.com, a
leading online learning platform, to provide all colleagues
with 24/7 access to thousands of learning opportunities.
During its first 48 hours almost 2,000 colleagues accessed
the site, viewing 300 hours of videos.
The Discover Sage series
The Discover Sage video series introduces colleagues to
Sage around the world and provides them with a global
perspective on Sage, helping them to understand the
diversity and scope of our business.
Sociable Day series
Sociable Day was the first global event delivered by the
Sage Academy to promote the use of social media and
make every Sage colleague an ambassador for our brand
and our company via social platforms such as LinkedIn,
Facebook and Twitter. The Sociable Day series is available
in four parts and helps colleagues master social media.
On 26 May, thousands of Sage colleagues took to social
media as part of Sociable Day, achieving 5,000 Twitter
mentions and 3.5 million impressions.
Access to English training programmes for all levels
via GoFluent.com
GoFluent is an online centre for English training, available
for all non-English speakers who wish to improve their
language skills.
Five days for training
Internal studies conducted in early 2015 told us that
the average time a colleague dedicated to learning and
development activities was less than two days per year.
To demonstrate our investment in training, we want
to ensure all colleagues have at least five days per year
dedicated to developing themselves. These days cover the
learning a colleague undertakes as part of the Sage
Academy as well as classroom training executed locally.
53
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTThe Sage Group plc | Annual Report & Accounts 2015 Corporate responsibility continued
Diversity
Our stance on diversity remains focused on our people
representing the nationalities and background of our
customers. To support us in continuing to deliver on this
commitment, next year will see the creation of a global
diversity and inclusion strategy which will provide us with
best in class policies and ways of working. Our ambition is
to be recognised in the marketplace for our commitment
to diversity and inclusion.
We continue to support the principles of The Davies Report
on Women on Boards and in 2015 we made a commitment
to ensure suitably qualified women are included on the
shortlist for all global leadership vacancies.
We have also signed up to the UK Government Think,
Act, Report initiative, meaning as well as promoting our
reputation externally as an employer who is breaking
down barriers to support women in the workplace, we’ll also
provide opportunities to input into discussions which will
impact UK Government policy and legislation in this area.
Talking Talent ™ and our leadership pipeline
During FY15, 14 of our senior leaders have been promoted
or have taken on additional responsibilities. We have also
recruited 22 new hires externally into senior leadership
roles as we strengthen our leadership capability. The focus
on our leadership pipeline continues to be underpinned
by our global talent management process ‘Talking Talent’,
which assesses capabilities, and highlights strengths, risks
and opportunities as well as targeted succession plans for
key roles. We have made a number of high profile leadership
promotions in FY15 including Brendan Flattery as President
for Europe; Lee Perkins as EVP & MD for the UK; Luis Pardo
as EVP & MD of Spain; Nancy Harris as EVP & MD for
Canada; and Serge Masliah as EVP & MD for France.
Local initiatives, such as Spain’s ‘Grow with Sage’
programme, are in place to develop our high potential
colleagues across most regions. Our focus in 2016 will be
to introduce a global approach to developing the capability
of our talent. In the UKI there are 50 career coaches in
place to provide support and guidance to colleagues
with aspirations to build their career at Sage.
Examples of some local gender-specific initiatives are
the UKI’s Women@Sage network and in International where
the number of females in senior leadership roles has
increased from none in 2014 to six in 2015. In Germany
we have engaged with local schools to support ‘girls’ day’
which provides female pupils with an insight into a career
in information technology.
DIVERSITY
Year-end employee count split by region
2014
2015
Europe North America
International
7,062
7,050
2,300
2,181
3,471
3,641
Group and
central
operations
142
190
Total
12,975
13,062
Board diversity
75%
Top leadership diversity*
81%
Total workforce diversity
53%
25%
19%
2015
2014
Men
Women
6
2
6
2
2015
2014
Men
Women
134
32
127
36
47%
Men
2015
6,913
2014
7,017
Women 6,149 5,958
* Top leadership includes the Sage Senior Management Team (top 100 leaders) plus any individual who is a company director of a group subsidiary.
54
The Sage Group plc | Annual Report & Accounts 2015 Environment
We aim to reduce the energy our business uses and make the most of recycling opportunities.
We comply with local laws as a minimum standard and Sage continues to take part in the global
Carbon Disclosure Project.
Greenhouse gas emissions
This section includes our mandatory reporting of
greenhouse gas emissions pursuant to the Companies Act
2006 (Strategic Report and Directors’ Report Regulations
2013 (the “Regulations”). We include this reporting data
here in order to provide a complete Corporate
Responsibility picture.
Reporting period
Our reporting year is the same as our fiscal year, being
1 October 2014 to 30 September 2015. This greenhouse
gas reporting year has been established to align with
our financial reporting year.
Global Greenhouse Gas Emissions Data
For period 1 October 2014 to 30 September 2015
Emissions from:
Combustion of fuel and
operation of facilities
Electricity, heat, steam and
cooling purchased for own use
Company’s chosen
intensity measurement:
– Emissions reported above
normalised to tonnes of CO2e
per total GBP£1,000,000 revenue
Tonnes of CO2
Equivalent (CO2e)
FY14
FY15
10,887
9,238
15,078
15,796
18.09
19.16
Organisation boundary and responsibility
We report our emissions data using an operational control
approach to define our organisational boundary which
meets the definitional requirements of the Regulations
in respect of those emissions for which we are responsible.
We have reported on all material emission sources for
which we deem ourselves responsible. These sources
align with our operational control and financial control
boundaries. We do not have responsibility for any emission
sources that are beyond the boundary of our operational
control. For example, business travel other than by car
(including, for example, commercial flights) not within
our operational control and, therefore, are not considered
to be our responsibility.
Methodology
The methodology used to calculate our emissions is based
on the “Environmental Reporting Guidelines: including
mandatory greenhouse gas emissions reporting guidance”
(June 2013) issued by the Department for Environment,
Food & Rural Affairs (“DEFRA”). We are also using DEFRA’s
2015 conversion factors within our reporting methodology.
In some cases, we have extrapolated total emissions by
utilising available information from part of a reporting
period and extending it to apply to the full reporting year.
For example, this has occurred where supplier invoices
for the full reporting year were not available prior to the
publication of this year’s Annual Report & Accounts.
For further details, our methodology document can be
found at www.sage.com/company/about-sage/corporate-
social-responsibility
55
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTThe Sage Group plc | Annual Report & Accounts 2015 Corporate responsibility continued
Scope of Reported Emissions
Emissions data has been reported for all the Group’s
operations in Australia, Austria, Belgium, Brazil, France,
Germany, Ireland, Malaysia, Morocco, North America,
Poland, Portugal, Singapore, South Africa, Spain,
Switzerland, the United Arab Emirates and the UK.
The emissions that have not been included in this year’s
report relate to building usage in our operations in Belgium
and the United Arab Emirates, where energy usage is not
itemised on invoices. We have also not included emissions
derived from refrigerant gas usage in relation to our
operations in Belgium, Singapore and the United Arab
Emirates as this information has not been gathered
throughout the reporting year.
Intensity Ratio
In order to express our annual emissions in relation to
a quantifiable factor associated with our activities, we
have used revenue in our intensity ratio calculation as
this is the most relevant indication of our growth and
provides for a good comparative measure over time.
Baseline for 2015 targets
The 2013 data forms the baseline data for
subsequent periods.
Carbon Disclosure Project
We once again took part in this project during the
year under review by reporting our gas (scope 1) and
electricity (scope 2) emissions for the financial year ended
30 September 2015. Whilst we do use the GHG Protocol
methodology to measure our GHG emissions we welcome
the revised treatment of purchased electricity to provide
greater clarity over purchased green and low carbon
electricity. As market based residual factors are not yet
released by DEFRA, it is not currently possible to calculate
a market based purchased electricity emissions value,
however we intend to calculate and report within our
2016 CDP submission, where residual factors are
made available by DEFRA.
Reducing carbon and waste
We have continued to make a concerted effort to
reduce our carbon footprint, through reducing our
consumption, purchasing alternative sources of
fuel and generation, specifically:
– Increased use of bioethanol for business travel fuel;
– Investing in new technology with lower energy
consumption including laptops and workstations;
– Selected office moves to more energy efficient buildings;
– Further installation of LED lighting across the Group;
– Increased low carbon energy sourcing, including
hydropower, wind power, biomass and solar; and
– Self generation including solar panels and
hydroelectric plant.
CARBON EMISSIONS
Total CO2e by type
42%
Sum of CO2e
(tonnes)
8,840
5,713
Europe
1,485
International
4,757
562
4,608
58%
North America
0
3,000
6,000
9,000
12,000
15,000
Combustion of fuel and
operation of facilities
Electricity, heat, steam and
cooling purchased for own use
10,887
15,078
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased for own use
56
The Sage Group plc | Annual Report & Accounts 2015 Championing Business
We believe in doing business the right way. Small & Medium Businesses are the lifeblood of economies
around the world. Despite their contribution to the global economy, we know that small businesses
can struggle to be heard by those debating and deciding the policy issues that affect them. Wherever
possible, we campaign to improve the business environment for our customers.
Time to pay fair
Small businesses continue to be affected by late payments.
Our latest research from canvassing over 300 small
business owners in the UK this year, showed that more
than two thirds of firms (68%) have to wait for 60 days or
more for payment in 2015 and more than half are having
to wait for over 90 days to receive the money they are
owed. We have launched a Late Payments Manifesto and
an e-petition to raise awareness of the issue. At the heart
of our campaign is a deeply held belief that all people and
businesses should adhere to 30 day payment terms.
Supporting entrepreneurs
We sponsored Web Summit 2015, the annual technology conference event
hosted this year in Dublin that brings together established tech companies,
exciting start-ups and investors all under one roof. Over 30,000 people from
100 countries attended across the three day schedule which included
700 speakers and 1,500 journalists.
We supported the MentorHours program where Stephen Kelly and other
executives fielded one to one meetings with small business owners, offering
advice on running and managing their businesses.
Supporting women in business
We are proud sponsors of the Women’s Leadership
Exchange (“WLE”) in the US which offers conferences for
women business owners to connect them with a network
of advisers, business experts and corporate leaders. The
WLE mission is to provide the knowledge, the tools and
the connections women need to be successful in their
own businesses. Jennifer Warawa, Global VP Product
Marketing for the Accountants channel, spoke at the
Boston WLE Summit in September 2015, offering her
perspective as a successful leader within Sage.
Raising awareness for entrepreneurs
We are a founding member of the campaign lobbying
to have National Entrepreneurs Day nationally recognised
in Canada. Far more than just a celebration, we want to
promote widespread awareness by harnessing partnerships
with innovation centres, corporations, accelerators,
schools, government, and in the media to support
small businesses.
57
FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTThe Sage Group plc | Annual Report & Accounts 2015 Directors’ approval of strategic report
Our 2015 Strategic report, from page 2 to page 57, has been reviewed and approved by the
Board of Directors on 2 December 2015.
Steve Hare
Chief Financial Officer
58
58
The Sage Group plc | Annual Report & Accounts 2015
Chairman’s introduction to corporate governance
Sound governance is integral
to Sage achieving its ambition
DEAR SHAREHOLDERS,
The Board of the Company is committed to ensuring that it provides
effective leadership and promotes uncompromising ethical standards.
One of the ways in which the Board achieves this is by requiring that
good governance principles and practices are adhered to throughout
the Company. The Board determined that the following is a helpful
summary of its role.
Good 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
promotes success whilst permitting the management of risk to
appropriate levels.
It also involves the exercise of judgement as to the definitions of
success for the Company, the levels of risk we are willing to take to
achieve that success 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 executive team is required to provide such information to the
Board as the Board needs to enable it to exercise its judgement over
these matters. It must also evidence appropriate process. There is a very
fine distinction between the approval of processes and their definition.
Only exceptionally would the Board intervene to initiate or define.
The Board also sets the tone for the Company. The way in which it
conducts itself, its attitude to ethical matters, its definition of success
and the assessment of appropriate risk, all define the atmosphere within
which the executive team works.
Compliance with the UK Corporate
Governance Code 2014 (“the Code”)
and its statement requirements
Throughout the financial year ended 30
September 2015 and to the date of this report,
Sage has complied with the provisions of the
Code. The Code is publicly available at the
website of the UK Financial Reporting Council
at www.frc.org.uk. This corporate governance
section of the Annual Report & Accounts
describes how we have applied the principles
of the Code.
Good corporate governance is not about adhering to codes of practice
(although adherence may constitute a part of the evidence of good
governance) but rather about the exercise of a mindset to do what is
right. One of the challenges facing any Board is the way in which the
non-executive and the executive directors interact. It is clear that they
each have the same legal responsibility but it is generally unrealistic to
expect executive directors to speak individually with the same freedom
as the non-executive directors. Equally, executive directors who just
“toe the executive line” in contradiction to their own views may not be
effectively contributing to good governance. A well-functioning Board
needs to find the right balance between hearing the collective executive
view, being aware of the natural internal tensions in an executive team
and allowing independent input from the non-executive directors.
One of the consequences of both increasing the watchdog role of
the Board and finding this balance between individuality and team
behaviour is driving more and more Boards to have fewer and fewer
executive directors. In our circumstances, the reduced Board size
works effectively and an appropriate balance is struck.
Notwithstanding the tensions created by many external expectations,
which may be wholly or in part unrealistic, a successful Board should,
ideally, be composed of a diverse group of respected, experienced
and competent people who coalesce around a common purpose of
promoting the long-term success of the Company, provide a unified
vision of the definitions of success and appropriate risk, endeavour
to support management (i.e. those who honestly criticise at times
but encourage all the time) and who create confidence in all
stakeholders in the integrity of the business.
Donald Brydon, CBE
Chairman
59
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Board of Directors
Knowledge and experience
Donald Brydon (70)
Stephen Kelly (53)
Steve Hare (54)
Ruth Markland (62)
Chairman
Chief Executive Officer –
Executive Director
Chief Financial Officer –
Executive Director
Senior Independent
Non-executive Director
Appointed to the Board:
6 July 2012
Appointed to the Board:
5 November 2014
Appointed to the Board:
3 January 2014
Appointed to the Board:
13 September 2006
Experience:
Donald had a 20 year career with
Barclays Group, during which
time he was Chairman and Chief
Executive of BZW Investment
Management, followed by
15 years with the AXA Group,
including the posts of Chairman
and Chief Executive of AXA
Investment Managers and
Chairman of AXA Framlington.
He has also recently chaired
the London Metal Exchange,
Amersham plc, Taylor Nelson
Sofres plc, the ifs School of
Finance, Smiths Group plc and
is a past Chairman of EveryChild.
Donald has also served as
Senior Independent Director of
Allied Domecq plc and Scottish
Power plc. On 19 June 2015 he
became a director of the London
Stock Exchange plc, becoming
Chairman of the Board on
1 July 2015. Donald was, until
1 September 2015, the Chairman
of Royal Mail plc.
Other current appointments:
– London Stock Exchange Plc –
Chairman
– Medical Research Council –
Chairman
Board Committees:
– Nomination Committee
(Chairman)
– Remuneration Committee
60
Experience:
Stephen has over 30 years’
leadership experience in the
Small & Medium Business
and technology sectors. He
has previously served as Chief
Executive Officer of two high-
growth, public software
companies – NASDAQ listed
Chordiant Software, Inc. from
2001 to 2005 and LSE listed Micro
Focus International plc from 2006
to 2010. In 2012 he was appointed
Chief Operating Officer for UK
Government where he was the
most senior executive responsible
for the UK Government’s
Efficiency & Reform agenda,
including Digital, Commercial,
IT and Small & Medium
Business strategies.
Stephen has been an angel
investor and director in a number
of high growth start-ups
(including Deloitte UK Technology
Fast 50 Award winners).
Experience:
Prior to joining Sage, Steve was
Operating Partner and Co-Head of
the Portfolio Support Group at the
private equity firm Apax Partners,
which he joined in 2009. Before
his work at Apax Partners, he built
over 10 years’ experience leading
the finance function for three
listed UK companies culminating
as CFO for FTSE 100 company
Invensys plc from 2006 to 2009.
Between 2004 and 2006 Steve
was Group Finance Director for
Spectris plc, the FTSE 250
precision instrumentation and
controls company and from 1997
to 2003 he was with Marconi plc,
serving as CFO from 2001.
Steve qualified as a Chartered
Accountant in 1985 with
Ernst & Whinney, now part
of Ernst & Young.
Experience:
Ruth has over 30 years’
experience of international
services businesses, and has
held a number of non-executive
director positions. She joined
Freshfields in 1977 and served
as Managing Partner of Asia at
Freshfields Bruckhaus Deringer
from 1996 to 2003. She also
served as the Chairman of the
Board of Trustees at the WRVS
until November 2012.
Other current appointments:
– Deloitte LLP – Independent
Non-executive board member
– Standard Chartered plc –
Senior Independent
Non-executive Director
– Arcadis NV – member
of the Supervisory Board
Board Committees:
– Audit and Risk Committee
– Nomination Committee
– Remuneration Committee
Changes to the Board
In the financial year to 30 September 2015 and to the date of this report, there have been the following
changes to the Board of Directors:
Executive directors
Guy Berruyer
Stephen Kelly
CEO
CEO
Retired 5 November 2014
Appointed on 5 November 2014
The Sage Group plc | Annual Report & Accounts 2015 Inna Kuznetsova (47)
Jonathan Howell (53)
Neil Berkett (60)
Drummond Hall (66)
Independent
Non-executive Director
Independent
Non-executive Director
Independent
Non-executive Director
Independent
Non-executive Director
Appointed to the Board:
6 March 2014
Appointed to the Board:
15 May 2013
Appointed to the Board:
5 July 2013
Appointed to the Board:
1 January 2014
Experience:
Inna is former Chief Commercial
Officer and Executive Board
member at CEVA Logistics, where
she worked from 2012 until 2014.
Prior to joining CEVA, Inna spent
19 years at IBM, where she held a
number of different roles focusing
on building and running strong
organisations in sales, business
development and marketing,
culminating as Vice-President,
Marketing & Sales Enablement,
IBM Systems Software and ISVs.
Experience:
Jonathan is currently Group
Finance Director of Close
Brothers Group plc, joining in
February 2008, and previously
held the same position at the
London Stock Exchange Group
plc from 1999. Jonathan has also
been a non-executive director of
EMAP plc and Chairman of FTSE
International. The early part of his
career was at Price Waterhouse
where he qualified as a chartered
accountant.
Other current appointments:
– INTTRA – President,
INTTRA Marketplace
Other current appointments:
– Close Brothers Group plc –
Group Finance Director
Board Committees:
– Audit and Risk Committee
– Nomination Committee
– Remuneration Committee
Board Committees:
– Audit and Risk Committee
(Chairman)
– Nomination Committee
– Remuneration Committee
Experience:
Drummond was previously Chief
Executive of Dairy Crest Group plc
from 2002 to 2006, having joined
the Company in 1991. Prior to this
the majority of his career was
spent with Procter and Gamble,
Mars and PepsiCo. Drummond
was a non-executive director
of Mitchells & Butlers plc from
July 2004 to January 2010 and
Chairman from June 2008 to
November 2009.
Other current appointments:
– WH Smith plc –
Senior Independent
Non-executive Director
– First Group plc –
Senior Independent
Non-executive Director
Board Committees:
– Audit and Risk Committee
– Nomination Committee
– Remuneration Committee
(Chairman)
Experience:
Neil has over 30 years’ experience
in a wide range of highly
competitive consumer industries.
Most recently, he was Chief
Executive of Virgin Media Group
from March 2008 to June 2013,
having joined ntl, Virgin Media’s
predecessor, as Chief Operating
Officer in September 2005. Before
ntl he was Managing Director,
Distribution, at Lloyds TSB plc.
His previous roles include Chief
Operating Officer at Prudential
Assurance Company Ltd UK,
Head of Retail at St George Bank,
Senior General Manager at the
Australian division of Citibank
Limited, Chief Executive at
Eastwest Airlines Australia
and Financial Controller at
ICL Australia.
Other current appointments:
– Guardian Media Group –
Chairman
– Bank of Queensland Ltd –
Non-executive Director
– NSPCC – member of the
Board of Trustees
Board Committees:
– Audit and Risk Committee
– Nomination Committee
– Remuneration Committee
61
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Executive Committee
From left to right:
Brendan Flattery, Santiago Solanas, Anna Campopiano, Steve Hare, Stephen Kelly, Ivan Epstein, Sandra Campopiano, Klaus-Michael Vogelberg, Michael Robinson, Marc Scheipe
Klaus-Michael Vogelberg (50)
Chief Technology Officer
Based: UK
Experience: Responsible for Sage’s global technology strategy and software
architecture, Klaus-Michael is also Acting Chief Technology Officer for Sage
Europe. From 2004 to 2007 he was R&D Director for Sage UK and Ireland.
Klaus-Michael joined us when Sage acquired the German KHK Software
group in 1997, where he was R&D Director and a partner.
A software entrepreneur, Klaus-Michael set-up his first business aged
19 while studying aeronautical engineering and national economics.
Klaus-Michael is based in the UK.
Stephen Kelly (53)
Chief Executive Officer, Board of Directors
For Stephen Kelly’s skills and experience see page 60.
Steve Hare (54)
Chief Financial Officer, Board of Directors
For Steve Hare’s skills and experience see page 60.
Sandra Campopiano (57)
Chief People Officer
Based: UK
Experience: Sandra was appointed as Global Chief People Officer
in September 2015 and joins us with over 20 years of HR experience in
global businesses, including senior leadership roles at Premier Farnell,
Arrow Electronics, Barclays, Psion and, most recently, Thomas Cook.
Sandra is also a non-executive Director at Kingston University. In 2005
she completed an MBA at the University of Surrey and in 2010 she was
awarded human resources director of the year by HR Magazine, recognising
how she led the HR team to support the transformation of Premier Farnell.
Sandra supports the Young Enterprise – Women in Business Programme
by mentoring and encouraging young female entrepreneurs to start their
own business.
62
The Sage Group plc | Annual Report & Accounts 2015 Santiago Solanas (47)
Chief Marketing Officer
Based: Spain
Experience: Santiago was appointed Chief Marketing Officer in September
2014. He joined Sage in 2007 to lead the Start-up and Small Business Division
in Spain and was appointed Chief Executive Officer of Sage Spain in 2010.
During this time he renewed the leadership team, increasing the efficiency
of the business and returning it to growth, as well as leading the
Accountants Segment in Europe. He recently led the roll-out of Sage’s brand
campaign across Europe. Prior to Sage, Santiago spent 20 years working in
the IT and software industry, across the globe, in sales, marketing and
management roles at IBM, Microsoft and Oracle, where he was responsible
for the co-ordination and leadership of the technology business in the SMB
market in Europe as Senior Director SMB Program Office EMEA. Santiago
has also spent 4 years in two technology start-ups backed by Telefonica
and Santander. Santiago is an active supporter of SMEs. He is a mentor
for women in business and start-ups, and speaks at a number of SME forums
in Spain. He holds an MSc. in Telecommunications Engineering from the
Polytechnic University of Madrid (UPM) and also attended the Harvard
Business School Advanced Management Program.
Anna Campopiano (52)
Interim Chief Communications Officer
Based: UK
Experience: Anna joined Sage in October 2015 as Interim Chief
Communications Officer. She is responsible for all aspects of the Company’s
communications to colleagues and external stakeholders. Anna, who has
an Honours Degree in Economics from the University of Manchester and
an MBA, joined Sage from Thomas Cook Group where she was Group
Head of Central Communications for the last three years.
Anna has considerable experience in strategic communications during
organizational restructurings and is a fellow of the RSA. Her previous
experience includes working for a private equity backed technology
solutions provider, Vertex, and she was Director of Corporate Affairs at
The London Metal Exchange for four years.
Marc Scheipe (47)
Interim President, Sage North America
Based: US
Experience: Marc serves as Interim President and CFO for Sage North
America. Marc is an accomplished business leader, with more than 20 years
of financial services experience focused on financial management, strategy
development, process improvement and sales/operations leadership. From
holding leadership positions at large financial institutions to owning and
running a small business, Marc has served in a broad spectrum of roles.
Throughout his career, he has worked extensively with small businesses
and entrepreneurs, and brings a unique perspective to his role at Sage.
Marc is a distinguished graduate of the U.S. Naval Academy and earned
his MBA from Harvard Business School. While in the Navy, he attained the
rank of lieutenant commander and held various roles in operations, training,
and maintenance.
Brendan Flattery (51)
President, Europe
Based: UK
Experience: In his current role as President, Sage Europe, Brendan is
responsible for leading Sage’s European business and he has over 25 years’
experience across public and private companies in a variety of industries.
Brendan has first-hand experience of being involved in a small business.
An entrepreneur at heart, he served as Managing Director of two venture
capitalist backed IT businesses, and also successfully ran his own small
business before joining Sage in 2003 as Managing Director of Sage UK
Accountants Segment. Brendan has worked in every segment of the UKI
business before being appointed CEO of Sage UK and Ireland in 2011 in a
role which saw him take a strategic lead for the European Start-up and
Small Business Segment, Sage Pay and Sage One globally. Brendan is
passionate about supporting people’s success, both within the business
and for the SMEs we work with. He is a vocal supporter of SMEs and has
campaigned to close the mentoring gap in the UK and Ireland since 2013.
Brendan graduated from Aberystwyth University and qualified as a chartered
accountant with KPMG.
Ivan Epstein (55)
President, International
Based: South Africa
Experience: Ivan leads Sage’s businesses across Australia, Africa, the
Middle East, Asia and Latin America, which include some of Sage’s highest
growth countries. Starting his career at Price Waterhouse, Ivan then
co-founded Softline in 1988, leading it from start-up to a listing on the
Johannesburg Stock Exchange in 1997. Softline was delisted and acquired
by Sage in 2003, when Ivan joined the Executive Committee as CEO of the
Southern Hemisphere, becoming CEO of AAMEA in 2010. Amongst his
accomplishments, Ivan has been awarded the Ernst & Young “South
Africa’s Best Entrepreneur” accolade in 1999/2000 in recognition of his
entrepreneurial attributes and contribution to South African business.
He was also awarded the Computer Society South Africa “IT Personality
of the Year” accolade in 2009 for his contribution to the IT sector.
Michael Robinson (54)
Company Secretary and Group Legal Director
Based: UK
Experience: Michael joined Sage in 2002 as Company Secretary and Group
Legal Director. After reading Law at Oxford, Michael qualified as a solicitor
and spent 15 years at one of the UK’s largest law firms.
63
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Corporate governance report
Our Governance framework
The role of the Board and its committees
Board
Strategy development, growing shareholder value, oversight and control, and corporate governance
Our Board provides leadership to the business as a whole to drive it forward for the benefit, and having regard to the views, of its shareholders
and other stakeholders.
The Board sets Sage’s risk appetite and retains overall responsibility for risk management and internal controls systems, ensuring there are
processes in place to identify and manage the group’s principal risks.
The Board sets the strategy for the business. It has delegated the authority to manage the business to Stephen Kelly, Chief Executive Officer,
who delegates specific responsibilities to members of the Executive Committee, including the development and implementation of strategy.
The Board also delegates other matters to Board committees and management as appropriate.
Audit and Risk
Committee
Nomination Committee
Remuneration
Committee
Chief Executive Officer
To oversee the Group’s
financial reporting, risk
management and internal
control procedures and the
work of its internal and
external auditors.
To review the composition
of the Board and plan for
its progressive refreshing
with regard to balance
and structure as well
as succession planning.
To determine the framework,
policy and levels of
remuneration and make
recommendations to the
Board on the remuneration
of the Chief Executive
Officer, Chairman, executive
directors, the Company
Secretary and senior
executives.
Pages 69 to 72
Page 73
Pages 74 to 92
Executive Committee
Developing and
implementing strategy,
operational plans, budgets,
policies and procedures;
monitoring operating and
financial performance;
assessing and controlling
risks; prioritising and
allocating resources; and
monitoring competitive
forces in each area of
operation.
Board and Committee meetings and attendance
Director
Donald Brydon
Stephen Kelly
Steve Hare
Ruth Markland
Drummond Hall
Jonathan Howell
Neil Berkett
Inna Kuznetsova
Board
Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
6/6
6/6
6/6
6/6
6/6
6/6
6/6
6/6
–
–
–
4/4
4/4
4/4
4/4
4/4
2/2
–
–
2/2
2/2
2/2
2/2
2/2
7/7
–
–
6/7
6/7
7/7
6/7
6/7
The terms of reference of each
committee, which are reviewed
on an annual basis, can be found
on our website.
The Board and each committee
are satisfied that they receive
sufficient, reliable and timely
information in advance of
meetings and are provided
with all necessary resources
and expertise to enable them
to fulfil their responsibilities
and undertake their duties in
an effective manner. The Board
has formally adopted a schedule
of matters reserved for it for
decision. This schedule is
reviewed periodically, was last
reviewed on 28 September 2015
and is available via our website.
64
The Sage Group plc | Annual Report & Accounts 2015 Board roles
Chairman
Responsible for leading
the Board, its effectiveness
and governance
The Chairman is responsible for leading the Board, its effectiveness and governance and for monitoring
and measuring the implementation of strategy. The role of Chairman also carries a particular
responsibility to monitor and assess Sage’s corporate governance practices.
To ensure a proper dialogue with directors, the Chairman holds meetings with the non-executive
directors without the executive directors to assess their views. In addition, the non-executive directors
have met without the Chairman present to appraise the Chairman’s performance. These meetings
without the Chairman are chaired by the Senior Independent Director.
The Chairman also ensures that shareholder engagement is 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 Company Secretary.
Chief Executive Officer
Responsible for the
formulation of strategy
and running of the Group
The responsibilities of the Chief Executive Officer include:
– the design, development and agreement of strategy with the Board
– implementation of the strategy and policy and the running of the Group
– managing the overall performance of Sage, concentrating on revenue and profitability as well
as capital expenditure
The Chief Executive Officer also identifies acquisitions and monitors competitive forces, as well as
ensuring an effective and motivated leadership team.
The Chief Executive Officer chairs the Executive Committee and maintains a close working relationship
with the Chairman.
Senior Independent
Director
Discusses any concerns
with shareholders
that cannot be
resolved through
the normal channels
of communication
The role of Senior Independent Director is:
– to provide a point of contact for those shareholders who wish to raise issues with the Board,
other than through the Chairman
– together with the other independent non-executive directors, to evaluate the performance
of the Chairman
The Senior Independent Director is available to consult with shareholders.
Company Secretary
Ensures good information
flows to the Board and its
committees and between
senior management and
non-executive directors
The Company Secretary is available to all directors to provide advice and assistance, and is responsible
for providing governance advice to the Board.
The Company Secretary ensures Board procedures are complied with, that applicable rules and
regulations are followed and acts as secretary to the Board and all of the committees. Minutes of all
meetings are circulated to all directors. He facilitates the induction of new directors and assists with
professional development as required.
The appointment and removal of the Company Secretary is a matter for the Board as a whole.
The roles of the Chairman and the Chief Executive Officer are quite distinct from one another and are clearly defined in written terms of reference
for each role. These terms of reference are available on our website at www.sage.com.
65
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Corporate governance report continued
Focus of the Board for the year
In the year under review, the Board’s focus has been on strategy and
ensuring that the structures, capabilities and reports are in place to
support the Group strategy. The Board has received regular reports
from both the Chief Executive Officer and the Chief Financial Officer.
Tenure
12.5%
75%
In particular, in response to continued external changes discussed
in the strategic report, time has been spent considering:
12.5%
– Our evolving strategy as discussed at our capital markets day
– Our global products including our strategy around these
– Our payments businesses and our strategy around these businesses
– The areas of risk across our businesses
Actions taken to minimise the principal risks faced by Sage, as described
on pages 36 to 43, have also been regularly discussed and the Board has
looked at succession issues, particularly in light of recent and on-going
changes within our executive teams.
The Board meets not less than six times per year. During this year,
it met six times.
Board composition
The Board is made up of the Chairman, Chief Executive Officer,
Chief Financial Officer and five independent non-executive directors.
The directors have a range of experience and can bring independent
judgement to bear on issues of strategy, performance, resources
and standards of conduct. This experience and judgement is
considered vital to our success. It is the balance of skills, experience,
independence and knowledge of those directors which ensures the
duties and responsibilities of the Board and its committees are
discharged effectively.
The Board monitors the independence of its non-executive directors,
particularly those who have given long service. Having reviewed the
current Board, the non-executive directors are all considered to be
independent. Donald Brydon was considered independent at the
date of his appointment.
Ms Ruth Markland completed nine years of service on the Board
in September 2015. Her experience as the longest serving Board
member provides valuable insight, knowledge and continuity.
Having considered Ms Markland’s independent focus on the
issues which the Board addresses as evidenced by her contributions
at Board meetings, the Board unanimously considers that
Ms Markland continues to be independent.
During the year, Donald Brydon retired from his role as chairman of the
Royal Mail plc and became chairman of the London Stock Exchange plc.
Taking into account these changes, the Board considers Mr Brydon has
appropriate time and resource to devote to his role as chairman of Sage.
All directors are subject to election or re-election by shareholders
at each Annual General Meeting.
66
0 - 2 years
3 - 6 years
7 - 9 years
2015
75%
12.5%
12.5%
Gender
75%
25%
Male
Female
Executive/Non-executive
25%
Executive
75%
Non-executive
2015
75%
25%
2015
25%
75%
Diversity
The Board has due regard for the benefits of diversity in its membership,
and strives to maintain the right diversity balance. The Chairman seeks
to ensure that the composition of the Board includes individuals with
deep knowledge and experience, bringing a wide range of perspectives
to the business.
Sage continues to support the aims and objectives of The Davies Report
on Women on Boards. The Board, as at the date of this Annual Report &
Accounts, comprises 25% women (2014: 25%). The Board must continue
to provide strong leadership at Sage, and, therefore, continues to
appoint only the most appropriate candidates to the Board.
Whilst applying this policy in the Group, no measurable objectives
have been set. Further details of our policies in this area are set out
on page 54.
The Sage Group plc | Annual Report & Accounts 2015 Conflicts of interest
The Board operates a policy to identify and, where appropriate, manage
conflicts or potential conflicts of interest. At 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, with only those directors
who have no interest in the matter taking the decision. No conflicts
of interest have been identified during the year.
Board effectiveness
The Board has adopted a written set of objectives for the financial year,
against which it assesses progress at each meeting. This ensures that
the Board focuses on key issues relevant to Sage and can monitor
progress in all these areas.
Board and committee papers which are clear, focused and relevant
ensure that the Board has the information it needs to consider the
issues relevant to the business. The papers are issued on a timely
basis to ensure that the Board and its committees have ample time
to consider and digest their contents and that the Board has the
information it needs to discharge its duties. Regular attendance at
Board meetings by key executives ensures that the Board has the
opportunity to discuss the risks and opportunities within our business
with leaders from across the Group.
In order to increase their knowledge of the business and expand their
contacts with executives around the Group, the non-executive directors
regularly visit the operating companies around the world to meet with
senior executives and to be briefed on the particular issues faced by
the business in that region. All of the Board attended the Summit
Conference held by the Group in New Orleans in July 2015, the largest
convention for small businesses around the world, at which they met
customers and prospective customers, Sage employees and other
stakeholders from the 64 countries represented at the convention.
A number of directors also attended the Capital Markets Day in London
in June 2015 at which they met many investors in the Group and were
able to discuss with them the Group’s strategy.
Performance evaluation
The Board recognises the importance of reviewing its practices and
performance on a regular basis and has evaluated its performance
and that of its committees and individual members. In the past, the
Board evaluated its performance in a number of different ways including
detailed questionnaires and discussions between individual directors
and the Chairman. In the previous financial year, the Board used an
independent third party. This financial year, the Chairman undertook
the evaluation through a detailed questionnaire which each director
completed relating to the Board, its role and the interaction of its
members. This questionnaire was then used as the basis for individual
interviews with each director.
The results and outcomes of the review were discussed by the Board
as a whole. Key topics during these discussions included Board
composition, diversity including gender diversity, the frequency and
content of Board meetings and the supporting documentation, and
succession. As a result, new Board objectives have been set, taking
into account the findings from the review. In addition to the Board
review, the Chairman’s performance was evaluated by the Senior
Independent Director through correspondence and discussion with
the Chairman and the other directors and was found to be effective.
The Board was of the view that, noting the changes in his role outside
of Sage, he continued to devote the appropriate time to his role as an
effective chairman.
Induction and professional development
To ensure a full understanding of Sage is developed, new Board
members undergo a full, formal and tailored induction programme.
During the year, Stephen Kelly received such an induction,
which included:
– A full day meeting a team of our senior executives at a Group
and operating company level
– Visits to our business in the US and meetings with the heads of
the European business
– Bespoke training as deemed necessary based on individual needs
To assist the Board in undertaking its responsibilities, training is available
to all directors and training needs are assessed as part of the Board
evaluation procedure. All directors have access to the advice and
services of the Company Secretary who ensures that directors take
independent professional advice when it is judged necessary in order
to discharge their responsibilities as directors.
Board meetings are held at our operating companies both inside
and outside the UK. Non-executive directors also visit our overseas
operations on a regular basis. This provides the Board and individual
non-executive directors with the opportunity to broaden their
understanding of Sage and the key markets in which we operate.
Risk management and internal controls
The Board retains overall responsibility for setting Sage’s risk appetite,
and for risk management and internal control systems. In accordance
with section C.2.3 of the UK Corporate Governance Code the Board is
responsible for reviewing their effectiveness, and confirms that:
– there is an on-going process for identifying, evaluating, and managing
the principal risks faced by the Company
– the systems have been in place for the year under review and up
to the date of approval of the Annual Report and Accounts
– they are regularly reviewed by the Board
– the systems accord with the FRC guidance on risk management,
internal control and related financial and business reporting.
During 2015 the Board has directly, and through delegated authority to
the Executive Committee and Audit and Risk Committee, overseen and
reviewed the performance and evolution of risk management activities
and practices and internal control systems within Sage. Through both
its on-going involvement and overview in risk management and internal
control activities, the Board is satisfied that the risk management and
internal controls systems in place remain effective.
The Board continues to support the on-going development of risk
management and internal controls to ensure that they remain effective
as the business continues to evolve under the Sage 2020 Strategy.
Details can be found in both the Audit and Risk Committee section
of this report on pages 69-72 and the Balancing Risks and Rewards
section on pages 36-43.
67
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Corporate governance report continued
Whistleblowing
A whistleblowing telephone hotline service operates in all of our
operating companies, allowing employees to raise concerns in relation
to dishonesty or malpractice on an entirely confidential basis. The Audit
and Risk Committee receives regular reports on any matters raised
through these services and monitors the use throughout the Group.
Internal Audit
Internal Audit activities are provided by an in-house 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 and Risk Committee
and its Chairman in order to ensure independence.
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.
Internal Audit’s role is to advise management and the Board on the
extent to which systems of risk management and internal controls
are effective.
More information on Internal Audit is set out within the Audit and Risk
Committee section on page 72.
Management structure
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 Officer and
the Executive Committee, as discussed on page 64. Within the Group
team there are a number of central administrative functions such as
Group Treasury, Corporate Communications and Group Legal. These
functions report to the Board through its executive members and the
members of the Executive Committee.
A number of Group-wide policies, issued and administered centrally,
have been set to 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 are set out in a
delegation of authority matrix which is communicated to management
throughout Sage. These teams are accountable for the conduct and
performance of their businesses within the agreed business strategy.
Budgetary process
A comprehensive budgeting system is in place, with annual budgets
for all operating companies being approved by respective local 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.
Monitoring and review
There are processes in place to monitor the system of internal controls
and to report any significant control failings or weaknesses and planned
mitigating actions. These processes include:
– On an on-going basis, the Sage operating companies certify that
Sage’s policy requirements have been received and understood
– Management representations covering compliance with relevant
policies and the accuracy of financial information are collated on
an annual basis
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
and all information on Sage’s activities, published financial results and
the Annual Report & Accounts can be found on our website. There is
regular dialogue with individual institutional shareholders and there are
presentations to analysts after our announcement of the year-end and
half-year results.
At each meeting, the Board receives an update on presentations to
investors and communications from shareholders to ensure that the
Board has an understanding of their views. The Annual General Meeting
is used to communicate with private and institutional investors and the
Board welcomes their participation.
In addition, during this financial year, on 24 June 2015 Sage held a
Capital Markets Day for investors during which we outlined our future
strategy and operational implementation plans, as well as our ambition
for the future. A suite of key performance indicators was also provided,
on which the success of the business in the future will be judged. For
more details please see the discussion on page 28.
Information included in the Directors’ report
Certain information, fulfilling certain requirements of the Corporate
Governance Statement, can be found in the Directors’ report and is
incorporated into this Corporate governance section by reference.
