THE SAGE GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2019
BECOMING A
GREAT SAAS
COMPANY
FINANCIAL HIGHLIGHTS
Organic recurring revenue growth
Organic operating margin
10.8%
FY18: 6.7%
23.7%
FY18: 28.8%
STRATEGIC KPIs
Renewal by value
101%
FY18: 101%
Subscription penetration
55%
FY18: 45%
Annualised recurring revenue (ARR) growth
Sage Business Cloud penetration
12.6%
FY18: N/A*
48%
FY18: 29%
See more about our Strategic KPIs on pages 8 to 9
* FY19 is the first year of disclosure for ARR growth.
OTHER KEY HIGHLIGHTS
Underlying cash conversion
Organic revenue growth
129%
FY18: 96%
Statutory revenue growth
5.0%
FY18: 7.6%
5.6%
FY18: 6.5%
Dividend
16.91p
FY18: 16.50p
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. 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.
Organic measures allow management and investors to
understand the like-for-like performance of the business.
Full definitions of underlying and organic can be found within
note 2 of the financial statements. Reconciliations of statutory
revenue, operating profit and basic earnings per share to their
underlying and organic equivalents are in the Financial review
starting on page 46.
On the cover: Sage Intacct customer, Specialty's Café and Bakery, which operates over 50 restaurants in California,
Washington and Illinois.
Sage is a global market leader for
technology that helps small and
medium businesses perform at their
best. Sage is trusted by millions of
customers worldwide to deliver the
best cloud technology and support,
with our partners, to manage finances,
operations, and people. We believe
in doing everything we can to help
people be the best they can be,
so the combined efforts of 13,000
Sage colleagues working with
businesses and communities
make a real difference to the world.
Contents
Strategic report
2-3
4-5
6-7
8-9
10-11
12-15
16-17
18-21
22-25
26-29
30
31
32-35
36-37
38-41
42-45
46-52
54-57
58-65
Purpose, vision & strategy
Our business model
Our investment case
Key performance indicators
Chairman’s statement
CEO review
Our Strategy
Customer Success
Colleague Success
Innovation
Non-financial information statement
Section 172 statement
People
Customers
Foundation
Environment
Financial review
Risk management
Principal risks and uncertainties
Governance
66
Chairman’s introduction to
corporate governance
Board of Directors
Executive Committee
Corporate governance report
67-68
69
70-95
96-123 Directors’ remuneration report
124-128 Directors’ report
Financial statements
130-139 Independent auditor’s report
to the members of The Sage
Group plc
140-144 Group financial statements
145-205 Notes to the Group financial
statements
206-213 Company financial statements
214-216 Glossary
217
Shareholder information
1
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT OUR PURPOSE
is to transform the
way people think and work
so their organisations
can thrive.
It’s the reason we exist as a business.
OUR VISION
is to become a
great SaaS Company
for Customers and
Colleagues alike.
We do this by serving our customers on
subscription and in the cloud.
2
Annual Report and Accounts 2019The Sage Group plc. OUR STRATEGY
is how we will achieve our
vision. It is designed around
three strategic lenses:
Customer
Success
Colleague
Success
Creating enduring
subscription relationships
and having a customer-
centric approach in
everything we do
Creating an environment
that values the individual,
fosters collaboration and
rewards all colleagues
Innovation
Creating solutions that
deliver real customer value and
solve real customer problems
by doing things differently,
leveraging incremental,
emerging and experimental
innovation
THESE
PRIORITIES
HELP US…
3
Annual Report and Accounts 2019The Sage Group plc. Capture the
MARKET
OPPORTUNITY
Sage operates in a total addressable
market (TAM) set to be worth
$36bn in FY20
comprising 72m businesses.
This market grows at 7% per year,
with spend on cloud growing at 13%.
Included within this TAM is the
single-largest software category in
the world, Accounting and Financials.
$36bn
$34bn
$17bn
$19bn
+13%
Cloud growth
7%Total market growth
$17bn
$17bn
+2%
On-premise growth
2019
2020
Source data = IDC Customs Solutions Market Model
Cloud
On-premise
Market growth
Market growth in this TAM is well ahead of global GDP growth. Catalysts for this growth are:
1. Gaining insights and efficiencies
2. The shift to subscription and the cloud
– Accounting and Financials software is no longer about
producing backward-looking accounts. As technology
evolves, software can continue to help businesses
become more efficient and allow them to gain more
insights into their business. This adds significant value
and results in back-office software becoming more
critical to a business’s long-term success.
– Moving to a business model where consumers pay a
subscription fee for usage rather than owning an asset is
becoming increasingly prevalent across all industries. This,
combined with cloud technology, allows the vendor to offer
more value by offering access to the latest upgrades as soon as
they are available. It also boosts retention rates of customers
as vendors can improve their relationship with customers.
– This includes data-entry automation, artificial
– Furthermore, as governments and other stakeholders
intelligence, machine learning, business insights
and analytics. Read more about what Sage is doing
here on pages 26 to 29.
automate processes (such as Making Tax Digital in the UK),
there is more demand from customers to be on the latest
version of software to ensure they remain compliant.
– Globally, cloud adoption rates are expected to continue to
trend upwards from 43% in 2019 to 46% in 2020. The USA is
the most cloud adoptive region and forecast to reach 55%
in 2020, with the UK&I expected to be at 43% and France at
33%. See more on the economics of a subscription model
on pages 6 to 7.
by serving
SMALL
AND MEDIUM
businesses
Sage targets the professional user, typically an accountant or book-keeper
who understands compliance and wants rich functionality to help drive
efficiencies and gain more insight into their business.
Small businesses
Small customers are typically
owner-run businesses with
professionals or small teams
responsible for finances
and human resources.
They are looking to automate
accounting and compliance
while managing costs and
cash flow. Their concerns
tend to be around compliance
and risk and they need
simple solutions, where they
can subscribe and be up
and running.
Medium businesses
Medium customers are more complex,
usually functionally structured around
specialist teams and departments
with different needs. They are often
scaling and transforming and need
insights for growth and competitive
advantage. They typically spend
longer integrating our solutions
into their business.
Sage serves millions of small
and medium customers
around the world.
through unique
COMPETITIVE
ADVANTAGES
That enhance our proposition and ensure we
stand out against the competition.
Trust
Sage has a strong reputation
as a trusted advisor, renowned
for keeping customers safe
and compliant
World-class
products
Sage continues to invest
in technology to ensure its
products remain among the
market leaders
Relationships
Sage prides itself on
building strong and lasting
relationships with its
customers. We provide
market-leading customer
services with our team
of caring and dedicated
services colleagues
Global reach:
local focus
Sage has global scale but extensive
local knowledge which helps ensure
its products are leading the way in
compliance and allows the Group
to plan for changes in legislation
before they are introduced
and the power of the
SAGE BUSINESS
CLOUD
Sage Business Cloud is a suite of unified solutions that add high-value
with common services, so customers can integrate and migrate data
across solutions. This is supported by a rich and robust marketplace with
almost 1,000 ISV apps and emerging tech across artificial intelligence,
machine learning and automation
Cloud connected and
hybrid solutions
Cloud native solutions
Medium
businesses
Sage X3
Sage 200c
Sage Intacct
Sage People
Small
businesses
Sage 50c
Sage Accounting
Sage 50cloud and Sage 200cloud provide the power
and productivity of the desktop with the freedom
and security of the cloud. Sage continues to
invest in these solutions, building cloud
functionality so customers can access more
of the benefits the cloud brings.
Sage Accounting, Sage Intacct and Sage People
provide a fully functional and flexible cloud native
solution with open APIs, giving access to a wide
ecosystem of partners and ISVs.
Sage has a strong digital and direct sales presence, supported by a global network of partners:
100,000
Accountants who advise and
sell Sage solutions
40,000
Value Added Resellers (VARs)
who sell and implement
Sage solutions
1,000
Independent Software
Vendors (ISVs) who add
further functionality and
vertical customisation to
Sage solutions
Dozens
of Strategic Alliances
with some of the biggest
names in technology
Read more about our solutions on page 29
OUR BUSINESS MODEL
DELIVERING VALUE
FOR THE WAY AHEAD
INPUTS
HOW WE ATTRACT AND RETAIN CUSTOMERS
Trusted advisor
A trusted brand providing market
leading customer service.
Local knowledge
Our deep understanding of local regulation
keeps our customers compliant and allows us
to plan for new legislation on the horizon.
People
Caring and committed colleagues, embracing
Sage behaviours and values and invested
in driving success for our customers.
Routes to market
Investing in our multi-channel approach of
direct sales channels, business partners and
accountants helps us grow in our markets.
Innovation
We continually invest in technology to ensure
our products are ahead of the curve in an
ever-changing technological landscape.
AWARENESS
& LAND
Attract new customers
to Sage through brand
awareness, targeted
website campaigns
and the sage.com
website
Offer guides and
trials to prospective
customers
ADOPT
New customers sign
up to Sage Business
Cloud solutions on
subscription
Customers on old
licences are
reactivated and join
Sage on subscription
and cloud solutions
Sage provides training
and onboarding to get
customers started
4
The Sage Group plc.Annual Report and Accounts 2019 DELIVERING VALUE
FOR THE WAY AHEAD
STRATEGIC REPORT
WHAT THIS CREATES
SERVICE
EXPAND
RENEW
Building a closer
relationship with
customers, Sage
can cross-sell,
up-sell and migrate
customers to the
latest version of
their software
High levels of
support from
Sage leads to high
renewal levels and
recommendations
spread by word
of mouth
Sage provides
customer support
through phone,
web chat, social
media, chat bots
and online forums
and communities
Sage keeps
in touch with
customers through
surveys and regular
check-ins
Customer
– Renewal by value of 101%
Colleague
– Colleague net promoter score
+22 points year-on-year
Community
– 31,250 Sage Foundation days
spent in the community
Shareholders
– High quality recurring
revenue growth of 10.8%
– Underlying cash conversion
of 129%
– Sustainable full year
dividend of 16.91p per share
5
The Sage Group plc.Annual Report and Accounts 2019 OUR INVESTMENT CASE
Delivering for Shareholders
TODAY
Strong free
cash flow
129%
underlying cash
conversion
Efficient
capital
allocation
Investing efficiently
for growth
23.7%
organic operating
margin
Sustainable
dividend
16.91p
FY19 dividend,
commitment to
maintaining in
real terms
Higher
contract
values
Higher
retention
rates
Higher
lifetime
revenue
Lower
customer
acquisition
costs
Lower
cost to
serve
Better
customer
economics
Value
creation
High-quality
recurring
revenue
10.8%
organic recurring
revenue growth
£1.0bn
software
subscription
revenue
Reasons to pursue a
SAAS MODEL
6
Annual Report and Accounts 2019The Sage Group plc. STRATEGIC REPORT
And significant value
TOMORROW
As we continue to
focus on becoming a
great SaaS company
Driving an accelerated transition to subscription
and the cloud is critical to unlocking the potential
for significant value creation at Sage.
Moving to a true SaaS model will transform
Sage’s relationship with both existing and
new customers.
By embracing a closer relationship with customers,
Sage can understand the customer better,
enhancing the ability to cross-sell and up-sell.
As customers are happier, retention rates trend
up. By delighting customers, reputation and
advocacy are enhanced, increasing the ability to
acquire new customers.
Over time, it also reduces the cost to acquire and
the cost to serve our customers.
This is supported by a thriving ecosystem of ISVs
and applications which allow the customer to
have a truly bespoke experience, where their
solution is tailored to their business needs.
Put together, customer lifetime value increases
significantly but so does customer satisfaction as
we deliver more of what the customer needs and
help make their lives easier.
Turn the page
to read about our Group KPIs
and how we measure progress
in our transition to SaaS
7
Annual Report and Accounts 2019The Sage Group plc. OUR KEY PERFORMANCE INDICATORS
HOW TO
MEASURE
A GREAT
SAAS
COMPANY
Sage has four strategic KPIs that show the impact and
progress of strategic execution and the focus on
Customer Success, Colleague Success and Innovation.