For reference, relevant sections of the Director’s report are:
– Substantial shareholdings
– Deadlines for voting rights
– Repurchase of shares
– Amendment of the Company’s articles of association
– Appointment and replacement of directors
– Powers of the directors
By order of the Board
M J Robinson
Company Secretary
2 December 2015
68
The Sage Group plc | Annual Report & Accounts 2015 Audit and Risk Committee
“ Our priority is ensuring that the highest
standards of governance are maintained
across all areas of the business.”
— Jonathan Howell
Chairman of the Audit and Risk Committee
The five members of the Audit and Risk Committee are all independent
non-executive directors with a wide range of relevant business
experience, and have the expertise necessary to meet the Committee’s
responsibilities which are defined in its terms of reference. An overview
of the knowledge and experience of each of the five Committee
members can be found on pages 60 and 61 of this report.
The Code requires that the Committee has at least one member
with recent and relevant financial experience, and the Board is
satisfied that the Chairman meets these requirements, being a
qualified chartered accountant and the Group Finance Director
at Close Brothers Group plc.
The Committee met four times over the course of the year, in line
with its terms of reference. All Committee members attended every
meeting, and were joined at each meeting by the Chairman of the
Board, the Chief Executive Officer and the Chief Financial Officer.
The Chairman reports to the Board on key matters arising after each
of these meetings. At each meeting, the Committee normally meets
with the external auditor and the Group Risk and Assurance Director
without management being present.
Outside these formal meetings, the Chairman meets on a regular
basis with the Chief Financial Officer, the external auditor, the Group
Risk and Assurance Director and the Group Financial Controller. The
Chairman and other Committee members have also met with finance
colleagues around the Group during country visits. Additionally, the
Chairman has an open invitation to attend any meeting of the Global
Risk Committee or Regional Risk Committees.
Activities during the year
During 2015, the Committee has been focused on a number of areas
across financial reporting, risk management, internal controls
and assurance ensuring that the controls environment has been
appropriately considered as the Group moves from a federated
governance framework to the global governance framework
needed to support our growth ambition.
Financial Reporting
In respect of financial reporting, the Committee reviewed the interim and
annual financial statements and considered the significant accounting
and reporting matters set out below. In addition, the Committee reviewed
management’s response to the constructive enquiry received from the
FRC, which is now closed, in respect of the Group’s 2014 Annual Report
and Accounts and the resulting improvements to disclosure.
69
Audit and Risk Committee Membership:
– Jonathan Howell –
– Drummond Hall
Chairman
– Neil Berkett
– Inna Kuznetsova
– Ruth Markland
Dear Shareholder
I am pleased to present the 2015 report of the Audit and Risk Committee
(“the Committee”).
The Committee has amongst its responsibilities the role of supporting
the Board in setting the Group’s risk appetite and ensuring that there are
processes in place to identify and manage the Group’s principal risks.
This has been an area of focus for 2015, which has been a year of
significant change as the Group begins its journey of transition from
a set of federated businesses, into a globalised, integrated Group with
standardised processes, controls and support functions. In addition
to this, the revised reporting requirements of the Financial Reporting
Council (“FRC”) have provided the Committee with much to consider
in ensuring the on-going effectiveness of internal controls, financial
and business reporting, risk assessment, systems and management,
going concern and viability.
In responding to these challenges during 2015, the Committee reviewed
all principal risks and associated appetite statements and metrics at each
meeting, ensuring these evolved and were aligned to the achievement
of Sage’s strategic objectives, and assessed the adequacy of controls
and the assurance delivered over these identified risks. It monitored the
effectiveness of the control environment through the review of reports
from Internal Audit, management and the external auditor, and ensured
the quality of our financial reporting through review of the interim
financial statements and the 2015 Annual Report and Accounts.
Composition
The Committee is an essential element of Sage’s governance framework,
to which the Board has delegated oversight of Sage’s financial reporting,
risk management and internal control procedures, and the work of
Internal Audit and the external auditor.
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Corporate governance report continued
Audit and Risk Committee continued
In performing its review, the Committee considered the work,
judgements and conclusions of the global finance team and received
reports from the external auditor setting out its view on the accounting
treatments included in the financial statements, based on a review
of the interim financial statements and audit of the annual financial
statements. This review included assessing the appropriateness of the
accounting policies and practices, compliance with external financial
reporting standards and relevant statutory requirements, and reviewing
the adequacy of disclosures in the financial statements.
The Committee was also requested by the Board to review and advise
the Board on whether the Annual Report and Accounts taken as a
Significant accounting and reporting matters
Matter considered
Action
whole are fair, balanced and understandable and provide the information
necessary for shareholders to assess Sage’s position and performance,
business model and strategy. As part of this responsibility, the
Committee has suggested improvements to, and reviewed the results
of processes put in place by management to provide the necessary
assurance including analyses of how the key events of the year have
been described in the Annual Report. The Committee also received
representations from management, the output of a review of the
Strategic Report section of the Annual Report by Internal Audit
and considered the perspective of the external auditor.
Revenue Recognition
The Group sells its products in many different ways
across the globe. Ensuring that the Group’s revenue
recognition policies are both appropriate and
consistently applied is a key focus of the Committee
with the transition in business model to selling
software as a service and the increased focus on
recurring revenue. Consequently, the Committee
requested that management undertake a detailed
review of the accounting practices for revenue
recognition across the Group.
Goodwill impairment testing
Goodwill is an area of focus for the Committee
given the materiality of the Group’s goodwill
balances, the evolution of Sage’s business
model and the impairment of goodwill in 2014
relating to the business in Brazil.
In addition, judgements and assumptions are applied
in calculating the recoverable amount of the Cash
Generating Units (“CGUs”) and determining the
on-going appropriateness of the CGUs being
used for the purpose of impairment testing.
Viability
Recent revisions to the UK Corporate Governance
Code introduced a new requirement for the Board
to consider the period over which they are able to
conclude that the Company will remain viable,
having taken into account severe but plausible risks
and risk combinations. On account of this being a
new requirement, the Committee considered this
to be a significant reporting matter.
The review performed by management covered the revenue accounting for all significant products
in the major territories across the Group, focussed on the timing of revenue recognition, and the
treatment of amounts paid to various business partners of the Group which are deducted from revenue.
The Committee reviewed management’s report outlining conclusions from its review and:
– reviewed the nature and scope of the revenue recognition exercise undertaken by management
– reviewed and discussed with management the findings and conclusions arising from this exercise
– considered with management the accounting adjustments and related disclosures in the 2015
Group financial statements
As set out in note 1 to the financial statements, the revenue recognition exercise led to a change
in the application of the Group’s accounting policy in two areas:
– the treatment of payments to independent sales organisations who refer customers to the Group’s
payments business
– the re-phasing of the upfront revenue received in relation to products where software does not
function fully without the customer making on-going payments
The Committee also considered the external auditor findings and reporting on this matter.
The Committee reviewed and considered a detailed report from management on the work undertaken
and the assessments made in relation to the impairment testing of goodwill. The report considered
the determination of CGUs, the future performance expectations of the businesses concerned and the
discount rates applied to future cash flow forecasts.
The Committee also reviewed the assumptions underpinning the impairment of the goodwill relating
to the business in Brazil. The Committee reviewed and discussed the sensitivity analysis performed by
management and discussed the impact of the macroeconomic environment in Brazil and its impact
on the cost of capital assumptions used. This included taking into consideration the views of external
audit and its valuations specialists.
More information on goodwill impairment is set out in note 1 to the financial statement.
The Committee spent time, at two meetings, reviewing the process undertaken by management to
support and allow the Directors to make the Group’s viability statement. At its September meeting the
Committee considered and provided input into the determination of which of the Group’s principal
risks and combinations thereof might have an impact on the group’s liquidity and solvency. At its
November meeting, the Committee reviewed the results of management’s scenario modelling and
the reverse stress testing of these models.
The Group’s approach to producing its viability statement can be found on page 43, with the viability
statement found on page 93.
Tax provisions
The Group recognises certain provisions and accruals
in respect of tax which involves a degree of estimation
and uncertainty for certain items whose tax treatment
cannot be finally determined until a resolution has
been reached with the relevant tax authority.
The Committee requested and received a report from management detailing the key uncertain tax
exposures across the Group against which provisions had been made and the methodologies used
to determine the appropriate level of each provision based on management’s assessment of the facts
and circumstances and advice from our external tax advisers. The Committee also received a report
during the year from the Group Tax Director on the Group’s tax policy, approach to tax management
and status of compliance.
A particular focus of the Committee was on the recognition of deferred tax assets and in considering
management’s position, the Committee took into account the work and views of external audit.
More information on tax and tax provisions is set out in note 1 to the financial statements.
70
The Sage Group plc | Annual Report & Accounts 2015 The establishment of the Global and Regional Risk Committees during
the year has enhanced the governance around risk management, to
support the robust framework that enables the Committee and the
Board to evaluate on an on-going basis the risk profile of the Group
and adapt its focus in response to any changes to the risk profile. The
Chairman of the Committee has an open invitation to attend the Global
Risk Committee meetings or any of the Regional Risk Committee
meetings. These structures support the transition of the business to
‘One Sage’, and embed consistent risk management activities across
the business. Further detail on these committees is set out on page 37.
To support these governance enhancements, Sage continues to
develop its risk management team and capability in order to further
integrate its practices into business activities and to allow it to guide,
support and challenge the business in support of its intended growth
and strategy.
Fraud and whistleblowing
Another important component of the Group’s control environment
are its Whistleblowing arrangements, under which the Committee
is notified of any matters raised through these arrangements or
otherwise that relate to financial reporting, the integrity of financial
management or fraud. There were no cases of fraud which were
significant or that demonstrated material weaknesses in internal
controls during the year. Furthermore, to proactively identify control
failures and to support the Group’s Whistleblowing policy, a programme
of fraud assessments is undertaken across the business as part of a
multi-year cycle.
Assurance
One of the Committee’s primary areas of responsibility is to review
and approve the nature and scope of the work of the external auditor
and Internal Audit, and management’s related response. The Committee
considered and approved the planned activities of Internal Audit along
with the scope of the work of the external auditor for the year. Regular
reports were received from both Internal Audit and external auditor
and discussed by the Committee.
The Committee is also responsible for ensuring that the external
auditors are independent and responsible for both the setting and
monitoring of compliance with the policy on non-audit services.
Our priorities for 2016 include:
– Overseeing the effective operation of the Global and Regional
Risk Committees, as they continue to embed risk management
across ‘One Sage’
– Monitoring progress of the ‘Excellence in Governance’ initiative
as it continues to align the group’s governance framework in
support of our growth ambition
– Promoting a strong compliance and control based culture, and
supporting management as they build capacity and capability
across ‘One Sage’
Risk management and internal controls
The role of the Committee is to assist the Board in matters of risk
management and internal control.
The Committee, on behalf of the Board, monitors and reviews the
effectiveness of risk management systems and related internal controls
to ensure that issues that have arisen are properly dealt with, ensuring
that corrective action is taken where necessary, and that going forward
the systems are fit for purpose. During the year, the Committee:
– Reviewed the principal risks, their risk appetites and metrics, and
challenged their alignment to the achievement of the Sage 2020
strategic objectives. The Committee’s review considered
management actions and mitigations in place and planned,
to address these risks
– Considered the formal output from the Global Risk Committee
since its first meeting in August 2015
– Reviewed reports from Global Risk on targeted in-depth reviews
on selected principal risks as outlined on page 38
– Reviewed and approved updates to global policies for which
the Committee is responsible
– Reviewed Internal Audit and management reports on financial,
compliance and operational risk matters
– Reviewed and monitored the implementation of management
actions to address identified control weakness and improvements
– Considered cases of fraud and identified control issues to assess
whether they are significant or demonstrate material weaknesses
in internal controls
– Assessed the effectiveness of Internal Audit through an external
review as outlined in this report
– Reviewed reports from the external auditor on the Group’s financial
reporting and internal financial control environment, and any issues
identified in the course of their work, including observations on
controls and control weaknesses, and ensured that there is an
appropriate response from management
At each of the Committee’s meetings an agenda item is reserved for
relevant, current and important issues. The Committee uses these
sessions to receive detailed briefings on specific areas of the business,
and to further their understanding of the risks associated with them.
During 2015 the Committee received briefings on the Finance Change
Project which aims to improve the capability and capacity of the Global
Finance function, the North American Business Financial Controls, and
an update against our 2020 Strategy. The Committee also considered
the evolution of our approach to risk management, internal controls
in our North American payments business and our Excellence in
Governance initiative.
71
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Corporate governance report continued
Audit and Risk Committee continued
Internal Audit
The Committee reviewed the scope and monitored the results of
Internal Audit’s activities including the quality and timeliness of
management responses. A high level Internal Audit plan is approved by
the Committee at the beginning of the financial year, with subsequent
quarterly changes to the detailed plan requiring Committee approval.
Progress against the plan is monitored throughout the year. Significant
issues identified within Internal Audit reports are considered in detail
by the Committee along with the appropriateness of mitigation plans
to resolve those issues.
An Internal Audit charter is in place which outlines the vision, objectives,
authority, scope and responsibilities of Internal Audit. Performance
against this charter, and the effectiveness of Internal Audit, is reviewed
by the Committee on an annual basis. In 2015 an external effectiveness
review was conducted by PwC which evaluated Internal Audit against
leading practices and performed an assessment against global Institute
of Internal Audit standards. This review was presented to the Committee
and reported that Internal Audit provides a good service to Sage, the
team is well qualified to provide assurance over core controls which is
an important requirement for the business and that the fundamentals of
planning, delivery, reporting and performance management are in place.
Notwithstanding these conclusions, opportunities were identified to
enhance the scope and performance of work in line with its 2016
strategy, which was approved by the Committee.
The Committee considers and evaluates the level of Internal Audit
resource to ensure it is appropriate to provide the required level of
assurance over the principal risks, processes and controls throughout
the Group.
External auditor – Ernst & Young LLP (EY)
The Committee reviews and makes recommendations with regard to the
appointment of the external auditors. In making this recommendation,
the Committee considers auditor effectiveness and independence,
partner rotation and any other factors which may impact the Committee’s
judgement regarding the external auditors’ reappointment. Following the
formal tender process conducted in 2014, this has been EY’s first year
as Sage’s external auditor and focus has been placed on assisting
them develop a good understanding of the business. The Committee
monitored the conduct and effectiveness of external audit during the
year through a review of:
– Experience and expertise of the auditor
– The fulfilment of the agreed external audit plan and any variations
from this plan
– The robustness and perceptiveness of the external auditor
in their handling of key accounting and audit judgements
– Interaction between management and the auditor, including
ensuring that management dedicates sufficient time to the
audit process
– Communication with, and support to, the Committee
– Insights, added value and reports
– The content of external audit reports
– Independence, objectivity and scepticism
72
Private meetings were held with the external auditor at each Committee
meeting to provide additional opportunity for open dialogue and
feedback from the Committee and the auditor without management
being present. In addition to these private meetings the Chairman
meets on a regular basis with the external auditor to facilitate effective
and timely communication. Further, the Committee received a formal
statement of independence from the auditor.
Following a review and having given consideration to the performance
and independence of the external auditor, the Committee has
recommended to the Board that a resolution to reappoint EY
be proposed at the 2016 AGM and the Board has accepted and
endorsed this recommendation.
Non-audit services
The Committee ensured compliance with Sage’s Auditor Independence
Policy, which was updated during 2015 to reflect the relevant EU
Regulation / Directives and FRC consultation paper on UK member
state adoption. The principal requirements of the Auditor Independence
Policy are that the external auditor may not undertake certain
prohibited services, which include but are not limited to:
– tax services
– bookkeeping and preparation of accounting records and
financial statements
– internal audit services
– payroll services
– legal and valuation advice
The Committee must approve any individual non-audit services above
a specific fee value.
The ratio of audit fees to non-audit fees must be within Sage’s
pre-determined ratio, which is currently that non-audit fees
for the year must not exceed 70% of the average of the external
audit fees billed over the previous three years.
Discretion is used, subject to the controls set out above, in obtaining
non-audit services from the external auditor, although other
accountancy firms are also used when appropriate. In accordance
with the Auditor Independence Policy, a cumulative summary of
non-audit fees paid to the external auditor and Internal Audit third
party providers is presented to the Committee on a quarterly basis.
The ratio of non-audit fees for the year to the average of the external
audit fees over the previous three years was <1%. A breakdown of total
audit and non-audit fees charged by the auditor for the year under
review is shown in note 3.2 to the financial statements.
Jonathan Howell
Chairman of the Audit and Risk Committee
2 December 2015
The Sage Group plc | Annual Report & Accounts 2015 Nomination Committee
“ The Committee continually evaluates
the skills, knowledge and experience
required for a successful board in a
changing industry.”
— Donald Brydon
Chairman of the Nomination Committee
Nomination Committee Membership:
– Donald Brydon – Chairman
– Drummond Hall
– Jonathon Howell
– Neil Berkett
– Inna Kuznetsova
– Ruth Markland
Key objective
To review the composition of the Board and to plan for its progressive
refreshing, with regard to balance and structure. The Committee also
considers issues of succession.
Committee meetings
The Committee is required, in accordance with its terms of reference,
to meet at least once per year. During the year, the Committee
met twice.
Responsibility
Activity
Reviewing the structure of the Board
The Committee dealt with the appointment of a new Chief Executive Officer
Evaluating the balance of skills, knowledge,
experience and diversity of the Board
The Committee considered the skills, knowledge, independence and experience of the Board and
reaffirmed the approach to diversity, as described on page 54
Advising the Board on areas where further
recruitment may be appropriate
The Committee considered the skills and experience of the Board members. It continues this review
on an on-going basis
Succession planning for key executives at Board
level and below and for non-executive directors
The Committee has continued to work to ensure appropriate succession and mix amongst both the
executive and non-executive directors, as shown on pages 60 and 61.
Board appointments
The appointment of Stephen Kelly as Chief Executive Officer
was announced in August 2014, and he joined the Board on
5 November 2014.
In identifying a new Chief Executive Officer, the Committee retained
the services of executive search consultants, Egon Zehnder. Egon
Zehnder worked closely with the Chairman who led the process
on behalf of the Committee.
A number of potential candidates were identified by the consultants and
some candidates approached Sage directly. An initial long list of possible
appointees was discussed with the Chairman, from which a short
list was created. All candidates on the short list were interviewed
by Committee members. Following the interviews and fully considering
the experience and skills of the candidates, as well as the diversity of the
Board, the Committee unanimously recommended the appointment of
Stephen Kelly as Chief Executive Officer to the Board.
Egon Zehnder has no connection with Sage or the appointed director
other than for the provision of these services and services relating to
other Sage Board appointments.
During the year the Committee also assessed the skills, knowledge,
independence and experience of the Board and determined that
no further appointments were necessary at that time.
Gender
The Board and the Committee continue to 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 the policy of the
Committee 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.
Further details on the approach to diversity are set out on page 54.
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Directors’ remuneration report
Remuneration Committee
“We are presenting a new remuneration
policy that aligns to our strategy outlined
at our Capital Markets Day in June.”
— Drummond Hall
Chairman of the
Remuneration Committee
Remuneration Committee Membership:
– Drummond Hall –
– Jonathan Howell
Chairman
– Donald Brydon
– Neil Berkett
– Inna Kuznetsova
– Ruth Markland
DEAR FELLOW SHAREHOLDER,
It is my pleasure to present the Directors’ remuneration report for
the year ended 30 September 2015, having been appointed the
Remuneration Committee Chairman on 5 December 2014.
We aim to be entirely transparent in our remuneration practices and
provide shareholders with the information needed to make informed
decisions about our Company.
Key Responsibilities
Making recommendations to the Board, within agreed terms of reference, on Sage’s framework of executive remuneration
Determining 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
Monitoring remuneration for senior executives below Board level
Approval of share awards
Key objective
To determine the framework, broad policy, and levels of remuneration
for the Group’s Chief Executive Officer, the Group’s Chief Financial
Officer, the Chairman of the Company and other executives as deemed
appropriate. This framework includes, but is not limited to, establishing
stretching performance-related elements of reward and is intended to
promote the long-term success of the Company.
Committee meetings
No one other than a member of the Committee is entitled to be present
at its meetings. The Chief Executive Officer may, as required, attend
meetings, except where his own performance or remuneration is
discussed. No director is involved in deciding his or her own remuneration.
The Committee is required, in accordance with its terms of reference,
to meet at least four times per year. During this financial year, the
Committee met seven times.
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The Sage Group plc | Annual Report & Accounts 2015
Our remuneration principles for executive directors and the Executive Committee
Our key remuneration principles are as follows:
Motivate and reward
Remuneration at Sage is designed to create a strong performance-oriented environment and reward achievement
of our Company strategy and business objectives
Attract and retain
We offer competitive rates of pay and benefits to attract and retain the best people in a competitive international
market which includes private-equity backed organisations as well as listed companies
Alignment with the
wider Group
Alignment with
shareholders
Pay and employment conditions elsewhere in the Group are considered when determining executive base salary
and bonus reviews
The interests of our senior management team are aligned with those of shareholders by having a significant
proportion of remuneration performance-based and delivered through shares
Delivering our remuneration principles in 2016
A detailed remuneration policy, approved by shareholders at the 2014 AGM, underpins the delivery of these four key remuneration principles.
At the heart of this policy is a relatively straightforward remuneration arrangement for our most senior executives comprising base salary and
benefits, an annual bonus plan and a long-term incentive plan (the Performance Share Plan (PSP)).
At our Capital Markets Day (CMD) in June 2015, we outlined our future strategy and operational implementation plans. In parallel, the Remuneration
Committee undertook a review of the pay arrangements for the executive directors and Executive Committee members to ensure they were
consistent both with our future strategy and with our remuneration principles more generally. Following that review, the Remuneration Committee
is proposing a number of changes to the pay arrangements of the executive directors for 2016 as summarised below. Where appropriate, these
changes will also apply to Executive Committee members.
Our remuneration
principles
Proposed changes to pay arrangements for 2016
Motivate and reward The existing performance measures that apply to executive directors’ performance-related pay were put in place following the
last major strategic review in 2012. In order to ensure consistency with our revised strategy, the following changes are proposed
to performance measures in 2016.
2016 annual bonus
For the past three years, executive directors’ annual bonuses have been determined by a mixture of underlying profit before tax,
organic revenue growth and individual objectives. Following the Remuneration Committee’s review, the annual bonus measures
for 2016 are Group recurring revenue growth (80% of overall bonus) and strategic measures (20% of overall bonus). Payout under
the recurring revenue measure will be dependent upon the satisfaction of underpin conditions based on organic revenue growth,
operating margin and subscription growth.
2016 PSP awards
Most PSP awards granted in the past three years are subject to a combination of three equally weighted performance measures –
relative Total Shareholder Return (TSR), earnings per share (EPS) growth and organic revenue growth.
Following the Remuneration Committee’s review, it is proposed that:
– half of the 2016 PSP award will be subject to a performance measure based on relative TSR performance. This measure will help
to ensure management’s continued focus on overall Group growth and delivery of shareholder value
– half of the 2016 PSP award will be subject to a performance measure based on recurring revenue growth. The introduction of
recurring revenue growth as a medium-term performance condition provides close alignment with the medium-term strategic
priorities outlined at the CMD to grow our subscription-based services and acquire new customers
– for any of the recurring revenue growth element of the 2016 PSP award to vest, two “underpin” performance conditions based
on EPS growth and organic revenue growth will also need to be achieved
Proposed targets for these performance measures are set out in the Directors’ annual remuneration report on page 88.
Attract and retain
An independent market benchmark exercise commissioned by the Remuneration Committee indicated that Sage offers
market-competitive levels of pay for our most senior executives. Accordingly:
– no changes are proposed in 2016 to our maximum level of performance-related pay under either the annual bonus plan or the PSP
– the CFO will receive a salary increase of 3% effective 1 January 2016, consistent with increases for employees based in the UK.
The CEO’s salary will remain at its current level until the next review, with any changes effective 1 January 2017
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Directors’ remuneration policy report
Our remuneration
principles
Alignment with
the wider Group
Proposed changes to pay arrangements for 2016
The remuneration policy for executives reflects the overriding remuneration philosophy and principles of the wider Group, including
but not limited to the principles on which salaries are reviewed and the structure of performance-related incentive plans. Details of pay
arrangements for executive directors are set out in the annual remuneration report on pages 83 to 91.
Alignment with
shareholders
Our existing pay structure for executive directors and other senior management is heavily weighted towards share-based performance-
related pay which is designed to align executive and shareholder interests. In order to enhance this alignment further, the Remuneration
Committee will be introducing the following changes in 2016:
Malus / clawback
From 2016, all incentives awarded to executive directors and Executive Committee members will be subject to malus and clawback
provisions. Details of the proposed implementation of those provisions in the forthcoming year are set out in the Directors’ annual
remuneration report and policy.
Compulsory bonus deferral
Under our current remuneration policy, if an executive director already holds Sage shares with a value of at least 150% of salary then
their annual bonus is paid wholly in cash. If the executive is non-compliant with this shareholding requirement then 20% of their annual
bonus is normally deferred into shares under the Sage Group Deferred Bonus Plan for three years.
The Remuneration Committee has determined that from 2016 an element of the annual bonus should be compulsorily deferred into
shares irrespective of an individual’s existing shareholding. Accordingly, with effect from the 2016 annual bonus, all executive directors
will be compulsorily required to defer one-third of their bonus into Sage shares. During a transitional period (bonuses for 2016 and 2017),
the deferral period will be temporarily reduced to two years before returning to three years with effect from 2018.
Enhanced shareholding requirement
Our current shareholding requirement requires executive directors to build up a holding of Sage shares worth at least 150% of their base
salary. Effective from the 2016 AGM, the shareholding requirement will be increased to 200% of base salary and directors will be expected
to achieve the guideline within a maximum period of five years from when they first become subject to the guideline.
Holding period for PSP awards
Our new PSP, approved by shareholders at the 2015 AGM, contains the flexibility for the Remuneration Committee to apply a holding period
of two years to PSP awards (or such other period as may be determined) following the three year vesting period. This flexibility will be added
into our new remuneration policy although there is no current intention to apply a holding period to the 2016 grant of PSP awards.
Some of these proposed changes cannot be implemented for the
executive directors under our current shareholder approved
remuneration policy. Accordingly, we will be seeking shareholder
approval for a revised remuneration policy at the 2016 AGM that will
permit the full implementation of these changes. We have consulted with
our major shareholders and shareholder representative bodies on the
proposed changes who have been generally supportive of our proposals.
Key remuneration outcomes for FY15
– Following the changes in the application of the revenue
recognition policy to certain products, referred to on page 163,
the Committee determined that the calculation of actuals on a like
for like basis with the targets (that is, with both targets and actuals
calculated prior to the change in the application of the revenue
recognition policy to certain products) was an appropriate and fair
basis of assessment for the FY15 bonus. On this basis, for the year
ended 30 September 2015, Group organic revenue growth was
6.7%, reflecting good acceleration in growth on the prior year,
and underlying pre-tax profit was £361.7m. Combined with the
achievement of strategic objectives, this led to 67% of the maximum
bonus paying out for the Chief Executive Officer and Chief Financial
Officer. More details on the bonus outcome are set out on page 84.
– Performance Share Plan (PSP) awards granted in 2013 were based
on organic revenue growth, Earnings per share growth and relative
TSR performance measured over the three-year period to 30
September 2015. As with the treatment of the FY15 bonus, the
Committee determined that organic revenue and EPS growth
should be calculated on a consistent basis with the original targets
76
(that is, with both targets and actuals calculated prior to the
changes in the application of revenue recognition policy).
Overall, the Committee determined that 64% of the maximum
number of shares under award will vest in March 2016.
– Guy Berruyer stepped down from the role of Chief Executive
Officer and as a director of the Company on 5 November 2014,
although he remained an employee until 31 March 2015. Details
of his remuneration during FY15 are set out on page 85 and 86.
Remuneration disclosure
This report complies with the requirements of the Large and Medium-
sized Companies and Groups (Accounts and Reports) Regulations 2008
as amended in 2013, the provisions of the UK Corporate Governance
Code (September 2012) and the Listing Rules.
The report is in two sections: The Directors’ remuneration policy
(pages 77 to 82).This section contains details of the new remuneration
policy to be put to a binding shareholder vote at the AGM in March 2016.
The Directors’ annual remuneration report (pages 83 to 92).This
section sets out details of how our existing remuneration policy was
implemented for the year ended 30 September 2015 and how we
intend the new policy to apply for the year ended 30 September
2016 and will be the subject of an advisory shareholder vote at the
AGM in March 2016.
Drummond Hall
Chairman of the Remuneration Committee
The Sage Group plc | Annual Report & Accounts 2015 Remuneration policy
The current policy report was approved by shareholders at the 2014 AGM and can be found on our website (www.sage.com). As outlined in the
Statement of the Remuneration Committee Chairman, the Remuneration Committee is proposing a number of changes to the current policy
primarily to ensure consistency with our future strategic and operational implementation plans. Shareholder approval will be sought at the 2016
AGM for the new remuneration policy set out below. Subject to shareholder approval, the new policy will take effect from the date of the AGM.
The key proposed changes from the current policy are:
– A minimum of one-third of the annual bonus paid to executive directors will be delivered in deferred shares. Under the previous policy,
executive directors were only required to defer 20% of their bonus into shares if they were non-compliant with their shareholding guideline
– The Remuneration Committee will have flexibility to apply an additional mandatory holding period beyond the expiry of a performance period
applicable to PSP awards
– In order to provide consistency with Sage’s future strategy, performance measures for future PSP awards will be based on recurring revenue
growth and relative Total Shareholder Return (TSR) performance (subject to underpin conditions). Under the previous policy, PSP awards were
subject to a combination of organic revenue growth, EPS growth and relative TSR performance measures
– Malus and clawback provisions will apply to all variable pay awarded to executive directors following the introduction of the revised policy
– Change of control and loss of office policies have been updated for consistency with the new PSP rules that were approved by shareholders
at the 2015 AGM.
Remuneration policy table
The table below sets out the remuneration policy that the Company intends to apply, subject to shareholder approval, from 1st of March 2016
(the date of the AGM).
Alignment with strategy/purpose Operation
Maximum opportunity
Base salary
Supports the recruitment and
retention of executive directors
of the calibre required to deliver
the Group’s strategy.
Normally reviewed annually, with any
increases applied from January.
When determining base salary levels,
consideration is given to the following:
Rewards executives for the
performance of their role.
Set at a level that allows fully
flexible operation of our variable
pay plans.
– Pay increases for other employees in
major operating businesses of the Group
– The individual’s skills and responsibilities
– Pay at companies of a similar size and
international scope to Sage, in particular
those within the FTSE 100 (excluding
the top 30)
– Corporate and individual performance
Ordinarily, salary increases will be in line with
increases awarded to other employees in
major operating businesses of the Group.
However, increases may be made above this
level at the Committee’s discretion to take
account of individual circumstances such as:
– Increase in scope and responsibility
– Increase to reflect the individual’s
development and performance in role (e.g. for
a new appointment where base salary may be
increased over time rather than set directly at
the level of the previous incumbent
or market level)
– Alignment to market level
Accordingly, no monetary maximum has been set.
Performance measures
None, although overall
performance of the
individual is considered
by the Remuneration
Committee when
setting and reviewing
salaries annually.
Pension
Provide a competitive post-
retirement benefit, in a way
that manages the overall cost
to the Company.
Defined contribution plan (with Company
contributions set as a percentage of
base salary).
An individual may elect to receive some
or all of their pension contribution as a
cash allowance.
Benefits
Provide a competitive and
cost-effective benefits package
to executives to assist them to
carry out their duties effectively.
The Group provides a range of benefits
which may include a car benefit (or cash
equivalent), private medical insurance,
permanent health insurance, life assurance
and financial advice.
Additional benefits may also be provided
in certain circumstances which may include
relocation expenses, housing allowance and
school fees. Other benefits may be offered if
considered appropriate and reasonable by
the Committee.
25% of base salary for all executive directors.
None.
No element other than base salary is
pensionable.
Set at a level which the Remuneration
Committee considers:
None.
– Appropriately positioned against comparable
roles in companies of a similar size and
complexity in the relevant market
– Provides a sufficient level of benefit based
on the role and individual circumstances,
such as relocation
– As the costs of providing benefits will depend
on a director's individual circumstances, the
Remuneration Committee has not set a
monetary maximum
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ remuneration policy report continued
Alignment with strategy/purpose Operation
Maximum opportunity
Performance measures
Annual bonus
Rewards and incentivises the
achievement of annual financial
and strategic targets.
Measures and targets are set annually
and payout levels are determined by the
Remuneration Committee after the year-end
based on performance against those targets.
125% of salary.
An element of compulsory
deferral provides a link to
the creation of sustainable
long-term value creation.
The Remuneration Committee may, in
exceptional circumstances, amend the
bonus payout should this not, in the view
of the Committee, reflect overall business
performance or individual contribution.
– 80% of the bonus will be
determined by measure(s) of
Group financial performance.
– 20% of the bonus will be
based on pre-determined
financial, strategic or
operational measures
appropriate to the individual
director.
The measures that will apply
for the financial year 2016 are
described in the Directors’
annual remuneration report.
Awards vest on the following basis:
– Target performance: 20% of the
maximum shares awarded
– Stretch performance: 80% of the
maximum shares awarded
– Exceptional performance: 100%
of the shares awarded
With straight-line vesting between
each level of performance.
Current annual award levels (in respect
of a financial year of the Company)
for executive directors are 250% of
base salary at the time of grant.
Overall individual limit of 300% of
base salary under the rules of the plan.
The Committee retains the discretion to
make awards up to the individual limit
under the PSP and, as stated in previous
remuneration reports, would expect
to consult with significant investors if
awards were to be made routinely above
current levels.
Performance is assessed
against two independently-
measured metrics which
are equally weighted:
– 50% recurring revenue
growth
– 50% relative TSR
performance against the
FTSE 100 (excluding financial
services and extracting
companies)
At its discretion, the Committee
may elect to add additional
underpin performance
conditions to one or both
of the above metrics.
Details of the targets that will
apply for awards granted in 2016
are set out in the Directors’
annual remuneration report.
None.
UK participation limits are those set by
the UK tax authorities from time to time.
Currently this is £500 per month. Limits
for participants in overseas schemes
would be determined in line with any
local legislation.
A minimum of one-third of any annual bonus
earned by executive directors is delivered in
deferred share awards, with the remainder
delivered in cash. The length of the deferral
period will be determined by the Remuneration
Committee before the grant of an award.
Awards vest dependent upon the achievement
of performance conditions measured over a
period of at least three years.
Following the end of the performance period,
the performance conditions will be assessed
and the percentage of awards that will vest
will be determined.
The Committee may decide that the shares in
respect of which an award vests are delivered to
participants at that point or that awards will then
be subject to an additional holding period before
participants are entitled to receive their shares.
A holding period will normally last for two years,
unless the Committee determines otherwise.
The Remuneration Committee has discretion
to decide whether and to what extent the
performance conditions have been met, and
if an event occurs that causes the Committee
to consider that an amended or substituted
performance condition would be more
appropriate and not materially less difficult
to satisfy, the Committee may amend or
substitute any performance condition.
UK-based executive directors are entitled to
participate in a UK tax-approved all-employee
plan, The Sage Group Savings-Related Share
Option Plan, under which they make monthly
savings over a period of three or five years linked
to the grant of an option over Sage shares with
an option price which can be at a discount of
up to 20% of the market value of shares on grant.
Options may be adjusted to reflect the impact
of any variation of share capital.
Subject to shareholder approval at the 2016
AGM, an overseas-based executive director
would be entitled to participate in any similar
all-employee scheme operated by Sage in
their jurisdiction.
Performance Share Plan (PSP)
Motivates and rewards the
achievement of long-term
business goals.
Supports the creation of
shareholder value through
the delivery of strong market
performance aligned with the
long-term business strategy.
Supports achievement
of our strategy by targeting
performance under our key
financial performance indicators.
All-employee share plans
Provides an opportunity for
directors to voluntarily invest
in the Company.
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The Sage Group plc | Annual Report & Accounts 2015 Alignment with strategy/purpose Operation
Chairman and non-executive
director fees
Provide an appropriate
reward to attract and retain
high-calibre individuals.
Fees are reviewed periodically.
The fee structure is as follows:
– The Chairman is paid a single,
consolidated fee
Non-executive directors
do not participate in any
incentive scheme.
– The non-executive directors are paid a basic
fee, plus additional fees for chairmanship
of Board Committees and to the Senior
Independent Director
– Fees are currently paid in cash but the
Company may choose to provide some
of the fees in shares
The Chairman has the use of a car and driver.
Non-executive directors may be eligible for
benefits such as company car, use of secretarial
support, healthcare or other benefits that
may be appropriate including where travel to
the Company’s registered office is recognised
as a taxable benefit in which case a non-
executive may receive the grossed-up costs
of travel as a benefit.
Maximum opportunity
Set at a level which:
Performance measures
None.
– Reflects the commitment and
contribution that is expected
from the Chairman and
non-executive directors
– Is appropriately positioned against
comparable roles in companies
of a similar size and complexity
in the relevant market, particularly
companies of a similar size and
international scope to Sage,
in particular those within the
FTSE 100 (excluding the top 30)
Overall fees paid to directors will remain
within the limit stated in our articles of
association, currently £1m.
Actual fee levels are disclosed in the
Directors’ annual remuneration report
for the relevant financial year.
Notes:
– Annual bonus performance measures have been selected to provide an appropriate balance between incentivising directors to meet profitability and other financial targets
for the year and achieve strategic operational objectives. The measures and targets are selected every year by the Committee.
– Performance Share Plan: recurring revenue growth is a key measure of the success of the execution of our long-term strategy. TSR is considered a key measure for a number
of our shareholders and provides further alignment with value created for shareholders.
– Awards granted under the deferred bonus plan and the PSP may:
(a) be made in the form of conditional awards or nil-cost options and may be settled in cash;
(b) incorporate the right to receive an amount (in cash or shares) equal to the dividends which would have been paid or payable on the shares that vest in the period up to
vesting (or, where PSP awards are made subject to a holding period, the end of the holding period). This amount may be calculated assuming the dividends were reinvested
in the Company’s shares on a cumulative basis; and
(c) be adjusted in the event of any variation of the Company’s share capital, demerger, delisting, special dividend, rights issue or other event which may, in the opinion of the
Remuneration Committee, affect the current or future value of the Company’s shares.
– Provisions to withhold (malus) or recover (clawback) sums paid under the annual bonus and PSP in the event of material negative circumstances, such as material misstatement
in the Company’s audited results, serious reputational damage or significant financial loss to the Company (as a result of the participant’s misconduct), an error in assessing the
performance metrics relating to the award or the participant’s gross misconduct, will be incorporated into both the PSP and deferred bonus plan the Company intends to adopt
in 2016. These provisions may apply up to three years from the date a PSP award vests/is released or a minimum of two years from the date a cash bonus is paid or a deferred
share award is granted. Details of the proposed implementation of those provisions in the forthcoming year are set out in the Directors’ annual remuneration report.
– While our remuneration policy follows the same principles across the Group, packages offered to employees reflect differences in market practice in the different countries
the Group operates in and also differences in size of role.
– All directors submit themselves for re-election annually.
– The Remuneration Committee intends to honour any commitments entered into with current or former Directors on their original terms, including outstanding incentive
awards, which have been disclosed in previous remuneration reports and, where relevant, are consistent with a previous policy approved by shareholders. Any such payments
to former directors will be set out in the Remuneration Report as and when they occur.
– The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any discretions available to it in
connection with such payments) notwithstanding that they are not in line with the policy set out above where the terms of the payment were agreed; (i) before the date the
Company’s first remuneration policy approved by shareholders in accordance with section 439A of the Companies Act came into effect; (ii) before the policy set out above
came into effect, provided that the terms of the payment were consistent with the shareholder-approved remuneration policy in force at the time they were agreed; or (iii)
at a time when the relevant individual was not a director of the Company and, in the opinion of the Remuneration Committee, the payment was not in consideration for the
individual becoming a director of the Company. For these purposes “payments” includes the Remuneration Committee satisfying awards of variable remuneration and, in
relation to an award over shares, the terms of the payment are “agreed” at the time the award is granted.
– The Remuneration Committee may make minor amendments to the policy (for regulatory, exchange control, tax or administrative purposes or to take account of a change
in legislation) without obtaining shareholder approval for that amendment.
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ remuneration policy report continued
Illustration of our remuneration policy for 2016
The charts below set out an illustration of the remuneration policy and include base salary, pension, benefits and incentives. The charts provide
an illustration of the proportion of total remuneration made up of each component of pay and the total potential value available to the directors
under the policy. The charts do not take into account share price appreciation or dividends.
In these illustrative charts, salaries are those applying from 1 January 2016, pension provision is assumed to be 25% of salary and benefits have
been estimated using the figure included in the 2015 single figure of remuneration.
For illustrating the potential value from incentives, four scenarios have been illustrated for each executive director:
Below threshold performance
– No bonus payout
– No vesting of PSP awards
Target performance
– 37.5% of salary payout in annual bonus (30% of maximum opportunity)
– Shares equivalent to 50% of salary vesting under the PSP (20% of total shares available)
Stretch performance
– 81.25% of salary payout in annual bonus (65% of maximum opportunity)
– Shares equivalent to 200% of salary vesting under the PSP (80% of total shares available)
Exceptional performance
– 125% of salary payout in annual bonus (100% of maximum opportunity)
– Shares equivalent to 250% of salary vesting under the PSP (100% of total shares awarded)
CEO policy
Exceptional (%)
Stretch (%)
Target (%)
Below
threshold (%)
20
5
24
6
47 12
1
1
1
25
49
£3,970,000
20
49
£3,229,000
18
17
23 9
£1,699,000
78 20
2
£1,008,000
£0
500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
CFO policy
Exceptional (%)
Stretch (%)
Target (%)
Below
threshold (%)
20 5
24 6
1
1
25
49
£2,566,000
20
49
£2,089,000
46 12
2
17
23
£1,102,000
78 19
3
£657,000
£0
500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
Salary Pension Other benefits Annual bonus (including any deferred amounts) PSP award
Development of our remuneration policy
Consistency with remuneration for the wider Group
The remuneration policy for our executive directors is designed in
line with the remuneration philosophy and principles that underpin
remuneration for the wider Group. The remuneration arrangements
for employees below the main Board reflect the seniority of the role
and local market practice and therefore the components and levels
of remuneration for different employees will differ from the policy for
executives as set out above.
Consideration of pay and conditions for the wider Group
The Remuneration Committee generally considers pay and employment
conditions elsewhere in the Group when considering pay for the main
Board directors and the Executive Committee. When considering
base salary increases, the Committee reviews overall levels of base
pay increases offered to other employees and other executives of the
major geographies in which we operate. The Committee also reviews
information with regard to bonus payments and share awards made
to management of the Group.
Communication with our shareholders
The Remuneration Committee is committed to an on-going dialogue
with shareholders and seeks the views of significant shareholders
when any major changes are being made to remuneration
arrangements. The Committee takes into account the views
of significant shareholders and shareholder representative bodies
such as ISS and the Investment Association when formulating and
implementing the policy. A consultation process was undertaken
with our largest shareholders ahead of the introduction of the
new PSP at the 2015 AGM and also ahead of the introduction
of this revised policy.
80
The Sage Group plc | Annual Report & Accounts 2015 Recruitment remuneration arrangements
In the event of hiring a new executive director, the Remuneration
Committee will seek to align the remuneration package with our
remuneration policy, which may include the elements outlined in the
policy table above. However, the Remuneration Committee retains
the discretion to make appropriate remuneration decisions outside
the standard policy to meet the individual circumstances of the
recruitment. This may, for example, include the following circumstances:
– An interim appointment is made to fill an executive director role on
a short-term basis
– Exceptional circumstances require that the Chairman or a non-
executive director takes on an executive function on a short-term basis
– An executive director is recruited at a time in the year when it
would be inappropriate to provide a bonus or PSP award for that
year as there would not be sufficient time to assess performance.
The quantum in respect of the months employed during the year
may be transferred to the subsequent year so that reward is provided
on a fair and appropriate basis
– An executive is recruited from a business or location that offered
some benefits that the Committee might consider appropriate to buy
out but that do not fall into the definition of “variable remuneration
forfeited” that can be included in the buyout element under the
wording of the regulations
– The executive received benefits at his previous employer which the
Committee considers it appropriate to offer
The Committee may alter the performance measures, performance
period and vesting period of the annual bonus or long-term incentive,
subject to the rules of the plan, if the Committee determines that the
circumstances of the recruitment merit such alteration. The rationale
will be clearly explained.
In determining appropriate remuneration arrangements on hiring a new
executive director, the Committee will take into account relevant factors;
this may include the calibre of the individual, local market practice,
the existing remuneration arrangements for other executives and the
business circumstances. The Committee seeks to ensure that
arrangements are in the best interests of both Sage and its shareholders
and seek not to pay more than is appropriate.
The maximum level of variable pay which may be awarded to
new executive directors in respect of their recruitment, excluding
buy-out arrangements, is 500% of base salary in the first year of
employment. Variable pay in subsequent years will be in line with
the policy table above.
The Remuneration Committee may make awards on hiring an external
candidate to buy out remuneration arrangements forfeited on leaving
a previous employer. In doing so the Committee will take account of
relevant factors including any performance conditions attached to
these awards, the form in which they were granted (e.g. cash or shares)
and the timeframe of awards. The Committee will generally seek to
structure buyout awards on a comparable basis to awards forfeited.
In order to facilitate the variable pay opportunity and buyout awards
mentioned above, the Committee may rely on the exemption in LR 9.4.2.
of the Listing Rules which allows for the grant of awards to facilitate, in
exceptional circumstances, the recruitment of a director. The Committee
may also rely on the rules of the PSP, which permit the grant of two PSP
awards in the first year of employment, with the individual limit from the
plan rules applying separately to each PSP award.
Where an executive director is an internal promotion, the normal policy
is that any legacy arrangements would be honoured in line with the
original terms and conditions. Similarly, if an executive director is
appointed following Sage’s acquisition of or merger with another
company, legacy terms and conditions would be honoured.
In the event of the appointment of a new non-executive director,
remuneration arrangements will normally be in line with the structure
set out in the policy table for non-executive directors.
Change of control
The rules of the PSP provide that, in the event of a change of control,
unvested awards would vest to the extent determined by the
Remuneration Committee taking into account the extent to which it
determines the performance conditions have been satisfied (based on
all factors it considers relevant) at the date of such event. The extent to
which the Remuneration Committee allows awards to vest would also,
unless it determines otherwise, take into account the period of time
that has elapsed between the grant of the award and the date of the
change of control as a proportion of three years (or such other period
the Remuneration Committee considers to be appropriate). However,
the Committee may vary the level of vesting of awards if it believes
that exceptional circumstances warrant this. Awards that are subject
to a holding period at the time of the change of control will be released
at that time.
Awards granted under the deferred bonus plan will vest in full upon
a change of control. Awards held under all-employee plans would
be expected to vest on a change of control and those which have to
meet specific requirements to benefit from permitted tax benefits
would vest in accordance with those requirements.
Alternatively, the directors may exchange their awards over Company
shares for equivalent awards in shares of the acquiring company if the
terms of the offer allow this.
If the Company is wound up or in the event of a demerger, delisting,
special dividend or other event which in the Remuneration Committee’s
opinion, would materially affect the current or future value of the
Company’s shares, the Remuneration Committee may allow deferred
share and PSP awards to vest and be released early on the same basis
as for a change of control.
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT PSP
If the director leaves as a result of his death, ill health, injury or disability,
redundancy or retirement, because his employing company or business
is sold out of the Group or in any other circumstances the Remuneration
Committee determines, any unvested awards will vest (and be released
from any holding period) at the same time as if the individual had not
left the Group, unless the Committee determines the award should
vest (and be released) following his cessation of office or employment.
The extent to which awards vest in these circumstances will be
determined by the Remuneration Committee taking into account the
extent to which it determines the performance conditions have been
satisfied at the end of the original performance period or following
the director’s cessation of office or employment (as appropriate) and ,
unless the Remuneration Committee determines otherwise, the period
of time that has elapsed between the grant of the award and the date
of the cessation of office or employment as a proportion of three years
(or such other period the Remuneration Committee considers to be
appropriate). The Committee may allow awards granted before
3 March 2016 to vest on any other basis if it believes there are
exceptional circumstances which warrant that.
For example, it can be in the interest of the Company for the Board
to organise succession and manage an executive’s departure. When
determining the treatment of outstanding awards in those cases, the
Committee will take into account the executive’s level of performance
and contribution to the transition.
Unvested PSP awards will lapse in any other circumstances (e.g. if
the executive director leaves as a result of his termination for cause).
Where an executive director leaves whilst holding PSP awards that are
subject to a holding period , those awards will normally be released
at the end of the relevant holding period, unless the Committee
determines the award should be released following his cessation
of employment. If, however, an executive director is summarily
dismissed, any outstanding PSP awards he holds will lapse.
Directors’ remuneration report continued
Directors’ remuneration policy report continued
Executive director service contracts
All current executive directors have service contracts, which may be
terminated by the Company for breach by the executive or by giving
12 months’ notice by the Company or the individual.
Service contracts for new directors will generally be limited to 12 months’
notice. However, the Committee may agree a longer period, of up to
24 months initially, reducing by one month for every month served
until it falls to 12 months.
Terms and conditions for non-executive directors
The appointment of the non-executive directors is for a fixed term of
three years, during which period the appointment may be terminated
by the Board on six months’ notice. The Chairman’s term of appointment
is five years. There are no provisions on payment for early termination in
letters of appointment.
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.
Payments to departing directors
There are no pre-determined special provisions for directors with regard
to compensation in the event of loss of office; compensation is based
on what would be earned by way of salary, pension entitlement and
other contractual benefits over the notice period. In the event that
a contract is to be terminated, and a payment in lieu of notice made,
payments to the executive director may be staged over the notice
period, at the same interval as salary would have been paid. During
that period the executive director must take all reasonable steps
to obtain alternative employment and payments to the executive
director by the Company will be reduced to reflect payments received
in respect of that alternative employment.
There is no automatic entitlement to annual bonus. Executive directors
may receive a bonus in respect of the financial year of cessation, based
on performance against pre-determined targets. Where an executive
director leaves by reason of death, disability or ill-heath they would
receive a pro-rata bonus for the year of cessation.
The treatment of leavers under our long-term incentive plans is
determined by the rules of the relevant plans.
Deferred bonus plan
If an executive director ceases to hold office or employment within the
Group during the vesting period of a deferred share award as a result of
his death, injury, ill health, disability, redundancy or retirement, because
his employing company or business is sold out of the Group or in any
other circumstances the Remuneration Committee determines, his
award will vest on the normal vesting date unless the Remuneration
Committee determines the award should vest following his cessation
of office or employment. Awards will normally be accelerated in the
event of a participant’s death. If the individual ceases to hold office
or employment with a member of the Group in any other circumstances,
any unvested deferred share awards he holds will lapse.
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The Sage Group plc | Annual Report & Accounts 2015 Directors’ annual remuneration report
Single figure for total remuneration (audited information)
The following table sets out the single figure for total remuneration for executive directors for the financial years ended 30 September 2014 and 2015.
(a)
Salary/fees1
£’000
(b)
Benefits2
£’000
(c)
Bonus3
£’000
(d)
Pension4
£’000
(e)
PSP awards5
£’000
Director
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
Executive directors
S Kelly6
S Hare
G S Berruyer7
Non-executive
directors
D H Brydon
R Markland
N Berkett
D Hall
J Howell
I Kuznetsova
718
491
77
360
78
60
70
77
60
–
360
765
360
88
60
45
74
34
19
37
12
48
–
–
–
–
–
–
15
121
46
–
–
–
–
–
599
414
–
–
–
–
–
–
–
–
256
539
179
123
19
–
–
–
–
–
–
–
–
–
–
–
–
–
89
191
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
–
–
–
–
–
–
–
–
(f)
Other8
£’000
2014
–
8
–
–
–
–
–
–
–
2015
1,521
1,065
108
408
78
60
70
77
60
Total
£’000
2014
–
728
1,616
406
88
60
45
74
34
1 Details of salary progression since appointment for the current executive directors are summarised in the Statement of implementation of remuneration policy in the
following financial year on page 88. Current fees for the Chairman and non-executive directors are set out on page 89.
2 Benefits provided to the executive directors included: car benefits or cash equivalent, private medical insurance, permanent health insurance, life assurance, financial advice
and travel and subsistence. £20,000 of Steve Hare’s benefits relate to the grossed-up cost of his travel to Sage’s London office which, since 1 April 2015, has been deemed a
taxable benefit as a result of the enhanced amount of time that he has been required to spend in London attending to Sage matters. A housing allowance of £100,000 per
annum was provided to Guy Berruyer, pro-rata to his retirement date of 5 November 2014. Donald Brydon receives a company car benefit.
3 Bonus payable in respect of the financial year including any deferred element at face value at date of award. Further information about how the level of 2015 award was
determined is provided in the additional disclosures below.
4 Pension emoluments for both executive directors were equal to 25% of base salary.
5 The 2015 PSP value is based on the PSP award granted in 2013 which is due to vest in March 2016. Neither Stephen Kelly nor Steve Hare have awards under this plan.
The conditions for Guy Berruyer’s award were satisfied following his retirement date of 5 November 2014; consequently, the PSP is excluded from the single figure table
above. Further information about the level of vesting is provided in the additional disclosures below.
6 Stephen Kelly was appointed as a director on 5 November 2014. Figures in the table relate to the period from that date to the end of the financial year.
7 Guy Berruyer retired from the Board on 5 November 2014. Figures in the table relate to the period from the beginning of the financial year to that date.
8
Stephen Kelly’s award under the Sage Group Savings Related Share Option Plan (SRSOP) has been valued as the number of options multiplied by the difference on the
grant date (17 June 2015) between the share price (540.5p) and the option price (456p). Steve Hare’s remuneration for 2014 has been restated to include the valuation of
his SAYE award on the same basis. The share price on the grant date (12 June 2014) was 404.6p and the option price was 317p. Further details are set out on page 90.
Additional disclosures for single figure for total remuneration table
Annual bonus
The bonus targets for FY15 were set by reference to the same performance measures as FY14 and were aligned with the three-year strategic goals,
in particular the achievement of 6% organic revenue growth and 28% underlying operating margin.
As outlined in the Statement of the Remuneration Committee Chairman, the Committee has determined that underlying PBT and organic revenue
growth performance should be assessed with actuals calculated on a consistent basis with the targets that were set at the start of the financial
year (i.e. with both targets and actuals calculated prior to the changes in the application of the revenue recognition policy to certain products
outlined on page 110 of the Annual Report).
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ annual remuneration report continued
The actual target ranges for 2015 for the financial performance measures have not been disclosed as this is considered by the Board to be
commercially sensitive information, bearing in mind that many of our competitors are unlisted companies who do not provide this level of
disclosure. An indication of where actual performance fell within each range is given in the table below. Retrospective disclosure of the target
ranges will be made in next year’s Remuneration Report once the information is no longer considered commercially sensitive by the Board.
Bonus measure
% Weighting Threshold
Target
Stretch Performance outcome as a % of maximum bonus
50
30
20
Underlying PBT 1
Organic revenue
growth 2
Strategic measures
(see table below)
Overall assessment
Achievement of £361.7m for FY15 was ahead of the target range, resulting in 61% of
the maximum bonus in relation to underlying PBT becoming payable.
Organic revenue growth was 6.7%, exceeding the commitment to deliver 6% in 2015,
and the underlying PBT underpin was also exceeded, leading to 74% of the bonus relating
to the organic revenue growth measure becoming payable.
Stephen Kelly’s achievement of strategic objectives for FY15 led to 72% of the bonus
relating to strategic measures becoming payable.
Steve Hare’s achievement of strategic objectives for FY15 led to 72% of the bonus relating
to strategic measures becoming payable.
Stephen Kelly received a bonus equal to 84% of salary (67% of the maximum). No bonus
was deferred into shares as the CEO has met the Company’s shareholding requirement
under the 2015 remuneration policy of 150% of annual salary.
Steve Hare received a bonus equal to 84% of salary (67% of the maximum). 20% was
deferred into Sage shares under the Company’s shareholding requirement of 150% of
annual salary.
1
2
Underlying PBT is defined on page 163 It has been calculated with revenue accounted for on the previous accounting basis, which is consistent with the basis that was used
for setting targets at the start of the year.
Organic revenue is defined on page 163. It has been calculated with revenue accounted for on the previous accounting basis, which is consistent with the basis that was used
for setting targets at the start of the year.
Executive directors’ personal strategic objectives
CEO measures
CFO measures
Organisational capability
Increase organisational capability and succession planning, and execute
improvement plans whilst completing material elements of the 2012 strategy
Organisational efficiencies
Achieve organic revenue growth and operating margin whilst driving
operational efficiencies
Global product leadership
Increase Sage One paying subscribers worldwide and grow the
enterprise business
Risk management framework
Implementation of a risk management framework plan to the Audit and
Risk Committee’s satisfaction
Improve customer satisfaction
Improvement demonstrated in customer retention and subscription rates,
and colleague engagement during transition year
Sage One
Increase paying subscribers worldwide
Bonus for Guy Berruyer
As noted in the 2014 annual remuneration report, Guy Berruyer is entitled to a bonus for the period 1 October to 5 November 2014. Given the short
period of time between the beginning of the financial year and Guy Berruyer’s stepping down as CEO, the Committee determined that no bonus will
be paid to him in respect of the financial year ending 30 September 2015.
Disclosure of 2014 bonus targets
The target ranges for financial measures used to determine the 2014 bonus were not disclosed in last year’s Annual Report & Accounts as this was
considered by the Board to be commercially sensitive information. Last year’s Report also stated that it was intended for retrospective disclosure
to be made after a period of three years (i.e. in the 2017 Annual Report & Accounts). The Board has since reviewed this issue and agreed that this
information is commercially sensitive for a shorter period than previously determined. Accordingly, the policy for retrospective disclosure of bonus
financial targets has been accelerated so that disclosure will be after a period of one year. The table below therefore sets out the target ranges for
the financial measures that were used to determine the 2014 bonus.
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The Sage Group plc | Annual Report & Accounts 2015 Bonus measure
% weighting
Underlying PBT 1
50%
Threshold
performance
£321.9m
Stretch
performance
£355.8m
Actual
performance
£339.7m
(6% of bonus payable)
(50% of bonus payable)
Organic revenue growth2
30%
1.9%
8.2%
4.9%
Strategic measures
20%
Total
(3.6% of bonus payable)
(30% of bonus payable)
The assessment of strategic measures was
disclosed on page 84 of the 2014 Annual Report
(Between 3% and 20% of bonus payable)
% of maximum
bonus payable
31%
17%
CEO: 7%
CFO: 9%
CEO 55% of maximum
bonus (69% of salary)
CFO 57% of maximum
bonus (71% of salary)
1
Underlying PBT is defined on page 84 of the 2014 Annual Report. Targets and actuals are stated at 2014 actual foreign currency exchange rates to facilitate comparison
with the published accounts.
2 Organic revenue growth is defined on page 38 of the 2014 Annual Report.
PSP awards
Awards granted under the PSP in 2013 vest depending on performance against three equally weighted measures, measured over three years:
– 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 extracting companies)
For each measure, three levels of performance are defined below, with straight-line vesting between each level of performance: target, stretch
and exceptional.
Measure
EPS growth (CAGR)
Relative TSR
Between target and stretch
Between 6% and 12%
Between stretch and exceptional
Between 12% and 15% (or above)
Between median and upper quartile
Between upper quartile and upper decile (or above)
Organic revenue growth (CAGR)
Between 4% and 8%
Between 8% and 10% (or above)
20% of the award vests for the achievement
of target, with 80% of the award vesting for
the achievement of stretch
80% of the award vests for the achievement of
stretch, with 100% of the award for the achievement
of exceptional performance
The TSR vesting percentage may only exceed 80% (“Stretch” level) if performance against either the EPS target or the organic revenue growth
target is also at “Stretch” level.
Measure
EPS growth (CAGR)
Relative TSR
Organic revenue growth (CAGR)
Total
Achieved
11.4%
87th percentile
5.3%
Vesting
25% of award
27%of award
13% of award
64% of award
EPS and organic revenue growth have been calculated with revenue accounted for on the previous revenue recognition basis, which is consistent
with the basis that was used for setting targets at the start of the performance period. In the financial year 2015, Underlying EPS prior to the
accounting update was 25.21p. The Committee determined that the margin underpin condition had been met, allowing the organic revenue
measure to vest. The reported underlying operating margin in 2012 was 27.3%, and in 2015 the underlying operating margin on the previous
accounting basis was 27.5%, demonstrating an increase that permits vesting for the organic growth measures.
Neither Stephen Kelly nor Steve Hare was a participant in the 2013 grant under the PSP. 231,681 of the 527,286 PSP shares awarded to Guy Berruyer
in 2013 will vest at the normal vesting date in 2016, providing that he does not take up an executive directorship, or engage in consulting or take
up a non-executive directorship at a competitor prior to the normal vesting date. As outlined on page 86, the number of vested shares has been
calculated based on both the performance assessment outlined above and the application of time pro-rating to reflect his period of employment
as a proportion of time elapsed between the grant date and the vesting date.
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ annual remuneration report continued
PSP awards granted in FY15
Awards were granted under the PSP on 12 January 2015 to selected senior employees, including the executive directors, in the form of conditional
share awards. Awards are subject to the same performance conditions as applied to awards granted in 2013 (as disclosed above) and will vest,
subject to satisfaction of those performance conditions, on the third anniversary of the date of grant.
Type of award
Maximum number
of shares
Stephen Kelly
Steve Hare
Performance shares
426,842
267,127
Face value
(£)
£1,975,000
£1,236,000
Face value
(% of salary)
Threshold vesting
(% of award)
250%
250%
20%
20%
End of performance period
30 September 2017
30 September 2017
As disclosed in last year’s Remuneration Report, as part of his recruitment arrangement Stephen Kelly received an additional one-off PSP award on
12 January 2015, in order to further align his interests with shareholders. This award will vest on the sixth anniversary of grant, subject to satisfaction
of a performance condition based on Sage’s TSR measured over a six year period. In order for the award to vest, Sage’s TSR must have been at least
15% (CAGR) over the performance period. If this underpin condition is met, 20% of the award vests if Sage’s TSR is median relative to FTSE 100
companies (excluding financial services and extracting companies), increasing to 100% of the award vesting if Sage’s TSR is upper quartile.
Stephen Kelly
Performance shares
213,421
Type of award
Maximum number
of shares
Face value
(£)
£987,500
Face value
(% of salary)
Threshold vesting
(% of award)
End of performance period
125%
20%
30 September 2020
– The face value of PSP awards has been calculated using the share price on the day before the date of grant of 462.7p.
Remuneration for the departed Chief Executive Officer for FY15
Guy Berruyer retired from the Board on 5 November 2014. He remained an employee of the Group until 31 March 2015 and continued to receive
salary, pension and benefits (excluding the housing allowance) totalling £398,000 until the date of cessation of his employment. He did not receive
a bonus payment in relation to his period as an employee after retiring from the Board; he also did not receive a PSP award in 2015.
Guy Berruyer exercised 189,082 options on 16 December 2014 and the remaining 184,638 options on 19 May 2015. The aggregate pre-tax gains on
the exercise of share options were £1,023,115.
Guy Berruyer’s outstanding awards granted under the Sage PSP were retained and will be exercisable in accordance with the plan rules. These
awards will vest at the end of their respective performance periods pro-rata to the time elapsed between the date of grant of the relevant award and
his termination date, and to the extent that the relevant performance targets have been met over the full performance period, including following
cessation of employment.
Change in remuneration of Chief Executive Officer compared to Group employees
The table below shows the percentage change in total remuneration of the Chief Executive Officer with a comparator group of UK employees over
the same time period.
Salary1
Taxable benefits 2
Annual incentive 3
CEO
1.3%
0%
22%
UK Employees
5%
0%
27%
1
2
3
The percentage change for the CEO is the difference between Guy Berruyer’s and Stephen Kelly’s salaries. The percentage change for UK Group employees shown is the 2015
annual pay review and promotions/market adjustments during 2015. This is consistent with the basis of the disclosure in the 2014 report.
On an “underlying” basis, excluding Guy Berruyer’s housing allowance.
For annual incentives, the comparator group used is the UK management population. The percentage change in bonus for the Chief Executive Officer compares the payout as
a percentage of salary for Stephen Kelly with that of Guy Berruyer in 2014. The comparison is considered valid as the bonus policy did not change between the two years.
Historical executive pay and Company performance
The table below summarises the Chief Executive Officer single figure for total remuneration, annual bonus payout and PSP vesting as a percentage
of maximum opportunity for the current year and previous six years.
CEO single figure of remuneration (in £’000)
Annual bonus payout (as % maximum opportunity)
PSP vesting (as % of maximum opportunity)
CEO
Stephen Kelly1
Guy Berruyer2
Paul Walker3
Stephen Kelly
Guy Berruyer
Paul Walker
Stephen Kelly
Guy Berruyer
Paul Walker
2009
1,797
38%
74%
2010
–
–
2,196
–
–
83%
–
–
26%
2011
–
2,935
–
–
66%
–
–
61%
–
2012
–
1,196
–
–
21%
–
–
0%
–
2013
–
1,670
–
–
72%
–
–
0%
–
2014
–
1,616
–
–
55%
–
–
0%
–
2015
1,521
108
–
67%
0%
–
–
64%
–
1 Stephen Kelly was appointed CEO on 5 November 2014.
2
Guy Berruyer stepped down from the position of CEO on 5 November 2014. The value of his PSP has been excluded from the single figure of remuneration table as the vesting
conditions were satisfied following the cessation of his directorship.
3 Paul Walker resigned as CEO on 1 October 2010.
86
The Sage Group plc | Annual Report & Accounts 2015 Historical Group performance against FTSE 100
The graph below shows the Total Shareholder Return of the Group and the FTSE 100 over the last seven years. The FTSE 100 index is the index
against which the TSR of the Group should be measured because of the comparable size of the companies which comprise that index.
Historical Group performance against FTSE 100
Value (£)
350
300
250
200
150
100
50
30-Sept-08
30-Sept-09
30-Sept-10
30-Sept-11
30-Sept-12
30-Sept-13
30-Sept-14
30-Sept-15
Sage
FTSE 100 Index
– This graph shows the value, by 30 September 2015, of £100 invested in The Sage Group plc on 30 September 2008 compared with the value of £100 invested in the
FTSE 100 index. The other points plotted are the values at intervening financial year ends.
Relative importance of spend on pay
The charts below show the all-employee pay cost (as stated in the notes to the accounts), profit before tax and returns to shareholders by
way of dividends and share buyback for 2014 and 2015.
The information shown in this chart is based on the following:
– Underlying PBT – Underlying profit before income tax taken from table on page 104
– Returns to shareholders – Total dividends taken from note 14.5 on page 151, share buyback taken from consolidated statement of
changes in equity on page 107 and 108
– Total employee pay – Total staff costs from note 3.3 on page 120, including wages and salaries, social security costs, pension and
share-based payments
Underlying PBT (£m)
Returns to shareholders (£m)
Total employee pay (£m)
+6%
9
3
6
1
0
6
+5%
1
4
3
9
5
3
Ordinary dividends
+6%
6
2
1
4
3
1
Buyback
-83%
5
0 1
9
14
15
14
15
14
15
14
15
87
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ annual remuneration report continued
Statement of implementation of remuneration policy in the following financial year
This section provides an overview of how the Committee is proposing to implement our remuneration policy in 2016.
Base salary
An annual salary review was carried out by the Committee in November 2015. Following that review, the Committee approved
Stephen Kelly
Steve Hare
Salary 1 January 2016
£790,000 (0% increase)
£509,200 (3% increase)
Salary 1 January 2015
Salary at appointment
£790,000 (0% increase)
£790,000 (joined 5 November 2014)
£494,400 (3% increase)
£480,000 (joined 3 January 2014)
Pension and benefits
As in FY15, the executive directors will receive a pension provision worth 25% of salary as a contribution to a defined contribution plan and / or as
a cash allowance. They will also receive a standard package of other benefits consistent with those received in FY15. In addition, the Company will
continue to cover the cost of Steve Hare’s travel and accommodation for days on which he works in the Company’s London offices.
Annual bonus
Key features of the executive directors’ annual bonus plan for 2016 are as follows:
– The maximum annual bonus potential will remain unchanged at 125% of salary.
– One-third of any bonus earned will be deferred into shares for two years under The Sage Group Deferred Bonus Plan.
– Annual bonuses awarded in respect of performance in 2016 will be subject to potential withholding (malus) or recovery (clawback) if specified
“trigger events” occur within two years of the payment/ award of the annual bonus. “Trigger events” will comprise a material misstatement of the
audited results, error in calculation of the bonus payout, serious reputational damage or significant financial loss as a result of an individual’s
misconduct or gross misconduct which could have warranted an individual’s summary dismissal.
The annual bonus for 2016 for executive directors will be determined as detailed below:
As a percentage of maximum bonus opportunity
Measure
Recurring revenue growth1
Strategic goals
CEO
80%
20%
CFO
80%
20%
1 Payout is dependent upon the satisfaction of underpin conditions based on organic revenue growth, operating margin and subscription growth.
Targets are not disclosed because they are considered by the Board to be commercially sensitive. Many of our competitors are unlisted companies
and not required to disclose targets; our disclosure could provide our competitors with a considerable advantage. It is intended for retrospective
disclosure to be made after a period of one year, and continue to be made on a rolling basis.
Performance Share Plan (PSP)
The Chief Executive Officer and Chief Financial Officer will be amongst the participants in the PSP award to be granted in March 2016. Awards will be
over shares worth 250% of salary at the date of grant.
Vesting of these awards will be subject to satisfaction of the following performance conditions measured over the three financial years to
30 September 2018.
Relative TSR performance condition
(50% of award)
Recurring revenue growth
performance condition (50% of award)
Below target
Target
Stretch
Exceptional
TSR ranking
Below median
Median
Upper quartile
Upper decile
% of award
vesting
0%
10%
40%
50%
Below target
Target
Stretch
Exceptional
Recurring
revenue growth
(CAGR)
% of award
vesting*
<8% p.a.
8% p.a.
10% p.a.
12% p.a.
0%
10%
40%
50%
TSR performance comprises share price growth and dividends paid.
Sage’s TSR performance will be measured relative to the TSR of
the constituents of the FTSE 100, excluding financial services and
extracting companies.
Recurring revenue is revenue earned from customers for the provision
of a good or service, where risks and rewards are transferred to the
customer over the term of a contract, with the customer being unable
to continue to benefit from the full functionality of the good or service
without on-going payments.
* For any of this portion of the PSP awards to vest, two “underpin” conditions also
both need to be met:
– Organic revenue growth of 6% p.a. (CAGR) needs to be achieved over the
performance period
– Group EPS growth of 8% p.a. (CAGR) needs to be achieved over the
performance period
88
The Sage Group plc | Annual Report & Accounts 2015
The proposed recurring revenue growth targets for 2016 PSP awards are consistent with the ambition outlined at the CMD for the three-year period
2016-2018. The targets for the “underpin” conditions are consistent with delivery of a successful transitional phase of the business plan as outlined at
the CMD. More specifically, they will require management to ensure that the transition to a subscription model is achieved whilst maintaining overall
growth in revenues and earnings (in other words, subscription growth will need to more than offset the decline in licence growth).
PSP awards granted in 2016 will be subject to potential withholding (malus) or recovery (clawback) if specified “trigger events” occur prior to the third
anniversary of the release date of an award. “Trigger events” in respect of PSP awards will comprise a material misstatement of the audited results,
error in calculation of the extent of PSP vesting, serious reputational damage or significant financial loss as a result of an individual’s misconduct
or gross misconduct which could have warranted an individual’s summary dismissal or a material failure of risk management.
Non-executive director remuneration
The table below shows the fee structure for non-executive directors for 2016. Non-executive fees are determined by the full Board except for
the fee for the Chairman of the Board which is determined by the Remuneration Committee. With effect from 1 December 2015, the fee for the
Remuneration Committee chairmanship has increased from £13,000 to £17,000.
Chairman of the Board all-inclusive fee
Basic non-executive fee
Senior Independent Director additional fee
Audit and Risk Committee Chairman additional fee
Remuneration Committee Chairman additional fee
2016 fees
£360,000
£60,000
£15,000
£17,000
£17,000
Directors’ shareholdings and share interests (audited information)
Up until the date of the 2016 AGM, executive directors are required to hold 150% of their annual salary in the Company’s shares. Until this requirement
is met, executive directors are required to defer 20% of their bonus into shares, and retain (net of any shares sold to meet tax liability) 50% of shares
received from deferred bonus, PSP and exercise of options.
As outlined in the Remuneration Committee Chairman’s Statement, the required shareholding for executive directors will be increased to
200% of salary effective from the 2016 AGM. Executive directors are expected to build up the required shareholding within a five year period of
joining the Board.
Interests in shares
The interests of each person who was a director of the Company as at 30 September 2015 (together with interests held by his or her connected
persons) were:
Director
D H Brydon
R Markland
N Berkett
D Hall
S Hare
J Howell
S Kelly
I Kuznetsova
Total
Notes:
Ordinary shares at
30 September 2015
number
Ordinary shares at
30 September 2014
number
53,024
4,753
47,999
10,000
0
31,000
212,346
10,000
369,122
53,024
4,753
27,999
10,000
0
12,833
0
0
108,609
– 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 2015 and the date of this report.
– Details of the executive directors’ interests in outstanding share awards under the ESOS, PSP, deferred shares and all-employee plans are set out below.
89
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ annual remuneration report continued
Executive share options (audited information)
The Group’s only 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 ESOS are as follows:
Exercise
price
per share
198.00p
258.50p
270.00p
Shares under
option at
1 October
2014
number
189,082
122,630
62,008
373,720
Granted
during
the year
number
–
–
–
–
Exercised
during
the year
number
(189,082)
(122,630)
(62,008)
(373,720)
Lapsed
during
the year
number
Shares under
option at
30 September
2015
number
–
–
–
–
–
–
–
–
Date
exercisable
6 January 2008 – 6 January 2015
10 January 2009 – 10 January 2016
10 January 2010 – 10 January 2017
Director
G S Berruyer
Total
Note:
– Details of gains on options exercised following cessation of employment of director are detailed on page 86. All options were exercised after 5 November 2014.
All-employee share options (audited information)
UK-based executive directors are entitled to participate in The Sage Group Savings-Related Share Option Plan on the same terms as other UK-based
employees. In the year under review, Stephen Kelly and Steve Hare participated in this scheme. The outstanding all-employee share options granted
to each director of the Company are as follows:
Exercise
price
per share
456p
317p
Shares under
option at
1 October
2014 number
–
9,463
9,463
Granted
during
the year
number
6,578
–
6,578
Exercised
during
the year
number
Lapsed
during
the year
number
Shares under
option at
30 September
2015 number
–
–
–
–
–
–
6,578
9,463
16,041
Date
exercisable
1 August 2020 – 31 January 2021
1 August 2019 – 31 January 2020
Director
S Kelly
S Hare
Total
Notes:
– No options were varied during the year. No performance conditions apply to options granted under this Plan. For the 2015 SRSOP grant, the exercise price was set at 456p,
a 20% discount to the average share price of 570p on 18, 19 and 20 May 2015. For the 2014 SRSOP, the exercise price was set at 317p, a 20% discount to the average share price
on 15, 16 and 19 May 2014 of 396.25p.
– The market price of a share of the Company at 30 September 2015 was 494.4p and the lowest and highest market price during the year was 350.1p and 577.5p respectively.
Performance Share Plan (audited information)
The outstanding awards granted to each executive director of the Company under the Performance Share Plan are as follows:
Under award
1 October
2014
number
–
–
–
464,894
527,286
476,062
1,468,242
–
286,088
116,873
402,961
1,871,203
Awarded
during
the year
number
426,842
213,421
640,263
–
–
–
–
267,127
–
–
267,127
907,390
Vested
during
the year
number
Lapsed
during
the year
number
Under award
30 September
2015
number
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(300,739)
(167,423)
(476,062)
(944,224)
–
–
–
–
426,842
213,421
640,263
164,155
359,863
–
524,018
267,127
286,088
116,873
670,088
(944,224)
1,834,369
Director
S Kelly
G S Berruyer
S Hare
Total
Notes:
Vesting date
12 January 2018
12 January 2021
10 March 2017
14 March 2016
12 March 2015
12 January 2018
10 March 2017
20 January 2017
– No variations were made in the terms of the awards in the year.
– The market price of a share on 12 January 2015, the date of the awards made in the year ended 30 September 2015, was 462.7p.
– The award for Guy Berruyer is shown to the date of cessation of employment on 31 March 2015. His PSP awards are preserved pro-rata to the date of cessation of employment
in accordance with the PSP rules, and will vest, to the extent that the performance conditions are met, on the vesting date
– The performance conditions for awards made in March 2013 are set out earlier in this report. An equivalent performance condition applies to awards that vest in January 2017,
March 2017 and January 2018.
– The performance condition for Stephen Kelly’s awards that vest in January 2021 is set out earlier in this report.
90
The Sage Group plc | Annual Report & Accounts 2015 Deferred shares (audited information)
The outstanding awards granted to each executive director of the Company under The Sage Group Deferred Bonus Plan are as follows:
Director
S Hare
Total
Notes:
Shares at
1 October
2014
number
Shares awarded
during
the year
number
Shares vested
during
the year
number
Shares lapsed
during
the year
number
Shares at
30 September
2015
number
–
–
11,047
11,047
–
–
–
–
11,047
11,047
Vesting date
12 January 2018
– Awards are not subject to further performance conditions once granted. The market price of a share on 12 January 2015, the date of the awards made in the year ended
30 September 2015, was 462.7p.
– No variations were made in the terms of the awards in the year.
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 10-year period. The limits and the Group’s current position against those limits as at 24 November (the last practicable date prior to publication
of this document) are set out below:
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.
Limit
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
2.80%
3.62%
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. Fees received by the directors in their capacity as directors of these
companies are retained, reflecting the personal responsibility they undertake in these roles. For the period of his directorship, Guy Berruyer was
a Non-executive Director of Meggitt Plc. 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 (not to be unreasonably withheld)
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.
Unexpired term of contract table
Director
Executive directors
S Kelly
S Hare
Non-executive directors
N Berkett
D H Brydon
J Howell
R Markland
D Hall
I Kuznetsova
Date of contract
5 November 2014
3 January 2014
1 July 2013
6 July 2012
15 May 2013
13 September 2015
1 January 2014
6 March 2014
Unexpired term of contract on
30 September 2015, or on
date of contract if later
12 months
12 months
0.5 years
2 years
1.5 years
1 year
1.5 years
1.5 years
Notice period under contract
12 months from the Company and/or individual
12 months from the Company and/or individual
6 months from the Company or 1 month from individual
6 months from the Company and/or individual
6 months from the Company or 1 month from individual
6 months from the Company or 1 month from individual
6 months from the Company or 1 month from individual
6 months from the Company or 1 month from individual
91
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ remuneration report continued
Directors’ annual remuneration report continued
Consideration by the directors of matters relating to directors’ remuneration
– The following directors were members of the Remuneration Committee when matters relating to the directors’ remuneration for the year were
being considered:
The Committee received assistance from Sandra Campopiano (Chief People Officer), Richard Drury (former Group Human Resources Director),
Tina Clayton (EVP Reward & Recognition) and Michael 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.
– Ruth Markland (Chair to 5 December 2014)
– Donald Brydon
– Neil Berkett
– Drummond Hall (Chair from 5 December 2014)
– Jonathan Howell
– Inna Kuznetsova
Activities of the Remuneration Committee (“the Committee”)
The main activities of the Committee since the last report were as follows:
– Reviewed the remuneration policy in light of the strategy outlined at our Capital Markets Day, and consulted with shareholders on the alignment
of the remuneration policy to business strategy
– Reviewed the performance of the Group for the year, and the performance of the executive directors in order to determine bonus outcomes
– Approved share awards for FY15
– Set base salaries and established the executive directors’ bonus arrangements for 2016
– Reviewed the Directors’ Remuneration Report
– Considered remuneration market trends and corporate governance developments
– Approved the base salaries for 2016 and the 2015 bonuses of Executive Committee members
– Reviewed the long-term performance of the Group over the last three years in order to determine vesting levels for the PSP granted in March 2013
External advisers
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, institutional investor views and in the development of the Company’s incentive
arrangements. Total fees for advice provided to the Committee during the year were £96,700.
The Committee is satisfied that the advice they have received has been objective and independent.
Deloitte is a founding member of the Remuneration Consultants Group and adheres to its Code in relation to executive remuneration consulting
in the UK. Other parts of Deloitte have provided tax advice, specific corporate finance support in the context of merger and acquisition activity
and unrelated corporate advisory services in line with our Auditor Independence Policy referred to on page 72.