First introduced in April 2019, the KPIs will be disclosed
every six months to demonstrate Sage’s progress in the
transition to a SaaS company.
8
The Sage Group plc.Annual Report and Accounts 2019 Renewal by value
101%
This metric tracks the growth of existing
contracts over the period (up-sell, cross-sell,
renewal, migration), offset by churn. It does
not include new customer acquisition or
reactivation of off-plan customers and
therefore measures the strength of the
existing customer base.
Annualised recurring revenue (ARR)
growth
12.6%
Defined as the normalised reported recurring
revenue in the last month of the reporting
period, adjusted consistently period to period,
multiplied by 12 (FY19: £1,685m ARR).
It represents the annualised value of the
recurring revenue base that is expected to be
carried into future periods, and its growth is a
forward looking indicator of reported recurring
revenue growth.
Subscription penetration
Sage Business Cloud penetration
55%% of revenue on subscription
This is measured as software subscription
revenue as a proportion of revenue and shows
the progress Sage is making in migrating its
customers to subscription (FY19: £1,004m
organic software subscription revenue).
48%
Defined as recurring revenue from the Sage
Business Cloud as a proportion of the recurring
revenue of the Future Sage Business Cloud
Opportunity. This metric measures progress
in the transition of the business to the Sage
Business Cloud. Find out more about the
portfolio view of revenue on page 46.
Sage also tracks other KPIs linked to strategic lenses including:
Customer Success:
NPS and Renewal
rate by value
Colleague Success:
Colleague NPS,
voluntary attrition,
Sage Foundation Days
Innovation:
Availability of native cloud
solutions, Sage Business cloud
penetration, consumption of
cloud services
See more about our strategy and how
we measure our progress on pages 16 to 29
9
STRATEGIC REPORTThe Sage Group plc.Annual Report and Accounts 2019
CHAIRMAN’S STATEMENT
DRIVING
VALUE
Sage will continue to focus on its vision to
become a great SaaS company for customers
and colleagues alike, with further progress in
strategic execution to come.”
10
Annual Report and Accounts 2019The Sage Group plc. In the past year the Sage Group has made further progress in its evolution towards a cloud and
subscription-led business. 55% of Group revenue is now on subscription and the Group currently has
annualised recurring revenue (ARR) growth of 12.6%.
Looking back at FY19
2018-19 has been a watershed year for The Sage Group. For the
first time, more than half of our revenue is on subscription and
through our relentless innovation, customers can access a wide
range of cloud-based services making their business operations
more efficient.
This year has also been Steve Hare’s first as Chief Executive. He
has led a major sharpening of the purpose, vision and strategic
lenses of the business whilst defining and implementing a
business model to give sustainability to the progress being
achieved. He has also made important promotions to create
a first-rate management team. They have been united around
putting customers at the heart of all that we do, and the fruits of
this effort are already clear.
By giving absolute clarity about an objective to grow ARR, Steve
has brought a real sense of prioritisation to the business. The
result, a growth of 12.6% in ARR to £1,685m at the end of the
year, makes clear the benefits of focus. Subscription revenue
exceeded £1bn for the first time with Sage Business Cloud
penetration of 48% and renewal by value running at over 100%.
Innovation has been key: the Group has accelerated the
development and availability of cloud solutions and services
for customers in both the small and medium market segments.
The internationalisation of our cloud native products from
Sage Intacct to Australia (as a first step) and the development
of Sage Accounting for Professional Users as the cloud native
solution for small business accounting, have been important
developments. We have embarked on Sage Intacct’s roll out in
the UK already in FY20.
The year has been characterised as one of considerable
external uncertainty with Brexit at home and trade disruptions
in the rest of the world. Despite this the management has
remained focused on its customers and not been distracted by
the many uncertainties affecting business.
The Board in FY19
In addition to Steve Hare’s appointment as CEO, Jonathan
Howell transitioned from Non-executive Director and Chair
of the Audit and Risk Committee to executive director and
CFO. Neil Berkett stepped down from the Board during the
year after six years to concentrate on his new role at NSPCC.
Neil brought dedication, experience and valuable insight to Sage.
We welcomed three new Non-executive Directors: Jonathan
Bewes, Annette Court and Dr John Bates, who have a wealth of
experience across finance, corporate strategy and technology
and have already brought new perspectives to the Board.
Read my statement within the Corporate governance
report for insight into the activities of the Board for 2019.
See more on page 66
Jonathan and Annette took up positions as Chair of the
Audit and Risk Committee and Chair of the Remuneration
Committee respectively, in addition to their roles as
Non-executive Directors.
During the year the Board has focused on ensuring that
the Company’s strategic ambitions and competitive edge
are underpinned by a customer-centric culture in which
colleagues are supported and innovation fostered. The Board
has also invested time in ensuring the Group continues to
meet the requirements of a changing corporate governance
landscape. During FY19 the Board spent time with key
stakeholders; meeting with colleagues, customers and
partners in Newcastle, London, Reading and Atlanta, as well as
participating in a Sage Foundation day with our charity partner,
Working Chance, alongside Sage colleagues.
Our Board Associate role continues to prove valuable in
providing two-way communication with colleagues, enabling
the Board to hear more of colleagues’ views whilst generating
greater understanding of the role of the Board amongst
colleagues. During the year, the Board appointed a successor
to our first Board Associate who will remain in place for an
18-month term.
Sage has great people and I would like to thank all colleagues
and the Board for their dedication during the year.
Looking forward to FY20
As we look to FY20, Sage will continue to focus on its
vision to become a great SaaS company for customers and
colleagues alike, with further progress in strategic execution
to come. We are cognisant that this is a multi-year process
and the transition may not always be linear, but we know
that continued focus on the vision is the right path to take
for shareholders, customers, partners, colleagues and our
communities.
The quality of revenue continues to improve and the Group
remains strongly cash generative with underlying cash
conversion of 129% and, in line with our policy, a 2.5% increase
in the full year dividend to 16.91p in FY19.
Sir Donald Brydon
Chairman
11
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT IN CONVERSATION WITH STEVE HARE
BUILDING A
GREAT SAAS
COMPANY
12
Annual Report and Accounts 2019The Sage Group plc. Steve Hare outlines his plans for Sage
to become a great SaaS business for
customers and colleagues
Steve, you’ve been in role as CEO for just
over a year now. What have been your main
priorities during this time?
My main priority has been to create focus,
consistency and simplification within the business.
To achieve this, the first thing we did was to set out
a new purpose, vision and strategy:
– Our purpose is to transform the way people think
and work so their organisations can thrive.
– The vision is to create a great SaaS company,
for customers and colleague alike, and this
is underpinned by the three strategic lenses
of Customer Success, Colleague Success
and Innovation.
We have focused on each of these strategic lenses
throughout the year and I am very happy with the
progress we have made in the year. And we will
continue to drive more strategic execution into
FY20 and beyond.
You talk a lot about creating a great
SaaS company. What does this mean to
you and why is it worth pursuing?
In simple terms, being a great SaaS company will
mean that the vast majority of our revenue is on
subscription and in the cloud.
This will enable us to continue to embrace a closer
relationship with our customers, better understanding
their needs and how best to serve them. In this
mutually beneficial relationship, we can delight our
customers, meaning they stay with us for longer and
consume more of Sage’s value-add services. This
also means reputation and advocacy are enhanced,
increasing our ability to acquire new customers.
Over time, this reduces the cost to acquire and
the cost to serve our customers, and put together,
lifetime value of customers is significantly
enhanced. To achieve this, it’s very important to
have happy and engaged colleagues who then look
after your customers.
We’re very encouraged by the acceleration
in recurring revenue in FY19. We entered
the year with momentum and added
sequential ARR every month in the year,
putting us further ahead in our transition
to Sage Business Cloud than anticipated.
We’ve also made significant progress
in our strategic execution, particularly
in the development and roll out of our
cloud offerings and the reshaping of our
portfolio. We will continue to prioritise
high quality recurring revenue growth
over SSRS, and whilst we do not expect a
linear progression in financial performance
during this multi-year transition, our
recent strong performance and continued
progress towards becoming a great SaaS
company means that we look forward
with confidence.”
Steve Hare
Chief Executive Officer
ARR growth
of 12.6% to
Sage Business Cloud
penetration
£1,685m
48%
Software subscription
penetration
Renewal by
value
55%
101%
Read more on pages 8 to 9
13
BUILDING A
GREAT SAAS
COMPANY
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT IN CONVERSATION WITH STEVE HARE continued
Can you tell us about what strategic
progress you’ve made against each of
the strategic lenses in the year?
I’m really pleased with the progress we’ve made in
the year.
In Customer Success, upgrading our internal
solutions and tools is allowing us to embrace a
closer relationship with our customers so we can
understand how best to serve them.
We have also re-shaped the organisational design
to allow a more customer-centric view of the
market. This includes creating ‘small’ and ‘medium’
business segments in the organisation to ensure
we are focused on providing the best support to
these customers. And I have made promotions
to my Executive Committee to reinforce this
organisational design.
See more on the Executive Committee on page 69
In Colleague Success, we have spent time training
leaders to ensure they are fully aligned behind the
transition to a SaaS model and we have invested in
colleague engagement and experience to continue
to make Sage a great place to work.
One example of how we’ve improved engagement
is through the Big Conversation. This was a three
day online forum to engage with colleagues
and understand their key priorities. There were
thousands of comments left by our colleagues and
the feedback has helped shape decision-making
and culture of the Company, including setting
the new Sage values which launched at the start
of FY20.
And in Innovation, we have shown significant
progress in developing our cloud native portfolio:
– Sage Intacct has been launched in Australia and
the UK in 2019 with further plans to launch in
South Africa in 2020;
– We have invested in Sage Accounting in FY19 and
will launch a more functionally rich tier of this
solution for Professional Users in 2020, starting in
the UK. Together, they provide the small business
solution for cloud native accounts, to acquire
new customers and, over time, offer a migration
path for existing Sage 50 customers.
– We also announced the small but strategically
significant acquisitions of:
– AutoEntry, a provider of data entry automation;
and
– Allocate.AI, technology that enables automation
of time tracking, project planning and resource
allocation, to enhance the portfolio of cloud
services within Sage Business Cloud.
And what have you done to simplify
the organisation?
The purpose, vision and strategy have been
instrumental in enabling colleagues to focus on
what’s most important in the business.
Aside from this, we have also split our products
into two portfolios: we now have the majority of
our products in the Future Sage Business Cloud
Opportunity, which represents products in, or with a
clear pathway to, Sage Business Cloud. And we also
have the Other portfolio, a smaller set of products
where we do not see a path to Sage Business Cloud.
The purpose, vision and strategy
have been instrumental in enabling
colleagues to focus on what’s most
important in the business.”
See more about purpose, vision and strategy on pages 2 to 3
14
Annual Report and Accounts 2019The Sage Group plc. I want to build on what we’ve achieved in FY19
and continue to demonstrate strong strategic
execution into FY20 and beyond as we become a
great SaaS company.”
In order to focus on subscription and the cloud,
we are disposing of or finding other value creation
paths for products within the Other portfolio and we
have made good progress in the year: we disposed
of the US Payroll Processing business in February
2019, we have announced the agreement to dispose
of Sage Pay UK and the Brazilian business is now
held for sale.
How are you measuring your success?
The leading financial metric is growth in high
quality recurring revenue. In FY19 organic recurring
revenue growth was 10.8%, which surpassed
expectations and shows our continued focus on
driving revenue on subscription and the cloud.
But how we achieve success is equally as important.
We implemented four strategic KPIs in April 2019
to demonstrate Sage’s progress in transitioning
towards a SaaS company.
Find out more on pages 8 to 9
These KPIs show how we achieve success, and
reinforce the quality of our performance, and I’m
delighted to say we have made significant progress
against each of these KPIs in FY19:
– We delivered ARR growth of 12.6% to £1,685m
reflecting growing momentum in high quality
recurring revenue at the end of the year with
the business continuing to show sequential
progression in recurring revenue over time;
– Software subscription penetration is now 55%
as the business continues to transition existing
customers and attract new customers to
subscription and the cloud;
– Sage Business Cloud penetration is now 48% as the
business continues to focus on core solutions which
have a direct pathway to Sage Business Cloud; and
– Renewal by value remains strong at 101%
demonstrating the strength of the existing
customer base.