Statement of shareholding voting
The table below sets out the results of the vote on the Remuneration report and the approval of the new Performance Share Plan at the 2015 AGM:
Remuneration report
Performance Share Plan FY15
Votes for
Votes against
Number
723,023,096
763,336,800
%
95.53
93.85
Number
33,853,496
50,041,186
%
4.47
6.15
Votes cast Votes withheld
756,877,402
56,862,108
813,377,986
361,524
Drummond Hall
Chairman of the Remuneration Committee
2 December 2015
92
The Sage Group plc | Annual Report & Accounts 2015 Directors’ report
The Directors present their report together with the audited
consolidated financial statements for the year ended
30 September 2015.
The Annual Report & Accounts contains statements that are not
based on current or historical fact and are forward-looking in nature.
Please refer to the “Disclaimer” on page 97.
Strategic report
The information that fulfils the reporting requirements relating to
the following matters can be found on the following pages of the
Strategic report:
Subject matter
Page
Future developments
10 to 11 – Chief Executive’s review
Greenhouse gas emissions
55 to 56 – Environment section
Corporate governance statement
The Disclosure and Transparency Rules (“DTR”) require certain
information to be included in a corporate governance statement in
the Directors’ report. This information can be found in the Corporate
governance report on pages 59 to 73, which is incorporated into this
Directors’ report by reference and, in the case of the information
referred to in DTR 7.2.6, in this Directors’ report.
Disclosure of information under Listing Rule 9.8.4
Information on allotments of shares for cash pursuant to the Group
employee share schemes can be found on page 145 within the notes
to the Group financial statements.
Results and dividends
The results for the year are set out on from page 104. Full details of the
proposed final dividend payment for the year ended 30 September 2015
are set out on page 151. The Board is proposing a final dividend of 8.65p
per share following the payment of an interim dividend of 4.45p per
share on 5 June 2015. The proposed total dividend for the year is
therefore 13.10p per share.
Going concern
After making enquiries, the Directors have a reasonable expectation
that Sage has adequate resources to continue in operational existence
for the foreseeable future, a period of not less than 12 months.
Accordingly, they continue to adopt the going concern basis in
preparing the financial statements. In reaching this conclusion,
the Directors have had due regard to the following:
– the cash generated from operations, available cash resources
and committed bank facilities and their maturities, which taken
together, provide confidence that Sage will be able to meet its
obligations as they fall due. Further information on the available
cash resources and committed bank facilities is provided in
Note 12 to the financial statements.
– the financial position of Sage, its cash flows, financial risk
management policies and available debt facilities, which are
described in the financial statements, and Sage’s business activities,
together with the factors likely to impact its future growth and
operating performance, which are set out in the Strategic Report
on pages 2-58.
Financial viability statement
In accordance with provision C.2.2 of the 2014 revision of the UK
Corporate Governance Code, the Directors confirm that they have a
reasonable expectation that the group will continue to operate and
meet its liabilities, as they fall due, for the next five years. A period of five
years has been chosen for the purpose of this viability statement, in line
with the group’s 2020 Strategy as announced on 24 June 2015 and
reflecting a typical life of the on-premise products without an upgrade.
The Directors’ assessment has been made with reference to the Group’s
current position and prospects, the 2020 Strategy, the Board’s risk
appetite and the group’s principal risks and how these are managed,
as detailed in pages 16 to 43 of the Strategic report.
The Strategy and associated principal risks, which the Directors review
at least annually, are a foundation of the Group's strategic plan and
scenario testing. The plan makes certain assumptions about the
uptake of subscription services, the ability to refinance debt as it
falls due and the acceptable performance of the core revenue
streams and market segments.
The plan is stress tested using sensitivity analysis which reflects
plausible but severe combinations of the principal risks of the
business, primarily through reducing revenues and cash-flows.
Research and development
During the year, we invested £141m (2014: £131m) in research
and development.
Political donations
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 interests in its long-term performance share plan and
details of their options over the ordinary share capital of the Company
are given in the Directors’ remuneration report on page 89. 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
operating companies at any time during the year.
The names of all persons who, at any time during the year, were
directors of the Company can be found on pages 60 to 61 under
Board of Directors and Changes to the Board.
93
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ report continued
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 2015, 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 Company’s registered office.
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. Employees regularly receive updates on the financial and
economic factors affecting the Group from both central and local
management. Many employees are stakeholders in the Company
through participation in share option schemes and a long-term
performance share plan. Further details of employment policies
are given on pages 52 to 54.
Substantial shareholdings
At 30 September 2015, the Company had been notified, in accordance
with the DTRs, of the following interests in its ordinary share capital:
Name
Standard Life
Schroders plc
Ordinary shares % of capital
Nature of holding
75,201,413
55,221,546
7.004%
5.020%
Direct and Indirect
Indirect
In the period from 30 September 2015 to 30 November 2015, we
received further notifications from Standard Life and from Blackrock,
Inc. As at the date of this report those notifications indicate that the
holdings of Standard Life and Blackrock stood at 6.993% and 5.03% of
capital respectively. Information provided to the Company under the
DTRs is publicly available via the regulatory information service and
on the Company website.
Share capital
The Company’s share capital is as set out on page 145. The Company
has a single class of share capital which is divided into ordinary
shares of 1 4/77p each.
Rights and obligations attaching to shares
Voting
In a general meeting of the Company, subject to the provisions of
the articles of association 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
94
– 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 2016 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.
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 of association):
– Divide among the members in specie the whole or any part of the
assets of the Company; or
– Vest the whole or any part of the assets in trustees upon such trusts
for the benefit of members as the liquidator, with the like authority,
shall think fit.
Transfer of shares
Subject to the articles of association, 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 of association, 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 of association).
The Sage Group plc | Annual Report & Accounts 2015 Repurchase of shares
The Company obtained shareholder authority at the last Annual General
Meeting (3 March 2015) to buy back up to 107,683,190 ordinary shares. The
minimum price which must be paid for each ordinary share is its nominal
value and the maximum price is the higher of 105% of the average of the
middle market quotations for an ordinary share as derived from the
London Stock Exchange Daily Official List for the five business days
immediately before the purchase is made and the amount stipulated
by article 5(1) of the Buy-back and Stabilisation Regulation 2003 (in each
case exclusive of expenses). Share repurchases are used from time to
time as a method to control the Group’s leverage and decisions are
made against strict price, volume and returns criteria that are agreed
by the Board and regularly reviewed.
In the year under review, the Company repurchased a total of 3,457,020
ordinary shares of 1 4/77p each at prices between 347.0p and 390.7p
per share. Following repurchase, these shares were held in treasury.
Furthermore, the Employee Benefit Trust purchased a total of 377,860
ordinary shares of 1 4/77p at a price of 546.2p per share. The aggregate
amount of consideration paid was £14.6m. The movement in earnings
per share comprises profit growth and a change in the weighted average
share base as a result of share repurchases and movements in shares
held by the Employee Benefit Trust, the impact of which is as follows:
FY14
Due to change in weighted average share base
Due to change in underlying profit after tax
FY15
% change
Underlying
basic EPS
+1.6%
+11.0%
+12.6%
22.19p
0.37p
2.44p
25.00p
In the year under review no treasury shares were cancelled. Total
share awards of 2,138,554 were made out of shares held by the
Employee Benefit Trust.
Amendment of the Company’s articles of association
Any amendments to the Company’s articles of association may be
made in accordance with the provisions of the Companies Act 2006
by way of special resolution.
Appointment and replacement of directors
Directors shall be no less than two and no more than 15 in number.
Directors may be appointed by the Company by ordinary resolution or
by the Board. A director appointed by the Board holds office only until
the next 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 of association, 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 and 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
makes an arrangement or composition 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 of association.
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 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$551 million and €218 million five-year
multi-currency revolving credit facility agreement dated 26 June
2014 between, amongst others, Sage Treasury Company Limited
and Lloyds Bank plc (as facility agent) and guaranteed by the Company,
on a change of control, if any individual lender so requires and after
having consulted with Sage Treasury Company Limited 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 Sage Treasury
Company Limited, 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$50 million senior notes, Series B, due 11 March 2016 and
US$50 million 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 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.
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Directors’ report continued
– Under a note purchase agreement dated 20 May 2013 relating to
US$50 million senior notes, Series D, due 20 May 2018, US$150 million
senior notes, Series E, due 20 May 2020, US$150 million senior notes,
Series F, due 20 May 2023 and US$50 million senior notes, Series G,
due 20 May 2025 between Sage Treasury Company Ltd and the
note holders and guaranteed by the Company, on a change of
control of the Company, 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 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 a note purchase agreement dated 26 January 2015 relating to
€55 million senior notes, Series H, due 26 January 2022, €30 million
senior notes, Series I, due 26 January 2023 and US$200 million senior
notes, Series J, due 26 January 2025 between Sage Treasury Company
Limited and the note holders and guaranteed by the Company, on a
change of control of the Company, 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 the date specified in such offer which shall
be a business day occurring subsequent to the effective date of
the change of control which is not less than 30 days or more than
60 days after the date of 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 any applicable net loss and, in each case,
including the deduction of any applicable net gain and shall still
be made on the proposed payment date. No prepayment under
a change of control shall include any premium of any kind.
Under the terms of all four agreements above, a “change of control”
occurs if any person or group of persons acting in concert gains
control of the Company.
The platform reseller agreement dated 31 January 2015 relating to
the Company’s strategic arrangements with Salesforce.com EMEA
Limited contains a change of control right enabling Salesforce to
terminate the agreement in the event there is a change of control
in favour of a direct competitor of Salesforce.com EMEA Limited.
The agreement contains post termination requirements upon
Salesforce to support a transition for up to a specified period.
In respect of the platform reseller agreement with Salesforce.com
EMEA Limited, “change of control” occurs where a corporate
transaction results in the owners of the subject entity owning
less than 50% of the voting interests in that entity as a result of
the corporate transaction.
Financial risk management
The Group’s exposure to and management of capital, liquidity, credit,
interest rate and foreign currency risk are summarised below.
96
Capital risk
The Group’s objectives when managing capital (defined as net
debt plus equity) are to safeguard our 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 our strategic objectives. The Group has set
a long-term minimum leverage target of 1x net debt to EBITDA and will
work to maintain this going forward.
Liquidity risk
The Group manages its exposure to liquidity risk by reviewing cash
resources required to meet business objectives through both short and
long-term cash flow forecasts. The Company has committed facilities
which are available to be drawn for general corporate purposes
including working capital. The Treasury function has responsibility
for optimising the level of cash across the business.
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.
The credit risk on liquid funds is considered to be low, as the
Board-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 87%
of borrowings, are at fixed interest rates and bank debt, which comprises
13% of borrowings, are at floating interest rates. At 30 September 2015,
the Group had £263m (2014: £145m) 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 2015, the Group’s principal borrowings comprised
US private placement loan notes of £525m (2014: £432m), which
have an average fixed interest rate of 3.48%, and bank debt of £82m
(2014: £111m), which has an average floating interest rate of 0.93%.
Foreign currency risk
Although a substantial proportion of the Group’s revenue and profit
is earned outside the UK, operating companies generally only trade in
their own currency. The Group is therefore not subject to any significant
foreign exchange transactional exposure within these subsidiaries.
The Sage Group plc | Annual Report & Accounts 2015 The Group’s principal exposure to foreign currency lies in the translation
of overseas profits into sterling, this exposure is not hedged.
The Group’s external US Dollar and Euro denominated borrowings are
designated as a hedge of the net investment in its subsidiaries in the
US and Eurozone. The foreign exchange movements on translation
of the borrowings into Sterling have therefore been recognised in
the translation reserve. Certain of the Group’s intercompany balances
have been identified as part of the Group’s net investment in foreign
operations. Foreign exchange effects on these balances that remain
on consolidation are also reflected in the translation reserve. The
Group’s other currency exposures comprise those currency gains and
losses recognised in the income statement, reflecting other monetary
assets and liabilities of the Group that are not denominated in the
functional currency of the entity involved. At 30 September 2015 and
30 September 2014, these exposures were immaterial to the Group.
Disclaimer
The purpose of this Annual Report & Accounts is to provide information
to the members of the Company. The Annual Report & Accounts 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 & Accounts 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 & Accounts
and the Company undertakes no obligation to update these forward-
looking statements. Nothing in this Annual Report & Accounts should
be construed as a profit forecast.
Statement of directors’ responsibilities
The directors are responsible for preparing the Annual Report &
Accounts, including the Directors’ 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 (“IFRS”) 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 and the Company 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 IFRS 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
– 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 adequate accounting records
that are sufficient to show and explain the Company’s transactions and
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’s financial
statements, Article 4 of the International Accounting Standards
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.
Directors’ statement
The directors as at the date of this report, whose names and functions
are listed in the Board of Directors on pages 60 to 61, confirm that to
the best of their knowledge, the Group’s financial statements, which
have been prepared in accordance with IFRS as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and
profit of the Group.
– To the best of their knowledge, the Directors’ report and the Strategic
report include a fair review of the development and performance
of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it faces
Each director as at the date of this report further confirms that, so far as
the director is aware, there is no relevant audit information of which the
Company’s auditors are unaware
– 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.
In addition, the directors as at the date of this report consider that
the Annual Report & Accounts, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Company’s and the Group’s position
and performance, business model and strategy.
By Order of the Board
M J Robinson
Company Secretary
2 December 2015
97
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Contents
Group financial statements
Group financial statements
Consolidated income statement
Independent auditors’ report to the to the members of The Sage Group plc
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Group financial statements
Supplementary notes to the Group financial statements.
1. Basis of preparation and critical accounting estimates and judgements
Results for the year
2. Segment information
3. Profit before income tax
4. Income tax expense
5. Earnings per share
Operating assets and liabilities
6. Intangible assets
7. Property, plant and equipment
8. Working capital
9. Provisions
10. Post-employment benefits
11. Deferred income tax
Net debt and capital structure
12. Cash flow and net debt
13. Financial instruments
14. Equity
Other notes
15. Acquisitions and disposals
16. Related party transactions
17. Group subsidiaries
99
104
105
106
107
109
110
114
118
123
124
126
130
131
134
134
137
139
142
144
152
154
154
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The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
Contents
Group financial statements
Independent auditor’s report to the members of The Sage Group plc
Independent auditors’ report to the to the members of The Sage Group plc
Our opinion on the financial statements
In our opinion:
– The Sage Group plc’s Group financial statements and Parent company financial statements (the “financial statements”) give a true and fair view
of the state of the Group’s and of the Parent company’s affairs as at 30 September 2015 and of the Group’s profit for the year then ended;
– the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
– the Parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
– the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
What we have audited
The Sage Group plc’s financial statements comprise:
Group
Parent company
Consolidated balance sheet as at 30 September 2015
Company balance sheet as at 30 September 2015
Consolidated income statement for the year then ended
Company accounting policies
Consolidated statement of comprehensive income for the year then ended
Related notes 1 to 9 to the financial statements
Consolidated statement of changes in equity for the year then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 17 to the financial statements
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted
by the European Union. The financial reporting framework that has been applied in the preparation of the Parent company financial statements is
applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
Overview of our audit approach
Risks of material misstatement
– Revenue recognition.
– Carrying value of goodwill.
– Accounting for taxation.
Audit scope
– We performed an audit of the complete financial information of 6 components and audit procedures
on specific balances for a further 6 components.
– The components where we performed full or specific audit procedures accounted for 90% of adjusted
Profit before tax* and 90% of Revenue.
Materiality
– Overall Group materiality is £16.9m which represents 5% of adjusted Profit before tax*.
* Profit before tax adjusted for non-recurring items as defined in ‘The application of materiality’ section of this report
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which
were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas.
Risk
Revenue recognition
Refer to the Audit Committee Report
(page 70); and Notes 1 and 3.1 of the
Group financial statements.
The Group has reported revenues of
£1,435.5m (2014: £1,353.5m). We
focussed on the recognition of revenue
as the timing of revenue recognition
and its presentation in the income
statement are subject to inherent
complexities in the software industry.
Management undertook a review of
revenue recognition practices across
the Group which resulted in changes
in the accounting policies for a number
of revenue related items as set out in
Note 1.
Our response to the risk
The primary audit team assessed whether the revised revenue recognition
policies are appropriate and in accordance with IFRS given the nature of the
products and services and the manner in which these are provided by the
Group to its customers. Component audit teams:
– confirmed that the analysis on which the consideration by the primary
audit team was based was consistent with the group’s actual business
practices; and
– performed audit procedures to test the completeness and accuracy of
revenue amounts to be adjusted in respect of their location.
For significant revenue streams at each full and specific scope audit location:
– We performed walkthroughs of each significant class of revenue
transactions and assessed the design effectiveness of key controls. For a
number of components we tested the operating effectiveness of controls;
– For products and services where the risks and rewards are transferred
over a period of time, we tested a sample of transactions to ensure that
the amount of revenue was accurately calculated based on the state of
completion of the contract and appropriately recognised;
What we concluded to the
Audit and Risk Committee
Following our audit procedures on
the underlying fact patterns and
technical analysis supporting
management’s conclusions from
its review of revenue recognition
practices across the Group, we
agreed with the amount of and
nature of the resulting adjustments
that have been recorded by
management, both in the
current year and in the prior
year comparatives.
We concluded that revenue
recognised in the year, and deferred
as at 30 September 2015, is
materially correct on the basis of our
procedures performed both at group
and by component audit teams.
99
Group financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the Group financial statements
1. Basis of preparation and critical accounting estimates and judgements
Supplementary notes to the Group financial statements.
99
104
105
106
107
109
110
114
118
123
124
126
130
131
134
134
137
139
142
144
152
154
154
Results for the year
2. Segment information
3. Profit before income tax
4. Income tax expense
5. Earnings per share
Operating assets and liabilities
6. Intangible assets
7. Property, plant and equipment
8. Working capital
9. Provisions
10. Post-employment benefits
11. Deferred income tax
Net debt and capital structure
12. Cash flow and net debt
13. Financial instruments
14. Equity
Other notes
15. Acquisitions and disposals
16. Related party transactions
17. Group subsidiaries
98
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Independent auditor’s report to the members of The Sage Group plc continued
Risk
Our response to the risk
What we concluded to the
Audit and Risk Committee
Revenue recognition
(continued)
We identified 3 specific risks of fraud
and error in respect of improper
revenue recognition given the nature
of the Group’s products and services
as follows:
– Inappropriate cut-off and deferral
of revenue;
– Inappropriate accounting for
complex one-off arrangements
and new products/services; and
– Inappropriate allocation of revenue
between the components of
bundled products.
Audit procedures on revenue at full
and specific scope locations covered
90% of reported revenue.
Carrying value of goodwill
Refer to the Audit Committee Report
(page 70); and Notes 3.6 and 6.1 of the
Group financial statements.
We focussed on this area due the size
of the goodwill balance £1,446m (2014:
£1,433m) and because the directors’
assessment of ‘value in use’ of the
Group’s Cash Generating Units (“CGUs”)
involves judgement about the future
performance of the business and the
discount rates applied to future cash
flow forecasts.
In particular, we focused our audit effort
on the Brazil CGU due to the impairment
charge of £62.3m recognised in the
current year (2014: impairment charge
of £44.3m). The remaining goodwill
balance in relation to Brazil is £nil at
30 September 2015.
Goodwill was subject to full scope audit
procedures by the Primary audit team.
Accounting for taxation
Refer to the Audit Committee Report
(page 70); and Notes 4 and 11 of the
Group Financial Statements.
We focussed on this area as the Group
has international operations and in the
normal course of business the Directors
make judgments and estimates in
relation to tax issues and exposures,
the final outcome of which could be
significantly different to these estimates.
The most significant of these relate
to the Unites States, UK and Brazil.
– Our procedures in relation to inappropriate accounting for complex one-off
arrangements and new products or services were addressed at Group and
component level through our procedures on the revised revenue
recognition accounting policies outlined above;
– For bundled products, we tested on a sample basis, that (1) the calculation
of the fair value attributed to each element of the bundle was reasonable,
and (2) that the allocation of any discount was consistent with the relative
fair value of each element of the bundle;
– We performed other substantive, transactional testing and analytical
procedures to validate the recognition of revenue throughout the year.
At certain components, we performed data analysis over full populations
of transactions; and
– For revenue recorded through journal entries outside of normal business
processes, we performed testing to establish whether a service had
been provided or a sale had occurred in the financial year to support
the revenue recognised.
We also considered the adequacy of the Group’s disclosures in respect of
the restatement of revenue in the current year and the accounting policies
for revenue recognition in notes 1 and 3.1 respectively.
We challenged management’s assumptions used in its impairment models for
assessing the recoverability of the carrying value of goodwill. We focused on
the appropriateness of CGU identification, methodology applied to estimate
recoverable values, discount rates, and forecast cash flows. Specifically:
We concluded that the goodwill
balance at 30 September 2015
is materially correct.
– We tested the methodology applied in the VIU calculation as compared
to the requirements of IAS 36, Impairment of Assets, and the mathematical
accuracy of management’s model;
– We obtained an understanding of and assessed the basis for key
underlying assumptions for the 2016 budget. We challenged management
on cash flow forecasting and the implied growth rates beyond 2016 by
considering evidence available to support these assumptions and their
consistency with findings from other areas of our audit and by performing
sensitivity analysis;
– The discount rates and long term growth rates applied within the model
were assessed by an EY business valuation specialist, including comparison
to economic and industry forecasts where appropriate; and
– For Brazil, we performed sensitivity analyses on key assumptions in
the model to recalculate a range of potential outcomes in relation
to the impairment charge to be recognised in the year.
We considered the appropriateness of the related disclosures provided
in notes 3.6 and 6.1 in the Group financial statements.
We challenged and applied professional scepticism to the judgments and
estimates made by management in relation to tax matters through the
following audit procedures:
– We utilised relevant country tax specialists in testing the assumptions and
estimates in relation to the level of provisions recognised for significant tax
risks and the judgements made in determining the Group’s deferred tax assets;
– We confirmed that the Group’s stated tax position in relation to both tax
exposures or deferred tax assets were consistent with the underlying
transactions and fact patterns; and
– We inspected the Group’s correspondence with relevant tax authorities,
to consider the completeness of tax provisions for all relevant risks.
We also considered the adequacy of the Group’s disclosures (in Notes 1, 4,
and 11) in respect of tax and uncertain tax positions.
We concluded that management’s
judgements in relation to tax
provisions for uncertain matters
and deferred tax asset recognition
were appropriate.
The risks of material misstatement as set out in the table above are consistent with those reported by The Sage Group plc’s previous external auditor
with the exception of Archer litigation following the dismissal of the compensation claim against the Group in August 2015 as explained on page 122.
100
The Sage Group plc | Annual Report & Accounts 2015 The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
component within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account
size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors
such as recent Internal Audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, of the 45 reporting components of the Group, we selected 12 components covering entities within
UK and Ireland, France, Germany, Spain, North America, South Africa, and Brazil which represent the principal business units within the Group.
Of the 12 components selected, we performed an audit of the complete financial information of 6 components (“full scope components”) which were
selected based on their size or risk characteristics. For the remaining 6 components (“specific scope components”), we performed audit procedures
on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial
statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 90% of the Group’s adjusted Profit before tax measure used to
calculate materiality and 90% of the Group’s Revenue. For the current year, the full scope components contributed 63% of the Group’s adjusted Profit
before tax measure used to calculate materiality and 58% of the Group’s Revenue. The specific scope components contributed 27% of the Group’s
adjusted PBT measure used to calculate materiality and 32% of the Group’s Revenue. The audit scope of these components may not have included
testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. We
instructed a component team to undertake specified procedures over certain cash balances at one location. The Group audit risk in relation to
revenue recognition was subject to audit procedures at each of the full and specific scope locations with revenue. The Group audit risk in relation
to the carrying value of goodwill was subject to audit procedures by the primary audit team on the entire balance. The Group audit risk in relation
to taxation was subject to full scope audit procedures in 5 components and limited scope procedures in 3 components.
Of the remaining 33 components that together represent 10% of the Group’s adjusted Profit before tax, none are individually greater than 4% of the
Group’s adjusted Profit before tax. For 5 components, including 2 in Asia and Australia, we performed review scope procedures. For the remaining
components, we performed other procedures, including analytical review procedures and testing of consolidation journals, intercompany eliminations
and foreign currency translation recalculations to respond to any potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Adjusted Profit before tax
Revenue
63%
10%
Full scope components
Specific scope components
Other procedures
58%
10%
Full scope components
Specific scope components
Other procedures
27%
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the components
by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. Of the
6 full scope components, audit procedures were performed on 3 of these directly by the primary audit team and 3 by component audit teams. For the
6 specific scope components, work was performed by component auditors. We determined the appropriate level of involvement with the component
teams to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole.
32%
At the start of the audit, a Global Team Planning Event was held in the UK with representatives from all full and specific scope component audit
teams in attendance. In addition, the Group audit team established a programme of planned visits that has been designed to ensure that as a first
year audit the Senior Statutory Auditor, or her designate, would visit all full and specific scope audit locations. During the current year’s audit cycle,
visits were undertaken at least once by the primary audit team to the component teams in the UK, France, Germany, Spain, North America, South
Africa, and Brazil. These visits involved discussing the audit approach with the component team and any issues arising from their work, meeting
with local management, attending closing meetings, and reviewing key audit working papers on the Group risk areas. The primary team interacted
regularly with the component teams where appropriate during various stages of the audit, reviewed key working papers and were responsible for
the scope and direction of the audit process. This, together with the additional procedures performed at Group level, gave us appropriate evidence
for our opinion on the Group financial statements.
101
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Independent auditor’s report to the members of The Sage Group plc continued
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence
the economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group to be £16.9 million, which
is 5% of Profit before tax adjusted for non-recurring items reported
by the Group. We believe that adjusted Profit before tax provides us
with a consistent year on year basis for determining materiality and
is the most relevant performance measure to the stakeholders of
the entity. Detailed audit procedures are performed on material
non-recurring items.
During the course of our audit, we reassessed initial materiality and
the only change in final materiality was to reflect the actual reported
performance of the Group in the year.
Starting
basis
– Profit before tax – £275.8m
Adjustments
– Adjusted for non recurring items
– Goodwill impairment charge of £62.3m
Materiality
– Totals £338.1m [materiality basis]
– Materiality of £16.9m (5% of materiality basis)
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance
materiality was 50% of our planning materiality, namely £8.5m, reflecting that this is our first year as auditor of The Sage Group plc.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based
on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the
component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of
performance materiality allocated to full and specific scope components was £0.9m to £4.3m.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.9m, which is set at 5% of
planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
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 and 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 and Accounts 2015 to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 97, the directors are responsible for the preparation of the
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 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 is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the
company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
102
The Sage Group plc | Annual Report & Accounts 2015 Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
– the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements.
Matters on which we are required to report by exception
ISAs (UK
and Ireland)
reporting
We are required to report to you if, in our opinion, financial and non-financial information in the annual report is:
– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired
We have no
exceptions
to report.
in the course of performing our audit; or
– otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired
in the course of performing the audit and the directors’ statement that they consider the annual report and accounts
taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to
assess the entity’s performance, business model and strategy; and whether the annual report appropriately addresses
those matters that we communicated to the audit committee that we consider should have been disclosed.
We are required 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 Directors’ 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.
We are required to review:
– The directors’ statement in relation to going concern, and longer-term viability, set out on page 93; and
– The part of the Corporate Governance Statement relating to the company’s compliance with the provisions
of the UK Corporate Governance Code specified for our review.
We have no
exceptions
to report.
We have no
exceptions
to report.
Companies
Act 2006
reporting
Listing Rules
review
requirements
Statement on the Directors’ Assessment of the Principal Risks that Would Threaten the Solvency or Liquidity of the Entity
ISAs (UK
and Ireland)
reporting
We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:
– the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
– the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated;
– the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s
ability to continue to do so over a period of at least twelve months from the date of approval of the financial
statements; and
– the directors’ explanation in the annual report as to how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing
material to add or
to draw attention to.
Alison Duncan (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor, London
2 December 2015
Notes:
– The maintenance and integrity of The Sage Group plc web site is the responsibility of the directors; the work carried out by the auditor 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 web site.
– Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
103
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Consolidated income statement
For the year ended 30 September 2015
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
Profit attributable to:
– Owners of the parent
– Non-controlling interest
Note
2.1, 3.1
2.2, 3.2, 3.3, 3.6
3.5
3.5
3.5
4
Underlying
2015
£m
Adjustments
(note 3.6)
2015
£m
1,435.5
(86.7)
1,348.8
(968.9)
379.9
2.2
(23.6)
(21.4)
358.5
(90.3)
268.2
268.2
–
268.2
–
–
–
(82.7)
(82.7)
–
–
–
(82.7)
8.8
(73.9)
(73.9)
–
(73.9)
Statutory
2015
£m
1,435.5
(86.7)
1,348.8
(1,051.6)
297.2
2.2
(23.6)
(21.4)
275.8
(81.5)
194.3
194.3
–
194.3
Earnings per share attributable to the owners of the
parent (pence)
– Basic
– Diluted
All operations in the year relate to continuing operations.
* Underlying as reported is at 2014 reported exchange rates.
5
5
25.00p
24.85p
18.11p
18.00p
22.91p
22.87p
Underlying as
reported *
2014
(restated)
£m
Adjustments
(note 3.6)
2014
£m
Statutory
2014
(restated)
£m
1,353.5
(74.5)
1,279.0
(918.0)
361.0
2.1
(22.2)
(20.1)
340.9
(90.5)
250.4
249.5
0.9
250.4
–
–
–
(61.4)
(61.4)
–
(0.8)
(0.8)
(62.2)
0.7
(61.5)
(61.5)
–
(61.5)
1,353.5
(74.5)
1,279.0
(979.4)
299.6
2.1
(23.0)
(20.9)
278.7
(89.8)
188.9
188.0
0.9
188.9
17.26p
17.24p
104
104
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
Consolidated income statement
For the year ended 30 September 2015
Consolidated statement of comprehensive income
For the year ended 30 September 2015
Selling and administrative expenses
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
2.2, 3.2, 3.3, 3.6
Note
2.1, 3.1
3.5
3.5
3.5
4
Underlying
2015
£m
Adjustments
(note 3.6)
2015
£m
Underlying as
reported *
2014
(restated)
£m
Adjustments
(note 3.6)
Statutory
2014
(restated)
£m
Statutory
2015
£m
1,435.5
(86.7)
1,348.8
(1,051.6)
297.2
2.2
(23.6)
(21.4)
275.8
(81.5)
194.3
194.3
–
194.3
–
–
–
–
–
–
(82.7)
(82.7)
(82.7)
8.8
(73.9)
(73.9)
–
(73.9)
1,353.5
(74.5)
1,279.0
(918.0)
361.0
2.1
(22.2)
(20.1)
340.9
(90.5)
250.4
249.5
0.9
250.4
2014
£m
–
–
–
–
(61.4)
(61.4)
(0.8)
(0.8)
(62.2)
0.7
(61.5)
(61.5)
–
(61.5)
1,435.5
(86.7)
1,348.8
(968.9)
379.9
2.2
(23.6)
(21.4)
358.5
(90.3)
268.2
268.2
–
268.2
1,353.5
(74.5)
1,279.0
(979.4)
299.6
2.1
(23.0)
(20.9)
278.7
(89.8)
188.9
188.0
0.9
188.9
17.26p
17.24p
Earnings per share attributable to the owners of the
parent (pence)
– Basic
– Diluted
All operations in the year relate to continuing operations.
* Underlying as reported is at 2014 reported exchange rates.
5
5
25.00p
24.85p
18.11p
18.00p
22.91p
22.87p
Profit for the year
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
Actuarial loss on post-employment benefit obligations
Deferred tax credit on actuarial loss on post-employment benefit obligations
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign operations
Other comprehensive expense 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
Note
14.4
14.4
14.3
2015
£m
194.3
(4.8)
0.6
(4.2)
(23.2)
(23.2)
2014
(restated)
£m
188.9
(0.4)
0.4
–
(38.1)
(38.1)
(27.4)
(38.1)
166.9
150.8
166.9
–
166.9
149.9
0.9
150.8
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
104
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
105
105
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Consolidated balance sheet
As at 30 September 2015
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)
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Provisions
Other financial liabilities
Deferred income
Non-current liabilities
Borrowings
Other financial liabilities
Post-employment benefits
Deferred income tax liabilities
Provisions
Deferred income
Total liabilities
Net assets
Equity attributable to owners of the parent
Ordinary shares
Share premium
Other reserves
Retained earnings
Non-controlling interest
Total equity
Note
6.1
6.2
7
11
8.1
8.2
12.3
8.3
12.4
9
13.4
2015
£m
2014
(restated)
£m
As at
1 October 2013
(restated)
£m
1,446.0
1,433.0
105.5
122.7
34.2
98.1
126.7
29.4
1,708.4
1,687.2
2.0
320.9
263.4
586.3
2.0
321.5
144.6
468.1
1,515.2
113.5
128.8
26.2
1,783.7
2.2
311.2
100.8
414.2
2,294.7
2,155.3
2,197.9
(311.2)
(31.4)
(33.6)
(9.9)
–
(436.5)
(822.6)
(279.5)
(23.7)
(125.4)
(13.0)
(60.1)
(426.2)
(927.9)
(276.2)
(35.7)
(21.0)
(13.3)
(30.0)
(433.0)
(809.2)
12.4
(571.4)
(415.8)
(440.6)
10
11
9
14.1
14.3
–
(18.7)
(7.3)
(10.4)
(2.2)
–
(13.6)
(19.1)
(8.3)
(2.7)
(54.2)
(12.9)
(23.1)
(6.3)
–
(610.0)
(459.5)
(537.1)
(1,432.6)
(1,387.4)
(1,346.3)
862.1
767.9
851.6
11.8
541.2
66.9
242.2
862.1
–
862.1
11.7
535.9
90.1
130.2
767.9
–
767.9
11.7
532.2
60.2
248.5
852.6
(1.0)
851.6
The consolidated financial statements on pages 104 to 155 were approved by the Board of Directors on 2 December 2015 and are signed on
their behalf by:
S Hare
Chief Financial Officer
106
106
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
Consolidated balance sheet
As at 30 September 2015
Consolidated statement of changes in equity
For the year ended 30 September 2015
At 1 October 2014 (restated)
Profit for the year
Other comprehensive income/(expense):
Exchange differences on translating foreign operations (note 14.3)
Actuarial loss on post-employment benefit obligations (note 10)
Deferred tax credit on actuarial loss on post-employment obligations
(note 4)
Total comprehensive (expense)/income for the year ended
30 September 2015
Transactions with owners:
Employee share option scheme:
– Proceeds from shares issued
– Value of employee services,
net of deferred tax (note 14.2)
Purchase of treasury shares (note 14.4)
Expenses related to purchase of treasury shares
Close period share buyback programme (note 13.4)
Dividends paid to owners of the parent (note 14.5)
Total transactions with owners
for the year ended 30 September 2015
At 30 September 2015
Ordinary
shares
£m
11.7
Share
premium
£m
535.9
–
–
–
–
–
–
–
–
–
–
Attributable to owners of the parent
Other
reserves
£m
90.1
–
(23.2)
–
–
Retained
earnings
£m
130.2
194.3
–
(4.8)
0.6
Total
equity
£m
767.9
194.3
(23.2)
(4.8)
0.6
(23.2)
190.1
166.9
0.1
5.3
–
–
–
–
–
0.1
11.8
–
–
–
–
–
5.3
541.2
–
–
–
–
–
–
–
66.9
–
10.1
(14.6)
(0.1)
60.0
(133.5)
(78.1)
242.2
5.4
10.1
(14.6)
(0.1)
60.0
(133.5)
(72.7)
862.1
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
The consolidated financial statements on pages 104 to 155 were approved by the Board of Directors on 2 December 2015 and are signed on
106
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
107
107
Cash and cash equivalents (excluding bank overdrafts)
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
Provisions
Other financial liabilities
Deferred income
Non-current liabilities
Borrowings
Other financial liabilities
Post-employment benefits
Deferred income tax liabilities
Provisions
Deferred income
Total liabilities
Net assets
Ordinary shares
Share premium
Other reserves
Retained earnings
Non-controlling interest
Total equity
their behalf by:
S Hare
Chief Financial Officer
Equity attributable to owners of the parent
Note
6.1
6.2
7
11
8.1
8.2
12.3
8.3
12.4
9
13.4
10
11
9
14.1
14.3
2015
£m
2014
1 October 2013
(restated)
(restated)
£m
£m
As at
1,446.0
1,433.0
1,708.4
1,687.2
2,294.7
2,155.3
2,197.9
105.5
122.7
34.2
2.0
320.9
263.4
586.3
(311.2)
(31.4)
(33.6)
(9.9)
–
(436.5)
(822.6)
–
(18.7)
(7.3)
(10.4)
(2.2)
98.1
126.7
29.4
2.0
321.5
144.6
468.1
(279.5)
(23.7)
(125.4)
(13.0)
(60.1)
(426.2)
(927.9)
–
(13.6)
(19.1)
(8.3)
(2.7)
(610.0)
(459.5)
(537.1)
(1,432.6)
(1,387.4)
(1,346.3)
862.1
767.9
851.6
11.8
541.2
66.9
242.2
862.1
–
862.1
11.7
535.9
90.1
130.2
767.9
–
767.9
1,515.2
113.5
128.8
26.2
1,783.7
2.2
311.2
100.8
414.2
(276.2)
(35.7)
(21.0)
(13.3)
(30.0)
(433.0)
(809.2)
(54.2)
(12.9)
(23.1)
(6.3)
–
11.7
532.2
60.2
248.5
852.6
(1.0)
851.6
12.4
(571.4)
(415.8)
(440.6)
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Consolidated statement of changes in equity continued
Attributable to owners of the parent (restated)
At 1 October 2013
Restatement (note 1)
At 1 October 2013 (restated)
Profit for the year
Other comprehensive income/(expense):
Exchange differences on translating foreign
operations (note 14.3)
Actuarial loss on post-employment benefit
obligations (note 10)
Deferred tax credit on actuarial loss on
post-employment obligations (note 4)
Total comprehensive (expense)/income
for the year ended 30 September 2014
Transactions with owners:
Employee share option scheme:
– Proceeds from shares issued
– Value of employee services,
net of deferred tax (note 14.2)
Purchase of treasury shares (note 14.4)
Expenses related to purchase
of treasury shares
Close period share buyback
programme (note 13.4)
Purchase of non-controlling
interest (note 13.4)
Dividends paid to owners
of the parent (note 14.5)
Total transactions with owners
for the year ended 30 September 2014
At 30 September 2014 (restated)
Ordinary
shares
£m
Share
premium
£m
Other
reserves
£m
Retained
earnings
£m
11.7
–
11.7
532.2
–
532.2
60.4
(0.2)
60.2
–
267.0
(18.5)
248.5
188.0
–
–
–
–
–
3.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11.7
(38.1)
–
(38.1)
–
–
(0.4)
0.4
(0.4)
0.4
–
–
–
–
–
–
7.8
(89.5)
3.7
7.8
(89.5)
(0.2)
(0.2)
(30.1)
(30.1)
68.0
(68.1)
(0.1)
–
(126.2)
(126.2)
3.7
535.9
68.0
90.1
(306.3)
130.2
(234.6)
767.9
Total
£m
871.3
(18.7)
852.6
188.0
Non-controlling
interest
£m
(1.0)
–
(1.0)
0.9
–
–
–
Total
equity
£m
870.3
(18.7)
851.6
188.9
(38.1)
(0.4)
0.4
–
–
–
–
–
0.1
–
0.1
–
3.7
7.8
(89.5)
(0.2)
(30.1)
–
(126.2)
(234.5)
767.9
(38.1)
188.0
149.9
0.9
150.8
108
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The Sage Group plc | Annual Report & Accounts 2015
Consolidated statement of changes in equity continued
Consolidated statement of cash flows
For the year ended 30 September 2015
At 1 October 2013
Restatement (note 1)
At 1 October 2013 (restated)
Profit for the year
Other comprehensive income/(expense):
Exchange differences on translating foreign
operations (note 14.3)
Actuarial loss on post-employment benefit
obligations (note 10)
Deferred tax credit on actuarial loss on
post-employment obligations (note 4)
Total comprehensive (expense)/income
for the year ended 30 September 2014
Transactions with owners:
Employee share option scheme:
– Proceeds from shares issued
– Value of employee services,
net of deferred tax (note 14.2)
Purchase of treasury shares (note 14.4)
Expenses related to purchase
of treasury shares
Close period share buyback
programme (note 13.4)
Purchase of non-controlling
interest (note 13.4)
Dividends paid to owners
of the parent (note 14.5)
Total transactions with owners
for the year ended 30 September 2014
At 30 September 2014 (restated)
Ordinary
shares
£m
11.7
11.7
Share
premium
£m
532.2
532.2
Attributable to owners of the parent (restated)
Other
reserves
£m
60.4
(0.2)
60.2
–
Retained
earnings
£m
267.0
(18.5)
248.5
188.0
Non-controlling
interest
£m
(1.0)
–
(1.0)
0.9
Total
£m
871.3
(18.7)
852.6
188.0
–
–
–
–
–
–
–
–
–
–
–
–
3.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
870.3
(18.7)
851.6
188.9
(38.1)
(0.4)
0.4
3.7
7.8
(89.5)
(0.2)
(30.1)
(126.2)
(234.5)
767.9
–
–
–
–
–
–
–
–
–
(38.1)
–
(38.1)
(0.4)
0.4
(0.4)
0.4
(38.1)
188.0
149.9
0.9
150.8
–
–
–
–
–
–
–
–
–
7.8
(89.5)
3.7
7.8
(89.5)
(0.2)
(0.2)
(30.1)
(30.1)
(126.2)
(126.2)
68.0
(68.1)
(0.1)
0.1
–
11.7
3.7
535.9
68.0
90.1
(306.3)
130.2
(234.6)
767.9
0.1
–
Cash flows from operating activities
Cash generated from continuing operations
Interest paid
Income tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired
Purchases of intangible assets
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Net cash generated from investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Purchase of treasury shares
Purchase of non-controlling interest
Finance lease principal payments
Proceeds from borrowings
Repayments of borrowings
Movements in cash held on behalf of customers
Borrowing costs
Dividends paid to owners of the parent
Net cash used in financing activities
Net increase in cash, cash equivalents and bank overdrafts
(before exchange rate movement)
Effects of exchange rate movement
Net 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
2015
£m
418.6
(19.2)
(84.6)
314.8
(47.3)
(6.0)
(16.4)
2.1
2.2
(65.4)
5.4
(17.7)
–
(1.4)
481.2
(474.5)
12.5
(1.3)
(133.5)
(129.3)
120.1
(0.4)
119.7
143.7
263.4
2014
(restated)
£m
382.4
(20.2)
(107.2)
255.0
(14.1)
(8.3)
(19.7)
1.1
2.1
(38.9)
3.7
(91.0)
(50.4)
(1.9)
171.0
(71.8)
15.5
(1.4)
(126.2)
(152.5)
63.6
(2.8)
60.8
82.9
143.7
Note
12.1
15.1
6.2
7
3.5
13.4
14.5
12.2
12.2
12.2
i
F
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
108
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The Sage Group plc | Annual Report & Accounts 2015
109
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Basis of preparation and critical accounting estimates and judgements
1 Basis of preparation and critical accounting estimates and judgements
Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a component
of the financial statements have been incorporated into the relevant note.