What are your main priorities for FY20?
I want to build on what we’ve achieved in FY19 and
continue to demonstrate strong strategic execution
into FY20 and beyond as we become a great
SaaS company.
In Customer Success, we will continue the roll out
of systems, solutions and processes, as well as
embedding the more customer-centric view of the
market through the new organisational design.
In Colleague Success, we will continue to focus on
colleagues and leaders and we have introduced a
new set of values, which we will work on embedding
throughout the year.
Find out more on pages 16 to 29
In Innovation, we will continue to invest in Sage
Business Cloud, developing and rolling out cloud
solutions, as well as continuing to drive adoption of
cloud services amongst customers.
What is your guidance for FY20?
Building on the significant ARR created in FY19, we
expect recurring revenue growth of 8-9%, driven
by strong ongoing performance in the Future Sage
Business Cloud Opportunity, as we continue to
focus on attracting and migrating customers to
Sage Business Cloud. Other revenue (SSRS and
processing) is expected to decline by high single
digits in line with this focus, and organic operating
margin is expected to be around 23%, as Sage
continues to invest in the transition to SaaS.
Strategic Report for FY19
Our Strategic Report on pages 2 to 65 has
been reviewed and approved by the Board.
Steve Hare
Chief Executive Officer
15
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT OUR
STRATEGY
We are focused on
three strategic lenses to
help us become a great
SaaS company
16
Annual Report and Accounts 2019The Sage Group plc. CUSTOMER
SUCCESS
Creating enduring subscription relationships
and having a customer-centric approach in
everything we do.
See more on pages 18 to 21
COLLEAGUE
SUCCESS
Creating an environment that values
the individual, fosters collaboration and
rewards all colleagues.
See more on pages 22 to 25
INNOVATION
Creating solutions that deliver real customer
value and solve real customer problems by
doing things differently, leveraging incremental,
emerging and experimental innovation.
See more on pages 26 to 29
17
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT OUR STRATEGY
Our business can’t
work without
Sage and as our
business becomes
more complex,
Sage will help us
manage that.”
Pukka Pads
CUSTOMER
SUCCESS
Customer Success is driven by creating enduring
subscription relationships and having a customer-
centric approach in everything we do.
18
The Sage Group plc.Annual Report and Accounts 2019 Becoming a great SaaS company means supporting
our customers every step of the way
Customer Success is strongly linked to Sage’s purpose: to transform
how people think and work so their organisations can thrive.
Throughout FY19, Sage has focused on Customer Success to embrace a
closer relationship with the customer, understanding what they need to
allow them to be more successful.
Pukka Pads: A Sage customer
In FY19 the business has been focused on the following:
1
2
Solutions and processes
During FY19, Sage has invested
in a single customer relationship
management (CRM) system, to provide
a single view of the customer. By doing
this, Sage has improved quality of
data and customer insight so we can
understand what the customer wants
more effectively and tailor the sales
approach to meet their needs.
This process is now complete in the
UK with the US expected to complete
in H1 2020, as well as launching in other
major geographies.
Sage has also focused on continuing
the digitisation of the customer
services function. Instead of phone
conversations alone, the customer
now has access to web chat, AI,
online forums and communities.
This model also allows for 24/7
customer support, leveraging Sage’s
global presence to provide call sharing
across regions. The outcome is building
deeper customer relationships,
reducing wait times and improving
customer experience.
Understanding and embedding
the customer lifecycle journey
Over the past five years, Sage has been
successfully transitioning from an on-
premise licence-based model to one of
subscription and the cloud. In a licence
world, the sale to the customer is the
number one priority. In a subscription
world, the sale is just the start of the
customer journey.
In FY19 Sage has mapped out and
embedded the customer journey
lifecycle within the organisation.
We have embedded systems, solutions
and processes and have also trained
colleagues so they understand the
importance of each step of the
customer journey.
How we measure our progress
– NPS
– Renewal rate by value
Pukka Pads
The Pukka Pad Group was founded
in 1999 and is a leading global
manufacturer and supplier of a
wide range of stationery items,
including paper pads, notebooks,
files and journals.
Pukka Pads has integrated Sage
200 Cloud, which is proving to be a
massive success. The Group is
able to keep control of its stocks,
process orders and consolidate
financials, which is key for a
global brand.
Turn the page to see how we engage
with customers across the journey
19
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT OUR STRATEGY: CUSTOMER SUCCESS
Awareness
As the owner of her
business, Jane needs
financial software and
speaks to her accountant,
who recommends Sage.
Sage has a trusted brand
and a strong network of
advocating accountants.
Sage also builds
awareness through ads on
TV, radio and social media.
Land
Jane goes online to sage.com.
The website provides her with
all she needs to know about
which software to choose, plus
advice on how to successfully
build her business.
20
Small
business
journey
In the following example, Jane is the
founder and owner of a small graphic
design business. She likes to work very
closely with her clients to deliver the
most creative solutions. Jane needs
financial software that she can trust,
which will easily automate accounting and
compliance. This means that she can spend
more time focusing on her customers.
Adopt
Jane signs up for a cloud
accounting subscription and
can easily start using the
application. Sage follows up
with a welcome call, offering
to answer any questions that
she has.
Jane and her accountant can
both access her data through
the cloud.
Annual Report and Accounts 2019The Sage Group plc. Service
In-app pop-ups highlight
new features and additional
functionality, which helps Jane
run her business more effectively.
Sage also provides an in-product
help centre, supplemented by
web chat, AI, online communities
and phone support.
Renew
Sage uses feedback from
Jane to constantly improve
the customer experience.
Jane feels she has had
strong support from
Sage throughout the
year. She renews her
software subscription
and recommends Sage
to her peers.
Expand
As Jane’s business grows,
she starts to expand her team.
By staying close to Jane, Sage
understands that her needs
are evolving. Jane signs up
for cloud payroll and HCM
software to integrate more
of her business seamlessly
within Sage.
See our business model on pages 4 to 5 to
see how we deliver value for all stakeholders
21
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT OUR STRATEGY
COLLEAGUE
SUCCESS
Sage is committed to building a culture that fosters
collaboration and open, honest dialogue and where
colleagues feel connected to Sage’s vision, putting
customers at the heart of everything we do.
Supporting motivated colleagues further supports
the success of Sage’s customers, helping their
organisations to thrive.
There has been significant progress made in
developing Colleague Success in FY19, focusing
on both leadership and colleagues.
22
The Sage Group plc.Annual Report and Accounts 2019 Becoming a great SaaS company means listening
to our colleagues to find out what matters
Sage continues to place colleague
success, diversity and inclusion and
wellbeing at the heart of what we do,
making Sage a place where colleagues
can reach their full potential and bring
their whole selves to work.”
How we measure our progress
– Colleague NPS
– Voluntary attrition
– Sage Foundation days
Amanda Cusdin
Chief People Officer
Leadership
During FY19, the 40 most senior leaders
have been enrolled in an executive
development programme to ensure they
are fully aligned on Sage’s transition
to a SaaS model. The programme
involves nine days of face-to-face
interaction, with additional one-to-one
coaching and peer support through
the entire year, with specific focus
on the purpose, vision, strategy and
leadership behaviours.
Colleague engagement
and experience
In order to build a culture that fosters
collaboration and open, honest dialogue
and where colleagues feel connected
to Sage’s vision, Sage has focused on
increasing engagement with colleagues
and improving the colleague experience.
The Big Conversation is a key example
of building engagement internally and
further details of this are set out on
pages 24 to 25.
Sage also carries out quarterly pulse
surveys amongst all colleagues. Using the
latest analytics tools, the survey data can
be analysed within 48 hours to quickly
understand and respond to colleague
feedback. Engagement has improved
dramatically, with response rates of
84% at the latest survey, up from 52% in
FY18 and with 14,000 comments made
during the latest survey. The survey also
showed an increase in employee NPS of
22 points since Q4 FY18.
The Sage Foundation continues to be an
important asset to attract and retain the
best talent. In FY19, 31,250 Foundation
days were taken by colleagues.
23
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT OUR STRATEGY: COLLEAGUE SUCCESS
“We need to make sure we are rewarding the right
kind of behaviours that are truly representative of
a business doing things the right way.” — “I want
to give back to the company as a whole and the
colleagues in my team as much as they’ve given
to me. — I get out of bed because the work we
do in Sage Foundation makes an impact in local
communities” — “I do feel empowered to voice
my opinion and bring ideas to the table as well as
actively listen to my team members ideas too”.
THE BIG
CONVERSATIONS
THAT MATTER
The Big Conversation
took place in June 2019.
The three-day-long
exercise encouraged all
13,000 colleagues to log
in and engage in an
online conversation.
We need to make sure we
are rewarding the right
kind of behaviours that
are truly representative
of a business doing things
the right way.”
24
The Sage Group plc.Annual Report and Accounts 2019 I do feel empowered
to voice my opinion
and bring ideas to
the table as well as
actively listen to
my team members’
ideas too.”
“We need to make sure we are rewarding the right
kind of behaviours that are truly representative of
a business doing things the right way.” — “I want
to give back to the company as a whole and the
colleagues in my team as much as they’ve given
to me. — I get out of bed because the work we
do in Sage Foundation makes an impact in local
communities” — “I do feel empowered to voice
my opinion and bring ideas to the table as well as
actively listen to my team members ideas too”.
The Big Conversation
The Big Conversation took place in
June 2019. The three-day-long exercise
encouraged all 13,000 colleagues
to log in and engage in an online
conversation. The engagement in the
Big Conversation resulted in 9,000
comments from 3,700 participants
across 23 countries. Topics covered
colleagues’ experiences, ideas and
potential action points as Sage
implements the next phase of its
cultural transformation.
Analysis from the Big Conversation
has helped Sage to build a fresh set
of values and behaviours, shaped
by the passion of its colleagues.
The new values and behaviours
guide how colleagues interact with
each other and with customers.
By living these values and behaviours,
Sage colleagues can succeed
together and do the right thing
for customers. This helps build a
winning SaaS culture, ensuring the
Colleague Success that underpins
our purpose and vision.
3,700
23countries
9,000
participants
comments
25
STRATEGIC REPORTThe Sage Group plc.Annual Report and Accounts 2019 OUR STRATEGY
Aaron Harris, Chief Technology Officer
outlines his strategy to revolutionise the business
INNOVATION
Sa
aS
Innovation at Sage means
developing solutions that deliver
real customer value and solve
real customer problems by
doing things differently, using
incremental, emerging and
experimental innovation.
26
Annual Report and Accounts 2019The Sage Group plc. Sa
aS
Q&A
Becoming a great SaaS company means
delivering technology that truly transforms
our customers’ businesses
Where do you see Sage software heading
in the future?
Sage is leading efforts to transform periodic,
manual processes that often focus on past activity
to continuous, automated processes with a view
to the future. There are three areas that we are
continuing to focus on:
– Eliminate the Close: We will drive automated,
real-time capture of business activity. Periodic
reconciliation will be replaced by continuous
reconciliation and repetitive close activities will
be automated. Management will have insight
into their business performance at any point,
in real-time, instead of several days after the
period close.
– Build Continuous Trust: We will monitor all
business activity in real-time to discover
anomalies. We will evolve inefficient controls
designed for humans into intelligent exception
management systems. This will transform the
audit from a point-in-time, regulatory activity
into a continuous, strategically valuable activity.
– Push Active Insights: We will empower our
customers with insights into performance,
identifying future opportunities and risks.
We will actively monitor business activity to
identify trends and insights. We will deliver
powerful embedded analytics, augmented
with AI, to enable rich, interactive discovery.
Aaron, tell us what innovation
means to you:
To me, innovation means solutions that deliver
real customer value and solve real customer
problems by doing things differently. Every function
within Sage can deliver customer value through
innovation. In fact, the transition from on-premise
software to cloud software requires Sage to
integrate all customer interactions, from marketing
and sales to service and support to billing and
payments, into a digital customer journey.