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“). 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 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 which is usually from date of acquisition.
Changes in accounting policy
As the Group enters the next phase of growth and implement its new strategy, the definitions of revenue categories have been simplified
to enable stakeholders to clearly and transparently track performance. This has led to a change in the application of the revenue recognition
policy to certain products.
The most significant change is to separately disclose the revenue from our payments and payroll processing businesses, which is driven by
the volume of transactions. In addition a small amount of revenue from software and software related services (“SSRS”) and associated
discounts, has been reclassified to recurring revenue, relating to products which are time-limited and require an on-going active
maintenance contract to function as designed. This has had an impact on the phasing of revenue. Consequently the current year
and comparative revenue split shown in the segmental note have been revised, along with the associated impact on deferred revenue,
and the description of revenue streams in the revenue recognition accounting policy has been updated.
The impact of reclassifying and rephasing of those products moved from SSRS to recurring revenue was to reduce revenue by £3.1m in
current year and increase revenue in 2014 by £1.2m. The balance sheet impact of this change has been to increase deferred revenue in 2015
by £25.4m (2014: £23.5m, 2013: £26.2m) representing the SSRS revenue being deferred with an associated deferred tax asset of £8.2m
(2014: £7.5m, 2013: £7.5m). The foreign exchange retranslation impact of this deferral in 2015 of £1.3m (2014: £1.3m) is taken to other reserves.
During the period, management has also considered the accounting for its arrangements with Business Partners who refer customers
to the Group, such as Independent Sales Organisations (“ISOs”) in the US Payments business, and concluded that payments made to those
business partners are better reflected as costs and not as deductions to revenue. This has had the impact of increasing revenue and costs
by £46.3m (2014: £45.5m).
In addition to this change in the application of the revenue recognition policy, two other changes were made to the presentation of items
on the balance sheet. Firstly, the presentation of provisions has been revised to show them as a separate line item on the face of the balance
sheet having previously been included within trade and other payables. The impact of this change within current liabilities in the current
year is £9.9m (2014: £13.0m, 2013: £13.3m) and between current and non-current liabilities is £10.4m (2014: £8.3m, 2013: £6.3m). Secondly,
the presentation of deferred consideration has been changed to include the balance within trade and other payables having previously
been a separate line item on the balance sheet. The impact of this change in the current year is £1.4m (2014: £3.5m, 2013: £8.2m).
The impact of the change in the application of the revenue recognition policy in the 2014 annual accounts has been disclosed below, along
with the impact of the change in the presentation of provisions and deferred consideration.
For the year ended 30 September 2014
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Operating profit
Finance cost (net)
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
– Owners of the parent
– Non-controlling interest
As previously
reported
Restatement
adjustment
As restated
1,306.8
(74.5)
1,232.3
(933.9)
298.4
(20.9)
277.5
(89.8)
187.7
186.8
0.9
187.7
46.7
–
46.7
(45.5)
1.2
1.2
–
1.2
1.2
–
1.2
1,353.5
(74.5)
1,279.0
(979.4)
299.6
(20.9)
278.7
(89.8)
188.9
188.0
0.9
188.9
110
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The Sage Group plc | Annual Report & Accounts 2015
Basis of preparation and critical accounting estimates and judgements
1 Basis of preparation and critical accounting estimates and judgements
Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a component
of the financial statements have been incorporated into the relevant note.
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“). 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 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 which is usually from date of acquisition.
Changes in accounting policy
As the Group enters the next phase of growth and implement its new strategy, the definitions of revenue categories have been simplified
to enable stakeholders to clearly and transparently track performance. This has led to a change in the application of the revenue recognition
policy to certain products.
The most significant change is to separately disclose the revenue from our payments and payroll processing businesses, which is driven by
the volume of transactions. In addition a small amount of revenue from software and software related services (“SSRS”) and associated
discounts, has been reclassified to recurring revenue, relating to products which are time-limited and require an on-going active
maintenance contract to function as designed. This has had an impact on the phasing of revenue. Consequently the current year
and comparative revenue split shown in the segmental note have been revised, along with the associated impact on deferred revenue,
and the description of revenue streams in the revenue recognition accounting policy has been updated.
The impact of reclassifying and rephasing of those products moved from SSRS to recurring revenue was to reduce revenue by £3.1m in
current year and increase revenue in 2014 by £1.2m. The balance sheet impact of this change has been to increase deferred revenue in 2015
by £25.4m (2014: £23.5m, 2013: £26.2m) representing the SSRS revenue being deferred with an associated deferred tax asset of £8.2m
(2014: £7.5m, 2013: £7.5m). The foreign exchange retranslation impact of this deferral in 2015 of £1.3m (2014: £1.3m) is taken to other reserves.
During the period, management has also considered the accounting for its arrangements with Business Partners who refer customers
to the Group, such as Independent Sales Organisations (“ISOs”) in the US Payments business, and concluded that payments made to those
business partners are better reflected as costs and not as deductions to revenue. This has had the impact of increasing revenue and costs
by £46.3m (2014: £45.5m).
In addition to this change in the application of the revenue recognition policy, two other changes were made to the presentation of items
on the balance sheet. Firstly, the presentation of provisions has been revised to show them as a separate line item on the face of the balance
sheet having previously been included within trade and other payables. The impact of this change within current liabilities in the current
year is £9.9m (2014: £13.0m, 2013: £13.3m) and between current and non-current liabilities is £10.4m (2014: £8.3m, 2013: £6.3m). Secondly,
the presentation of deferred consideration has been changed to include the balance within trade and other payables having previously
been a separate line item on the balance sheet. The impact of this change in the current year is £1.4m (2014: £3.5m, 2013: £8.2m).
The impact of the change in the application of the revenue recognition policy in the 2014 annual accounts has been disclosed below, along
with the impact of the change in the presentation of provisions and deferred consideration.
For the year ended 30 September 2014
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Operating profit
Finance cost (net)
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
– Owners of the parent
– Non-controlling interest
As previously
Restatement
reported
adjustment
As restated
1,306.8
(74.5)
1,232.3
(933.9)
298.4
(20.9)
277.5
(89.8)
187.7
186.8
0.9
187.7
46.7
–
46.7
(45.5)
1.2
1.2
–
1.2
1.2
–
1.2
1,353.5
(74.5)
1,279.0
(979.4)
299.6
(20.9)
278.7
(89.8)
188.9
188.0
0.9
188.9
30 September 2014
1 October 2013
As previously
reported
Restatement
adjustment
As restated
As restated
29.4
1,687.2
18.7
1,776.2
Deferred tax assets
Total non-current assets
Total current assets
Total assets
Trade and other payables
Provisions
Deferred consideration
Deferred income
Total current liabilities
Provisions
Total non-current 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
As previously
reported
Restatement
adjustment
21.9
1,679.7
468.1
2,147.8
(297.3)
–
(3.5)
(402.7)
(912.7)
–
(451.2)
(1,363.9)
783.9
11.7
535.9
88.8
147.5
783.9
–
783.9
7.5
7.5
–
7.5
17.8
(13.0)
3.5
(23.5)
(15.2)
(8.3)
(8.3)
(23.5)
(16.0)
–
–
1.3
(17.3)
(16.0)
–
(16.0)
468.1
414.2
2,155.3
2,190.4
(279.5)
(13.0)
–
(426.2)
(927.9)
(8.3)
(459.5)
(287.6)
–
(8.2)
(406.8)
(789.3)
–
(530.8)
(1,387.4)
767.9
(1,320.1)
870.3
11.7
535.9
90.1
130.2
767.9
–
767.9
11.7
532.2
60.4
267.0
871.3
(1.0)
870.3
7.5
7.5
–
7.5
11.4
(13.3)
8.2
(26.2)
(19.9)
(6.3)
(6.3)
(26.2)
(18.7)
–
–
(0.2)
(18.5)
(18.7)
–
(18.7)
26.2
1,783.7
414.2
2,197.9
(276.2)
(13.3)
–
(433.0)
(809.2)
(6.3)
(537.1)
(1,346.3)
851.6
11.7
532.2
60.2
248.5
852.6
(1.0)
851.6
New or amended accounting standards
There are no IFRS, IAS amendments or IFRIC interpretations effective for the first time this financial year that have had a material impact
on the Group.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out
in the Strategic report on pages 2 to 58.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation
for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going
concern basis in preparing the consolidated financial statements and in accordance with those parts of the Companies Act 2006 applicable
to companies reporting under IFRS.
Foreign currencies
The consolidated financial statements are presented in sterling, which is the functional currency of the parent Company and the
presentation currency for the consolidated financial statements.
110
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Basis of preparation and critical accounting estimates and judgements continued
1 Basis of preparation and critical accounting estimates and judgements continued
Foreign currency transactions are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign currency
monetary items are translated 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 in
equity. For such non-monetary items, any exchange component of that gain or loss is also recognised in equity.
The assets and liabilities of the Group’s subsidiaries outside of the UK are translated into sterling using period end exchange rates. Income
and expense items are translated at the average exchange rates for the period. Where differences arise between these rates, they are
recognised in other comprehensive income and the translation reserve.
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”.
Critical accounting estimates and judgements
The preparation of financial statements requires the use of accounting estimates and assumptions by management. It also requires
management to exercise its judgement in the process of applying the accounting policies. We continually evaluate our estimates,
assumptions and judgements based on available information. The areas involving a higher degree of judgement or complexity are
described below.
The judgements and management’s rationale in relation to these accounting estimates and judgements are assessed and where material
in value or in risk, are discussed with the Audit Committee.
Revenue recognition
Approximately 30% of the company’s revenue is generated from sales to partners rather than to end users. The key judgement in accounting
for the three principal ways in which our business partners are remunerated is determining whether the business partner is a customer of
the Group in respect of the initial product sale. The key criteria in this determination is whether the business partner has paid for and taken
on the risks and rewards of ownership of the software product from Sage. At this point the business partner is able to sell on the licence to
the end user at a price of its determination and consequently bears the credit risk of the onward sale.
Where the business partner is a customer of Sage, there are two ways in which they can be remunerated. Firstly, there are discounts
granted as a discount from the list price. These discounts are negotiated between the company and the business partner prior to
the sale and invoices are raised, and revenue booked is based on the discounted price. Secondly, there are further discounts given to
business partners for subsequent renewals or increased sales to the end user. These discounts are recognised as a deduction from the
incremental revenue earned.
Where the business partner is not a customer of Sage and their part in the sale has simply been in the form of a referral, they are
remunerated in the form of a commission payment. These payments are treated as a cost within selling and administrative costs.
An additional area of judgement is the recognition and deferral of revenue on bundled products, for example the sale of a perpetual licence
with an annual maintenance and support contract. When products are bundled together for the purpose of sale, the associated revenue, net
of all applicable discounts, is allocated between the constituent parts of the bundle on a relative fair value basis. The Group has a systematic
basis for allocating relative fair values in these situations, based upon published list prices.
Goodwill impairment
There are two key judgement areas in relation to goodwill impairment.
The first is the ongoing appropriateness of the cash-generating units (“CGUs”) for the purpose of impairment testing. In the current year
CGUs were assessed in the context of the Group’s evolving business model, the Sage 2020 initiative and the shift to global product
development. As management continues to monitor goodwill at a country level and product cash flows are still predominantly generated
by the existing product base within each country, it was determined that the existing CGUs remain appropriate.
The other key judgement area relates to the assumptions applied in calculating the value in use of the CGUs being tested for impairment.
The key assumptions applied in the calculation relate to the future performance expectations of the business – average medium-term
revenue growth, long term operating margin and long term growth rate – as well as the discount rate to be applied in the calculation.
These key assumptions used in performing the impairment assessment are disclosed in note 6.1.
112
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The Sage Group plc | Annual Report & Accounts 2015
Tax provisions
The Group recognises certain provisions and accruals in respect of tax which involve a degree of estimation and uncertainty where the tax
treatment cannot finally be determined until a resolution has been reached by the relevant tax authority. This approach resulted in providing
£32.8m as at 30 September 2015 (2014: £26.3m).
The carrying amount is sensitive to the resolution of issues which is not always within the control of the Group and it is often dependent on
the efficiency of the legal processes in the relevant taxing jurisdictions in which the Group operates. Issues can take many years to resolve
and assumptions on the likely outcome have therefore been made by management.
The nature of the assumptions made by management when calculating the carrying amounts relates to the estimated tax which could
be payable as a result of decisions by tax authorities in respect of transactions and events whose treatment for tax purposes is uncertain.
In making the estimates, management’s judgement was based on various factors, including:
– the status of recent and current tax audits and enquiries;
– the results of previous claims; and
– any changes to the relevant tax environments.
When making this assessment, we utilise our specialist in-house tax knowledge and experience of similar situations elsewhere to confirm
these provisions. These judgements also take into consideration specialist tax advice provided by third party advisors on specific items.
Future accounting standards
The directors also considered the impact on the Group of other new and revised accounting standards, interpretations or amendments.
The following revised and new accounting standard may have a material impact on the Group is currently issued but not yet effective for
the Group for the year ended 30 September 2015:
– IFRS 15, “Revenue from Contracts with Customers”.
The Group is in the process of assessing the impact that the application of this standard will have on the Group’s financial statements.
Basis of preparation and critical accounting estimates and judgements continued
1 Basis of preparation and critical accounting estimates and judgements continued
Foreign currency transactions are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign currency
monetary items are translated 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 in
equity. For such non-monetary items, any exchange component of that gain or loss is also recognised in equity.
The assets and liabilities of the Group’s subsidiaries outside of the UK are translated into sterling using period end exchange rates. Income
and expense items are translated at the average exchange rates for the period. Where differences arise between these rates, they are
recognised in other comprehensive income and the translation reserve.
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”.
Critical accounting estimates and judgements
The preparation of financial statements requires the use of accounting estimates and assumptions by management. It also requires
management to exercise its judgement in the process of applying the accounting policies. We continually evaluate our estimates,
assumptions and judgements based on available information. The areas involving a higher degree of judgement or complexity are
The judgements and management’s rationale in relation to these accounting estimates and judgements are assessed and where material
in value or in risk, are discussed with the Audit Committee.
described below.
Revenue recognition
Approximately 30% of the company’s revenue is generated from sales to partners rather than to end users. The key judgement in accounting
for the three principal ways in which our business partners are remunerated is determining whether the business partner is a customer of
the Group in respect of the initial product sale. The key criteria in this determination is whether the business partner has paid for and taken
on the risks and rewards of ownership of the software product from Sage. At this point the business partner is able to sell on the licence to
the end user at a price of its determination and consequently bears the credit risk of the onward sale.
Where the business partner is a customer of Sage, there are two ways in which they can be remunerated. Firstly, there are discounts
granted as a discount from the list price. These discounts are negotiated between the company and the business partner prior to
the sale and invoices are raised, and revenue booked is based on the discounted price. Secondly, there are further discounts given to
business partners for subsequent renewals or increased sales to the end user. These discounts are recognised as a deduction from the
incremental revenue earned.
Where the business partner is not a customer of Sage and their part in the sale has simply been in the form of a referral, they are
remunerated in the form of a commission payment. These payments are treated as a cost within selling and administrative costs.
An additional area of judgement is the recognition and deferral of revenue on bundled products, for example the sale of a perpetual licence
with an annual maintenance and support contract. When products are bundled together for the purpose of sale, the associated revenue, net
of all applicable discounts, is allocated between the constituent parts of the bundle on a relative fair value basis. The Group has a systematic
basis for allocating relative fair values in these situations, based upon published list prices.
Goodwill impairment
There are two key judgement areas in relation to goodwill impairment.
The first is the ongoing appropriateness of the cash-generating units (“CGUs”) for the purpose of impairment testing. In the current year
CGUs were assessed in the context of the Group’s evolving business model, the Sage 2020 initiative and the shift to global product
development. As management continues to monitor goodwill at a country level and product cash flows are still predominantly generated
by the existing product base within each country, it was determined that the existing CGUs remain appropriate.
The other key judgement area relates to the assumptions applied in calculating the value in use of the CGUs being tested for impairment.
The key assumptions applied in the calculation relate to the future performance expectations of the business – average medium-term
revenue growth, long term operating margin and long term growth rate – as well as the discount rate to be applied in the calculation.
These key assumptions used in performing the impairment assessment are disclosed in note 6.1.
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Results for the year
2 Segment information
This note shows how Group revenue and Group operating profit are split across the three reportable segments in which we operate,
being Europe, North America and International (South America, Africa, Australia, Middle East and Asia).
In May 2015, following the departure of the CEO of Sage Americas there was a change in the reporting segments with the Brazilian
business being moved out of the Americas segment. For reporting purposes Brazil has been combined with AAMEA, to form the new
International segment and the Americas segment was renamed to North America. The 2014 comparatives have been updated to align
with the new segmental reporting.
For each geographical region, revenue and operating profit are compared to prior year in order to understand the movements in the
year. This comparison is provided for statutory, underlying and organic revenue and operating profit.
– Statutory results are the IFRS statutory results.
– Underlying and underlying as reported are non-GAAP measures. Adjustments are made to statutory results to arrive at an underlying
result which is in line with how the business is managed and measured on a day to day basis. Adjustments are made for items that
are individually important in order to understand the financial performance. If included, these items could distort understanding of
the performance for the year and the comparability between periods. See note 3.6 for details of these adjustments.
In addition, the prior year underlying values are translated at current exchange rates, so that exchange rate impacts do not distort
comparisons. Prior year underlying values at prior year exchange rates are “underlying as reported”; prior year and current year values
at current year exchange rates are “underlying”.
– Organic is a non-GAAP measure. The contributions of current and prior year acquisitions and disposals are removed, so that results
can be compared to prior year on a like for like basis.
In addition, the following reconciliations are made in this note.
– Revenue per segment reconciled to the profit for the year as per the income statement.
– Statutory operating profit reconciled to underlying operating profit per segment (detailing the adjustments made).
Accounting policy
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 in accordance with their designated responsibility for the allocation of resources to operating segments and assessing
their performance, through the Quarterly Business Reviews chaired by the CEO and CFO. The Executive Committee use organic and
underlying data to monitor business performance. Operating segments are reported in a manner which is consistent with the operating
segments produced for internal management reporting.
The Group is organised into four key operating segments, with Brazil being aggregated with AAMEA with which there are similar
economic characteristics to form the International reporting segment. The UK is the home country of the parent. The reporting
segments and their main operating territories are as follows:
– Europe (France, UK & Ireland, Spain, Germany, Switzerland, Poland, Portugal and Sagepay)
– North America (US and Canada)
– International (Brazil, 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 and UAE.
Segment reporting
The tables below show a segmental analysis of the results for continuing operations.
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.
Revenue categories are defined in Note 3.1. Processing revenue has been disclosed separately for year ended 30 September 2015 and the
prior year comparatives have been restated to this effect.
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Results for the year
2 Segment information
This note shows how Group revenue and Group operating profit are split across the three reportable segments in which we operate,
being Europe, North America and International (South America, Africa, Australia, Middle East and Asia).
In May 2015, following the departure of the CEO of Sage Americas there was a change in the reporting segments with the Brazilian
business being moved out of the Americas segment. For reporting purposes Brazil has been combined with AAMEA, to form the new
International segment and the Americas segment was renamed to North America. The 2014 comparatives have been updated to align
with the new segmental reporting.
For each geographical region, revenue and operating profit are compared to prior year in order to understand the movements in the
year. This comparison is provided for statutory, underlying and organic revenue and operating profit.
– Statutory results are the IFRS statutory results.
– Underlying and underlying as reported are non-GAAP measures. Adjustments are made to statutory results to arrive at an underlying
result which is in line with how the business is managed and measured on a day to day basis. Adjustments are made for items that
are individually important in order to understand the financial performance. If included, these items could distort understanding of
the performance for the year and the comparability between periods. See note 3.6 for details of these adjustments.
In addition, the prior year underlying values are translated at current exchange rates, so that exchange rate impacts do not distort
comparisons. Prior year underlying values at prior year exchange rates are “underlying as reported”; prior year and current year values
at current year exchange rates are “underlying”.
– Organic is a non-GAAP measure. The contributions of current and prior year acquisitions and disposals are removed, so that results
can be compared to prior year on a like for like basis.
In addition, the following reconciliations are made in this note.
– Revenue per segment reconciled to the profit for the year as per the income statement.
– Statutory operating profit reconciled to underlying operating profit per segment (detailing the adjustments made).
Accounting policy
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 in accordance with their designated responsibility for the allocation of resources to operating segments and assessing
their performance, through the Quarterly Business Reviews chaired by the CEO and CFO. The Executive Committee use organic and
underlying data to monitor business performance. Operating segments are reported in a manner which is consistent with the operating
segments produced for internal management reporting.
The Group is organised into four key operating segments, with Brazil being aggregated with AAMEA with which there are similar
economic characteristics to form the International reporting segment. The UK is the home country of the parent. The reporting
segments and their main operating territories are as follows:
– Europe (France, UK & Ireland, Spain, Germany, Switzerland, Poland, Portugal and Sagepay)
– North America (US and Canada)
– International (Brazil, 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 and UAE.
Segment reporting
The tables below show a segmental analysis of the results for continuing operations.
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.
Revenue categories are defined in Note 3.1. Processing revenue has been disclosed separately for year ended 30 September 2015 and the
prior year comparatives have been restated to this effect.
2.1 Revenue by segment
Recurring revenue by segment
Europe
North America
International
Recurring revenue
Software and software related services (“SSRS”) revenue by segment
Europe
North America
International
SSRS revenue
Processing revenue by segment
Europe
North America
International
Processing revenue
Total revenue by segment
Europe
North America
International
Total revenue
Recurring revenue by segment
Europe
North America
International
Recurring revenue
Software and software related services (“SSRS”) revenue by segment
Europe
North America
International
SSRS revenue
Processing revenue by segment
Europe
North America
International
Processing based revenue
Total revenue by segment
Europe
North America
International
Total revenue
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The 2014 comparatives have been restated in line with the changes in accounting policy (note 1).
Year ended 30 September 2015
Statutory and
underlying
£m
Organic
adjustments
£m
Organic
£m
Statutory
%
Underlying
%
565.3
264.7
133.1
963.1
155.3
71.1
64.3
290.7
32.4
141.2
8.1
181.7
753.0
477.0
205.5
(5.5)
(5.0)
–
(10.5)
(2.2)
(1.7)
–
(3.9)
–
(20.8)
–
(20.8)
(7.7)
(27.5)
–
559.8
259.7
133.1
952.6
153.1
69.4
64.3
286.8
32.4
120.4
8.1
160.9
745.3
449.5
205.5
1,435.5
(35.2)
1,400.3
3.1%
16.8%
3.3%
6.6%
(8.4%)
2.7%
5.9%
(2.9%)
8.0%
24.8%
12.5%
20.9%
0.7%
16.6%
4.4%
6.1%
8.8%
11.2%
13.8%
10.1%
(2.2%)
(2.6%)
12.8%
0.7%
9.1%
16.0%
19.1%
14.9%
6.4%
10.2%
13.7%
8.6%
Change
Organic
%
7.8%
9.1%
13.8%
9.0%
(3.6%)
(4.9%)
12.8%
(0.7%)
9.1%
(1.1%)
19.1%
1.7%
5.3%
3.9%
13.7%
6.0%
Statutory and
underlying as
reported
£m
Impact of
foreign
exchange
£m
Year ended 30 September 2014 (restated)
Underlying
£m
Organic
adjustments
£m
Organic
£m
548.2
226.7
128.9
903.8
169.5
69.2
60.7
299.4
30.0
113.1
7.2
150.3
747.7
409.0
196.8
1,353.5
(28.8)
11.4
(11.9)
(29.3)
(10.7)
3.8
(3.7)
(10.6)
(0.3)
8.6
(0.4)
7.9
(39.8)
23.8
(16.0)
(32.0)
519.4
238.1
117.0
874.5
158.8
73.0
57.0
288.8
29.7
121.7
6.8
158.2
707.9
432.8
180.8
1,321.5
(0.3)
–
–
(0.3)
–
–
–
–
–
–
–
–
(0.3)
–
–
(0.3)
519.1
238.1
117.0
874.2
158.8
73.0
57.0
288.8
29.7
121.7
6.8
158.2
707.6
432.8
180.8
1,321.2
115
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Results for the year continued
2 Segment information continued
2.2 Operating profit by segment
Operating profit by segment
Europe
North America
International
Total operating profit
Operating profit by segment
Europe
North America
International
Total operating profit
Statutory
£m
Underlying
adjustments
£m
Underlying
£m
Organic
adjustments
£m
Organic
£m
Statutory
%
Underlying
%
Year ended 30 September 2015
216.6
94.9
(14.3)
297.2
6.4
7.5
68.8
82.7
223.0
102.4
54.5
379.9
(0.8)
0.4
–
(0.4)
222.2
102.8
54.5
379.5
5.0%
7.4%
(386.0%)
(0.8%)
9.7%
5.0%
9.7%
8.4%
Change
Organic
%
9.4%
5.4%
9.7%
8.3%
Year ended 30 September 2014 (restated)
Statutory
£m
Underlying
adjustments
£m
Underlying as
reported
£m
Impact of
foreign
exchange
£m
Underlying
and organic
£m
The results by segment from continuing operations were as follows:
Year ended 30 September 2015
Revenue
Segment statutory operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
8.4
4.3
48.7
61.4
Europe
£m
753.0
216.6
214.6
92.7
53.7
361.0
(11.4)
4.8
(4.0)
(10.6)
North
America
£m
477.0
94.9
International
£m
205.5
(14.3)
206.2
88.4
5.0
299.6
Note
3.5
3.5
4
No single customer contributed more than 10% of the Group’s revenue in the current or prior year.
Reconciliation of underlying operating profit to statutory operating profit
Underlying operating profit
Amortisation of acquired intangible assets
Fair value adjustments and goodwill impairment
Statutory operating profit
Europe
£m
223.0
(6.4)
–
216.6
North
America
£m
102.4
(7.5)
–
94.9
International
£m
54.5
(4.3)
(64.5)
(14.3)
203.2
97.5
49.7
350.4
Group
£m
1,435.5
297.2
2.2
(23.6)
275.8
(81.5)
194.3
Group
£m
379.9
(18.2)
(64.5)
297.2
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Results for the year continued
2 Segment information continued
2.2 Operating profit by segment
Operating profit by segment
Europe
North America
International
Total operating profit
Statutory
£m
Underlying
adjustments
£m
Underlying
adjustments
£m
£m
Organic
£m
Statutory
Underlying
%
%
Year ended 30 September 2015
Organic
216.6
94.9
(14.3)
297.2
6.4
7.5
68.8
82.7
223.0
102.4
54.5
379.9
(0.8)
0.4
–
(0.4)
222.2
102.8
54.5
379.5
5.0%
7.4%
(386.0%)
(0.8%)
9.7%
5.0%
9.7%
8.4%
Change
Organic
%
9.4%
5.4%
9.7%
8.3%
203.2
97.5
49.7
350.4
Group
£m
1,435.5
297.2
2.2
(23.6)
275.8
(81.5)
194.3
Group
£m
379.9
(18.2)
(64.5)
297.2
Underlying
Underlying as
Statutory
adjustments
reported
£m
Year ended 30 September 2014 (restated)
Impact of
foreign
exchange
£m
Underlying
and organic
£m
£m
8.4
4.3
48.7
61.4
Europe
£m
753.0
216.6
214.6
92.7
53.7
361.0
North
£m
477.0
94.9
(11.4)
4.8
(4.0)
(10.6)
£m
205.5
(14.3)
America
International
£m
206.2
88.4
5.0
299.6
Note
3.5
3.5
4
America
International
Europe
£m
223.0
(6.4)
–
216.6
North
£m
102.4
(7.5)
–
94.9
£m
54.5
(4.3)
(64.5)
(14.3)
The results by segment from continuing operations were as follows:
Operating profit by segment
Europe
North America
International
Total operating profit
Year ended 30 September 2015
Revenue
Segment statutory operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Underlying operating profit
Amortisation of acquired intangible assets
Fair value adjustments and goodwill impairment
Statutory operating profit
The results by segment from continuing operations were as follows:
Year ended 30 September 2014 (restated)
Revenue
Segment statutory operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Year ended 30 September 2014 (restated)
Underlying operating profit (as reported)
Amortisation of acquired intangible assets
Fair value adjustments and goodwill impairment
Acquisition-related items
Litigation costs
Statutory operating profit
Europe
£m
747.7
206.2
North
America
£m
409.0
88.4
International
£m
196.8
5.0
Note
3.5
3.5
4
Europe
£m
214.6
(6.9)
–
(0.1)
(1.4)
206.2
North
America
£m
International
£m
92.7
(2.7)
–
(1.6)
–
88.4
53.7
(4.9)
(44.7)
0.9
–
5.0
Group
£m
1,353.5
299.6
2.1
(23.0)
278.7
(89.8)
188.9
Group
£m
361.0
(14.5)
(44.7)
(0.8)
(1.4)
299.6
In 2015 the organic operating profit adjustment relates to the Exact and PayChoice acquisitions (note 15).
2.3 Analysis by geographic location
Management deems countries which generate more than 10% of total group revenue to be material. Additional disclosures have been
provided below to show the proportion of revenue from these countries.
Revenue by individually significant countries
UK
France
USA
Other individually immaterial countries
2015
£m
298.6
221.2
374.6
541.1
2014
£m
279.1
230.7
308.4
535.3
1,435.5
1,353.5
No single customer contributed more than 10% of the Group’s revenue in the current or prior year.
Reconciliation of underlying operating profit to statutory operating profit
Management deems countries which contribute more than 10% to total group non-current assets to be material. Additional disclosures have
been provided below to show the proportion of non-current assets from these countries.
Non-current assets presented below excludes deferred tax assets, post-employment benefit assets and financial instruments.
Non-current assets by geographical location
UK
France
USA
Other individually immaterial countries and consolidation adjustments
2015
£m
295.8
217.0
871.6
289.8
2014
£m
297.3
235.8
733.7
391.0
1,674.2
1,657.8
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Results for the year continued
3 Profit before income tax
This note sets out the Group’s profit before tax, by looking in more detail at the key operating costs, including a breakdown of the costs
incurred as an employer, research and development costs, the cost of the external audit of the Group’s financial statements and finance
costs. This note also sets out the Group’s revenue recognition policy.
In addition, this note analyses the future amounts payable under operating lease agreements, which the Group has entered into
as at the year-end. These commitments are not included as liabilities on the consolidated balance sheet.
This note also provides a breakdown of any material recurring and non-recurring costs that have been reported separately on the face
of the income statement.
3.1 Revenue
Accounting policy
Revenue is measured at the fair value of the consideration received or receivable and represents amounts received or 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 three revenue categories and the basis of recognition for each category is described below;
Category & Examples
Recurring revenue
Subscription contracts
Maintenance and support contracts
Pay as you go contracts
Software and software-related services
Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Hardware and stationary
Processing revenue
Payment processing services
Payroll processing services
Accounting Treatment
Recurring revenue is revenue earned from customers for the provision of a good or service, where
risks and rewards are transferred to the customer over the term of a contract, with the customer
being unable to continue to benefit from the full functionality of the good or service without
ongoing payments.
Subscription revenue is revenue earned from customers for the provision of a good or service,
where the risk and rewards are transferred to the customer over the term of a contract. In the event
that the customer stops paying, they lose the legal right to use the software and the Company has
the ability to restrict the use of the product or service. (Also known as ‘Pay to play’).
Subscription revenue and maintenance and support revenue is recognised on a straight-line basis
over the term of the contract (including non-specified upgrades, when included). Revenue relating
to future periods is classified as deferred income on the balance sheet to reflect the transfer of risk
and reward.
Perpetual software licences and specified upgrades revenue is recognised when the significant
risks and rewards of ownership relating to the licence have been transferred and it is probable
that the economic benefits associated with the transaction will flow to the Group. This is when
the goods have left the warehouse to be shipped to the customer or when electronic delivery has
taken place.
Other product revenue (which includes business forms, hardware and stationary) is recognised
as the products are shipped to the customer.
Other services revenue (which include the sale of professional services and training) is recognised
when delivered, or by reference to the stage of completion of the transaction at the end of the
reporting period. This assessment is made by comparing the proportion of contract costs incurred
to date to the total expected costs to completion.
Processing revenue is revenue earned from customers for the processing of payments
or where Sage colleagues process our customers’ payroll.
Processing revenue is recognised at the point that the service is rendered on a per
transaction basis.
When products are bundled together before being sold to the customer, it is necessary to apply the recognition criteria to the
separately identifiable components of a single transaction in order to reflect the substance of the transaction. When customers are
offered discounts on bundled products and/or services, the combined discount is allocated to the constituent elements of the bundle,
based upon publically available list prices.
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Results for the year continued
of the income statement.
3.1 Revenue
Accounting policy
Revenue is measured at the fair value of the consideration received or receivable and represents amounts received or 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 three revenue categories and the basis of recognition for each category is described below;
Category & Examples
Recurring revenue
Subscription contracts
Accounting Treatment
Recurring revenue is revenue earned from customers for the provision of a good or service, where
risks and rewards are transferred to the customer over the term of a contract, with the customer
being unable to continue to benefit from the full functionality of the good or service without
Maintenance and support contracts
Pay as you go contracts
ongoing payments.
Subscription revenue is revenue earned from customers for the provision of a good or service,
where the risk and rewards are transferred to the customer over the term of a contract. In the event
that the customer stops paying, they lose the legal right to use the software and the Company has
the ability to restrict the use of the product or service. (Also known as ‘Pay to play’).
Subscription revenue and maintenance and support revenue is recognised on a straight-line basis
over the term of the contract (including non-specified upgrades, when included). Revenue relating
to future periods is classified as deferred income on the balance sheet to reflect the transfer of risk
and reward.
taken place.
Perpetual software licences and specified upgrades revenue is recognised when the significant
risks and rewards of ownership relating to the licence have been transferred and it is probable
that the economic benefits associated with the transaction will flow to the Group. This is when
the goods have left the warehouse to be shipped to the customer or when electronic delivery has
Other product revenue (which includes business forms, hardware and stationary) is recognised
as the products are shipped to the customer.
Other services revenue (which include the sale of professional services and training) is recognised
when delivered, or by reference to the stage of completion of the transaction at the end of the
reporting period. This assessment is made by comparing the proportion of contract costs incurred
to date to the total expected costs to completion.
Processing revenue is revenue earned from customers for the processing of payments
or where Sage colleagues process our customers’ payroll.
Processing revenue is recognised at the point that the service is rendered on a per
transaction basis.
Software and software-related services
Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Hardware and stationary
Processing revenue
Payment processing services
Payroll processing services
When products are bundled together before being sold to the customer, it is necessary to apply the recognition criteria to the
separately identifiable components of a single transaction in order to reflect the substance of the transaction. When customers are
offered discounts on bundled products and/or services, the combined discount is allocated to the constituent elements of the bundle,
based upon publically available list prices.
3 Profit before income tax
3.2 Operating profit
This note sets out the Group’s profit before tax, by looking in more detail at the key operating costs, including a breakdown of the costs
incurred as an employer, research and development costs, the cost of the external audit of the Group’s financial statements and finance
costs. This note also sets out the Group’s revenue recognition policy.
In addition, this note analyses the future amounts payable under operating lease agreements, which the Group has entered into
as at the year-end. These commitments are not included as liabilities on the consolidated balance sheet.
This note also provides a breakdown of any material recurring and non-recurring costs that have been reported separately on the face
Accounting policy
Cost of sales includes items such as third party royalties, transaction and credit card fees related to the provision of payment
processing services and the cost of hardware and inventories. These also include the third party costs of providing training and
professional services to customers. All other operating expenses incurred in the ordinary course of business are recorded in selling
and administrative expenses.
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
Fair value adjustments and goodwill impairment
Loss on disposal of property, plant and equipment
Other operating lease rentals payable
Net foreign exchange losses/
Acquisition-related items
Note
3.3
8.1
7
6.2
3.6
12.1
2015
£m
639.2
8.0
18.2
29.1
64.5
–
27.9
0.3
2.0
The Group also incurred £141.2m (2014: £131.2m) of research and development expenditure in the year, of which £123.5m (2014: £118.5m)
is included above in staff costs. See note 6.2 for the research and development accounting policy.
Services provided by the Group’s auditors and network firms
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs as
detailed below:
Fees payable to the Group’s auditor for the audit of the Plc’s companies and the consolidated accounts
Fees payable to the Group’s auditor for the audit of the Company’s subsidiaries
Fees payable to the Group’s auditor for audit-related assurance services
Total audit and audit related services
Tax compliance services
Tax advisory services
Other non-audit services
Total fees
2015
£m
0.9
1.8
0.1
2.8
–
–
–
2.8
2014
£m
601.5
12.5
18.0
24.5
44.7
0.8
28.8
0.1
2.4
2014
£m
0.3
1.7
0.1
2.1
0.6
0.3
0.1
3.1
The 2015 Audit fees for the Group are higher than 2014, reflecting the complexities of a first year audit following the recent appointment
of Ernst and Young as the Group’s auditors (2014: PricewaterhouseCoopers). The fees are expected to reduce to historic levels in 2016.
A summary of the Board’s policy in respect of the procurement of non-audit services for the Group’s auditor is set out on page 72.
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Results for the year continued
3 Profit before income tax continued
3.3 Employees and directors
Average monthly number of people employed (including directors)
By segment:
Europe
North America
International
Staff costs (including directors on service contracts)
Wages and salaries
Social security costs
Post-employment benefits
Share-based payments
2015
number
7,277
2,508
3,486
13,271
2015
£m
546.2
72.1
11.8
9.1
639.2
2014
adjusted
number
6,961
2,295
3,228
12,484
2014
adjusted
£m
509.7
72.8
11.0
8.0
601.5
Note
10
14.2
The presentation of the 2014 comparatives has been revised with a reclassification between wages and salaries and social security costs
and to exclude £15.3m of 2014 contractor costs previously disclosed in wages and salaries.
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
2015
£m
10.0
0.4
2.4
12.8
2014
£m
5.9
0.5
1.4
7.8
The key management figures given above include directors. Key management personnel are deemed to be members of the Executive
Committee as shown on page 62.
3.4 Operating lease commitments
Accounting policy
Rentals payable under operating leases are charged to the income statement 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.
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
2015
Property,
vehicles, plant
and equipment
£m
2014
Property,
vehicles, plant
and equipment
£m
29.4
73.7
15.7
118.8
29.5
77.0
29.8
136.3
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.