What have been your first impressions of
innovation at Sage since you became CTO?
I’ve been incredibly impressed by the level of
innovation at Sage. Sage colleagues are passionate
about their products and customers and embrace
modern approaches to software development.
Sage has significant resources and assets to
leverage across its global network of partners,
customers and colleagues to allow innovation.
The issue at Sage is not innovation: it’s integration.
In the past, Sage has been constrained by
fragmented product development and a disconnect
between product and go-to-market, which
have failed to align customer requirements and
development priorities.
So how do you fix this?
The aim in FY19 has been improving Sage’s
integration capabilities with the ongoing product
portfolio rationalisation and aligning the operating
model to a more customer-centric view, supported
by the strengthened SaaS focus in the Executive
Committee. We’re starting to see a difference
already and this will continue into FY20.
27
STRATEGIC REPORTThe Sage Group plc.Annual Report and Accounts 2019 Can you give us some examples
of innovation at Sage in FY19?
There are so many things I could talk about, but let
me pull out four examples:
Sage Accounting
The Sage Accounting team demonstrates
excellent adherence to modern cloud
development principles, allowing them to
rapidly deploy new versions without disrupting
service. For instance, the team has built a bot
to automate the build and deploy process so
several versions can be deployed every day,
leading to a better customer experience and
more connected digital journey. Customer
feedback has been terrific, with Sage Accounting
NPS rising by 24 points in the year.
Sage Intacct
Sage Intacct has developed several new
capabilities powered by artificial intelligence
and machine learning, including contract
renewal forecasting, AI-powered timesheets
and transaction anomaly detection. In fact,
Sage Intacct engineers have applied for two
patents derived from this work.
Service Fabric
Service Fabric is an excellent innovation
example. Service Fabric is the architectural
‘glue’ of Sage Business Cloud; a collection
of cloud native services that can enable
commonly required capabilities, like bank
feeds, payments and VAT, into any of Sage’s
cloud solutions, instead of developing
separately in each product. Separating
these capabilities into modern web services
allows the team to move fast and leverage its
scale. For example, Sage was first to market
supporting customer compliance with the
“Making Tax Digital” legislation in the UK, a
significant growth driver for Sage in the year.
Pegg
Pegg, the world’s first accounting chatbot,
continues to evolve. From its origins as a social-
media based bot, Pegg is now supplementing
support for dozens of Sage products in three
languages, handling up to 500 requests
per hour.
28
Innovation
San Francisco’s premier performing arts centre, Yerba
Buena Center for the Arts (YBCA), runs a non-profit
facility that hosts its own cultural programming and
offers discounted community rentals for local theatres
and artists, as well as commercial rentals.
YBCA implemented Sage Intacct to streamline its
business systems, move to the cloud, and establish
better financial visibility. By adopting the new system,
YBCA improved finance productivity by 25%, saved
$30,000 in personnel costs and increased budget
accuracy by 30%. Sage Intacct also provides YBCA
with understandable reports that have visual impact.
This provides timely insights, helping non-finance
personnel to make crucial programming decisions and
track how the Center is performing against its mission.
How we measure our progress
– Availability of native cloud solutions
– Sage Business Cloud penetration
– Consumption of cloud services
The Sage Group plc.Annual Report and Accounts 2019 Can you tell us more about
how you’re building out
Sage Business Cloud?
FY19 has been a significant year for
investing in the cloud native portfolio,
both in terms of solution development and
geographic availability:
Sage Intacct, formerly only available in the US and
Canada, was launched in Australia in August 2019
and the UK in November 2019, with both regions
gaining their first customers, as well as launching in
South Africa in 2020.
Sage has invested in Sage Accounting in FY19
and will launch a more functionally rich tier of this
solution for Professional Users in 2020, starting in
the UK. Together, they provide the small business
solution for cloud native accounts, to acquire new
customers and, over time, offer a migration path for
existing Sage 50 customers.
Sage has also completed the acquisitions of small
but strategically significant assets:
– AutoEntry, a leading provider of data entry
automation for accountants, bookkeepers and
businesses. AutoEntry’s technology utilises
Artificial Intelligence (AI) and Optical Character
Recognition (OCR); and
– Allocate.AI, technology that enables businesses
to automate time tracking, project planning and
resource allocation.
Read more about Sage Business Cloud on
page 4 of our gatefold
Sage Business Cloud product portfolio
Sage Accounting
Sage Accounting allows small businesses to professionally
manage their business, from invoicing and expense management,
to compliance and tax.
Enables customers to connect and collaborate with their
accountant/bookkeeper through a single platform, with all the data
in one place.
Sage Payroll
Transformative Payroll & HR software for small businesses.
Helps our customers to confidently manage their payroll with a
simple, reliable and flexible online payroll system; compliant and
connected to the cloud.
With less administration customers can make quicker decisions
and in turn are more productive, saving organisations time
and money.
Sage Intacct
The AICPA’s only preferred Financial Management system,
Sage Intacct provides best-in-class, multi-dimensional analysis
and industry-specific capabilities to automate complex processes
and improve company performance.
Sage People
Transforms the way multinational organisations manage and
engage their workforce.
Global cloud HR and people management solution, helps
companies design new and better ways of working across the
entire employment journey, and embrace the new world of HR
and people management.
Sage X3
X3 provides faster, more intuitive and tailored business
management solutions than conventional ERP for product-centric
businesses looking to thrive and stay competitive in the face of
growing complexity.
X3 transforms how businesses manage people, processes and
operations, allowing them to embrace change at speed.
Cloud connected solutions
Cloud connected solutions, Sage 50cloud and Sage 200cloud,
provide the power and productivity of the desktop, with the
freedom and security of the cloud. Sage continues to invest in
these solutions, building up cloud functionality so customers can
access more of the benefits the cloud brings.
29
STRATEGIC REPORTThe Sage Group plc.Annual Report and Accounts 2019 NON-FINANCIAL INFORMATION STATEMENT
NON-FINANCIAL
INFORMATION
STATEMENT
Every day, we support and enable the
success of our customers, colleagues and
partners around the world. Those who look
deeper, reach higher and strive harder.
They are the people that fuel the global
economy and drive worldwide progress.
It is our responsibility to ensure we do the
right thing for their continued success.
Non-financial information statement
Ethics & Governance
Human rights
Code of Conduct
Suppliers
Anti-bribery & corruption policy
Tax strategy
Environment
Direct and indirect GhG emissions
Environmental policy
Social
pg.44 Gender diversity
pg.43 Community engagement
pg.41
pg.41
pg.41
pg.41
pg.41
pg.34
pg.39
30
The Sage Group plc.Annual Report and Accounts 2019 OUR
PEOPLE
OUR
CUSTOMERS
SAGE
FOUNDATION
Striving to be our best in an environment
which embraces colleague experience,
diversity, inclusion and wellbeing.
See more on pages 32 to 35
Championing small businesses
and entrepreneurs.
See more on pages 36 to 37
Giving back to the community through
voluntary work and fundraising.
See more on pages 38 to 41
THE
ENVIRONMENT
Committed to managing our use of
resources and proactively managing our
environmental impact.
See more on pages 42 to 45
Section 172(1) statement
The Directors are well aware of their duty under
s.172 of the Companies Act 2006 to act in the
way which they consider, in good faith, would
be most likely to promote the success of the
Company for the benefit of its members as a
whole and, in doing so, to have regard (amongst
other matters) to:
– the likely consequences of any decision in the
long term;
– the interests of the Company’s employees;
– the need to foster the Company’s business
relationships with suppliers, customers
and others;
– the impact of the Company’s operations on
the community and the environment;
– the desirability of the Company maintaining
a reputation for high standards of business
conduct; and
– the need to act fairly as between members of
the Company,
(the “s.172(1) Matters”).
Induction materials provided on appointment
include an explanation of Directors’ duties, and
the Board is regularly reminded of the s.172(1)
Matters, including as a rolling agenda item at
every Board meeting.
In preparation for the Company’s implementation
of the UK Corporate Governance Code July 2018
(the “2018 Code”), and anticipating the new
reporting requirements applicable from FY20,
during the year the Board undertook a review
of the actions it currently undertakes to comply
with s.172. The review included an analysis
of how the Board currently engages with its
stakeholders and considered recommendations
on how such engagement could be enhanced.
Further information on the steps taken during
FY19 in order to prepare for full compliance with
the 2018 Code in FY20 are set out on page 70.
Information on how the Directors have had
regard to the s.172(1) Matters can be found on
pages 82 to 84.
31
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT NON-FINANCIAL INFORMATION: OUR PEOPLE
Colleague Success to us means making Sage a great place to work for
our people – a place they can bring their whole selves, do the best work
of their career and deliver the best experience for our customers in a
high-performing culture. Applying this lens to all of our People activity in
FY19 has led to a positive cultural shift and greater colleague engagement,
with all our core people metrics trending in the right direction. We have
strong momentum as we head into FY20.”
Amanda Cusdin
Chief People Officer
OUR
PEOPLE
32
The Sage Group plc.Annual Report and Accounts 2019 STRATEGIC REPORT
Amanda Cusdin
Chief People Offi cer
In 2019, Sage has focused on putt ing people at
the heart of its business. With Colleague Success
as a strategic lens, we have transformed several
key areas to ensure we make Sage a place where
colleagues can reach their full potential and bring
their whole selves to work.
Leadership development and
talent management
During the year, we made several leadership
changes to strengthen the executive team
through both talent management and external
recruitment. Rob Reid joined the Executive
Committ ee and Keith Robinson was appointed
as an Executive Committ ee advisor in October
2018. Steve Hare was appointed as Chief
Executive Offi cer in November 2018 and we
welcomed Jonathan Howell as Sage Group’s
Chief Financial Offi cer in December 2018. Aaron
Harris transitioned from leading Sage Intacct’s
technology vision to become the Group’s Chief
Technology Offi cer in April 2019 and at the same
time, Lee Perkins was made Chief Product Offi cer
and appointed to the Executive Committ ee.
In October 2019, we announced three new
internal Executive Committ ee appointments to
accelerate our SaaS strategy. Marc Linden was
appointed to EVP and General Manager, Medium
Segment Native Cloud Solutions, Sue Goble was
appointed Chief Customer Success Offi cer and
Derk Bleeker was appointed Chief Corporate
Development Offi cer.
Additionally, to further strengthen our
leadership capability we have partnered with
the well known organisational psychology
fi rm YSC. Through this partnership we have
enhanced our selection approach for senior
leadership roles, introduced a new model of
potential into Sage enabling us to bring greater
focus to internal talent development and
strengthened the individual development plans
for our most senior leaders through the insight
which the YSC process brings.
Board gender diversity
7 (70%)
Male
3 (30%)
Female
SMT1 gender diversity
82 (61%)
Male
52 (39%)
Female
1. SMT refers to c.150
leaders in Sage including
Executive Committ ee and
Executive Team members.
Our commitment to developing our senior
leaders saw the launch of the Executive
Team Development Programme (ETDP) in
April 2019 in partnership with the London
Business School. This is building the individual
and collective capability of our most senior
40 leaders at Sage as we become a great
SaaS company. The programme involves
nine days face to face delivery spread across
12 months, three of which took place in FY19,
and supported by coaching and peer support
through the entire year.
Leading@Sage – which targets line managers
and equips them with the skills and capability
to create high performance within their teams
– has also continued its success. Over 70%
of our leaders now have ‘licence to lead’.
We continue to evolve the curriculum and look
for opportunities to reinforce the programme
outside the classroom with ongoing coaching
and support from our People Leaders and
senior leaders.
In January we launched Growing@Sage, an
initiative open to all colleagues which off ers
self-development modules in areas such as time
management, presentations with impact and
project management fundamentals. This initiative
was launched in response to colleague feedback
around personal development, and 339 modules
were delivered globally in FY19.
We have consolidated our Sage Welcome so
that all colleagues who join Sage experience a
consistent and compelling introduction to the
Company. In FY19 we delivered 103 sessions
across the globe.
The Sage Group plc.
Annual Report and Accounts 2019
33
NON-FINANCIAL INFORMATION: OUR PEOPLE continued
Sage behaviours
Strategy
Customer Success
Colleague Success
Innovation
We do the right thing
Values
Start with our customer
Together we succeed
Innovate to win
Anchor
behaviours
Insight: Walk in our customers’ shoes to gain
data and insights that drive decisions
Care: Value, respect, back each other and
support our local communities
Seek diversity: Be open and curious to learn
from anyone, anywhere
Focused pace: Focus on customer and
partner priorities and move at speed
Accountability: Do what we say we will do
and be our best every day
Transparency: Debate and explore openly
and directly
Adaptation: lterate and learn to meet
changing customer needs
Collective responsibility: Connect and
solve problems together
Courage: Show a competitive mindset by
taking calculated risks, testing, trialling,
and learning to move forward
Year-end colleague count
split by region
12,643
All colleagues
4,436
Central & Southern Europe
2,918
International
2,936
Northern Europe
2,353
North America
Total workforce
gender diversity
6,817 (54%)
Male
5,733 (45%)
Female
93 (1%)
Prefer not to say
Values
Sage has refreshed its values and behaviours,
which have been rolled out across the organisation
from October 2019. The selection process was
collaborative, drawing from feedback across
both leadership and colleagues.
The design principles were based on ensuring
the values and behaviours aligned to the
three strategic lenses, matching culture with
business strategy, and combining behaviours
leaders want to drive strongly with the
behaviours colleagues feel passionately about.
These new values and behaviours will help
ensure that colleagues and leaders are fully
aligned behind the transition to a great SaaS
company, always doing the right thing for the
organisation and our stakeholders.
Colleague experience
and engagement
‘Colleague Success’ as a strategic lens in FY19 has
led to significant changes in colleague experience
and engagement at Sage. We have focused on
creating an inclusive culture which supports our
colleagues to achieve their full potential.
Listening to and addressing colleague feedback
has been an important part of putting our people
at the heart of our business this year. To do this
effectively, we have put in place a new colleague
experience team and undertaken initiatives
like ‘The Big Conversation’ (see pages 24 to 25
for additional information which has resulted
in the development), of new core values and
behaviours which launched at the beginning
of FY20 (see above).
We also listen to colleagues through our
ongoing quarterly pulse surveys. These are
designed to allow colleagues to give feedback
more regularly, and in a quick and consistent
way, on what we’re doing well on and the
changes they want to see. The progress on the
level of participation has increased significantly
with 84% now taking part, indicating the high
engagement of our colleagues as we make
Sage a great place to work. Overall employee
engagement has increased 22 points.
34
Manager Index – which measures how positively
colleagues feel about the way leaders are
supporting their success at Sage – is up to
85%, an increase of 6%, while 64% would
recommend Sage as a great place to work,
up 4% from October 2018. These insights
combined with the Big Conversation have
fuelled specific actions at the leader, functional
and organisational level.
As an example, feedback from the pulse
surveys was a big driver in the changes to
performance management this year. We
launched a new programme, ‘Look, Evaluate,
Assist and Deliver’ (L.E.A.D.), which focuses
on continuous feedback and development
rather than retrospective feedback and annual
assessment, and sees a more regular review
process between managers and their teams.
‘L.E.A.D.’ is also fully integrated with our people
management system – Sage People – so
colleagues can continuously log feedback and
progress against the goals and measures set
out at the beginning of the year. It has been
well received by colleagues, with over 1,400
colleagues nominating their managers to
appear on Sage’s ‘Manager Wall of Fame’ in
recognition of helpful and informative reviews
following L.E.A.D. reviews in June and July.
Diversity and Inclusion
Lastly, we have reviewed the bonus process
in FY19 to drive cultural change in our
organisation. This year, 50% of the majority
of colleagues’ bonus potential is linked to
their personal performance, and 50% linked
to the Company’s financial performance. This
simplified bonus plan aims to give managers
more autonomy over the potential reward
of their teams, and give more clarity on
our measures.
Focusing on colleague touchpoints has resulted
in increased engagement in addition to our
CEO being rated on Glassdoor as one of the top
CEOs in the UK. We will build on this in FY20,
with a focus on ensuring colleague recognition
– both peer to peer and from leaders – is
encouraged across the organisation.
Annual Report and Accounts 2019The Sage Group plc.
Sage’s commitment to Diversity & Inclusion (D&I) further
accelerated in FY19, with Sage Foundation EVP Debbie Wall’s
brief extending to include D&I, and the launch of a D&I Council,
chaired by the Chief Executive Officer and Chief People Officer.
The Council’s purpose is to connect the business with our
D&I strategy at a senior level, ensuring tight alignment of
priorities between engagement and D&I with our overall
business strategy. The group, consisting of colleagues from
differing levels and regions across the organisation, helps
monitor our global progress against goals and targets set as
part of the D&I strategy.
Sage D&I awards
Sage’s D&I awards returned for the second year, including
the same five categories as 2018, plus an additional sixth
category themed around Sage Foundation. Colleagues
voted for ‘Inclusive Leader’, ‘Inspirational Woman of the Year’,
‘Unsung Star’, ‘Mentor of the Year’, ‘Making a Difference’
and ‘Sage Foundation Ambassador of the Year’. Nearly 4,000
nominations were made, with winners receiving a six-month
mentorship with the Sage Executive Sponsor of their award,
plus a $250 donation to a Sage Foundation registered charity
of their choice.
Over these sessions Council members agreed goals to support
Sage’s strategy across current areas of focus: Gender Equality,
Inclusion@Sage and Health & Wellbeing. Sage has pursued
several initiatives that fall under these areas of focus over
the year:
Champions programme
Sage’s D&I Champions programme continues to go from
strength to strength, providing on-the-ground support in
rolling out Sage’s D&I strategy around the world, while an
increasing number of Pride@Sage teams are helping several
hundred colleagues to shape a more inclusive culture at
Sage. They were responsible for Pride@Sage month, which
was celebrated globally. Hundreds of colleagues took part in
educational workshops, discussion forums, shared personal
stories, fund raised and attended pride marches to promote a
safe, supportive environment for LGBTQ+ colleagues at Sage.
Partnerships
Sage entered into global partnerships with charities ENEI
(The Employers Network for Equality & Inclusion) and Stonewall
to support our future focus on inclusivity at Sage. With Stonewall,
a UK-based LGBTQ+ charity, Sage became a Global Diversity
Champion in June 2019. The charity will now support Sage
to understand what we are doing well to promote LGBTQ+
inclusivity and what areas of growth should be focused on in
FY20. This commitment to LGBTQ+ colleagues is now visible
through the Stonewall badge on colleagues’ email signatures.
Health and Wellbeing week
Health and Wellbeing week ran globally and reconnected
colleagues with information from vital life saving first aid
tips, healthy eating and mindfulness to personal stories and
external speakers on mental health. Additionally, leaders
wrote powerful insights on what they do to safeguard their
own health and wellbeing. This included raising the profile
of Sage’s Mental Health First Aiders in the UK, showcasing
the sources of external crisis support available to all of us as
Sage colleagues.
In regionally specific activations, Sage is rolling out a
transformation strategy for South Africa to support skills
development, advance employment equity, empower
black-owned enterprises, and address youth unemployment.
In Atlanta, Sage hosted a collaborative business forum bringing
together the region’s civic and business leaders to discuss
Atlanta’s current D&I landscape, and opportunities for a more
inclusive future. And the UK saw the launch of ‘Sage Pathways’,
an initiative we’ve developed to ease candidates back into the
workplace after a long absence. By the end of 2019 the first
nine candidates will be in post and we’re looking at expanding
the pilot out across other markets.
35
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT NON-FINANCIAL INFORMATION: OUR CUSTOMERS
OUR
CUSTOMERS
Supporting customers as they navigate
the current complex landscape
No matter where Sage’s customers are on their
journey, we are committed to helping them
manage complexity so they can thrive. We do this
through the intelligent technology we provide
them with to manage finances, people and
operations, and also through championing their
causes to help drive customer success.
36
Annual Report and Accounts 2019The Sage Group plc. As a market leader in business management solutions, Sage
has a platform to table the issues facing small and medium
businesses and ensure their voices are heard. In an age of
increasing complexity and uncertainty, both politically and
economically, Sage remains committed to three priorities:
surfacing insight that highlights customer challenges; holding
events and panel discussions that allow businesses to talk
directly to each other and politicians; and campaigning
to change policy for the better. Here are a few ways we’ve
supported our customers this year.
Brexit debate
Over the course of the year, we’ve held several events giving
customers the opportunity to speak directly to politicians
about Brexit. In February, Sage’s UK Managing Director
Sabby Gill chaired a roundtable in the House of Commons
to mark the launch of a Whitepaper, ‘Preparing Business for
Brexit’, and bring some of our enterprise customers face to
face with Brexit decision makers. Our local MP for North Park
Catherine McKinnell MP hosted – and Gillian Keegan MP and
PM’s business envoy William Vereker were guest speakers.
All three took questions from our customers and gave advice
on how best to prepare for Brexit.
providing in person support and advice, in addition to providing
free telephone consultations about MTD to any business
which had an interest in MTD and wanted to receive advice on
how to prepare.
Trade
One area our customers continually seek advice on is
trade, especially within the current context of political and
economic uncertainty. In July, we launched a global initiative,
We Power the Nation, which surveyed 3,000 small, medium
and large businesses across 12 markets. We analysed the
appetite, challenges and opportunities for trade and the
role of technology across the globe, with an emphasis on
overseas trade specifically, as half of those surveyed recognise
themselves as exporters.
The research was shared across the world using various
channels; in Malaysia, Sage hosted a roundtable to launch
the research in the region with regional trade organisation
MATRADE. The research was widely cited by regional press,
and gave an optimistic view of the trading environment and
opportunity in Malaysia.
Sage’s Chairman Sir Donald Brydon also hosted a customer
roundtable, Best Trading Arrangement for SMEs post-Brexit,
in partnership with Department for Exiting the EU Minister
Chris Heaton-Harris and policy think tank Reform. Customers
voiced their concerns about dwindling orders, future sentiment,
impact on ease of movement and future relationships with
European customers, and gave clear direction to the Minister
on the requirement for ongoing communication from the
Government to cut through speculation around Brexit.
In addition, Sage has provided extensive advice for all
businesses, including an in-depth Guide on How to Prepare
for No Deal.
Productivity gap
In addition, the We Power the Nation research updated Sage’s
2018 insights into global productivity, in particular the impact
the admin burden is having on small and medium businesses.
The study reveals that the global ‘Productivity Puzzle’ is far
from solved – in fact it has worsened.
The total amount of economic value lost to admin in the last
12 months totalled £446bn, an increase of 2.6% compared to
the year before. This £446bn figure is costed time spent during
an average working week on unproductive administrative
tasks. This could be significantly reduced for small and
medium businesses by using technology and digital tools.
Digitising tax
Atlanta diversity
Many governments, including in the UK, Spain and Australia,
are creating a digital tax reporting environment to help create
efficiencies for business. Sage is committed to supporting
businesses as they transition to a more digital way of working,
and has developed relationships with relevant government
departments to ensure the concerns and needs of businesses
during this transition are addressed. For example, in the
UK, Sage has worked closely with Her Majesty’s Revenue
& Customs (HMRC) to educate customers and the wider
business community on the introduction of Making Tax Digital
(MTD). Over 250,000 businesses used Sage’s online MTD
hub to help get them prepared, which provided them with
free resources including expert-led webinars; online blogs
and toolkits; information about upcoming MTD events; and
other informative digital content.
Additionally, we are currently running a national campaign
with small business advocate Peter Jones, who is well known
for his work on BBC’s Dragons’ Den, to continue to raise
awareness of MTD. In March 2019, we kicked off a series of
12 roadshows right across the country, from Exeter to Glasgow,
In Atlanta, Sage hosted a collaborative business forum bringing
together the region’s civic and business leaders to discuss
Atlanta’s current Diversity & Inclusion (D&I) landscape, and
opportunities for a more inclusive future. The event featured
an array of senior business leaders from organisations such
as Amazon Web Services, Cardlytics, First Data, Google Fiber,
the Atlanta Hawks, UPS and others following months of focus
groups among the companies, facilitated by Sage.