120
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3.5 Finance income and costs
Accounting policy
Finance income and costs are recognised using the effective interest method. Finance costs are recognised in the income statement
simultaneously with the recognition of an increase in a liability or the reduction in an asset.
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
2015
£m
2.2
(3.6)
(18.7)
(1.3)
–
(23.6)
2014
£m
2.1
(4.6)
(16.4)
(1.2)
(0.8)
(23.0)
(21.4)
(20.9)
The presentation of the 2014 comparatives has been revised with a reclassification between wages and salaries and social security costs
and to exclude £15.3m of 2014 contractor costs previously disclosed in wages and salaries.
3.6 Adjustments between underlying and statutory results
Accounting policy
The business is managed and measured on a day to day basis using underlying results. To arrive at underlying results, certain
adjustments are made for items that are individually important and which could, if included, distort the understanding of the
performance for the year and the comparability between periods.
Management apply judgement in determining which items should be excluded from underlying performance.
Recurring items
These are items which occur regularly but which management judge to have a distorting effect on the underlying results of the Group.
These items relate mainly, although not restricted to, fair value adjustments on financial instruments, and merger & acquisition (“M&A”)
activity which by its nature is irregular in its impact and includes amortisation, and acquisition related costs. These do not include
operating or integration costs related to the acquisition. Recurring items are adjusted each year irrespective of materiality to ensure
consistent treatment.
Non-recurring items
These items are those items which are non-recurring nature and are identified by virtue of either their size or nature. These items
can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals and restructuring.
These are items which management judge to be of a one-off nature or non-operational, which would distort a reader of the Company’s
accounts understanding of underlying business performance.
Results for the year continued
3 Profit before income tax continued
3.3 Employees and directors
Average monthly number of people employed (including directors)
By segment:
Europe
North America
International
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
Committee as shown on page 62.
3.4 Operating lease commitments
Accounting policy
lease term.
Note
10
14.2
2015
number
7,277
2,508
3,486
13,271
2015
£m
546.2
72.1
11.8
9.1
639.2
2015
£m
10.0
0.4
2.4
12.8
2014
adjusted
number
6,961
2,295
3,228
12,484
2014
adjusted
£m
509.7
72.8
11.0
8.0
601.5
2014
£m
5.9
0.5
1.4
7.8
2015
2014
Property,
Property,
vehicles, plant
vehicles, plant
and equipment
and equipment
£m
29.4
73.7
15.7
118.8
£m
29.5
77.0
29.8
136.3
The key management figures given above include directors. Key management personnel are deemed to be members of the Executive
Rentals payable under operating leases are charged to the income statement 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
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.
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121
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Results for the year continued
3 Profit before income tax continued
3.6 Adjustments between underlying and statutory results continued
Acquisition-related items
Amortisation of acquired intangibles
Fair value adjustments
Litigation costs
Other acquisition-related items
Other items
Goodwill impairment
Total adjustments made to operating profit
Acquisition-related items
Imputed interest on put and call arrangements to acquire non-
controlling interest and deferred consideration
Total adjustments made to profit before income tax
Recurring
2015
£m
Non-recurring
2015
£m
18.2
2.2
–
–
–
20.4
–
20.4
–
–
–
–
62.3
62.3
–
62.3
Total
2015
£m
18.2
2.2
–
–
62.3
82.7
–
82.7
Recurring
2014
£m
Non-recurring
2014
£m
14.5
0.4
–
0.8
–
15.7
0.8
16.5
–
–
1.4
–
44.3
45.7
–
45.7
Total
2014
£m
14.5
0.4
1.4
0.8
44.3
61.4
0.8
62.2
Recurring items
Acquired intangibles are assets which have previously been recognised as part of business combinations. These assets are predominantly
brands, customer relationships and technology rights. Further details including specific accounting policies in relation to these assets can
be found in note 6.2.
The current year fair value adjustment (£2.2m) relates to an accounting loss on fair valuation of the call option in relation to the possible
acquisition of Mastermaq. The prior year fair value adjustment (£0.4m) related to the accounting loss on the settlement of the put and call
arrangement to acquire 25% of the share capital of Folhamatic, within the Brazilian sub-group, from the non-controlling interest holder.
This transaction occurred in August 2014. Further details can be found in note 13.4.
The 2014 adjustments relating to other acquisition-related items were made up of the cost of carrying out business combinations in the
year (£2.4m). This was partly offset by the net release of earn-out liabilities on previous acquisitions (£1.6m).
The prior year imputed interest adjustment on the put and call arrangement relates to the accounting adjustment made during the year
to discount this liability to its present value. This entry was made up until the liability was settled in August 2014. As above, further details
can be found in note 13.4.
Non-recurring items
As a result of the annual goodwill impairment review, an impairment of the goodwill held in the Brazilian business was recognised in 2015
and 2014. This impairment is driven by economic conditions in Brazil and a re-assessment of the future performance of the Brazilian business
performed by management. Further details can be found in note 6.1.
The adjustment relating to litigation costs relates to the defence of the Archer Capital case, which was strongly rejected by management.
In 2015 the claim brought by Archer Capital was dismissed on all grounds. No further costs were incurred in 2015.
All other litigation costs which may be incurred through the normal course of business are charged through operational expenses.
See note 4 for the tax impact of these adjustments.
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Results for the year continued
3 Profit before income tax continued
3.6 Adjustments between underlying and statutory results continued
Recurring
Non-recurring
Recurring
Non-recurring
Acquisition-related items
Amortisation of acquired intangibles
Fair value adjustments
Litigation costs
Other acquisition-related items
Other items
Goodwill impairment
Total adjustments made to operating profit
Acquisition-related items
Imputed interest on put and call arrangements to acquire non-
controlling interest and deferred consideration
2015
£m
18.2
2.2
–
–
–
–
20.4
2015
£m
–
–
–
–
–
62.3
62.3
Total
2015
£m
18.2
2.2
–
–
62.3
82.7
–
2014
£m
14.5
0.4
–
0.8
–
15.7
0.8
16.5
2014
£m
–
–
–
1.4
44.3
45.7
–
45.7
Total
2014
£m
14.5
0.4
1.4
0.8
44.3
61.4
0.8
62.2
Total adjustments made to profit before income tax
20.4
62.3
82.7
Recurring items
be found in note 6.2.
Acquired intangibles are assets which have previously been recognised as part of business combinations. These assets are predominantly
brands, customer relationships and technology rights. Further details including specific accounting policies in relation to these assets can
The current year fair value adjustment (£2.2m) relates to an accounting loss on fair valuation of the call option in relation to the possible
acquisition of Mastermaq. The prior year fair value adjustment (£0.4m) related to the accounting loss on the settlement of the put and call
arrangement to acquire 25% of the share capital of Folhamatic, within the Brazilian sub-group, from the non-controlling interest holder.
This transaction occurred in August 2014. Further details can be found in note 13.4.
The 2014 adjustments relating to other acquisition-related items were made up of the cost of carrying out business combinations in the
year (£2.4m). This was partly offset by the net release of earn-out liabilities on previous acquisitions (£1.6m).
The prior year imputed interest adjustment on the put and call arrangement relates to the accounting adjustment made during the year
to discount this liability to its present value. This entry was made up until the liability was settled in August 2014. As above, further details
can be found in note 13.4.
Non-recurring items
As a result of the annual goodwill impairment review, an impairment of the goodwill held in the Brazilian business was recognised in 2015
and 2014. This impairment is driven by economic conditions in Brazil and a re-assessment of the future performance of the Brazilian business
performed by management. Further details can be found in note 6.1.
The adjustment relating to litigation costs relates to the defence of the Archer Capital case, which was strongly rejected by management.
In 2015 the claim brought by Archer Capital was dismissed on all grounds. No further costs were incurred in 2015.
All other litigation costs which may be incurred through the normal course of business are charged through operational expenses.
See note 4 for the tax impact of these adjustments.
4 Income tax expense
This note analyses the tax charge for this financial year which includes both current and deferred tax. Current tax expense represents
the amount payable on this year’s taxable profits and any adjustments relating to prior years. Deferred tax is an accounting adjustment
to provide tax that is expected to arise in the future due to differences between accounting and tax bases.
This note outlines the tax accounting policies, the current and deferred tax charges in the year and presents a reconciliation of profit
before tax in the income statement to the tax charge.
Accounting policy
The taxation charge for the year represents the sum of the tax currently payable and deferred tax. The charge is recognised in the
income statement and statement of comprehensive income according to the accounting treatment of the related transaction.
Current tax payable or receivable is based on the taxable income for the period and any adjustment in respect of prior periods.
Current tax is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases (note 11).
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
The current year tax charge is split into the following:
Underlying tax charge
Tax credit on adjustments between the underlying and statutory operating profit
Income tax expense
Note
11
2015
£m
106.9
(11.0)
95.9
(13.9)
(0.5)
(14.4)
90.3
(8.8)
81.5
2014
£m
101.4
(4.2)
97.2
(5.3)
(2.1)
(7.4)
90.5
(0.7)
89.8
The majority of the current tax adjustment in respect of prior years of £11.0m (2014: £4.2m) reflects the resolution of a number of historical
tax matters, including settlements with the Tax Authorities.
Tax on items credited to other comprehensive income
Deferred tax credit on actuarial loss on post-employment benefit obligations
Total tax on items credited to other comprehensive income/equity
2015
£m
(0.6)
(0.6)
2014
£m
(0.4)
(0.4)
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Results for the year continued
4 Income tax expense continued
The tax for the year is higher (2014: higher) than the standard rate of corporation tax in the UK of 20.5% (2014: 22%). The differences are
explained below:
Statutory profit on ordinary activities before income tax
Statutory profit on ordinary activities multiplied by rate of corporation tax in the UK of 20.5% (2014: 22 %)
Note
Tax effects of:
Adjustments in respect of prior years
Adjustments in respect of foreign tax rates
Non-deductible expenses and permanent items
Non-deductible impairment
Local business tax
R&D tax credits
Recognition of amortisation claims
Deferred tax on share options
Total statutory income tax
2015
£m
275.8
56.5
(11.5)
22.4
6.6
10.5
3.3
(1.7)
(4.4)
(0.2)
81.5
2014
(restated)
£m
278.7
61.3
(6.3)
22.0
4.5
9.8
2.8
(2.1)
(2.0)
(0.2)
89.8
The effective tax rate on statutory profit before tax was 30% (FY14: 32%), whilst the effective tax rate on underlying profit before tax was
25% (FY14: 27%). The difference between the statutory effective tax rate and the underlying tax rate relates to an impairment which is not
deductible for tax purposes.
The underlying effective tax rate is higher than the UK’s statutory rate of tax due to the geographic profile of the Group. In addition, there
is an obligation to account for local business taxes in the corporate tax charge. These additional tax charges are offset by research and
development tax credits which are a government incentive in a number of operating territories.
The 2014 tax reconciliation has been restated to show the relationship between the group’s statutory profit before income tax and
income tax expense, rather than the relationship between underlying profit before tax and underlying tax charge, as presented in the
2014 financial statements.
5 Earnings per share
This note shows how earnings per share (“EPS”) is calculated. EPS is the amount of post-tax profit attributable to each ordinary share.
Basic EPS is calculated on profit for the year attributable to equity shareholders divided by the weighted average number of shares in
issue during the year. Diluted EPS shows what the impact would be if all outstanding, exercisable share options were exercised and
treated as ordinary shares at the year-end.
This note also provides a reconciliation between the statutory profit figure, which ties to the consolidated income statement on
page 104, and the Group’s internal measure of performance, underlying profit. See note 3.6 for details of the adjustments made
between statutory and underlying profit, and note 4 for the tax impact on these adjustments.
Accounting policy
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, which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares, exercisable at the end of the year. The Group has one class of dilutive potential ordinary shares.
They are share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary
shares during the year.
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The tax for the year is higher (2014: higher) than the standard rate of corporation tax in the UK of 20.5% (2014: 22%). The differences are
Reconciliations of the earnings and weighted average number of shares
Statutory profit on ordinary activities before income tax
Statutory profit on ordinary activities multiplied by rate of corporation tax in the UK of 20.5% (2014: 22 %)
Note
Earnings (£m)
Profit for the year
Number of shares (millions)
Weighted average number of shares
Dilutive effects of shares
Earnings per share
Basic earnings per share (pence)
Underlying as
reported
(restated)
2014
Underlying
2015
Underlying
(restated)
2014
Statutory
2015
Statutory
(restated)
2014
268.2
249.5
241.7
194.3
188.0
1,073.0
6.5
1,079.5
1,089.0
1.7
1,090.7
1,089.0
1.7
1,090.7
1,073.0
6.5
1,079.5
1,089.0
1.7
1,090.7
25.00
22.91
22.19
18.11
17.26
Diluted earnings per share (pence)
24.85
22.87
22.16
18.00
17.24
Reconciliation between statutory and underlying earnings per share
Earnings: Statutory profit for the year
Adjustments:
Intangible amortisation excluding amortisation of acquired intangible assets
Other acquisition-related items
Goodwill impairment and fair value adjustments
Litigation costs
Imputed interest on put and call arrangement to acquire non-controlling interest and deferred consideration
Taxation on adjustments
Net adjustments
Earnings – underlying profit for the year (before exchange movement)
Exchange movement
Taxation on exchange movement
Net exchange movement
Earnings – underlying profit for the year (after exchange movement)
2015
£m
194.3
18.2
–
64.5
–
–
(8.8)
73.9
268.2
–
–
–
268.2
2014
(Restated)
£m
188.0
14.5
0.8
44.7
1.4
0.8
(0.7)
61.5
249.5
(11.5)
3.7
(7.8)
241.7
Exchange movement relates to the retranslation of prior year results to current year exchange rates as shown in the table on page 45 within
the financial review.
The prior year weighted average share base has been restated to include shares held by the Employee Benefit Trust as treasury shares.
Results for the year continued
4 Income tax expense continued
explained below:
Tax effects of:
Adjustments in respect of prior years
Adjustments in respect of foreign tax rates
Non-deductible expenses and permanent items
Non-deductible impairment
Local business tax
R&D tax credits
Recognition of amortisation claims
Deferred tax on share options
Total statutory income tax
deductible for tax purposes.
2015
£m
275.8
56.5
(11.5)
22.4
6.6
10.5
3.3
(1.7)
(4.4)
(0.2)
81.5
2014
(restated)
£m
278.7
61.3
(6.3)
22.0
4.5
9.8
2.8
(2.1)
(2.0)
(0.2)
89.8
The effective tax rate on statutory profit before tax was 30% (FY14: 32%), whilst the effective tax rate on underlying profit before tax was
25% (FY14: 27%). The difference between the statutory effective tax rate and the underlying tax rate relates to an impairment which is not
The underlying effective tax rate is higher than the UK’s statutory rate of tax due to the geographic profile of the Group. In addition, there
is an obligation to account for local business taxes in the corporate tax charge. These additional tax charges are offset by research and
development tax credits which are a government incentive in a number of operating territories.
The 2014 tax reconciliation has been restated to show the relationship between the group’s statutory profit before income tax and
income tax expense, rather than the relationship between underlying profit before tax and underlying tax charge, as presented in the
2014 financial statements.
5 Earnings per share
This note shows how earnings per share (“EPS”) is calculated. EPS is the amount of post-tax profit attributable to each ordinary share.
Basic EPS is calculated on profit for the year attributable to equity shareholders divided by the weighted average number of shares in
issue during the year. Diluted EPS shows what the impact would be if all outstanding, exercisable share options were exercised and
treated as ordinary shares at the year-end.
This note also provides a reconciliation between the statutory profit figure, which ties to the consolidated income statement on
page 104, and the Group’s internal measure of performance, underlying profit. See note 3.6 for details of the adjustments made
between statutory and underlying profit, and note 4 for the tax impact on these adjustments.
Accounting policy
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, which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares, exercisable at the end of the year. The Group has one class of dilutive potential ordinary shares.
They are share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary
shares during the year.
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Operating assets and liabilities
6 Intangible assets
This note provides details of the non-physical assets used by the Group to generate revenues and profits. These assets include items
such as goodwill, and other intangible assets such as brands, customer relationships, computer software, in-process R&D and
technology which have predominantly been acquired as part of business combinations. These assets are initially measured at fair value,
meaning the best estimate of the value for which these assets could be sold in an arm’s length transaction.
Goodwill represents the excess between the amount paid to acquire the businesses over the fair value of the net assets at the
acquisition date.
This section also explains the accounting policies applied and the specific judgements and estimates made by the directors in arriving
at the carrying value of these assets.
6.1 Goodwill
Accounting policy
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 any previous equity interest in the acquiree over the fair value
of the Group’s total identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses.
Goodwill previously written-off directly to reserves under UK GAAP prior to 1 October 1998 has not been reinstated and is not recycled to
the income statement on the disposal of the business to which it relates. Gains and losses on disposal of the entity 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).
Goodwill is allocated to CGUs for the purpose 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.
Goodwill is allocated to CGUs expected to benefit from the synergies of the combination and the allocation represents the lowest level
at which goodwill is monitored.
Cost at 1 October
– Additions
– Exchange movement
At 30 September
Impairment at 1 October
– Impairment in the year
– Exchange movement
At 30 September
2015
£m
1,476.7
61.9
(12.2)
1,526.4
43.7
62.3
(25.6)
80.4
2014
£m
1,516.6
7.6
(47.5)
1,476.7
1.4
44.3
(2.0)
43.7
Net book amount at 30 September
1,446.0
1,433.0
In the current year the Group acquired Paychoice and recorded goodwill of £59.6m (note 15.1). The Group also incurred a fair value
adjustment of £2.3m in relation to the acquisition of Exact which was acquired on 15 September 2014.
126
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Operating assets and liabilities
6 Intangible assets
acquisition date.
at the carrying value of these assets.
6.1 Goodwill
Accounting policy
This note provides details of the non-physical assets used by the Group to generate revenues and profits. These assets include items
such as goodwill, and other intangible assets such as brands, customer relationships, computer software, in-process R&D and
technology which have predominantly been acquired as part of business combinations. These assets are initially measured at fair value,
meaning the best estimate of the value for which these assets could be sold in an arm’s length transaction.
Goodwill represents the excess between the amount paid to acquire the businesses over the fair value of the net assets at the
This section also explains the accounting policies applied and the specific judgements and estimates made by the directors in arriving
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 any previous equity interest in the acquiree over the fair value
of the Group’s total identifiable net assets acquired. Goodwill is carried at cost less accumulated impairment losses.
Goodwill previously written-off directly to reserves under UK GAAP prior to 1 October 1998 has not been reinstated and is not recycled to
the income statement on the disposal of the business to which it relates. Gains and losses on disposal of the entity 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).
Goodwill is allocated to CGUs for the purpose 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.
Goodwill is allocated to CGUs expected to benefit from the synergies of the combination and the allocation represents the lowest level
at which goodwill is monitored.
Cost at 1 October
– Additions
– Exchange movement
At 30 September
Impairment at 1 October
– Impairment in the year
– Exchange movement
At 30 September
2015
£m
1,476.7
61.9
(12.2)
1,526.4
43.7
62.3
(25.6)
80.4
2014
£m
1,516.6
7.6
(47.5)
1,476.7
1.4
44.3
(2.0)
43.7
Net book amount at 30 September
1,446.0
1,433.0
In the current year the Group acquired Paychoice and recorded goodwill of £59.6m (note 15.1). The Group also incurred a fair value
adjustment of £2.3m in relation to the acquisition of Exact which was acquired on 15 September 2014.
Goodwill impairment tests
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 (SBS)
– Sage Payment Solutions Division (SPS)
Brazil
South Africa
Australia
Malaysia
Singapore
2015
£m
186.3
180.6
107.0
23.6
32.1
34.5
5.8
4.7
635.4
165.0
–
36.3
19.0
11.2
4.5
2014
£m
196.7
180.6
112.9
24.2
31.4
32.8
6.2
4.9
533.6
154.1
76.8
39.7
20.4
14.0
4.7
1,446.0
1,433.0
The recoverable amounts of CGUs are determined as the higher of fair value less costs to sell and the value-in-use. In determining value-in-
use, estimated future cash flows are discounted to their present value.
In all cases, the 2016 budget and the approved Group plan for the five years following the current financial year form the basis for the cash
flow projections for a CGU. Beyond the five year plan these projections are extrapolated using an estimated long-term growth rate. The key
assumptions in the value-in-use calculations are the average medium term revenue growth rate, the long-term operating margin and the
long-term growth rate of net operating cash flows.
– The average medium-term revenue growth rate for the first five years is based on the 2016 budget and the approved Group 5-year plan.
The average medium-term revenue growth rate applied to CGUs reflects the specific rates for each territory.
– The long-term operating margin (before central costs) assumed for a CGU’s operations is based on the 2016 budget and the approved
Group 5-year plan. The long-term operating margin applied to CGUs reflects the specific rates for each territory.
– Long-term growth rates of net operating cash flows are assumed to be equal to the long-term growth rate in the gross domestic product
of the country in which the CGU’s operations are undertaken reflecting the specific rates for each territory.
Range of rates used across the different CGUs
– Average medium-term revenue growth rate*
– Long-term operating margin before central costs
– Long-term growth rates to net operating cash flows
2015
2014
0% - 20%
1% - 15%
12% - 63%
26% - 62%
1.1% - 4.2%
1.3% - 5.1%
* Average Medium-Term Revenue Growth Rate is calculated on value in use projections that exclude intercompany revenue.
In accordance with IAS 36, key assumptions for those CGUs where significant goodwill is held are disclosed. These are deemed by
management to be CGUs holding more than 10% of total goodwill. The discount rate, average medium-term revenue growth rate,
long-term operating margin (before central costs) and long-term growth rate assumptions used for the value-in-use calculation are
shown below:
2015
– UKI
– France
– North America − SBS
– North America − SPS
Local
Discount
Rate
Long-Term
Growth
Rate
Average*
Medium-Term*
Revenue*
Growth Rate*
Long-Term
Operating
Margin before
central costs
9.1%
8.5%
8.9%
8.9%
2.5%
2.1%
2.3%
2.3%
6.7%
4.9%
10.0%
10.0%
47.3%
30.2%
31.6%
30.7%
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Operating assets and liabilities continued
6 Intangible assets continued
6.1 Goodwill continued
2014
– UKI
– France
– North America − SBS
– North America − SPS
Local
Discount
Rate
(post tax)
8.0%
7.1%
8.0%
8.0%
Average*
Medium-Term*
Revenue*
Growth Rate*
Long-Term
Operating
Margin before
central costs
Long-Term
Growth Rate
1.7%
1.5%
2.4%
2.4%
4.2%
0.8%
4.4%
12.1%
43.1%
39.3%
32.1%
35.2%
* Average Medium-Term Revenue Growth Rate is calculated on value in use projections that exclude intercompany revenue.
Discount rate
The Group uses a discount rate based on a local Weighted Average Cost of Capital (“WACC”) for each CGU, applying local government
yield bonds and tax rates to each CGU on a geographical basis. The discount rate applied to a CGU represents a post-tax rate that reflects
the market assessment of the time value of money at the end of the Q3 2015 and the risks specific to the CGU. The discount rates applied
to CGUs were in the range of 7.24% (2014: 6.03%) to 17.48% (2014: 17.05%), reflecting the specific rates for each territory.
Impairment charge
The Group performed its annual test for impairment in the third quarter of 2015. The recoverable amount exceeded the carrying value for all
CGUs with the exception of Brazil. An impairment of £62.3m was recognised, driven by economic uncertainty in Brazil which is expected to
continue in the future. The key assumptions used in the impairment calculation for Brazil were revenue growth of 9% per annum, long term
operating margin of 24%, long term growth of 2.6%, and discount rate of 17.48%.
Sensitivity analysis
A sensitivity analysis was performed for each of the other CGUs and in the absence of goodwill in Brazil, management believes
that no reasonably possible change in any of the above key assumptions would cause the carrying value of any CGU to exceed its
recoverable amount.
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Operating assets and liabilities continued
Local
Discount
Average*
Medium-Term*
Long-Term
Operating
Rate
Long-Term
Revenue*
Margin before
(post tax)
Growth Rate
Growth Rate*
central costs
8.0%
7.1%
8.0%
8.0%
1.7%
1.5%
2.4%
2.4%
4.2%
0.8%
4.4%
12.1%
43.1%
39.3%
32.1%
35.2%
6 Intangible assets continued
6.1 Goodwill continued
2014
– UKI
– France
– North America − SBS
– North America − SPS
Discount rate
Impairment charge
Sensitivity analysis
recoverable amount.
* Average Medium-Term Revenue Growth Rate is calculated on value in use projections that exclude intercompany revenue.
The Group uses a discount rate based on a local Weighted Average Cost of Capital (“WACC”) for each CGU, applying local government
yield bonds and tax rates to each CGU on a geographical basis. The discount rate applied to a CGU represents a post-tax rate that reflects
the market assessment of the time value of money at the end of the Q3 2015 and the risks specific to the CGU. The discount rates applied
to CGUs were in the range of 7.24% (2014: 6.03%) to 17.48% (2014: 17.05%), reflecting the specific rates for each territory.
The Group performed its annual test for impairment in the third quarter of 2015. The recoverable amount exceeded the carrying value for all
CGUs with the exception of Brazil. An impairment of £62.3m was recognised, driven by economic uncertainty in Brazil which is expected to
continue in the future. The key assumptions used in the impairment calculation for Brazil were revenue growth of 9% per annum, long term
operating margin of 24%, long term growth of 2.6%, and discount rate of 17.48%.
A sensitivity analysis was performed for each of the other CGUs and in the absence of goodwill in Brazil, management believes
that no reasonably possible change in any of the above key assumptions would cause the carrying value of any CGU to exceed its
6.2 Other intangibles
Accounting policy
Intangible assets arising on business combinations are initially held at fair value less accumulated amortisation and impairment losses.
The main intangible assets recognised are brands, technology, in-process R&D, computer software and customer relationships.
Amortisation is charged to the income statement on a straight-line basis over their estimated useful lives.
The estimated useful lives are as follows:
Brand names
Technology/In process R&D (“IPR&D”)
Customer relationships
Computer software
– 3 to 20 years
– 3 to 7 years
– 4 to 15 years
– 2 to 5 years
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.
The carrying value of intangibles is reviewed for impairment whenever events indicate that the carrying value may not be recoverable.
Internally generated software development costs qualify for capitalisation if the Group can demonstrate all of the following:
– The technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete the
intangible asset and use or sell it;
– Its ability to use or sell the intangible asset; how the intangible asset will generate probable future economic benefits;
– The existence of a market or, if it is to be used internally, the usefulness of the intangible asset;
– The availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset;
– Its ability to measure reliably the expenditure attributable to the intangible asset during development.
Generally, commercial viability of new products is not proven until all high risk development issues have been resolved through testing
pre-launch versions of the product. As a result, technical feasibility is proven only after completion of the detailed design phase and
formal approval, which occurs just before the products are ready to go to market. Accordingly, development costs have not been
capitalised. However, the group continues to assess the eligibility of development costs for capitalisation on a project by project basis.
Costs which are incurred after the general release of internally generated software or costs which are incurred in order to enhance
existing products are expensed in the period in which they are incurred and included within research and development expense in the
financial statements (see note 3.2).
Cost at 1 October 2014
– Additions
– Acquisition of subsidiaries
– Disposals
– Exchange movement
At 30 September 2015
Accumulated amortisation at 1 October 2014
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2015
Brands
£m
36.7
–
–
–
(2.4)
34.3
21.9
2.3
–
(0.7)
23.5
Technology
£m
83.3
–
28.5
(0.1)
(5.4)
106.3
67.6
9.2
–
(4.2)
72.6
Net book amount at 30 September 2015
10.8
33.7
Acquired
IPR&D
£m
0.3
Internal
IPR&D
£m
5.6
–
–
–
–
0.3
0.3
–
–
–
0.3
–
–
–
–
–
5.6
5.6
–
–
–
5.6
–
Computer
software
£m
Customer
relationships
£m
64.4
4.6
0.3
(0.2)
1.7
70.8
28.4
10.9
(0.1)
0.7
39.9
111.6
1.4
5.4
–
1.6
120.0
80.0
6.7
–
3.2
89.9
Total
£m
301.9
6.0
34.2
(0.3)
(4.5)
337.3
203.8
29.1
(0.1)
(1.0)
231.8
30.9
30.1
105.5
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Operating assets and liabilities continued
6 Intangible assets continued
6.2 Other intangibles continued
Cost at 1 October 2013
– Additions
– Acquisition of subsidiaries
– Disposals
– Exchange movement
At 30 September 2014
Accumulated amortisation at 1 October 2013
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2014
Net book amount at 30 September 2014
Brands
£m
Technology
£m
Acquired
IPR&D
£m
38.6
0.2
–
–
(2.1)
36.7
20.5
2.4
–
(1.0)
21.9
14.8
88.2
0.5
–
–
(5.4)
83.3
65.1
5.9
–
(3.4)
67.6
15.7
0.4
–
–
–
(0.1)
0.3
0.4
–
–
(0.1)
0.3
–
Internal
IPR&D
£m
5.6
–
–
–
–
5.6
5.6
–
–
–
5.6
–
Computer
software
£m
Customer
relationships
£m
60.3
7.5
–
(0.8)
(2.6)
64.4
20.9
10.0
(0.8)
(1.7)
28.4
36.0
108.6
0.1
6.6
(0.2)
(3.5)
111.6
75.7
6.2
–
(1.9)
80.0
31.6
Total
£m
301.7
8.3
6.6
(1.0)
(13.7)
301.9
188.2
24.5
(0.8)
(8.1)
203.8
98.1
All amortisation charges in the year have been charged through selling and administrative expenses.
7 Property, plant and equipment
This note details the physical assets used by the Group to operate the business and generate revenues and profits. Assets are shown
at their initial purchase price less depreciation, which is an expense that is charged over the useful life of these assets to reflect annual
wear and tear, and impairment.
Accounting policy
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation on property,
plant and equipment is provided on a straight-line basis down to an asset’s residual value over its useful economic life as follows:
Freehold buildings
Long leasehold buildings and improvements
Plant and equipment
Motor vehicles
Office equipment
– 50 years
– over period of lease
– 2 to 7 years
– 4 years
– 2 to 7 years
Freehold land is not depreciated.
Cost at 1 October 2014
– Additions
– Disposals
– Acquisition of subsidiaries
– Exchange movement
At 30 September 2015
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2015
Accumulated depreciation at 1 October 2014
Cost at 1 October 2013
– Additions
– Disposals
– Acquisition of subsidiaries
– Exchange movement
At 30 September 2014
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2014
Accumulated depreciation at 1 October 2013
Net book amount at 30 September 2015
77.1
30.7
14.9
122.7
Assets held under finance leases with a net book value of £1.0m (2014: £1.5m) are included in the above table.
Land and
buildings
Plant and
equipment
Motor vehicles
and office
equipment
Land and
buildings
Plant and
equipment
Motor vehicles
and office
equipment
£m
92.5
0.1
–
–
(1.3)
91.3
15.2
1.3
–
(2.3)
14.2
£m
94.1
2.3
(2.8)
–
(1.1)
92.5
15.3
3.0
(2.6)
(0.5)
15.2
£m
141.7
11.3
(6.5)
1.0
(4.0)
143.5
106.8
12.8
(6.1)
(0.7)
112.8
£m
141.6
11.6
(8.8)
–
(2.7)
141.7
106.4
11.0
(8.4)
(2.2)
106.8
£m
49.9
5.0
(2.3)
–
1.7
54.3
35.4
4.1
(0.6)
0.5
39.4
£m
54.1
5.8
(7.2)
0.2
(3.0)
49.9
39.3
4.0
(5.9)
(2.0)
35.4
Total
£m
284.1
16.4
(8.8)
1.0
(3.6)
289.1
157.4
18.2
(6.7)
(2.5)
166.4
Total
£m
289.8
19.7
(18.8)
0.2
(6.8)
284.1
161.0
18.0
(16.9)
(4.7)
157.4
The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the
lease term.
The carrying value of property, plant and equipment is reviewed for impairment whenever events indicate that the carrying value may
not be recoverable.
8 Working capital
Net book amount at 30 September 2014
77.3
34.9
14.5
126.7
Depreciation expenses of £18.2m (2014: £18.0m) have been charged through selling and administrative expenses (note 3.2).
This note provides the amounts invested by the Group in working capital balances at the end of the financial year. Working capital
is made up of inventories, trade and other receivables and trade and other payables.
Inventories mainly consist of warehouse stock of Sage products, awaiting shipment to business partners or distributors. Trade and
other receivables are made up of amounts owed to the Group by customers and amounts that we pay to our suppliers in advance.
Trade receivables are shown net of an allowance for bad and doubtful debts. Our trade and other payables are amounts we owe to
our suppliers that have been invoiced to us or accrued by us. They also include taxes and social security amounts due in relation to
our role as an employer.
This note also gives some additional detail on the age and recoverability of our trade receivables, which provide an understanding
of the credit risk faced by the Group as a part of everyday trading. Credit risk is further disclosed in the Directors’ Report.
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131
The Sage Group plc | Annual Report & Accounts 2015
Operating assets and liabilities continued
6 Intangible assets continued
6.2 Other intangibles continued
Cost at 1 October 2013
– Additions
– Acquisition of subsidiaries
– Disposals
– Exchange movement
At 30 September 2014
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2014
Accumulated amortisation at 1 October 2013
Net book amount at 30 September 2014
7 Property, plant and equipment
wear and tear, and impairment.
Accounting policy
Freehold buildings
Plant and equipment
Motor vehicles
Office equipment
lease term.
not be recoverable.
Freehold land is not depreciated.
All amortisation charges in the year have been charged through selling and administrative expenses.
This note details the physical assets used by the Group to operate the business and generate revenues and profits. Assets are shown
at their initial purchase price less depreciation, which is an expense that is charged over the useful life of these assets to reflect annual
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. 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:
Long leasehold buildings and improvements
– over period of lease
– 50 years
– 2 to 7 years
– 4 years
– 2 to 7 years
The carrying value of property, plant and equipment is reviewed for impairment whenever events indicate that the carrying value may
Brands
Technology
Acquired
IPR&D
Internal
IPR&D
Computer
Customer
software
relationships
£m
38.6
0.2
–
–
(2.1)
36.7
20.5
2.4
–
(1.0)
21.9
14.8
£m
88.2
0.5
–
–
(5.4)
83.3
65.1
5.9
–
(3.4)
67.6
15.7
£m
0.4
–
–
–
(0.1)
0.3
0.4
–
–
(0.1)
0.3
–
£m
5.6
–
–
–
–
–
–
–
–
5.6
5.6
5.6
£m
60.3
7.5
–
(0.8)
(2.6)
64.4
20.9
10.0
(0.8)
(1.7)
28.4
36.0
£m
108.6
0.1
6.6
(0.2)
(3.5)
111.6
75.7
6.2
–
(1.9)
80.0
31.6
Total
£m
301.7
8.3
6.6
(1.0)
(13.7)
301.9
188.2
24.5
(0.8)
(8.1)
203.8
98.1
Cost at 1 October 2014
– Additions
– Disposals
– Acquisition of subsidiaries
– Exchange movement
At 30 September 2015
Accumulated depreciation at 1 October 2014
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2015
Land and
buildings
£m
Plant and
equipment
£m
Motor vehicles
and office
equipment
£m
92.5
0.1
–
–
(1.3)
91.3
15.2
1.3
–
(2.3)
14.2
141.7
11.3
(6.5)
1.0
(4.0)
143.5
106.8
12.8
(6.1)
(0.7)
112.8
49.9
5.0
(2.3)
–
1.7
54.3
35.4
4.1
(0.6)
0.5
39.4
Total
£m
284.1
16.4
(8.8)
1.0
(3.6)
289.1
157.4
18.2
(6.7)
(2.5)
166.4
Net book amount at 30 September 2015
77.1
30.7
14.9
122.7
Assets held under finance leases with a net book value of £1.0m (2014: £1.5m) are included in the above table.
Cost at 1 October 2013
– Additions
– Disposals
– Acquisition of subsidiaries
– Exchange movement
At 30 September 2014
Accumulated depreciation at 1 October 2013
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2014
Land and
buildings
£m
Plant and
equipment
£m
Motor vehicles
and office
equipment
£m
94.1
2.3
(2.8)
–
(1.1)
92.5
15.3
3.0
(2.6)
(0.5)
15.2
141.6
11.6
(8.8)
–
(2.7)
141.7
106.4
11.0
(8.4)
(2.2)
106.8
54.1
5.8
(7.2)
0.2
(3.0)
49.9
39.3
4.0
(5.9)
(2.0)
35.4
Total
£m
289.8
19.7
(18.8)
0.2
(6.8)
284.1
161.0
18.0
(16.9)
(4.7)
157.4
The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the
Net book amount at 30 September 2014
77.3
34.9
14.5
126.7
Depreciation expenses of £18.2m (2014: £18.0m) have been charged through selling and administrative expenses (note 3.2).
8 Working capital
This note provides the amounts invested by the Group in working capital balances at the end of the financial year. Working capital
is made up of inventories, trade and other receivables and trade and other payables.
Inventories mainly consist of warehouse stock of Sage products, awaiting shipment to business partners or distributors. Trade and
other receivables are made up of amounts owed to the Group by customers and amounts that we pay to our suppliers in advance.
Trade receivables are shown net of an allowance for bad and doubtful debts. Our trade and other payables are amounts we owe to
our suppliers that have been invoiced to us or accrued by us. They also include taxes and social security amounts due in relation to
our role as an employer.
This note also gives some additional detail on the age and recoverability of our trade receivables, which provide an understanding
of the credit risk faced by the Group as a part of everyday trading. Credit risk is further disclosed in the Directors’ Report.
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Operating assets and liabilities continued
8 Working capital continued
8.1 Inventories
Accounting policy
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.
Materials
Work in progress
Finished goods
2015
£m
0.6
0.1
1.3
2.0
2014
£m
0.7
–
1.3
2.0
The Group consumed £8.0m (2014: £12.5m) of inventories, included in cost of sales, during the year. There was no material write down of
inventories during the current or prior year.
8.2 Trade and other receivables
Accounting policy
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.
Amounts falling due within one year:
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
2015
£m
292.7
(17.8)
274.9
20.6
25.4
320.9
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 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.
Trade and other receivables (excluding prepayments and accrued income) by geographical location:
Europe
North America
International
In the current year, management have changed the disclosure of the company segments in line with note 2.
Movements on the Group provision for impairment of trade receivables were as follows:
At 1 October
Increase in provision for receivables impairment
Receivables written-off during the year as uncollectible
Unused amounts reversed
Exchange movement
At 30 September
2015
£m
210.7
52.0
32.8
295.5
2015
£m
25.5
5.7
(6.1)
(6.0)
(1.3)
17.8
2014
£m
311.0
(25.5)
285.5
20.8
15.2
321.5
2014
£m
212.8
55.9
37.6
306.3
2014
£m
27.7
6.4
(4.5)
(2.7)
(1.4)
25.5
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The Sage Group plc | Annual Report & Accounts 2015
Operating assets and liabilities continued
8 Working capital continued
8.1 Inventories
Accounting policy
Materials
Work in progress
Finished goods
inventories during the current or prior year.
8.2 Trade and other receivables
Accounting policy
less provision for impairment.
Amounts falling due within one year:
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
Inventories are stated at the lower of cost and net realisable value after making allowances for slow moving or obsolete items.
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 provision
for impairment of receivables.
The creation and releases of the provision for impaired receivables have been included in selling and administrative expenses in the
income statement. Amounts charged to the provision are generally written-off when there is no expectation of recovering additional cash.
Cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.
At 30 September 2015, trade receivables of £30.2m (2014: £29.8m) were either partially or fully impaired.
Cost is calculated using the first-in-first-out method.
The Group consumed £8.0m (2014: £12.5m) of inventories, included in cost of sales, during the year. There was no material write down of
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 2015 were £45.8m (2014: £33.7m).
The ageing of these receivables was as follows:
Less than six months past due
More than six months past due
2015
£m
7.1
5.9
17.2
30.2
2015
£m
41.2
4.6
45.8
2014
£m
4.7
7.1
18.0
29.8
2014
£m
31.3
2.4
33.7
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method,
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.
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.
8.3 Trade and other payables
Accounting policy
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
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 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.
Trade and other receivables (excluding prepayments and accrued income) by geographical location:
Europe
North America
International
In the current year, management have changed the disclosure of the company segments in line with note 2.
Movements on the Group provision for impairment of trade receivables were as follows:
At 1 October
Increase in provision for receivables impairment
Receivables written-off during the year as uncollectible
Unused amounts reversed
Exchange movement
At 30 September
Trade and other payables can be analysed as follows:
Trade payables
Other tax and social security payable
Other payables
Cash held on behalf of customers (see note 12.3)
Accruals
2015
£m
23.3
41.8
22.2
83.8
140.1
311.2
2014
(restated)
£m
41.5
52.9
34.0
40.6
110.5
279.5
In the current year, the provision balance has been disclosed separately. See note 1 for details.