It saw the launch of Sage research which found that while
diversity and inclusion are becoming more mainstream in the
local business community, the majority of organisations need
better data and metrics to make these changes sustainable.
46% of respondents said they needed clearer D&I performance
indicators, on data including the number of promotions for
women. The report reveals a significant increase in education,
training and awareness for employees as indicators of this
change, with 69% of Atlanta-based organisations actively
making updates to their D&I processes to foster a more
inclusive workplace.
37
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT NON-FINANCIAL INFORMATION: SAGE FOUNDATION
SAGE
FOUNDATION
Bringing colleagues together for good
Sage Foundation unifies colleagues and
partners in a global programme of action
philanthropy, transforming lives to support
economic stability and social equality.
38
The Sage Group plc.Annual Report and Accounts 2019 31,250
The number of working days this
year Sage colleagues have spent
volunteering. 30% more than
last year
Over £4.2m
The value of those working days
spent volunteering
292
The number of grants awarded to
not-for-profits this year
$720,000
Amount of money raised in FY19
to complete last year’s $1 million
challenge and start the new
$2 million by 2022 challenge
549
The number of non-profits who
benefitted from Sage Business
Cloud product discounts
Building an inclusive culture to do more good
We want to increase opportunities for young people, women and
military veterans to drive innovation, enhance access to education,
promote workforce development and support entrepreneurship.
Our 13,000 colleagues are encouraged to take five paid days a
year to volunteer or fundraise for charities. We provide grants
for non-profits, promote skills-based volunteering and offer
product discounts on our software and cloud solutions.
Successfully driving positive engagement, Sage Foundation
helps make Sage an employer of choice. Through an internal
communications campaign titled the HAPPY campaign, Sage
Foundation was able to increase the number of colleague
volunteer days by 30% in FY19.
In September 2019 Sage Foundation conducted a survey with
a sample of almost 600 colleagues across multiple markets.
91% of Sage colleagues said that volunteering made them
happy, 71% of colleagues said that volunteering created a more
inclusive culture at Sage and almost half of the respondents
said that volunteering built cohesive teams within the business.
Signature programmes to support our local
communities
Sage Foundation united thousands of charities, colleagues and
business partners across our 23 markets last year. Our strategic
objectives are aligned to four of the 17 United Nations Sustainable
Development Goals: education for all; gender equality; decent work
and economic growth; and industry, innovation, and infrastructure.
Through our three signature programmes – Sage Inspiring
Youth, Sage Empowering Women and Sage Serving Heroes
we have a focused approach in how we support local
communities across the globe.
Sage Inspiring Youth
Sage FutureMakers AI workshops
Having successfully piloted FutureMakers workshops in the
UK and Ireland last year, we plan to roll the programme out
to four new markets as well as continuing the AI journey for
young people in the UK. Youth between the age of 13 and
17 have been welcomed to the programme in South Africa
with USA, Spain and France to follow soon.
The Sage FutureMakers curriculum inspires young people to
develop creative solutions using ethical AI to develop those
ideas, with the understanding that critical thinking, creativity,
and storytelling will be more important than coding in the future.
39
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT NON-FINANCIAL INFORMATION: SAGE FOUNDATION continued
Working across communities to incubate solutions:
A Place to Call Home
Having completed the initial phase of A Place to Call Home
with research partner LKMco last year, we used the findings to
develop a pilot project where we could intervene in the lives of
young people at risk of homelessness. Working with Newcastle
charity Family Gateway, we funded support for 11 local young
people. The pilot proved that early intervention is not only
affordable, but it works. All 11 young people were supported
into safe and stable situations and the project brought
together Newcastle City Council specialists as well as charity
professionals. We introduced the pilot to government funders
and fellow businesses to encourage support for a wider roll out
of the project.
Sage Empowering Women
Fresh Pathways back to work
The Sage Pathways programme seeks to provide women
who have been out of the workforce for two or more years,
a transition route back to work. In the north of England 85%
of people seeking to return to work are women. However,
many who have been out of the workplace to take care of
family members or because of other commitments lack the
confidence to apply for roles and fear that their skills are out of
date. This hard-to-reach, talented group of women is generally
not looking at recruitment opportunities, which is why we’ve
chosen to support them during this transitional phase. By the
end of 2019 the first nine candidates will be in post and we’re
expanding the pilot into other markets.
rAInbow shoots for the stars
Funded by Sage Foundation, rAInbow is a smart companion
built on the Facebook Messenger platform. It provides support
for victims of domestic violence, their friends and their family.
rAInbow offers a safe space for those at risk of abusive
relationships, as well as victims and survivors of domestic
violence. It gives the user access to information about their
rights, support options and where they can find help in friendly,
simple language.
rAInbow has received multiple innovation and PR awards,
including the UNESCO Netexplo award and Sabre PR Award
as well as a Silver Stevie Award. rAInbow is a finalist in the HiiL
(Hague Institute for Innovation of Law) Innovating Justice
Award 2019 and is being recognised as a unique innovation
that provides a non-human response to a very human problem.
rAInbow has 15,477 users with 724,612 messages having been
exchanged from both sides. Through aggregated high-level
data, rAInbow is able to detect patterns of alcohol abuse,
domestic, infidelity, HIV/ Aids, and the impact on children of
violent homes.
Sage Serving Heroes
Supporting veterans as they transition into business
Our work with veterans continues to expand across the UK,
Australia, Canada and the USA. As supporters of the Invictus
Games in Australia last year, we produced the Sage Power 50
book, celebrating veteran-owned businesses. The inspirational
atmosphere of the Games was an opportunity to encourage
veterans to consider the possibilities of transferring their skills
into the business world, while also providing these businesses
with a promotional boost.
In partnership with the Peter Jones Foundation and X-Forces
Enterprise, we funded a mentoring programme introducing
entrepreneurship to veterans and service leavers. We have
supported two cohorts successfully and are expanding to cater
for at least 30 more students with the newly designed Veteran
Tycoon Enterprise programme.
40
Annual Report and Accounts 2019The Sage Group plc. Ethics & Governance
Human Rights
Sage expects all colleagues, partners and suppliers to
adhere to international standards on human rights,
including with respect to child and forced labour, land
rights and freedom of association, among other elements.
Our full expectations are included in our Partner and
Supplier Codes of Conduct, which are available on our
website at www.sage.com. We conduct due diligence on
all new partners and suppliers and they are contractually
obliged to adhere to our Code of Conduct.
Anti-bribery & Corruption
Sage has a well embedded anti-bribery and corruption
policy and associated whistleblowing procedures
designed to ensure that colleagues and other parties
including contractors and third parties are able to
report any instances of poor practice safely through
an independent organisation. All reports received via
this or any other reporting mechanism are thoroughly
investigated and reported to the Audit and Risk
Committee, which reviews each case and its outcomes.
None of our investigations during FY19 have identified
any systemic issues or breaches of our obligations
under The Bribery Act 2010.
Governance & Oversight
We recognise that assurance over our business activities
and those of our partners and suppliers is essential. During
2019 we monitored and reported on the completion of our
mandatory Code of Conduct training for all colleagues.
You can read more about our compliance and assurance
activities over the principal risks associated with ethical
business conduct from page 54 onwards.
Tax Strategy
We publish our tax policy on our website and are
committed to managing our tax affairs responsibly and
in compliance with relevant legislation. Our tax policy
is aligned to our Code of Conduct and Sage’s Values &
Behaviours and is owned and approved by the Board.
Rising up to the challenge of raising $2 Million
by 2022
In March 2019, CEO Steve Hare announced that Sage had
achieved the $1 Million Challenge – in which he urged all
13,000 colleagues to use their five paid Sage Foundation
days to raise money for charities close to their hearts.
He immediately followed up the announcement with
a new $2 Million by 2022 Challenge – which colleagues
have responded to with enthusiasm. Across our markets,
Sage colleagues have been skydiving, swimming,
abseiling, running ultra-marathons, cycling to different
countries, scaling bridges and more, to raise money
for charity. Australian colleagues, along with EVP Sage
Foundation and Diversity & Inclusion, Debbie Wall, scaled
three peaks in 33 hours raising funds to support youth
development charity WhiteLion.
Cycling challenges have been particularly popular with
$85,000 raised in one event alone which saw a team of
32 colleagues, Sage partners, customers and a charity
partner cycling from London to Paris in just three days.
Alles Rollt (everything that rolls) events in Vienna and
Frankfurt attracted hundreds of colleagues, customers,
charity partners and Sage partners – bringing together
wheelchairs, skateboards, hand bikes, scooters – literally
anything on wheels! Colleagues in South Africa took on
the gruelling nine-day, 900km Joberg2C ride, stopping to
help local communities along the route of the race.
The secret to happiness
Volunteering and colleague engagement are at the heart
of what we do. HAPPY is a global internal campaign
promoting volunteering to colleagues. In 2019 it delivered
a 30% increase in colleague volunteering, with inspiring
messages highlighting the personal benefits of volunteering
and giving back. Messaging included research quoted from
Syracuse University, showing that those who volunteer are
42% happier.
The campaign headline read: “Hands up for 42% more
happiness.” For every day of volunteering completed,
colleagues were awarded a badge with the letters
H-A-P-P-Y, to show off their commitment.
The HAPPY campaign will be further developed and
expanded in FY20 as we continue to celebrate everything
volunteering means to our colleagues and our communities.
My experience as a volunteer has made me more
patient and understanding. It has also made me realise
that people who ask for help from charities are regular
human beings, no different to any of us.”
Ronnie Toumayan,
Customer Support Representative, Canada
41
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT NON-FINANCIAL INFORMATION: ENVIRONMENT
ENVIRONMENT
Doing business the right way:
proactively managing our impact
We are committed to managing our use
of resources and proactively managing
our environmental impact. We continue
to focus our commitment on areas that
are most relevant to Sage, our people and
our customers.
42
Annual Report and Accounts 2019The Sage Group plc. We aim to achieve
good practice in our
markets and share it
across the Group.”
Our global CSR policy focuses on four key areas: industry,
people, community and environment. Whilst local legal
standards apply as an absolute minimum, we aim to achieve
good practice in our markets and share this across the
Group. We comply with local laws as a minimum standard and
continue to participate in the global Carbon Disclosure Project
(CDP), annually disclosing our management procedures and
performance to investors. We continue to review and develop
our approach to managing our environmental impact, risks
and associated emissions. We have incorporated sustainability
and ethical evaluation questions into our standard suite of
tender documents. This enables us to understand and evaluate
supplier environmental and ethical certifications and standards.
Disclosing our impact
This section includes our mandatory reporting of greenhouse
gas emissions pursuant to The Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013.
In addition to this disclosure, we once again took part in the
Carbon Disclosure Project (CDP), reporting our Scope 1, 2 and 3
emissions for the financial year ending 30 September 2018. This
external submission also includes our approach to governance,
risk management and stakeholder engagement on climate-related
issues. We improved our CDP score in 2018 from a C to a B- rating.
Reporting period
Our Mandatory Greenhouse Gas Report reporting period is
1 October 2018 to 30 September 2019. This reporting year has
been established to align with our financial reporting year.
Organisational 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 Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013 in
respect of those emissions for which we are responsible.
Sage has reported on all material emission sources which
we are deemed to be responsible for. We do not report on
any emission sources that are beyond the boundary of our
operational control.
We have collected data on energy in our buildings, HVAC
refrigerant leakage, water, air travel, taxi, hotel nights and
business car travel, because we believe these encompass the
most material emissions to our business.
Going forward we will continue to review this materiality,
ensuring that we continue to manage and monitor our
significant business emissions.