9 Provisions
This note provides details of the provisions recognised by the Group, where a liability exists of uncertain timing or amount. The main
estimates in this area relate to legal exposure and dilapidation charges.
This section also explains the accounting policies applied and the specific judgements and estimates made by the directors in arriving
at the value of these liabilities.
Accounting policy
A provision is recognised only when all three of the following conditions are met:
– The Group has a present obligation (legal or constructive) as a result of a past event;
– It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
– A reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision shall be the present value of the best estimate of the expenditure required to settle the present
obligation at the end of the reporting period, i.e. the present value of the amount that the Group would rationally pay to settle the
obligation at the balance sheet date or to transfer it to a third party.
2015
£m
0.6
0.1
1.3
2.0
2014
£m
0.7
–
1.3
2.0
2015
£m
292.7
(17.8)
274.9
20.6
25.4
320.9
2015
£m
210.7
52.0
32.8
295.5
2015
£m
25.5
5.7
(6.1)
(6.0)
(1.3)
17.8
2014
£m
311.0
(25.5)
285.5
20.8
15.2
321.5
2014
£m
212.8
55.9
37.6
306.3
2014
£m
27.7
6.4
(4.5)
(2.7)
(1.4)
25.5
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133
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Operating assets and liabilities continued
9 Provisions continued
At 1 October 2014
– Acquisition / disposal of subsidiaries
– New provision in the year
– Increase in provision
– Provision utilised in the year
– Unused amounts reversed
– Exchange movement
At 30 September 2015
Maturity profile
< 1 year
1 – 2 years
2 – 5 years
> 5 years
At 30 September 2015
Legal
£m
16.8
0.6
7.3
0.4
(3.3)
(5.4)
(1.2)
15.2
Building
£m
Warranty
£m
2.9
–
0.7
–
–
–
(0.1)
3.5
1.6
–
–
0.3
(0.3)
–
–
1.6
Legal
£m
Building
£m
Warranty
£m
7.9
0.3
7.0
–
15.2
0.8
–
–
2.7
3.5
1.2
0.2
0.2
–
1.6
Total
£m
21.3
0.6
8.0
0.7
(3.6)
(5.4)
(1.3)
20.3
Total
£m
9.9
0.5
7.2
2.7
20.3
The Group offers a warranty cover in respect of products sold to third parties. The estimated liability is recorded when products are sold.
These estimates are established using historical information on the average cost of warranty claims and management estimates regarding
future claims. The timing of the cash flows associated with warranty provision is spread over the period of warranty with the majority of the
claims expected in the first year.
Building provisions relate to dilapidation charges and onerous lease commitments. The timing of the cash flows associated with building
provisions is dependent on the timing of lease agreement termination.
Legal provisions have been made in relation to ongoing disputes with third parties and other claims against the Group. The ageing of legal
provisions is assessed regularly, based upon internal and external legal advice, as required.
10 Post-employment benefits
This note explains the accounting policies governing the Group’s pension schemes, analyses the deficit on the defined benefit pension
scheme and shows how it has been calculated.
The majority of the Group’s employees are members of defined contribution pension schemes. Additionally the Group does operate
two small defined benefit schemes in France and Switzerland.
For defined contribution schemes, the Group pays contributions into separate funds on behalf of the employee and has no further
obligations to employees. The risks associated with this type of plan are assumed by the member. Contributions paid by the Group
in respect of the current period are included in the income statement.
The defined benefit scheme is a pension arrangement under which participating members receive a pension benefit at retirement
determined by the scheme rules, salary and length of pensionable service. The income statement charge for the defined benefit
scheme is the current/past service cost and the net interest cost which is the change in the net defined benefit liability that arises
from the passage of time. The Group underwrites both financial and demographic risks associated with this type of plan.
134
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The Sage Group plc | Annual Report & Accounts 2015
Operating assets and liabilities continued
9 Provisions continued
At 1 October 2014
– Acquisition / disposal of subsidiaries
– New provision in the year
– Increase in provision
– Provision utilised in the year
– Unused amounts reversed
– Exchange movement
At 30 September 2015
Maturity profile
< 1 year
1 – 2 years
2 – 5 years
> 5 years
At 30 September 2015
The Group offers a warranty cover in respect of products sold to third parties. The estimated liability is recorded when products are sold.
These estimates are established using historical information on the average cost of warranty claims and management estimates regarding
future claims. The timing of the cash flows associated with warranty provision is spread over the period of warranty with the majority of the
claims expected in the first year.
Building provisions relate to dilapidation charges and onerous lease commitments. The timing of the cash flows associated with building
provisions is dependent on the timing of lease agreement termination.
Legal provisions have been made in relation to ongoing disputes with third parties and other claims against the Group. The ageing of legal
provisions is assessed regularly, based upon internal and external legal advice, as required.
10 Post-employment benefits
This note explains the accounting policies governing the Group’s pension schemes, analyses the deficit on the defined benefit pension
scheme and shows how it has been calculated.
The majority of the Group’s employees are members of defined contribution pension schemes. Additionally the Group does operate
two small defined benefit schemes in France and Switzerland.
For defined contribution schemes, the Group pays contributions into separate funds on behalf of the employee and has no further
obligations to employees. The risks associated with this type of plan are assumed by the member. Contributions paid by the Group
in respect of the current period are included in the income statement.
The defined benefit scheme is a pension arrangement under which participating members receive a pension benefit at retirement
determined by the scheme rules, salary and length of pensionable service. The income statement charge for the defined benefit
scheme is the current/past service cost and the net interest cost which is the change in the net defined benefit liability that arises
from the passage of time. The Group underwrites both financial and demographic risks associated with this type of plan.
Legal
£m
16.8
0.6
7.3
0.4
(3.3)
(5.4)
(1.2)
15.2
7.9
0.3
7.0
–
15.2
Building
Warranty
£m
2.9
0.7
–
–
–
–
(0.1)
3.5
0.8
–
–
2.7
3.5
£m
1.6
–
–
–
–
1.6
0.3
(0.3)
1.2
0.2
0.2
–
1.6
Legal
£m
Building
£m
Warranty
£m
Total
£m
21.3
0.6
8.0
0.7
(3.6)
(5.4)
(1.3)
20.3
Total
£m
9.9
0.5
7.2
2.7
20.3
Accounting policy
Obligations under defined contribution schemes are recognised as an operating cost in the income statement as incurred.
The Group also operates a small defined benefit pension scheme in Switzerland and other post-employment benefit schemes in France.
The assets of these schemes are held separately from the assets of the Group. Under French legislation, the Group is required to make
one-off payments to employees in France who reach retirement age while still in employment. The 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 should be recognised on the earlier of the date of the plan amendment and the date the
Group recognises restructuring-related costs. Interest on the pension plan assets and the imputed interest on pension plan liabilities
are included within selling and administrative expenses in the income statement.
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 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 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.
A sensitivity analysis has been performed on the significant assumptions. The relevant assumptions are deemed to be the discount
rate and salary increases, as these are most likely to have a material impact on the defined benefit obligations. The analysis has been
performed by the independent actuaries.
Pension costs included in the consolidated income statement
Defined contribution schemes
Defined benefit plans
Note
3.3
2015
£m
9.8
2.0
11.8
Defined benefit plans
The most recent actuarial valuations of the post-employment benefit plans were performed by KPMG (France) and PwC (Switzerland)
in October 2015 for the year ended 30 September 2015.
Weighted average principal assumptions made by the actuaries
Rate of increase in pensionable salaries
Discount rate
Inflation assumption
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
2015
%
2.02
1.12
2.02
2015
years
22.2
24.5
42.5
45.0
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The Sage Group plc | Annual Report & Accounts 2015
2014
£m
9.0
2.0
11.0
2014
%
2.13
1.70
2.00
2014
years
22.2
24.5
42.4
45.0
135
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Operating assets and liabilities continued
10 Post-employment benefits continued
Amounts recognised in the balance sheet
Present value of funded obligations
Fair value of plan assets
Net liability recognised in the balance sheet
Major categories of plan assets as a percentage of total plan assets
Bonds (quoted)
Equities (quoted)
Other (unquoted)
2015
£m
(36.6)
17.9
(18.7)
£m
9.3
4.6
3.3
17.2
2014
£m
(30.8)
17.2
(13.6)
2014
%
54.1
26.7
19.2
100.0
£m
6.3
5.9
5.7
17.9
2015
%
35.2
33.0
31.8
100.0
Expected contributions to post-employment benefit plans for the year ending 30 September 2016 are £2.0m (2014: expected contributions
year ending 30 September 2015 £1.1m).
Amounts recognised in the income statement
Net interest costs on obligation
Current service cost
Total included within staff costs
The entire cost is included within selling and administrative expenses.
Changes in the present value of the defined benefit obligation
At 1 October
Exchange movement
Service cost
Plan participant contributions
Interest cost
Benefits paid
Actuarial loss – financial assumptions
Actuarial (loss)/gain – experience
At 30 September
Changes in the fair value of plan assets
At 1 October
Exchange movement
Interest income
Employer’s contributions
Plan participant contributions
Benefits paid
Actuarial (loss)/gain 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
Actuarial gain/(loss)
At 30 September
2015
£m
(0.3)
(1.7)
(2.0)
2015
£m
(30.8)
(0.2)
(1.7)
(0.6)
(0.5)
1.5
(1.8)
(2.5)
2014
£m
(0.4)
(1.6)
(2.0)
2014
£m
(30.3)
1.8
(1.6)
(0.6)
(0.8)
1.3
(1.3)
0.7
(36.6)
(30.8)
2015
£m
17.2
1.0
0.2
0.9
0.6
(1.5)
(0.5)
17.9
2015
£m
(13.6)
0.8
(2.0)
0.9
(4.8)
(18.7)
2014
£m
17.4
(1.0)
0.4
0.9
0.6
(1.3)
0.2
17.2
2014
£m
(12.9)
0.8
(2.0)
0.9
(0.4)
(13.6)
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The Sage Group plc | Annual Report & Accounts 2015
Sensitivity analysis on significant actuarial assumptions
Discount rate applied to Scheme obligations
Salary increases
11 Deferred income tax
+/- 0.5% pa
+/- 0.5% pa
2015
£m
2.1
0.9
2014
£m
2.2
0.6
Deferred income tax is an accounting adjustment to provide for tax that is expected to arise in the future due to differences in
accounting and tax bases. In this note we outline the accounting policies, movements in the year on the deferred tax account and the
net deferred tax asset or liability at the year-end.
A deferred tax asset represents a tax reduction that is expected to arise in a future period.
A deferred tax liability represents taxes which will become payable in a future period as a result of a current or an earlier transaction.
Accounting policy
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group
is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
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.
Tax assets and liabilities are offset when there is a legally enforceable right and there is an intention to settle the balances net.
Deferred income tax has been calculated at 20.0% (2014: 20.0%) in respect of UK companies (being the corporation tax rate at which
temporary differences are expected to reverse) and at the prevailing rates for the overseas subsidiaries.
During the year, effective from 1 April 2015, the standard rate of corporation tax in the UK changed from 21% to 20%. On 8 July 2015 the
government announced its intention to reduce the standard rate to 19%, effective from 1 April 2017, with a further reduction to 18% from
1 April 2020. At the 30 September 2015, this change has not been substantively enacted and as such the tax balances below have not
been remeasured to account for these planned changes.
The movement on the deferred tax account is as shown below:
At 1 October
Income statement credit
Acquisition of subsidiaries
Exchange movement
Other comprehensive income/equity movement in deferred tax
Transfer from current income tax liabilities
At 30 September
2015
£m
10.3
14.4
2.3
(1.7)
1.6
–
26.9
2014
(restated)
£m
3.1
7.4
0.3
(0.9)
0.4
–
10.3
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. A potential deferred tax asset on losses of £10.7m has not been recognised as it is not
expected that these losses will be recovered 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.
The offsetting of these balances is shown within the reclassification line of the notes below. Deferred tax assets and liabilities are only offset
where there is a legally enforceable right of offset and there is an intention to settle the balances net.
Deferred tax assets and liabilities categorised as “other deferred tax” of £22.3m (2014: £19.6m) includes various sundry balances in relation
to temporary differences on fixed assets, accounting provisions / accruals, goodwill amortisation and deferred revenue.
The Sage Group plc | Annual Report & Accounts 2015
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Operating assets and liabilities continued
11 Deferred income tax continued
Assets
At 1 October 2014 (restated)
Income statement credit
Acquisition of subsidiaries
Reclassification to deferred tax liability
Other comprehensive income/equity movement in deferred tax
Exchange movement
At 30 September 2015
Liabilities
At 1 October 2014 (restated)
Income statement credit
Acquisition of subsidiaries
Reclassification from deferred tax asset
Reclassification to other deferred tax liabilities
Exchange movement
At 30 September 2015
Net deferred tax (liability)/asset at 30 September 2015
Assets
At 1 October 2013 (restated)
Income statement credit
Acquisition of subsidiaries
Reclassification to deferred tax liability
Other comprehensive income/equity movement in deferred tax
Change in tax rate
Exchange movement
At 30 September 2014 (restated)
Liabilities
At 1 October 2013 (restated)
Income statement credit
Reclassification from deferred tax asset
Reclassification to other deferred tax
Change in tax rate
Exchange movement
At 30 September 2014 (restated)
Intangible
assets
£m
(8.6)
3.3
–
2.9
–
(1.4)
(3.8)
(3.7)
5.4
(16.5)
(2.9)
2.8
2.2
(12.7)
(16.5)
Intangible
assets
£m
(9.0)
(0.2)
–
–
–
–
0.6
(8.6)
(12.3)
3.0
–
4.6
–
1.0
(3.7)
Tax
losses
£m
3.0
0.3
18.6
(18.3)
–
(0.8)
2.8
–
–
–
18.3
–
–
18.3
21.1
Losses
£m
3.7
(0.3)
0.3
–
–
–
(0.7)
3.0
–
–
–
–
–
–
–
Other
£m
35.0
2.9
(0.3)
(0.9)
1.6
(3.1)
35.2
(15.4)
2.5
0.5
0.9
(2.8)
1.4
(12.9)
Total
£m
29.4
6.5
18.3
(16.3)
1.6
(5.3)
34.2
(19.1)
7.9
(16.0)
16.3
–
3.6
(7.3)
22.3
26.9
Other
£m
31.5
1.7
–
2.9
0.4
0.5
(2.0)
35.0
(10.8)
3.2
(2.9)
(4.6)
(0.5)
0.2
(15.4)
Total
£m
26.2
1.2
0.3
2.9
0.4
0.5
(2.1)
29.4
(23.1)
6.2
(2.9)
–
(0.5)
1.2
(19.1)
Net deferred tax (liability)/asset at 30 September 2014 (restated)
(12.3)
3.0
19.6
10.3
138
138
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
Operating assets and liabilities continued
Net debt and capital structure
11 Deferred income tax continued
12 Cash flow and net debt
Net deferred tax (liability)/asset at 30 September 2015
22.3
26.9
Reclassification to deferred tax liability
Other comprehensive income/equity movement in deferred tax
Assets
At 1 October 2014 (restated)
Income statement credit
Acquisition of subsidiaries
Exchange movement
At 30 September 2015
Liabilities
At 1 October 2014 (restated)
Income statement credit
Acquisition of subsidiaries
Reclassification from deferred tax asset
Reclassification to other deferred tax liabilities
Exchange movement
At 30 September 2015
Reclassification to deferred tax liability
Other comprehensive income/equity movement in deferred tax
Assets
At 1 October 2013 (restated)
Income statement credit
Acquisition of subsidiaries
Change in tax rate
Exchange movement
At 30 September 2014 (restated)
Liabilities
At 1 October 2013 (restated)
Income statement credit
Reclassification from deferred tax asset
Reclassification to other deferred tax
Change in tax rate
Exchange movement
At 30 September 2014 (restated)
Intangible
assets
£m
(8.6)
3.3
2.9
–
–
(1.4)
(3.8)
(3.7)
5.4
(16.5)
(2.9)
2.8
2.2
(12.7)
(16.5)
–
–
–
–
0.6
(8.6)
(12.3)
3.0
–
4.6
–
1.0
(3.7)
Intangible
assets
£m
(9.0)
(0.2)
Tax
losses
£m
3.0
0.3
18.6
(18.3)
–
(0.8)
2.8
–
–
–
–
–
18.3
18.3
21.1
Losses
£m
3.7
(0.3)
0.3
(0.7)
3.0
–
–
–
–
–
–
–
–
–
–
Other
£m
35.0
2.9
(0.3)
(0.9)
1.6
(3.1)
35.2
(15.4)
2.5
0.5
0.9
(2.8)
1.4
(12.9)
Other
£m
31.5
1.7
–
2.9
0.4
0.5
(2.0)
35.0
(10.8)
3.2
(2.9)
(4.6)
(0.5)
0.2
(15.4)
Total
£m
29.4
6.5
18.3
(16.3)
1.6
(5.3)
34.2
(19.1)
7.9
(16.0)
16.3
–
3.6
(7.3)
Total
£m
26.2
1.2
0.3
2.9
0.4
0.5
(2.1)
29.4
(23.1)
6.2
(2.9)
–
(0.5)
1.2
(19.1)
Net deferred tax (liability)/asset at 30 September 2014 (restated)
(12.3)
3.0
19.6
10.3
This note analyses our operational cash generation, shows the movement in our net debt in the year, and explains what is included
within our cash balances and borrowings at the year-end.
Cash generated from operations is the starting point of our cash flow statement on page 109. This section outlines the adjustments
for any non-cash accounting items to reconcile our accounting profit for the year to the amount of physical cash we generated from
our operations.
Net debt represents the amount of cash held less borrowings, overdrafts, finance lease payments due and cash held on behalf
of customers.
Borrowings are mostly made up of fixed-term external debt which the Group has taken out in order to finance acquisitions in the past.
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
R&D tax credits
Equity-settled share-based transactions
Fair value adjustments and goodwill impairment
Exchange movement
Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries):
– (Increase)/Decrease in inventories
– Decrease 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)
Increase in cash in the year (pre-exchange movements)
Cash outflow from movement in loans, finance leases and cash held on behalf of 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
2015
£m
194.3
81.5
(2.2)
23.6
29.1
18.2
–
(2.3)
9.1
64.5
(4.7)
(0.2)
(8.4)
(6.8)
22.9
418.6
2015
£m
90.5
(17.8)
72.7
(21.3)
–
(39.6)
11.8
(437.2)
(425.4)
2014
(restated)
£m
188.9
89.8
(2.1)
23.0
24.5
18.0
0.8
–
8.0
44.7
(11.0)
0.1
(20.5)
8.8
9.4
382.4
2014
£m
63.6
(112.8)
(49.2)
–
(0.9)
(2.8)
(52.9)
(384.3)
(437.2)
138
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
139
139
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A
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The Sage Group plc | Annual Report & Accounts 2015
Net debt and capital structure continued
12 Cash flow and net debt continued
12.2 Net debt continued
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 within one year
Loans due after more than one year
Finance leases due after more than one year
Cash held on behalf of customers
Total
At
1 October
2014
£m
144.6
(0.9)
143.7
(1.1)
(123.4)
(415.4)
(0.4)
(40.6)
(437.2)
Cash flow
£m
Acquisitions
£m
Non-cash
movements
£m
Exchange
movement
£m
At
30 September
2015
£m
89.6
0.9
90.5
0.5
157.1
(162.9)
–
(12.5)
72.7
29.6
–
29.6
–
(22.2)
–
–
(28.7)
(21.3)
–
–
–
–
(33.6)
33.6
–
–
–
(0.4)
–
(0.4)
–
(10.9)
(26.3)
–
(2.0)
(39.6)
263.4
–
263.4
(0.6)
(33.0)
(571.0)
(0.4)
(83.8)
(425.4)
Included in cash above is £83.8m (2014: £40.6) relating to cash held on behalf of customers. This arises as a consequence of providing
payment transaction processing and electronic fund transfer services. The balance represents cash in transit from third parties to Sage
Customers. Accordingly, a liability for the same amount is included in trade and other payables on the balance sheet and is classified
within net debt.
12.3 Cash and cash equivalents (excluding bank overdrafts)
Accounting policy
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.
Cash at bank and in hand
Cash held on behalf of customers
Short-term bank deposits
2015
£m
179.6
83.8
–
263.4
2014
£m
103.6
40.6
0.4
144.6
In line with contractual obligations or company practice, cash held on behalf of customers is held in separate bank accounts by the Group
until such time as these amounts are paid.
The credit risk on liquid funds is considered to be low, as the Board-approved Group treasury policy limits the value that can be invested with
each approved counterparty to minimise the risk of loss. The Group policy is to place cash and cash equivalents with counterparties which
are well established banks with high credit ratings where available. In some jurisdictions there is limited availability of such counterparties.
At 30 September 2015, 83% of the cash and cash equivalents balance was deposited with financial institutions rated at least A3 by Moody’s
Investors Service. The investment instruments utilised are money market funds, money market term deposits and bank deposits.
140
140
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
At
1 October
2014
£m
144.6
(0.9)
143.7
(1.1)
(123.4)
(415.4)
(0.4)
(40.6)
(437.2)
Cash flow
Acquisitions
Non-cash
movements
£m
Exchange
30 September
movement
£m
89.6
0.9
90.5
0.5
157.1
(162.9)
–
(12.5)
72.7
£m
29.6
29.6
–
–
–
–
(22.2)
(28.7)
(21.3)
–
–
–
–
–
–
–
(33.6)
33.6
£m
(0.4)
(0.4)
–
–
–
(10.9)
(26.3)
(2.0)
(39.6)
At
2015
£m
263.4
–
263.4
(0.6)
(33.0)
(571.0)
(0.4)
(83.8)
(425.4)
Net debt and capital structure continued
12 Cash flow and net debt continued
12.2 Net debt continued
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 within one year
Loans due after more than one year
Finance leases due after more than one year
Cash held on behalf of customers
Total
within net debt.
Accounting policy
as borrowings.
Cash at bank and in hand
Cash held on behalf of customers
Short-term bank deposits
Included in cash above is £83.8m (2014: £40.6) relating to cash held on behalf of customers. This arises as a consequence of providing
payment transaction processing and electronic fund transfer services. The balance represents cash in transit from third parties to Sage
Customers. Accordingly, a liability for the same amount is included in trade and other payables on the balance sheet and is classified
12.3 Cash and cash equivalents (excluding bank overdrafts)
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
2015
£m
179.6
83.8
–
263.4
2014
£m
103.6
40.6
0.4
144.6
In line with contractual obligations or company practice, cash held on behalf of customers is held in separate bank accounts by the Group
until such time as these amounts are paid.
The credit risk on liquid funds is considered to be low, as the Board-approved Group treasury policy limits the value that can be invested with
each approved counterparty to minimise the risk of loss. The Group policy is to place cash and cash equivalents with counterparties which
are well established banks with high credit ratings where available. In some jurisdictions there is limited availability of such counterparties.
At 30 September 2015, 83% of the cash and cash equivalents balance was deposited with financial institutions rated at least A3 by Moody’s
Investors Service. The investment instruments utilised are money market funds, money market term deposits and bank deposits.
12.4 Borrowings
Accounting policy
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.
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised
in the income statement over the period of borrowing on an effective interest basis.
Current
Bank overdrafts
Finance lease obligations
US senior loan notes – unsecured
Non-current
Finance lease obligations
Bank loans – unsecured
US senior loan notes – unsecured
2015
£m
–
0.6
33.0
33.6
2015
£m
0.4
80.0
491.0
571.4
2014
£m
0.9
1.1
123.4
125.4
2014
£m
0.4
108.0
307.4
415.8
Included in loans above is £604.0m (2014: £538.8m) of unsecured loans (after unamortised issue costs). These borrowings were utilised
for acquisitions and managing the Group’s minimum leverage target of 1x net debt to EBITDA.
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £3.0m (2014: £3.5m). The Group has in the year
incurred total issue costs amounting to £0.8m in respect of the note issue into the US private placement market. These issue costs were
paid during the year ended 30 September 2015 and are allocated to the income statement over the term of the facility using the effective
interest method.
Borrowings
US private placement
– USD 200m loan note
– USD 50m loan note
– USD 50m loan note
– USD 50m loan note
– USD 150m loan note
– USD 150m loan note
– USD 50m loan note
– EUR 55m loan note
– EUR 30m loan note
– USD 200m loan note
Year
issued
Interest
coupon
Maturity
2010
2010
2010
2013
2013
2013
2013
2015
2015
2015
4.39%
4.78%
5.15%
2.60%
3.08%
3.71%
3.86%
1.89%
2.07%
3.73%
11-Mar-15
11-Mar-16
11-Mar-17
20-May-18
20-May-20
20-May-23
20-May-25
26-Jan-22
26-Jan-23
26-Jan-25
2015
£m
–
33.0
33.0
33.0
99.1
99.1
33.0
40.6
22.2
132.2
Loan value
2014
£m
123.4
30.8
30.8
30.8
92.6
92.6
30.8
–
–
–
There were £81.6m drawings (2014: £110.5m) under the multi-currency revolving credit facility of £525.2m (2014: £509.8m) expiring
on 26 June 2019, which consists both of US$551.0m (£364.1m, 2014: £339.9m ) and of €218.0m (£161.1m, 2014: £169.9m) tranches.
140
The Sage Group plc | Annual Report & Accounts 2015
The Sage Group plc | Annual Report & Accounts 2015
141
141
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Net debt and capital structure continued
13 Financial instruments
This note shows details of the fair value and carrying value of short and long term borrowings, trade and other payables, trade and
other receivables, short-term bank deposits, cash at bank and in hand and other financial liabilities. These items are all classified as
“financial instruments” under accounting standards. Fair value is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable willing parties in an arm’s length transaction.
In order to assist users of these financial statements in making an assessment of any risks relating to financial instruments, this
note also shows the ageing of these items and analyses their sensitivity to changes in key inputs, such as interest rates and foreign
exchange rates. Credit risk is further disclosed in the Directors’ Report.
Accounting policy
Financial assets and liabilities are recognised in the Group’s balance sheet when the Group becomes party to the contractual provision
of the instrument.
13.1 Fair values of financial instruments
For the following financial assets and liabilities: 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 borrowings due to these bearing interest at fixed rates which are
currently higher than floating rates.
The fair value of borrowings is determined by reference to interest rate movements on the US $ private placement market and therefore can
be considered as a level 2 fair value as defined within IFRS 13.
Long term-borrowing
Short term borrowing
Note
12.4
12.4
Book value
£m
(571.4)
(33.6)
2015
Fair value
£m
(572.8)
(34.1)
Book value
£m
(415.8)
(125.4)
2014
Fair value
£m
(418.0)
(125.4)
13.2 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
Trade and
other payables
excluding other
tax and social
security
£m
269.4
–
–
–
269.4
Borrowings
£m
33.6
33.5
213.7
327.1
607.9
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
The maturity profile of provisions is disclosed in Note 9.
Borrowings
£m
125.4
30.8
172.4
216.1
544.7
142
142
The Sage Group plc | Annual Report & Accounts 2015
Other
financial
liabilities
£m
–
–
–
–
–
Other
financial
liabilities
£m
60.1
–
–
–
Trade and
other payables
excluding other
tax and social
security
£m
226.6
–
–
–
226.6
60.1
2015
Total
£m
303.0
33.5
213.7
327.1
877.3
2014
Total
£m
412.1
30.8
172.4
216.1
831.4
The Sage Group plc | Annual Report & Accounts 2015
13.3 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
2015
£m
443.6
2014
£m
399.3
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.
13.4 Other financial liabilities
Accounting policy
The Group 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.
Any embedded derivative assets arising out of any debt contracts are classified within other current and other non-current assets
according to when they can be exercised.
The Group makes use of put and call options as part of its ongoing acquisition activity. The fair value of these options are measured
at each reporting date and the fair value gains or losses are taken to the income statement.
Current liabilities : Close period share buyback programme
Total other financial liabilities
2015
£m
–
–
2014
£m
(60.1)
(60.1)
The prior year fair value of the close period share buyback programme was calculated based on the value of the contractual legal agreement
with Citigroup Global Markets Limited, which was also equal to the book value.
The put and call arrangement to acquire the remaining non-controlling interest’s 25% share in Folhamatic in Brazil was settled during 2014
for consideration of £50.4m, increasing the Group’s ownership of the Brazilian sub-Group to 100%:
Opening fair value at 1 October
Consideration paid
Imputed interest recognised in the Consolidated income statement within finance costs
Loss/(gain) on fair value adjustments
Exchange movement
Closing fair value at 30 September
13.5 Sensitivity analysis
Financial instruments affected by market risks include borrowings and deposits.
2015
£m
–
–
–
–
–
–
2014
£m
54.2
(50.4)
0.8
0.4
(5.0)
–
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.
The Sage Group plc | Annual Report & Accounts 2015
143
143
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Net debt and capital structure continued
13 Financial instruments continued
13.5 Sensitivity analysis continued
1% increase in market interest rates
1% decrease in market interest rates
10% strengthening of sterling versus the US Dollar
10% strengthening of sterling versus the Euro
10% weakening of sterling versus the US Dollar
10% weakening of sterling versus the Euro
13.6 The minimum lease payments under finance leases fall due as follows:
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
13.7 Hedge accounting
Income
(losses)/gains
£m
2015
Equity
(losses)/gains
£m
Income
(losses)/gains
£m
2014
Equity
(losses)/gains
£m
(1.4)
1.2
(6.1)
(7.1)
6.7
7.9
(1.4)
1.2
(30.1)
(20.9)
33.2
23.0
(2.5)
2.5
(3.9)
(5.9)
4.3
6.5
2015
£m
0.6
0.4
1.0
–
1.0
(2.5)
2.5
(17.4)
(28.0)
19.2
30.8
2014
£m
1.1
0.4
1.5
–
1.5
Accounting policy
The Group’s external US Dollar and Euro denominated borrowings are designated as a hedge of the net investment in its subsidiaries
in the US and Eurozone. The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation which
is determined to be an effective hedge and 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 recycled to the income statement from equity.
14 Equity
This note analyses the movements recorded through shareholders’ equity that are not explained elsewhere in the financial statements,
being changes in the amount which shareholders have invested in the Group.
The Group utilises share award schemes as part of its employee remuneration package. Share option schemes for our employees
include The Sage Group Performance Share Plan for directors and senior executives and The Sage Group Savings-related Share Option
Plan (the “SAYE Plan”) for all qualifying employees. We incur a cost in respect of these schemes in our income statement, which is set out
below along with a detailed description of each scheme and the number of options outstanding.
This note also shows the dividends paid in the year and any dividends that are to be proposed and paid post year-end. Dividends are paid
as an amount per ordinary share held.
Accounting policy
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.
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14.1 Ordinary shares
Issued and fully paid
At 1 October
Proceeds from shares issued
At 30 September
2015
shares
1,115,892,047
2,406,701
1,118,298,748
2015
£m
11.7
0.1
11.8
2014
shares
1,114,135,420
1,756,627
1,115,892,047
2014
£m
11.7
–
11.7
Issues of ordinary shares
Under Executive Share Option Scheme, 1,501,758 14/77 p ordinary shares were issued during the year for aggregate proceeds of £3.5m.
Under the Savings-related Share Option Scheme, 928,923 14/77 p ordinary shares were issued during the year for aggregate proceeds of £1.9m.
14.2 Share-based payments
Accounting policy
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, based on observable market prices. 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.
All outstanding Sage Performance Share Plans (“PSPs”) and certain Restricted Share Plans (“RSPs”) are subject to some non-market
performance conditions. These are organic revenue and EPS growth. The element of the income statement charge relating to market
performance conditions is fixed at the grant date.
At the end of the reporting period, the Group 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 total charge for the year relating to employee share-based payment plan was £9.1m (2014: £8.0m), all of which related to equity-settled
share-based payment transactions. This charge is shown by scheme below. After deferred tax, the total charge was £8.9m (2014: £7.8m).
Scheme
Executive Share Option Scheme
Performance Share Plan
Restricted Share Plan
Savings-related Share Option Scheme
Total
2015
£m
–
6.8
1.8
0.5
9.1
2014
£m
–
6.1
1.5
0.4
8.0
Executive Share Option Scheme
Certain senior executives hold a total of 761,734 (2014: 2,338,990) options to subscribe for shares in the Company at prices ranging from
214.0p to 270.0p under the share option schemes approved by shareholders. 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 were 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 vested at the end of the period where the increase in EPS
exceeded the Retail Prices Index (“RPI”) by 15% (an average of 5% per year) and 100% of those options vested at that time where RPI was
exceeded in that period by 27% (an average of 9% per year). Between those targets, options vested on a straight-line basis.
Options were valued using the Black-Scholes option-pricing model. The expected volatility was based on historical volatility over the
previous four years. The expected life is the average expected period to exercise. The risk free rate of return was the yield on zero-coupon
UK government bonds of a term consistent with the assumed option life of three years.
The Sage Group plc | Annual Report & Accounts 2015
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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
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices £
2.14 – 2.70
2015
Weighted
average
exercise
price
£
2.41
2.63
2.30
2.58
2.58
Number
’000s
2,339
(75)
(1,502)
762
762
2014
Weighted
average
exercise
price
£
2.33
2.29
2.20
2.41
2.41
Number
’000s
3,492
(63)
(1,090)
2,339
2,339
2015
Weighted average
remaining life years
Contractual
Expected
2014
Weighted average
remaining life years
Contractual
Expected
–
1.0
–
1.4
The weighted average share price during the period for options exercised over the year was 477.8p (2014: 387.8p).
The Sage Group Performance Share Plan
Annual grants of performance shares will normally be made to executive directors and senior executives across the Group after the
preliminary declaration of the annual results. Under the Performance Share Plan 5,411,495 (2014: 5,519,987) awards were made during
the year.
Awards prior to 2013
Annual awards under the Plan were limited to shares worth up to 300% of base salary. In practice, annual grants to executive directors
were 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 were subject to performance conditions on a sliding scale based on EPS. 25% of the award vested at the end of
the period if the increase in EPS exceeded RPI by 9% (an average of 3% per year); 100% of the award vested at that time only where RPI
was exceeded in that period by 27% (an average of 9% per year). Between those targets, awards vested on a straight-line basis, and if those
targets were not met there was no opportunity for re-testing. Awards were then subject to a total shareholder return (TSR) “multiplier”
whereby the level of vesting based on EPS achievement was 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
– Dassault Systèmes
– Exact
– Intuit
– Logica
– Micro Focus International
– Microsoft
– Oracle
– Salesforce.com
– SAP
– Software AG
If Sage’s TSR was ranked at lower quartile in the group, the multiplier was 0.75. If Sage’s TSR was ranked at median in the group, the multiplier
was 1. If Sage’s TSR was ranked at upper quartile in the group, then the multiplier was 1.5. Straight-line pro-rating applied between 0.75 and 1,
and between 1 and 1.5, but the multiplier could not be higher or lower than these figures.
146
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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
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices £
2.14 – 2.70
the year.
Awards prior to 2013
Number
’000s
2,339
(75)
(1,502)
762
762
2015
Weighted
average
exercise
price
£
2.41
2.63
2.30
2.58
2.58
2015
Number
’000s
3,492
(63)
(1,090)
2,339
2,339
2014
Weighted
average
exercise
price
£
2.33
2.29
2.20
2.41
2.41
2014
Weighted average
remaining life years
Weighted average
remaining life years
Expected
Contractual
Expected
Contractual
–
1.0
–
1.4
The weighted average share price during the period for options exercised over the year was 477.8p (2014: 387.8p).
The Sage Group Performance Share Plan
Annual grants of performance shares will normally be made to executive directors and senior executives across the Group after the
preliminary declaration of the annual results. Under the Performance Share Plan 5,411,495 (2014: 5,519,987) awards were made during
Annual awards under the Plan were limited to shares worth up to 300% of base salary. In practice, annual grants to executive directors
were 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 were subject to performance conditions on a sliding scale based on EPS. 25% of the award vested at the end of
the period if the increase in EPS exceeded RPI by 9% (an average of 3% per year); 100% of the award vested at that time only where RPI
was exceeded in that period by 27% (an average of 9% per year). Between those targets, awards vested on a straight-line basis, and if those
targets were not met there was no opportunity for re-testing. Awards were then subject to a total shareholder return (TSR) “multiplier”
whereby the level of vesting based on EPS achievement was 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 was ranked at lower quartile in the group, the multiplier was 0.75. If Sage’s TSR was ranked at median in the group, the multiplier
was 1. If Sage’s TSR was ranked at upper quartile in the group, then the multiplier was 1.5. Straight-line pro-rating applied between 0.75 and 1,
and between 1 and 1.5, but the multiplier could not be higher or lower than these figures.
Awards from 2013 onwards
These performance shares are subject to a service condition and three performance conditions. Performance conditions are weighted one
third on the achievement of an EPS target, and one third on the achievement of an organic revenue growth target. The remaining one third
is based on a TSR target.
The EPS vesting percentage is based on compound EPS growth. Where compound EPS growth is between 6% and 12%, the EPS vesting
percentage will be calculated on a straight-line pro-rata basis between 6.7% and 26.7%, and where compound EPS growth is between 12%
and 15%, the EPS vesting percentage will be calculated on a straight-line pro-rata basis between 26.7% and 33.3%.
The organic revenue growth target is based on the Company’s compound annual organic revenue growth. Where growth is between 4%
and 8% the organic revenue growth vesting percentage will be calculated on a straight-line pro-rata basis between 6.7% and 26.7%, and
where the Company’s compound organic revenue growth is between 8% and 10%, the organic revenue growth vesting percentage will be
calculated on a straight-line pro-rata basis between 26.7% and 33.3%. In order for the organic revenue growth target proportion to vest, the
underlying operating profit margin in the financial year of vesting must not be less than that of the underlying operating profit margin for
the financial year in which the award is granted.
The final third of the award is the performance target relating to TSR which measures share price performance against a designated
comparator group. Where the Company’s TSR is between median and upper quartile, the TSR vesting percentage will be calculated on a
straight-line pro-rata basis between 6.7% and 26.7% and where the Company’s TSR is between upper quartile and upper decile, the TSR
vesting percentage will be calculated on a straight-line pro-rata basis between 26.7% and 33.3%. The TSR vesting percentage may only
exceed 26.7% (“Stretch” level) if performance against either the EPS target or the organic revenue growth target is also at “Stretch” level.
The comparator group for awards granted from 2013 onwards is the companies comprised in the FTSE 100 Index at the start of the
performance period, excluding financial services and extraction companies.
Awards were valued using the Monte Carlo option-pricing model. Performance conditions were included in the fair value calculations,
which were based on observable market prices at grant date. All options granted under performance share awards have an exercise price
of nil. The fair value per award granted and the assumptions used in the calculation are as follows:
Grant date
Share price at grant date
Number of employees
Shares under award
Vesting period (years)
Expected volatility
Award life (years)
Expected life (years)
Risk free rate
January
2015
January
2015
January
2015
May
2015
May
2015
£4.65
150
£4.65
111
£4.65
£5.44
£5.44
1
12
11
June
2015
£5.13
3
June
2015
September
2015
September
2015
£5.13
£4.91
£4.91
3
9
8
3,930,755
485,199
213,421
422,406
52,090
59,829
13,959
197,067
36,769
3
20%
3
3
3
20%
3
3
3
20%
3
3
3
20%
3
3
3
20%
3
3
3
20%
3
3
3
20%
3
3
2
20%
2
2
2
20%
2
2
0.67%
0.67%
0.67%
0.91%
0.91%
0.96%
0.96%
0.65%
0.65%
Expected dividends expressed as a dividend yield
–
–
–
–
–
–
–
–
–
Fair value per award
£4.13
£4.65
£3.06
£5.14
£5.44
£4.82
£5.13
£4.54
£4.91
Grant date
Share price at grant date
Number of employees
Shares under award
Vesting period (years)
Expected volatility
Award life (years)
Expected life (years)
Risk free rate
January
2014
£4.12
1
March
2014
£4.20
118
March
2014
£4.20
145
August
2014
August
2014
September
2014
September
2014
£3.67
£3.67
£3.70
£3.70
2
1
1
116,873 4,654,084
690,670
30,600
6,352
15,570
3
22%
3
3
3
22%
3
3
3
22%
3
3
3
21%
3
3
3
21%
3
3
3
20%
3
3
1.10%
1.10%
1.10%
1.19%
1.19%
0.92%
0.92%
1
5,838
3
20%
3
3
Expected dividends expressed as a dividend yield
–
–
–
–
–
–
–
Fair value per award
£3.49
£3.62
£4.20
£2.97
£3.67
£2.99
£3.70
146
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147
147
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Net debt and capital structure continued
14 Equity continued
14.2 Share-based payments continued
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
2015
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
13,891
5,411
(4,697)
(1,542)
13,063
–
2014
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
16,739
5,520
(8,347)
(21)
13,891
–
2015
Weighted average
remaining life years
Contractual
Expected
2014
Weighted average
remaining life years
Contractual
Expected
1.3
1.3
1.6
1.6
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 usually made only with service conditions. Executive directors are not permitted to participate in the plan and
shares are purchased in the market to satisfy vesting awards. During the year 362,530 (2014: 1,151,427) awards were made. These awards only
have service conditions and their fair values are equal to the share price on the date of grant, ranging from 465 – 527p.