43
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT NON-FINANCIAL INFORMATION: ENVIRONMENT continued
Methodology
Our methodology used to calculate our emissions is based on
the “Environmental Reporting Guidelines: including mandatory
greenhouse gas emissions reporting guidance” (March 2019)
issued by the Department for Business, Energy & Industrial
Strategy (BEIS). We have also used BEIS 2019 conversion
factors for the UK, combined with the most recent IEA
international conversion factors (2016) for non-UK electricity
within our reporting methodology.
In some cases, we have extrapolated total emissions by using
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 and Accounts. For further details, our methodology
document can be found at http://www.sage.com/investors.
Global greenhouse gas emissions data for period 1 October 2018 to 30 September 2019
Scope 1: Combustion of fuels and operation of facility
Scope 2: Electricity, heat, steam and cooling purchased for own use
Scope 3: Business travel (air, vehicle, taxi, hotel nights); Water
Total emissions
Company’s chosen intensity measurement: Emissions reported above normalised to tonnes
of CO2e per total GBP £1,000,000 revenue
Scope 2 Market based and location based emissions
Location-based
Market-based
FY19 tonnes
CO2e
1,8051
10,5243
8,6624
20,991
FY18 tonnes
CO2e
1,3032
11,343
13,104
25,750
10.83
13.87
FY19 tonnes
CO2e
10,524
9,075
1. Scope 1 figures are showing an overall increase, most likely as a result of vehicle emission numbers now being included in here, rather than being included
in Scope 3. Although there was an overall increase in Scope 1 emissions, it was noted that there was a large decrease in gas consumption at North Park as
a result of building energy optimisation.
2. In our 2018 Annual Report this Scope 1 total for FY18 was stated as 1,489 tonnes CO2e. This FY18 emissions total has now been updated in this Annual Report
as a result of improved refrigerant gas reporting in 2019, allowing for this number to be more accurately calculated.
3. As part of our monthly energy meetings with our in-house engineer we have focused on building optimisation. This has led us to change offices and atrium
heating profiles during the summer, leading to significant reductions.
4. Large reduction in travel due to a travel embargo being in place at the start of the year and much stricter control on travel budgets within each region/country.
Carbon emissions
Scope of reported emissions
Emissions data from all our global Group operations within scope has been reported, including operations in Australia, Austria,
Belgium, Botswana, Brazil, Canada, France, Germany, India, Ireland, Kenya, Malaysia, Morocco, Namibia, Nigeria, Poland, Portugal,
Romania, Singapore, South Africa, Spain, Switzerland, the UAE, UK and the US. A breakdown below has been provided for where
data has not been reported either because this was not available or is not applicable to the country. Where feasible we will be
working with our suppliers in these locations to capture this information in future reporting years. Within the mandatory Scope
1 and 2 disclosure, all material emissions are understood to be included in our disclosure, with minor immaterial electricity and
refrigerant gas exclusions at a small number of locations. We are reviewing data management processes across our global
operations to better capture voluntary Scope 3 data such as water, waste, and travel information.
Inventory item
Excluded from reporting
Electricity
Refrigerant gas
Water
Waste
Hotel nights
Air travel
Vehicle travel
Spain (Valencia and Sevilla), France (Brest), UAE
Brazil, Portugal, Canada, US, Austria, Germany, Poland, Romania, Spain, India, France, Malaysia, Australia, UAE
Brazil (no water data for Americana and Porto Alegre property), Canada, US, Austria, Germany, Poland,
Romania, Switzerland, India, Malaysia, Australia, UAE
Portugal, Canada, US, Austria, Germany, Poland, Romania, Switzerland, Malaysia, Australia, UAE
Africa, UAE
India, Africa, Brazil (data provided is not in miles), UAE
Brazil, Austria, India
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.
44
Annual Report and Accounts 2019The Sage Group plc.
Reducing carbon and waste
We have continued to make a concerted effort to reduce
our carbon footprint through initiatives across our business.
Examples of initiatives we have progressed in this financial
reporting year include:
– Increased use of bioethanol for business travel fuel
– All waste is diverted from landfill at North Park, Manchester
and Dublin
– Investing in new technology with lower energy consumption
including laptops and workstations
– Investment in energy reduction opportunities, including
chiller improvements and building management system
(BMS) technologies
– Further installation of LED lighting across the Group
– Selected office moves to more energy efficient buildings
– Energy efficiency integrated in to our office redevelopment
plans
– Increased renewable energy sourcing through our contracts
with suppliers, including our operations in countries such as
Brazil, India and Portugal
– Reduce business travel and encourage sustainable travel
practices across our operations
Total CO2e by type
Combustion of fuels and operation of facility
Electricity, heat, steam and cooling purchased for own use
Business travel (air, vehicle, taxi, hotel nights); water
Total emissions
Total CO2e by type
8.6%
50.1%
41.3%
Combustion of fuels and operation of facility
Electricity, heat, steam and cooling purchased for own use
Business travel (air, vehicle, taxi, hotel nights); water
FY19
tonnes CO2e
1,805
10,524
8,662
20,991
Sum of CO2 (tonnes)
Europe
International
North America
Scope 1 emissions are direct emissions
from sources that Group owns or controls.
Scope 2 emissions are indirect
emissions associated with our
consumption of purchased electricity,
heat, steam and cooling.
Scope 3 emissions occur at sources
which we do not own or control and are
consequences of our activities.
1
3
8
3
,
2
4
8
0
8
7
2
,
1
7
2
5
,
3
0
2
6
,
1
6
3
0
3
,
3
7
4
2
,
9
5
2
Region
Scope 1 emissions
Scope 2 emissions
Scope 3 emissions
Generated from the gas and oil used in all buildings where
Generated from the
the Group operates; emissions generated from Group-
owned vehicles used for business travel; and fugitive
emissions arising from the use of air conditioning and chiller/
refrigerant plant to service the Group’s property portfolio
use of electricity in all
buildings from which
the Group operates
Business travel
(air, vehicle, taxi,
hotel nights); Water
International
North America
Northern Europe
Southern Europe
Unclassified1
Grand Total
3
259
791
51
701
1,805
1. Data provided could not be classified by region.
5,271
2,473
1,687
1,093
0
10,524
1,620
3,036
2,223
1,608
175
8,662
45
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT
FINANCIAL REVIEW
FINANCIAL
REVIEW
Jonathan Howell
Chief Financial Officer
This financial review provides a brief
summary of financial results on an organic
basis, before moving to the underlying and
statutory performance of the business.
Organic measures allow management
and investors to understand the like-for-
like revenue and current period margin
performance of the continuing business.
Organic Financial Results
In FY19, Sage delivered recurring revenue growth of 11% to
£1,559m and total revenue growth of 6% to £1,822m. Recurring
revenue growth is underpinned by the 29% increase in
software subscription revenue as the business continues to
migrate existing customers and attract new customers to
subscription and the cloud. Strength in recurring revenue
has also, in part, been assisted by tailwinds from the weaker
comparator in the prior year and as new regulations on digital
tax submissions attract new and existing customers to the
latest version of software.
Group SSRS decline of 18% to £255m reflects the ongoing
transition to subscription revenue and a strong SSRS
comparator in the prior year. Looking at sequential quarterly
performance in the year, Q4 19 SSRS revenue was just 4% lower
than Q1 19.
The Group delivered an organic operating profit of £432m
and an organic operating margin of 23.7% in FY19. This margin
reflects the increased investment to accelerate strategic
execution, combined with increased colleague variable
compensation in line with the improved business performance
and the commitment to colleague success.
The Group also delivered underlying basic EPS of 28.40p, free
cash flow of £443m and underlying cash conversion of 129%.
Portfolio View of Revenue
Revenue by Portfolio1
Cloud native
Cloud connected2
Sage Business Cloud
Recurring
FY18
£m
Growth
%
FY19
£m
£170m
£482m
£133m
£222m
£652m
£355m
FY19
£m
£182m
£499m
Total
FY18
£m
£145m
£235m
£682m
£380m
Growth
%
26%
113%
79%
27%
117%
83%
Products with potential to migrate
£713m
£857m
(17%)
£889m
£1,085m
(18%)
Future Sage Business Cloud Opportunity3
£1,365m
£1,212m
13%
£1,571m
£1,465m
Other4
£193m
£194m
0%
£251m
£260m
Organic Total Revenue
£1,559m
£1,406m
11%
£1,822m
£1,725m
7%
(4%)
6%
Sage Business Cloud Penetration
48%
29%
1. The revenue portfolio breakdown is provided as supplementary information to illustrate the differences in the evolution and composition of key parts of
our product portfolio. These portfolios do not represent Operating Segments as defined under IFRS 8.
2. Revenue from subscription customers using products that are part of Sage’s strategic future product portfolio, where that product is based on an originally
on-premise offering for which a substantial part of the customer value proposition is now linked to functionality delivered in or through the cloud.
3. Revenue from customers using products that are currently part of, or that management currently believe have a clear pathway to, Sage Business Cloud.
4. Revenue from customers using products for which management does not currently envisage a path to Sage Business Cloud, either because the product
addresses a segment outside Sage’s core focus, or due to the complexity and expense involved in a migration.
46
Annual Report and Accounts 2019The Sage Group plc. Within the portfolio view of revenue, the Future Sage Business
Cloud Opportunity represents products in, or with a clear
pathway to, Sage Business Cloud. Management’s primary
operational focus is to migrate desktop customers and attract
new customers to Sage Business Cloud and to grow the
lifetime value of these customers.
The Future Sage Business Cloud Opportunity continues to
show strong performance, with recurring revenue growth of
13% and total revenue growth of 7%. Cloud native solutions
have delivered recurring revenue growth of 27%, with Sage
Intacct delivering recurring revenue growth of 29%.
The growth in cloud connected revenue of 117% to £482m
reflects the migration of existing customers, predominantly
from North America, Northern Europe and France as well as
new customer acquisition and reactivation of customers in
Northern Europe. Growth also reflects an additional £94m
into this portfolio from the migration of products new to
Sage Business Cloud1. The focus on driving revenue to cloud
solutions has resulted in Sage Business Cloud penetration of
48%, up from 29% in the prior year.
Statutory and Underlying Financial Results
The revenue in the ‘Other’ portfolio comprises products for
which management does not envisage a path to Sage Business
Cloud, predominantly because the product addresses a
segment outside Sage’s core focus. The flat recurring revenue
and decline of 4% of total revenue in the ‘Other’ portfolio is in
line with expectations and reflects the strategy to focus on
solutions with a direct pathway to Sage Business Cloud.
Further to the disposal of the US Payroll Processing business in
February 2019, Sage has announced the agreement to dispose
of Sage Pay and that the Brazilian business is now held for sale,
with both assets’ products largely formerly within the ‘Other’
portfolio. Whilst payments and banking continues to be an
important part of Sage’s value proposition, Sage will instead
continue to partner with best in class providers in this industry.
Management decided to exit Brazil after a strategic review, as
the region largely sells solutions which have no path to Sage
Business Cloud.
Financial Results
North America
Northern Europe
Central & Southern Europe
International
Group Revenue
Operating profit
% Operating profit margin
Profit before tax
Net profit
Basic EPS
Statutory
Underlying2
FY19
FY18
Change
FY19
FY18
Change
£657m
£406m
£608m
£265m
£1,936m
£382m
19.7%
£361m
£266m
24.49p
£574m
£380m
£625m
£267m
£1,846m
£427m
23.2%
£398m
£295m
27.21p
15%
7%
(3%)
(1%)
5%
(11%)
(3.5% pts)
(9%)
(10%)
(10%)
£657m
£406m
£608m
£265m
£1,936m
£448m
23.1%
£425m
£309m
28.40p
£611m
£381m
£626m
£260m
£1,878m
£509m
27.1%
£481m
£356m
32.85p
7%
7%
(3%)
2%
3%
(12%)
(4.0% pts)
(12%)
(13%)
(14%)
1. Excluding this impact, cloud connected solutions have delivered growth of 73%.
2. Revenue and profit measures are defined in the Glossary on pages 214 to 215.
The Group delivered statutory revenue of £1,936m, a 5% increase
on the prior year. Statutory revenue of £1,936m in FY19 is in line
with underlying revenue, with the prior year difference largely
being in North America, reflecting the deferred income unwind
on the acquisition of Intacct and FX.