The plan options granted in December 2013 have vested at 67.5% of the total award, based upon FY15 organic revenue growth. These 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.
Grant date
Share price at grant date
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
December
2013
£3.72
7
880,881
2
20%
2
2
0.60%
–
148
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Net debt and capital structure continued
Outstanding at 1 October
Awarded
Forfeited
Exercised
Outstanding at 30 September
Exercisable at 30 September
Range of exercise prices
N/A
The Sage Group Restricted Share Plan
Grant date
Share price at grant date
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
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 usually made only with service conditions. Executive directors are not permitted to participate in the plan and
shares are purchased in the market to satisfy vesting awards. During the year 362,530 (2014: 1,151,427) awards were made. These awards only
have service conditions and their fair values are equal to the share price on the date of grant, ranging from 465 – 527p.
The plan options granted in December 2013 have vested at 67.5% of the total award, based upon FY15 organic revenue growth. These 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.
2015
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
13,891
5,411
(4,697)
(1,542)
13,063
–
2014
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
16,739
5,520
(8,347)
(21)
13,891
–
2015
Weighted average
remaining life years
2014
Weighted average
remaining life years
Expected
Contractual
Expected
Contractual
1.3
1.3
1.6
1.6
December
2013
£3.72
880,881
20%
0.60%
7
2
2
2
–
14 Equity continued
14.2 Share-based payments continued
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:
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
2015
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
1,451
363
(296)
(350)
1,168
–
2014
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
’000s
720
1,151
(420)
–
1,451
–
2015
Weighted average
remaining life years
Contractual
Expected
2014
Weighted average
remaining life years
Contractual
Expected
1.1
1.0
1.9
1.9
The Sage Group Savings-related Share Option Plan (the “SAYE Plan”)
The Group operates an approved savings-related share option scheme for UK employees. The 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.
In the year, 1,241,905 (2014: 1,532,520) options were granted under the terms of the Savings-related Share Option Scheme.
14.3 Other reserves
At 30 September 2013 (restated)
Exchange differences on translating foreign operations (restated)
Purchase of non-controlling interest
At 30 September 2014 (restated)
Exchange differences on translating foreign operations
At 30 September 2015
Translation
reserve
£m
Merger
reserve
£m
67.1
(38.1)
–
29.0
(23.2)
5.8
61.1
–
–
61.1
–
61.1
Other
reserve
£m
(68.0)
–
68.0
–
–
–
Total
other
reserves
£m
60.2
(38.1)
68.0
90.1
(23.2)
66.9
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.
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. This was acquired in 2014. See note 13.4.
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Net debt and capital structure continued
14 Equity continued
14.4 Retained earnings
Retained earning
At 1 October
Profit for the year
Actuarial loss on post-employment benefit obligations (note 10)
Deferred tax credit on actuarial loss on post-employment obligations
Value of employee services net of deferred tax
Purchase of treasury shares
Expenses related to purchase of treasury shares
Close period share buyback programme (note 13.4)
Purchase of non-controlling interest (note 13.4)
Dividends paid to owners of the parent (note 14.5)
Total
2015
£m
130.2
194.3
(4.8)
0.6
10.1
(14.6)
(0.1)
60.0
–
(133.5)
242.2
2014
(restated)
£m
248.5
188.0
(0.4)
0.4
7.8
(89.5)
(0.2)
(30.1)
(68.1)
(126.2)
130.2
The 2014 retained earnings balance was restated in line with the changes to the revenue recognition policy (note 1).
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 3,457,020 shares (2014: 24,206,805) at a cost of £12.4m
(2014: £89.5m) representing 0.0% of issued share capital (2014: 2.2%). Shares were repurchased at a weighted average price of 359.0p per
share; the highest and lowest prices paid for these shares were 390.7p per share and 347.0p per share respectively.
Close period share buyback programme
In 2014 the Group operated a close period buyback programme for £60.1m, relating to the purchase of the Company’s own shares.
No such programme is in place for 2015.
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
3,638,249 ordinary shares in the Company (2014: 5,407,155) at a cost of £0.6m (2014: £0.9m) and a nominal value of £38,272 (2014: £56,880).
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 January 2013 the
Company gifted 5,000,000 shares from purchased treasury shares to the Trust.
On 13 March 2015, the Trust agreed to satisfy the vesting of certain PSP awards, utilising a total of 1,760,694 shares held in the Trust.
Furthermore, The Trust received additional funds of £2.2m which were used to purchase 377,860 shares in the market. These were used
in the current year to satisfy an award under the RSP.
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 2015 was £18.2m (2014: £19.8m).
150
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The Sage Group plc | Annual Report & Accounts 2015
Net debt and capital structure continued
14 Equity continued
14.4 Retained earnings
Retained earning
At 1 October
Profit for the year
Actuarial loss on post-employment benefit obligations (note 10)
Deferred tax credit on actuarial loss on post-employment obligations
Value of employee services net of deferred tax
Purchase of treasury shares
Expenses related to purchase of treasury shares
Close period share buyback programme (note 13.4)
Purchase of non-controlling interest (note 13.4)
Dividends paid to owners of the parent (note 14.5)
Total
Treasury shares
Purchase of treasury shares
The 2014 retained earnings balance was restated in line with the changes to the revenue recognition policy (note 1).
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 3,457,020 shares (2014: 24,206,805) at a cost of £12.4m
(2014: £89.5m) representing 0.0% of issued share capital (2014: 2.2%). Shares were repurchased at a weighted average price of 359.0p per
share; the highest and lowest prices paid for these shares were 390.7p per share and 347.0p per share respectively.
In 2014 the Group operated a close period buyback programme for £60.1m, relating to the purchase of the Company’s own shares.
Close period share buyback programme
No such programme is in place for 2015.
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
3,638,249 ordinary shares in the Company (2014: 5,407,155) at a cost of £0.6m (2014: £0.9m) and a nominal value of £38,272 (2014: £56,880).
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 January 2013 the
Company gifted 5,000,000 shares from purchased treasury shares to the Trust.
On 13 March 2015, the Trust agreed to satisfy the vesting of certain PSP awards, utilising a total of 1,760,694 shares held in the Trust.
Furthermore, The Trust received additional funds of £2.2m which were used to purchase 377,860 shares in the market. These were used
in the current year to satisfy an award under the RSP.
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 2015 was £18.2m (2014: £19.8m).
2015
£m
130.2
194.3
(4.8)
0.6
10.1
(14.6)
(0.1)
60.0
–
(133.5)
242.2
2014
(restated)
£m
248.5
188.0
(0.4)
0.4
7.8
(89.5)
(0.2)
(30.1)
(68.1)
(126.2)
130.2
14.5 Dividends
Accounting policy
Dividends are recognised through equity when approved by the Company’s shareholders or on payment, whichever is earlier.
Final dividend paid for the year ended 30 September 2014 of 8.00p per share
(2014: final dividend paid for the year ended 30 September 2013 of 7.44p per share)
Interim dividend paid for the year ended 30 September 2015 of 4.45p per share
(2014: interim dividend paid for the year ended 30 September 2014 of 4.12p per share)
2015
£m
85.7
47.8
133.5
2014
£m
81.2
45.0
126.2
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2015 of 8.65p per share which
will absorb an estimated £96.7m of shareholders’ funds. It will be paid on 4 March 2016 to shareholders who are on the register of members
on 12 February 2016. These financial statements do not reflect this dividend payable.
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.
At 1 October
Non-controlling interest’s share of profit of the year
Purchase of non-controlling interest
At 30 September
2015
£m
–
–
–
–
2014
£m
(1.0)
0.9
0.1
–
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Other notes
15 Acquisitions and disposals
The following note outlines acquisitions and disposals during the year and the accompanying accounting policies. Each acquisition
or disposal during the year is discussed in detail and the effects on the results of the Group are highlighted.
Accounting policy
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 acquired, 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 total 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 such as legal or professional fees are expensed to the income statement as incurred.
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 shares 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.
15.1 Acquisitions made during the year
Acquisition of PayChoice
On 16 October 2014 the Group acquired 100% of the share capital of PAI Group, Inc. (“PayChoice”), a provider of payroll and HR services
for small and medium sized businesses in North America, for a cash consideration of £75.2m. On the date of acquisition, the external debt
acquired from PayChoice was settled for £22.2m. The acquisition strengthens Sage’s position in the large and growing US payroll market.
The allocation of the consideration has been subject to a purchase price allocation exercise during the period. The excess of consideration
over the net assets acquired has been allocated accordingly across asset and liability categories.
PayChoice’s product portfolio provides easy to use online payroll solutions to small and medium sized businesses (SMBs), and strengthens
the Sage value proposition to customers with a more robust and comprehensive offering. The combined portfolio provides attractive growth
opportunities, particularly through new customer acquisition and cross-sell to the combined customer base.
Summary of acquisitions
Purchase consideration
Fair value of net identifiable assets
Goodwill
£m
75.2
(15.6)
59.6
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152
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Other notes
15 Acquisitions and disposals
The following note outlines acquisitions and disposals during the year and the accompanying accounting policies. Each acquisition
or disposal during the year is discussed in detail and the effects on the results of the Group are highlighted.
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Accounting policy
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 acquired, 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
S
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 total 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 such as legal or professional fees are expensed to the income statement as incurred.
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 shares 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.
15.1 Acquisitions made during the year
Acquisition of PayChoice
On 16 October 2014 the Group acquired 100% of the share capital of PAI Group, Inc. (“PayChoice”), a provider of payroll and HR services
for small and medium sized businesses in North America, for a cash consideration of £75.2m. On the date of acquisition, the external debt
acquired from PayChoice was settled for £22.2m. The acquisition strengthens Sage’s position in the large and growing US payroll market.
The allocation of the consideration has been subject to a purchase price allocation exercise during the period. The excess of consideration
over the net assets acquired has been allocated accordingly across asset and liability categories.
PayChoice’s product portfolio provides easy to use online payroll solutions to small and medium sized businesses (SMBs), and strengthens
the Sage value proposition to customers with a more robust and comprehensive offering. The combined portfolio provides attractive growth
opportunities, particularly through new customer acquisition and cross-sell to the combined customer base.
Summary of acquisitions
Purchase consideration
Fair value of net identifiable assets
Goodwill
£m
75.2
(15.6)
59.6
Fair value of acquisitions
Intangible assets (note 6)
Property, plant and equipment (note 7)
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current borrowings
Non-current borrowings
Deferred tax assets
Provisions (note 9)
Total net identifiable assets acquired
Goodwill
Total purchase consideration
£m
34.2
1.0
1.6
29.6
(32.6)
(2.6)
(19.6)
4.6
(0.6)
15.6
59.6
75.2
The goodwill on acquisition relates to the growth opportunities through both customer acquisition and cross-sell to the combined
customer base. Included within cash and cash equivalents is £28.7m of cash held on behalf of customers with a corresponding liability
within trade and other payables.
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, paid on prior period acquisitions
Net cash outflow in respect of acquisitions
£m
75.2
(29.6)
22.2
1.7
69.5
15.2 Contribution of acquisitions
From the dates of the acquisitions to 30 September 2015, the acquisitions contributed £27.5m to revenue and generated a loss before tax
of £5.5m. Had these acquisitions occurred at the beginning of the financial year, contribution to Group revenue would have been £28.8m and
the contribution to Group profit before tax would have been a loss of £5.8m.
15.3 Costs relating to business combinations in the year
Costs relating to business combinations in the year of £2.0m (2014: £2.4m) have been included in selling and administrative expenses in the
Consolidated income statement. These acquisition-related items relate to completed transactions and include advisory, legal, accounting,
valuation and other professional or consulting services.
16 Related party transactions
This note discloses any transaction by the Group with related parties, which are classified as companies or individuals who have an
interest in the Group, including joint ventures, associated undertakings, investments and key management personnel.
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 3.3.
Supplier transactions occurred during the year between Sage South Africa (Pty) Ltd, one of the Group’s subsidiary companies, and Ivan
Epstein, President, International and Executive Committee member. These transactions relate to the lease of four properties in which Ivan
Epstein has a minority and indirect shareholding. During the year £4.3m (2014: £3.2m) relating to these transactions was charged through
selling and administrative expenses. There were no outstanding amounts payable for the year ended 2015 (2014: £nil).
Supplier transactions occurred during the year between Sage SP, S.L., one of the Group’s subsidiary companies, and Álvaro Ramírez, who
held the role of President, Europe and Executive Committee member during the year. These transactions relate to the lease of a property in
which Álvaro Ramírez has a minority shareholding. During the year £1.0m (2014: £1.1m) relating to these transactions was charged through
selling and administrative expenses. There were no outstanding amounts payable for the year ended 2015 (2014: £nil).
These arrangements are subject to independent review using external advisers to ensure all transactions are at arm’s length.
152
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Other notes continued
17 Group subsidiaries
While we present consolidated results in these financial statements, our structure is such that there are a number of different operating
and holding companies that contribute significantly to the overall result.
Our subsidiaries are located around the world and each contributes to the profits, assets and cash flow of the Group.
The entities listed below and on the following page are subsidiaries of the Company or Group. The Group percentage of equity capital and
voting rights is 100% for all subsidiaries listed. The results for all of the subsidiaries have been consolidated within these financial statements.
Incorporated subsidiaries
Name
ACCPAC UK Limited
Adonix Limited
Apex Software International Limited
Apex Software Systems Limited
BSG (Best Software Ger.)
Computer Resources (Research) Limited
Computer Resources (Software) Limited
Computer Resources (Supplies) Limited
Computer Resources Limited
Creative Purpose Sdn Bhd
eWare GmbH
George Stamford Limited
Handisoft Software Pty Limited
Hartley International Limited
Intelligent Apps Holdings Limited
Interact UK Holdings Limited
IOB Informacoes Objetivas Publicacoes
Juridicas Limiteda
KCS Global Holdings Limited
KHK Software AG
Micropay Pty Limited
Multisoft Financial Systems Limited
PACS Holdings Limited
PAI Services LLC
Pastel Software (Europe) Limited
Pastel Software (Ireland) Limited
Pastel Software (UK) Limited
Country of
incorporation
UK
UK
UK
UK
Germany
UK
UK
UK
UK
Malaysia
Germany
UK
Australia
UK
UK
UK
Brazil
UK
Switzerland
Australia
UK
UK
US
Ireland
Ireland
UK
Direct or
indirect holding
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Name
Protx Group Limited
Protx Limited
Quantec (Holdings) Limited
Sage (Belgique)
Sage (UK) Limited
Sage Alchemex (Pty) Limited
Sage Baurer AG
Sage Baurer GmbH
Sage Brasil 3 Empreendimentos e
Participacoes Limiteda.
Sage Brasil Software S.A.
Sage Brazilian Investment One Limited
Sage Brazilian Investment Two Limited
Sage Business Solutions (NZ) Limited
Sage Business Solutions Pty Limited
Sage CRM Solutions GmbH
Sage CRM Solutions Limited
Sage Enterprise Solutions (Pty) Limited
Sage Enterprise Solutions BV
Sage Enterprise Solutions Limited
Sage Euro Hedgeco 1
Sage Euro Hedgeco 2
Sage Far East Investments Limited
Sage Global Services Limited
Sage Global Services US, Inc.
Sage GmbH
Direct or
Country of
indirect holding
incorporation
Indirect
UK
Indirect
UK
Indirect
UK
Indirect
Belgium
UK
Indirect
South Africa Indirect
Indirect
Switzerland
Indirect
Germany
Indirect
Brazil
Indirect
Indirect
Indirect
Indirect
Brazil
UK
UK
New
Zealand
Indirect
Australia
Indirect
Germany
UK
Indirect
South Africa Indirect
Holland
UK
UK
UK
UK
UK
US
Austria
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
154
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The Sage Group plc | Annual Report & Accounts 2015
Other notes continued
17 Group subsidiaries
While we present consolidated results in these financial statements, our structure is such that there are a number of different operating
and holding companies that contribute significantly to the overall result.
Our subsidiaries are located around the world and each contributes to the profits, assets and cash flow of the Group.
The entities listed below and on the following page are subsidiaries of the Company or Group. The Group percentage of equity capital and
voting rights is 100% for all subsidiaries listed. The results for all of the subsidiaries have been consolidated within these financial statements.
Country of
Direct or
incorporation
indirect holding
Name
Incorporated subsidiaries
Name
ACCPAC UK Limited
Adonix Limited
Apex Software International Limited
Apex Software Systems Limited
BSG (Best Software Ger.)
Germany
Computer Resources (Research) Limited
Computer Resources (Software) Limited
Computer Resources (Supplies) Limited
Computer Resources Limited
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Malaysia
Germany
UK
Australia
Australia
UK
UK
US
Ireland
Ireland
UK
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Protx Group Limited
Protx Limited
Quantec (Holdings) Limited
Sage (Belgique)
Sage (UK) Limited
Sage Alchemex (Pty) Limited
Sage Baurer AG
Sage Baurer GmbH
Sage Brasil 3 Empreendimentos e
Participacoes Limiteda.
Sage Brasil Software S.A.
Sage Brazilian Investment One Limited
Sage Brazilian Investment Two Limited
Sage Business Solutions (NZ) Limited
Sage Business Solutions Pty Limited
Sage CRM Solutions GmbH
Sage CRM Solutions Limited
Sage Euro Hedgeco 1
Sage Euro Hedgeco 2
Sage Far East Investments Limited
Sage Global Services Limited
Sage Global Services US, Inc.
Sage GmbH
Austria
Country of
Direct or
incorporation
indirect holding
UK
UK
UK
UK
Belgium
Indirect
Indirect
Indirect
Indirect
Indirect
South Africa Indirect
Switzerland
Indirect
Germany
Brazil
Indirect
Indirect
Brazil
UK
UK
New
Zealand
Australia
Germany
UK
UK
UK
UK
UK
UK
US
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Creative Purpose Sdn Bhd
eWare GmbH
George Stamford Limited
Handisoft Software Pty Limited
Hartley International Limited
Intelligent Apps Holdings Limited
Interact UK Holdings Limited
Juridicas Limiteda
KHK Software AG
Micropay Pty Limited
Multisoft Financial Systems Limited
PACS Holdings Limited
PAI Services LLC
Pastel Software (Europe) Limited
Pastel Software (Ireland) Limited
Pastel Software (UK) Limited
IOB Informacoes Objetivas Publicacoes
Brazil
Sage Enterprise Solutions (Pty) Limited
South Africa Indirect
KCS Global Holdings Limited
UK
Indirect
Sage Enterprise Solutions BV
Holland
Switzerland
Indirect
Sage Enterprise Solutions Limited
Name
Sage Hibernia Investments No.1 Limited
Sage Hibernia Investments No.2 Limited
Sage Hibernia Limited
Sage Hibernia Services Limited
Sage Holding Company Limited
Sage Holding France SAS
Sage Holdings Limited
Sage HR Solutions AG
Sage Irish Finance Company
Sage Irish Investments LLP
Sage Irish Investments One Limited
Sage Irish Investments Two Limited
Sage Management & Services GmbH
Sage Newco SAS
Sage One Pty Limited
Sage Online Holdings Limited
Sage Overseas Holdings Limited
Sage Overseas Limited
Sage Overseas Limited Sucursal
Sage Pay (Dublin) Limited
Sage Pay (GB) Limited
Sage Pay (Pty) Limited
Sage Pay Europe Limited
Sage Pay GmbH
Sage Pay Ireland Limited
Sage Pay S.L.
Sage Pay SARL
Sage Payment Solutions EFT, Inc.
Sage Payment Solutions, Inc.
Sage Payments (UK) Limited
Sage Personalsoftware und Service GmbH Germany
Portugal
Sage Portugal − Software, S.A.
France
Sage SAS
Direct or
Country of
indirect holding
incorporation
Indirect
UK
Indirect
UK
Indirect
Ireland
Indirect
Ireland
Direct
UK
Indirect
France
Indirect
UK
Indirect
Germany
Indirect
Ireland
Indirect
UK
Direct
UK
Direct
UK
Indirect
Germany
Indirect
France
Indirect
Australia
Indirect
UK
Indirect
UK
Indirect
UK
Indirect
Spain
Indirect
Ireland
Indirect
UK
South Africa Indirect
Indirect
UK
Indirect
Germany
Indirect
Ireland
Indirect
Spain
Indirect
France
Indirect
US
Indirect
US
Indirect
UK
Indirect
Indirect
Indirect
Sage Schweiz AG
Sage Services GmbH
Sage Singapore Holdings Pte. Limited
Sage Software (India) Private Limited
Sage Software (Maroc)
Sage Software Asia Pte. Limited
Sage Software Australia Pty Limited
Sage Software Botswana (Pty) Limited
Sage Software Canada Holdings Limited
Sage Software Canada Limited
Sage Software East Africa Limited
Sage Software GmbH
Sage Software Holdings Inc.
Switzerland
Germany
Singapore
India
Morocco
Singapore
Australia
Botswana
Canada
Canada
Kenya
Germany
US
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Name
Sage Software International, Inc.
Sage Software Limited
Sage Software Middle East FZ-LLC
Sage Software Namibia (Pty) Limited
Sage Software Nigeria Limited
Sage Software North America
Sage Software Sdn Bhd
Sage Software Solutions Pte Limited
Sage Software, Inc.
Sage South Africa (Pty) Limited
Sage sp. zoo.
Sage Spain Investment Company Limited
Sage Spain, S.L.
Sage St. Mary's Limited
Sage Technologies Limited
Sage TML (Belgique)
Sage Treasury Company Limited
Sage USD Hedgeco 1
Sage USD Hedgeco 2
Sage Whitley Limited
Sage XRT Brasil Limiteda.
Sagesoft
Sandco 1191 Limited
Sky Software Limited
Snowdrop Systems Limited
Snowdrop Systems Pty Limited
Softline Australia Pty Limited
Softline Holdings USA Inc.
Softline Software Holdings Limited
Softline Software Inc.
Softline Software Limited
Softline Software USA LLC
Syska Gesellschaft fur betriebliche
Datenverarbeitung mbH
Sytax Sistemas S.A
TAS Software Limited
Tetra Limited
Tide 1 Limited
Tide2 Limited
Tide3 Limited
Tide4 Limited
Tide5 Limited
Tide6 Limited
Tide7 Limited
Tonwomp
Ulysoft
Direct or
Country of
indirect holding
incorporation
Indirect
US
Indirect
UK
Indirect
UAE
Indirect
Namibia
Indirect
Nigeria
Indirect
US
Indirect
Malaysia
Indirect
Singapore
US
Indirect
South Africa Indirect
Indirect
Poland
Indirect
UK
Indirect
Spain
Indirect
Jersey (GB)
Indirect
Ireland
Indirect
Belgium
Direct
UK
Indirect
UK
Indirect
UK
Indirect
UK
Indirect
Brazil
Indirect
UK
Indirect
UK
Indirect
UK
Indirect
UK
Indirect
Australia
Indirect
Australia
Indirect
US
Indirect
UK
Indirect
US
Indirect
UK
Indirect
US
Indirect
Germany
Brazil
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Tunisia
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Contents
Company financial statements
Company financial statements
Company balance sheet
Company accounting policies
Notes to the Company financial statements
Supplementary notes to the Company financial statements.
Results for the year
1. Dividends
Operating assets and liabilities
2. Fixed assets: investments
3. Cash at bank and in hand
4. Debtors
5. Creditors: amounts falling due within one year
6. Creditors: amounts falling due in more than one year
Net debt and capital structure
7. Equity
Other notes
8. Related party transactions
157
158
159
159
159
159
160
160
161
162
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The Sage Group plc | Annual Report & Accounts 2015
Contents
Company financial statements
Company balance sheet
At 30 September 2015
Prepared using UK Generally Accepted Accounting Practice (“UK GAAP”)
Company financial statements
Company balance sheet
Company accounting policies
Notes to the Company financial statements
Results for the year
Supplementary notes to the Company financial statements.
1. Dividends
Operating assets and liabilities
2. Fixed assets: investments
3. Cash at bank and in hand
4. Debtors
5. Creditors: amounts falling due within one year
6. Creditors: amounts falling due in more than one year
Net debt and capital structure
7. Equity
Other notes
8. Related party transactions
Fixed assets: investments
Current assets
Cash at bank and in hand
Debtors
Creditors: amounts falling due within one year
Trade and other payables
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
3
4
5
6
7.1
7.2
7.2
7.2
2015
£m
2014
£m
3,088.2
3,088.2
3.1
574.7
577.8
0.9
506.2
507.1
(763.0)
(185.2)
(654.3)
(147.2)
2,903.0
2,941.0
(33.0)
2,870.0
(61.6)
2,879.4
11.8
541.2
(101.8)
2,418.8
2,870.0
11.7
535.9
(87.2)
2,419.0
2,879.4
The financial statements on pages 157 to 162 were approved by the Board of Directors on 2 December 2015 and are signed on their behalf by:
S Hare
Chief Financial Officer
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The Sage Group plc | Annual Report & Accounts 2015
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157
The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Company accounting policies
Company accounting policies
Basis of accounting
These financial statements are prepared on the going concern basis, under the historical cost convention, 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.
Foreign currencies
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.
Investments
Fixed asset investments are stated at cost less provision for any diminution in value.
Parent Company profit and loss account
The amount of profit for the financial year before dividends within the accounts of the parent Company is £64.3m (2014: £538.0m). 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.
Auditors’ remuneration
The audit fees payable in relation to the audit of the financial statements of the Company are £30,000 (2014: £27,000).
Directors’ remuneration
Details of the remuneration of Executive and Non-Executive Directors and their interest in shares and options of the Company are given
in the audited part of the Directors’ Remuneration Report on pages 74 to 92.
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.
Financial instruments
The accounting policy of the Company for financial instruments is the same as that shown in the Group accounting policies. This policy
is in accordance with FRS 26, “Financial Instruments: Recognition and Measurement”.
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The Sage Group plc | Annual Report & Accounts 2015
Company accounting policies
Notes to the Company financial statements
Foreign currencies
Investments
or losses in the year.
Auditors’ remuneration
Directors’ remuneration
Share-based payments
Company accounting policies
Basis of accounting
These financial statements are prepared on the going concern basis, under the historical cost convention, 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.
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.
Fixed asset investments are stated at cost less provision for any diminution in value.
Parent Company profit and loss account
The amount of profit for the financial year before dividends within the accounts of the parent Company is £64.3m (2014: £538.0m). 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
No profit and loss account or cash flow statement is presented for the Company as permitted by section 408 of the Companies Act 2006.
The audit fees payable in relation to the audit of the financial statements of the Company are £30,000 (2014: £27,000).
Details of the remuneration of Executive and Non-Executive Directors and their interest in shares and options of the Company are given
in the audited part of the Directors’ Remuneration Report on pages 74 to 92.
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.
Financial instruments
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Results for the year
1 Dividends
Final dividend paid for the year ended 30 September 2014 of 8.00p per share
(2014: final dividend paid for the year ended 30 September 2013 of 7.44p per share)
Interim dividend paid for the year ended 30 September 2015 of 4.45p per share
(2014: interim dividend paid for the year ended 30 September 2014 of 4.12p per share)
2015
£m
85.7
47.8
133.5
2014
£m
81.2
45.0
126.2
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2015 of 8.65p per share which will
absorb an estimated £96.7m of shareholders’ funds. It will be paid on 4 March 2016 to shareholders who are on the register of members on 12
February 2016. These financial statements do not reflect this dividend payable.
Operating assets and liabilities
2 Fixed assets: investments
Equity interests in subsidiary undertakings are as follows:
Cost
At 1 October 2014
At 30 September 2015
Provision for diminution in value
At 1 October 2014
At 30 September 2015
Net book value
At 30 September 2015
At 30 September 2014
£m
3,224.0
3,224.0
135.8
135.8
3,088.2
3,088.2
The directors believe that the carrying value of the investments is supported by their underlying net assets.
Subsidiary undertakings, included in the Group accounts for the year ended 30 September 2015, are shown in note 17 of the Group financial
statements. All of these subsidiary undertakings are wholly owned. 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.
All operating subsidiaries’ results are included in the consolidated financial statements. The accounting reference date of all subsidiaries is
30 September, except for Brazilian subsidiaries which have an accounting reference of 31 December due to Brazilian statutory requirements.
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The accounting policy of the Company for financial instruments is the same as that shown in the Group accounting policies. This policy
3 Cash at bank and in hand
is in accordance with FRS 26, “Financial Instruments: Recognition and Measurement”.
Cash at bank and in hand
4 Debtors
Amounts owed by Group undertakings
Other debtors
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The Sage Group plc | Annual Report & Accounts 2015
2015
£m
3.1
2015
£m
574.7
–
574.7
2014
£m
0.9
2014
£m
505.9
0.3
506.2
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Notes to the Company financial statements continued
Operating assets and liabilities
5 Creditors: amounts falling due within one year
Bank loans and overdrafts
Amounts owed to Group undertakings
Other creditors
Accruals and deferred income
US senior bank loans –unsecured
2015
£m
–
729.3
–
0.7
33.0
763.0
2014
£m
0.9
465.2
60.1
4.7
123.4
654.3
Other creditors relate to outstanding liabilities of £nil (2014: £60.1m) arising under an irrevocable close period buyback agreement for the
purchase of the Company’s own shares.
6 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
2015
£m
33.0
33.0
2014
£m
61.6
61.6
Included in loans above is £66.0m (2014: £185.0m) of unsecured loans (after unamortised issue costs).
The Company has US$100.0m (£66.0m, 2014: £185.1m) of US senior loan notes, which were issued into the US private placement market
in 2010. These notes mature US$50.0m (£33.0m, 2014: £30.8m) in 2016 and US$50.0m (£33.0m, 2014: £30.8m) in 2017 and carry interest
coupons of 4.78% and 5.15% respectively. In March 2015 US$200.0m (£132.2m) notes matured.
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £nil (2014: £0.1m). In the prior year the Company
wrote off the remaining issue costs amounting to £0.5m in respect of the refinancing of its revolving credit facility in a subsidiary of the
parent company.
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The Sage Group plc | Annual Report & Accounts 2015
Notes to the Company financial statements continued
Operating assets and liabilities
5 Creditors: amounts falling due within one year
Bank loans and overdrafts
Amounts owed to Group undertakings
Other creditors
Accruals and deferred income
US senior bank loans –unsecured
purchase of the Company’s own shares.
6 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
2015
£m
–
–
729.3
0.7
33.0
763.0
2015
£m
33.0
33.0
2014
£m
0.9
465.2
60.1
4.7
123.4
654.3
2014
£m
61.6
61.6
Included in loans above is £66.0m (2014: £185.0m) of unsecured loans (after unamortised issue costs).
The Company has US$100.0m (£66.0m, 2014: £185.1m) of US senior loan notes, which were issued into the US private placement market
in 2010. These notes mature US$50.0m (£33.0m, 2014: £30.8m) in 2016 and US$50.0m (£33.0m, 2014: £30.8m) in 2017 and carry interest
coupons of 4.78% and 5.15% respectively. In March 2015 US$200.0m (£132.2m) notes matured.
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £nil (2014: £0.1m). In the prior year the Company
wrote off the remaining issue costs amounting to £0.5m in respect of the refinancing of its revolving credit facility in a subsidiary of the
parent company.
Other creditors relate to outstanding liabilities of £nil (2014: £60.1m) arising under an irrevocable close period buyback agreement for the
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”.
Net debt and capital structure
7 Equity
7.1 Called up share capital
Issued and fully paid
At 1 October
Proceeds from shares issued
At 30 September
2015
shares
1,115,892,047
2,406,701
1,118,298,748
2015
£m
11.7
0.1
11.8
2014
shares
1,114,135,420
1,756,627
1,115,892,047
2014
£m
11.7
–
11.7
7.2 Reserves
At 01 October 2014
Employee share option scheme:
– New shares issued
– Value of employee services
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
Treasury
shares
£m
(149.9)
Merger
reserve
£m
61.1
Capital
redemption
reserve
£m
Total other
reserves
£m
1.6
(87.2)
Share
premium
account
£m
535.9
Profit
and loss
account
£m
2,419.0
–
–
–
(14.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14.6)
–
–
–
–
5.3
–
–
–
–
–
–
–
At 30 September 2015
(164.5)
61.1
1.6
(101.8)
541.2
At 01 October 2013
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 2014
Treasury
shares
£m
(60.5)
–
0.1
(89.5)
–
–
–
–
–
Merger
reserve
£m
61.1
Capital
redemption
reserve
£m
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total other
reserves
£m
(2.2)
–
0.1
(89.5)
–
–
–
–
–
Share
premium
account
£m
532.2
3.7
–
–
–
–
–
–
–
(149.9)
61.1
1.6
(87.2)
535.9
Total
£m
2,867.7
5.3
9.1
–
(14.6)
(0.1)
60.0
64.3
(133.5)
2,858.2
Total
£m
2,570.0
3.7
–
(89.5)
(0.2)
(30.1)
538.0
(126.2)
2.0
2,867.7
–
9.1
–
–
(0.1)
60.0
64.3
(133.5)
2,418.8
Profit
and loss
account
£m
2,035.6
(0.1)
–
(0.2)
(30.1)
538.0
(126.2)
2.0
2,419.0
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The Sage Group plc | Annual Report & Accounts 2015
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The Sage Group plc | Annual Report & Accounts 2015FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT
Notes to the Company financial statements continued
Net debts and capital structure continued
7 Equity continued
7.2 Reserves continued
Treasury shares
Purchase of treasury shares
During the year the Company purchased 3,457,020 shares (2014: 24,206,805) at a cost of £12.4m (2014: £89.5m). Shares were repurchased at
a weighted average price of 359.0p per share; the highest and lowest prices paid for these shares were 390.7p per share and 347.0p per share
respectively. Shares purchased under the Group’s buyback programme are retained in issue until cancelled and represent a deduction from
equity attributable to owners of the parent.
Close period share buyback programme
In 2014 the Company operated a close period buyback programme for £60.1m. No such programme is in place for 2015.
Employee share trust
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 3,638,249 ordinary shares in the Company (2014: 5,407,155) at a cost of £0.6m (2014: £0.9m)
and a nominal value of £38,272 (2014: £56,880).
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 January 2013
the Company gifted 5,000,000 shares from purchased treasury shares to the Trust.
On 13 March 2015, the Trust agreed to satisfy the vesting of certain PSP awards, utilising a total of 1,760,694 shares held in the Trust.
Furthermore, The Trust received additional funds of £2.2m which were used to purchase 377,860 shares in the market. These were used
in the current year to satisfy an award under the RSP.
The cost of funding and administering the scheme is 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 2015 was £18.2m (2014: £19.8m).
Other notes
8 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.
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The Sage Group plc | Annual Report & Accounts 2015
Glossary
Measure
Underlying
Organic
Description
Why we use it
Prior period underlying measures are retranslated at the current year exchange
rates to neutralise the effect of currency fluctuations.
Underlying operating profit excludes:
Recurring items:
– Amortisation of acquired intangible assets
– Acquisition-related items
– Fair value adjustments on non-debt-related financial instruments
Non-recurring items that management judge are one-off or non-operational
Underlying profit before tax excludes:
– All the items above
– Imputed interest
– Fair value adjustments on debt-related financial instruments.
Underlying profit after tax and earnings per share excludes:
– All the items above net of tax.
Underlying measures allow management
and investors to compare performance
without the potentially distorting effects
of foreign exchange movements, one-off
items or non-operational items.
By including part-period contributions
from acquisitions, disposals and products
held for sale in the current and/or prior
periods, the impact of M&A decisions
on earnings per share growth
can be evaluated.
In addition to the adjustments made for underlying measures, organic measures
exclude the contribution from acquisitions, disposals and products held for sale
in the current and prior period.
Organic measures allow management and
investors to understand the like-for-like
performance of the business.
Underlying cash conversion
Underlying cash conversion is underlying cash flow from operating activities
divided by underlying operating profit. Underlying cash flow from operating
activities is statutory cash flow from operating activities less net capital
expenditure and adjusted for movements on foreign exchange rates and
non-recurring cash items.
Underlying cash conversion informs
management and investors about the
cash operating cycle of the business
and how efficiently operating profit is
converted into cash.
Underlying (as reported)
Where prior period underlying measures are included without retranslation at
current period exchange rates, they are labelled as underlying (as reported).
Processing revenue
Recurring revenue
Processing revenue is revenue earned from customers for the processing
of payments or where Sage colleagues process our customers’ payroll.
Recurring revenue is revenue earned from customers for the provision of a
good or service, where risks and rewards are transferred to the customer over
the term of a contract, with the customer being unable to continue to benefit
from the full functionality of the good or service without on-going payments.
Software subscription revenue
Subscription revenue is revenue earned from customers for the provision of
a good or service, where the risk and rewards are transferred to the customer
over the term of a contract. In the event that the customer stops paying, they
lose the legal right to use the software and the Company has the ability to
restrict the use of the product or service. (Also known as ‘Pay to play’).
Software and software related services (“SSRS”)
SSRS revenue is for goods or services where the entire benefit is passed to
the customer at the point of delivery. It comprises revenue for software or
upgrades sold on a perpetual license basis and software related services,
including hardware sales, professional services and training.
This measure is used to report
comparative figures for external
reporting purposes where it would not be
appropriate to retranslate. For instance, on
the face of primary financial statements.
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FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORTThe Sage Group plc | Annual Report & Accounts 2015 Glossary continued
A&RC
Audit and Risk Committee
AAMEA
Africa Australia Middle East Asia
AGM
Annual General Meeting
API
Application Program Interface
ASB
Annualised Subscriber Base
CAGR
Compound Annual Growth Rate
CFO
Chief Financial Officer
CGU
Cash Generating Unit
CMD
Capital Markets Day
CR
Corporate Responsibility
CRM
Customer Relationship Management
DEFRA
Department for Environment, Food & Rural Affairs
DTR
Disclosure Rules and Transparency Rules
FaaS
Feature as a Service
FCF
Free Cash Flow
FY14
Financial year ending 30 September 2014
FY15
Financial year ending 30 September 2015
GAC
Global Accounting Core
HR
Human Resources
IFRS
International Financial Reporting Standards
ISV
Independent Software Vendor
KPI
Key Performance Indicator
LSE
London Stock Exchange
LTIP
Long Term Incentive Plan
PBT
Profit Before Tax
PSP
Performance Share Plan
EBITDA
Earnings Before Interest Taxes Depreciation and Amortisation
R&D
Research and Development
S&M
Sales and Marketing
SSRS
Software & Software Related Services
TSR
Total Shareholder Return
WLE
Women’s Leadership Exchange
WRVS
Royal Voluntary Service
EBT
Employee Benefit Trust
EPS
Earnings Per Share
ERP
Enterprise Resource Planning
ESOS
Executive Share Operating Scheme
EU
European Union
164
The Sage Group plc | Annual Report & Accounts 2015 Shareholder information
Financial calendar
Annual General Meeting
Dividend payments
Final payable – year ended 30 September 2015
Interim payable – period ending 31 March 2016
Results announcements
Interim results – period ending 31 March 2016
Final results – year ending 30 September 2016
1 March 2016
4 March 2016
3 June 2016
5 May 2016
30 November 2016
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, 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
Citigroup Global Markets, 33 Canada Square, Canary Wharf,
London, E14 5LB
Solicitors
Allen & Overy LLP, 1 Bishops Square, London, E1 6AD
Principal Bankers
Lloyds Bank plc, 25 Gresham Street, London, EC2V 7HN
Independent auditors
Ernst & Young, 1 More London Place, London, SE1 2AF
Registrars
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex,
BN99 6DA
www.shareview.co.uk
Tel: 0371 384 2859 (from outside the UK: +44 (0)121 415 7047)
Fax: 0371 384 2100 (from outside the UK: +44 (0)1903 698403)
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.sage.com/investors.
Investor enquiries
Enquiries can be directed via our website or by contacting our
Investor Relations department:
Tel: +44 (0)191 294 4190
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
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165
The Sage Group plc | Annual Report & Accounts 2015 Sage supports the ambitions of the world’s entrepreneurs
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The Sage Group plc
North Park, Newcastle upon Tyne,
NE13 9AA.
Registered in England
Company number 2231246
Cover picture: Gemma Price, Superfood Market Online, UK