The Group delivered underlying revenue of £1,936m, an
increase of 3% on the prior period. Underlying revenue reflects
organic performance, excluding the impact of the adjustments
made for assets held for sales and disposals and, for prior year,
the impact of the proforma IFRS 15 adjustments.
The Group delivered a decrease in statutory operating profit
of 11% to £382m, reflecting underlying performance and
recurring and non-recurring items as per the reconciliation
in the table below.
Underlying basic EPS decline of 14% is in line with the
underlying operating profit of the business, net of taxation.
47
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT FINANCIAL REVIEW continued
Underlying & Organic Reconciliations to Statutory
FY19
FY18
Statutory
Recurring items1
Non-recurring items:
– (Gain)/loss on disposal of subsidiaries
– Impairment of assets held for sale
– Litigation items
– Restructuring costs
– Property restructuring costs
– Office relocation
Impact of FX2
Underlying
Disposals
Held for sale
Impact of IFRS 153
Organic
Revenue Operating Profit
£1,936m
–
£382m
£52m
–
–
–
–
–
–
–
£1,936m
(£21m)
(£93m)
–
£1,822m
(£28m)
£14m
–
–
£16m
£12m
–
£448m
–
(£16m)
–
£432m
Operating
Margin %
19.7%
–
–
–
–
–
–
–
–
23.1%
–
–
–
23.7%
Revenue Operating Profit
£1,846m
£11m
–
–
–
–
–
–
£21m
£1,878m
(£48m)
(£95m)
(£9m)
£1,725m
£427m
£67m
£1m
–
£4m
£5m
–
–
£5m
£509m
£3m
(£8m)
(£8m)
£496m
Operating
Margin %
23.2%
–
–
–
–
–
–
–
–
27.1%
–
–
–
28.8%
1. Recurring and non-recurring items are detailed in the paragraph below and in note 3.6 of the financial statements.
2. Impact of retranslating FY18 results at FY19 average rates.
3. Organic numbers for FY18 are restated on a pro-forma IFRS 15 basis. The definition of organic measures and the basis for the FY18 pro-forma IFRS 15
adjustments can be found in the Glossary on pages 214 to 215.
Revenue
The Group delivered statutory and underlying revenue of
£1,936m in FY19. The difference between statutory and
underlying revenue in FY18 reflects a £21m FX adjustment
relating to retranslation of the FY18 results at FY19 average
rates and £11m in the prior year from the deferred income
unwind on the Sage Intacct acquisition.
The difference between underlying and organic revenue
reflects the adjustment of £21m of disposals, comprising
£16m revenue from the disposal of the US Payroll Processing
business in February 2019 (FY18: £40m) and £5m revenue from
the disposal of the South African payments business in July
2019 (FY18: £9m). There is a further adjustment for assets held
for sale of £93m comprising £40m of revenue from Sage Pay
in Northern Europe (FY18: £41m) and £53m of revenue from
the Brazilian business (FY18: £54m), and a £9m adjustment to
restate FY18 organic revenue on a pro-forma IFRS 15 basis.
Margin
The Group delivered a statutory operating profit of £382m.
Adjustments between statutory and underlying operating
profit in FY19 reflect £52m of recurring items (FY18: £67m),
comprising £31m amortisation of acquisition related
intangibles (FY18: £35m) and £21m of M&A related charges
(FY18: £21m).
Adjustments between statutory and underlying profit in
FY19 also include non-recurring items reflecting a £28m
gain on disposals, of which £27m relates to the US Payroll
Processing business (FY18: £1m charge), offset by the non-cash
impairment of the Brazilian asset held for sale of £14m; property
restructuring costs of £16m; and non-cash accelerated
depreciation on North Park of £12m. Management expects
a further non-cash, non-recurring accelerated depreciation
charge on North Park in the region of £50m during FY20 and
a further property restructuring cost of around £15m during
FY20. The prior year also had a non-recurring charge of £4m
relating to litigation items, £5m relating to restructuring costs
and a £5m FX adjustment.
Adjustments between underlying and organic operating profit
in FY19 relate to assets held for sale reflecting £14m operating
profit attributable to Sage Pay (FY18: £15m), with a further
£2m attributable to the Brazilian business (FY18: loss of £7m).
The prior year also had an £8m adjustment to restate FY18
organic operating profit on a pro-forma IFRS 15 basis and £3m
relating to net operating losses from disposals reflecting £5m
in the US Payroll Processing business, offset by operating
profits of £2m attributable to the South African payments
business (net neutral impact in FY19).
Organic Revenue Overview
Organic revenue for FY18 shows all measures of revenue
and growth of revenue on an organic basis, compared on a
pro-forma IFRS 15 basis. Revenue definitions are included in
the Glossary on pages 214 to 215 and further detail on IFRS 15
can be found in note 17 to the accounts.
48
Annual Report and Accounts 2019The Sage Group plc.
Organic Revenue Mix
Software subscription revenue
Other recurring revenue
Organic Recurring Revenue
SSRS revenue
Processing revenue
Organic Total Revenue
FY19
£m
% of Total
FY18
£m
% of Total
Revenue %
Change
£1,004m
£554m
£1,559m
£255m
£8m
£1,822m
55%
31%
86%
14%
0%
100%
£776m
£630m
£1,406m
£310m
£9m
£1,725m
45%
36%
81%
18%
1%
100%
29%
(12%)
11%
(18%)
(3%)
6%
Total revenue has increased by 6% in FY19 to £1,822m. Recurring revenue has increased by 11% to £1,559m, underpinned by the
29% increase in software subscription revenue to £1,004m as the business continues to transition existing customers and attract
new customers to subscription and the cloud. The decline in other recurring revenue of 12% to £554m reflects the substitution
effect as customers migrate to subscription contracts. SSRS decline of 18% to £255m reflects the ongoing transition to
subscription revenue and a strong SSRS comparator in the prior year.
In the portfolio view of revenue, the Future Sage Business Cloud Opportunity delivered recurring revenue growth of 13% to
£1,365m and total revenue growth of 7% to £1,571m, driven by transitioning existing customers and attracting new customers to
Sage Business Cloud. The ‘Other’ portfolio delivered flat recurring revenue performance at £193m and total revenue decline of 4%
to £251m.
Northern Europe
FY18
% Change
Organic Revenue by Category
£589m
£512m
9%
12%
Organic total revenue
Organic recurring revenue
FY19
£366m
£340m
FY18
% Change
£334m
£292m
10%
16%
46%
10% pts
54%
12% pts
% Subscription penetration
% Sage Business Cloud
penetration
70%
67%
52%
18% pts
28%
39% pts
North America
Organic Revenue by Category
Organic total revenue
Organic recurring revenue
% Subscription penetration
% Sage Business Cloud
penetration
Organic Total Revenue
US (excluding Intacct)
Canada
Intacct
FY19
£641m
£573m
56%
66%
FY19
£425m
£97m
£119m
FY18
% Change
£407m
£89m
£93m
4%
8%
28%
North America delivered recurring revenue growth of 12% to
£573m and total revenue growth of 9% to £641m. Subscription
penetration is now 56%, up from 46% in the prior year, and
Sage Business Cloud penetration is now 66%, up from 54%
in the prior year, driven by both cloud connected and cloud
native solutions.
The US (excluding Intacct) delivered recurring revenue growth
of 7% to £371m and total revenue growth of 4% to £425m. The
US has continued to show strong progress in the migration
to cloud connected solutions with Sage 50 nearly at full
penetration on cloud connected and well over half of Sage 200
customers now on a cloud connected solution.
Canada has also continued to deliver strong performance, with
recurring revenue growth of 13% to £88m and total revenue
growth of 8% to £97m, with cloud connected solutions also
driving a significant part of the business’s growth and over
half of revenue from the 50 and 200 base now on a cloud
connected solution.
Sage Intacct recurring revenue growth of 29% to £114m reflects
continuing momentum in the US, driving growth through both
existing customers and new customer acquisition.
Northern Europe (UK & Ireland) delivered recurring revenue
growth of 16% to £340m and total revenue growth of 10% to
£366m. Subscription penetration is 70%, up from 52% in the
prior year, and Sage Business Cloud penetration is now 67%, up
significantly from 28% in the prior year, as customers continue
to migrate to Sage Business Cloud and as new products enter
Sage Business Cloud that were previously only available on
desktop. This is supplemented by growth in cloud native
solutions of Sage People and Sage Accounting.
Strength in recurring revenue is driven largely by success
in cloud connected solutions with well over half of Sage 50
and Sage 200 contracts now cloud connected in the region.
Revenue on Sage 50 cloud connected in Northern Europe
increased significantly, migrating new customers from 50
desktop, but also acquiring significant numbers of new
customers and reactivations, in part due to new regulations
on tax submissions attracting customers to the latest version
of software. The region now has well over half of its 50 and 200
base on a cloud connected solution. Recurring revenue has
also benefitted from a weak comparator in the prior year, but
performance is strong even allowing for this impact.
The region saw a steep decline of 37% in SSRS revenue in FY19
to £25m, as the business continues to focus on subscription
and the cloud, further impacted by large value licence and
services sales in FY18 which drove an increase in SSRS at the
expense of recurring revenue.
49
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT
FINANCIAL REVIEW continued
Central & Southern Europe
International
Organic Revenue by Category
FY19
FY18
% Change
Organic Revenue by Category
Organic total revenue
Organic recurring revenue
£608m
£490m
£604m
£458m
1%
7%
Organic total revenue
Organic recurring revenue
FY19
£207m
£156m
FY18
% Change
£198m
£144m
4%
8%
% Subscription penetration
% Sage Business Cloud
penetration
Organic Total Revenue
France
Central Europe
Iberia
45%
25%
FY19
£277m
£178m
£153m
37%
8% pts
10%
15% pts
% Subscription penetration
% Sage Business Cloud
penetration
57%
54%
3% pts
9%
7%
2% pts
FY18
% Change
Organic Total Revenue
£271m
£179m
£153m
2%
(1%)
0%
Africa & Middle East
Australia & Asia
FY19
£137m
£70m
FY18
% Change
£127m
£71m
8%
(2%)
Central and Southern Europe delivered recurring revenue
growth of 7% to £490m and total revenue growth of 1% to
£608m. Subscription penetration is now 45%, up from 37%
in the prior year, and there is now 25% Sage Business Cloud
penetration in the region, up from 10% in the prior year. This is
largely driven by cloud connected solutions, supplemented by
a small amount of revenue from cloud native solutions.
France delivered recurring revenue growth of 5% to £239m
and total revenue growth of 2% to £277m. Recurring revenue
growth is driven by Sage 50 and Sage 200 cloud connected
solutions as customers migrate from desktop, although the
recurring revenue growth of these solutions (cloud connected
and desktop) in total has not been as strong in this region as
others. The region now has around half of its 50 and 200 base
on a cloud connected solution. X3 SSRS declined as the region
focused more on solutions which drive subscription revenue.
Central Europe delivered recurring revenue growth of 8% to
£131m whilst total revenue declined by 1% to £178m. Growth in
the region is mainly driven by local products.
Iberia delivered recurring revenue growth of 9% to £120m with
total revenue flat at £153m. Growth in recurring revenue has
been driven by the migration of customers to Sage 50 and
Sage 200 cloud connected solutions, which are at an earlier
stage than other regions, but are showing good traction.
International delivered recurring revenue growth of 8% to
£156m and total revenue growth of 4% to £207m. Subscription
penetration is now 57%, up from 54% in the prior year, and Sage
Business Cloud penetration in the region is 9%, up from 7%
in the prior year. This excludes the revenues of the Brazilian
business, which is held for sale as at the year-end.
Africa & Middle East, which now represents two-thirds of the
International region’s revenue, delivered recurring revenue
growth of 12% to £102m and total revenue growth of 8% to
£137m. Growth in the region is driven by local products and
cloud native solutions, with a strong performance in Sage
Accounting. Over the course of the year, the region has seen a
slight decline in SSRS, driven by professional services.
Australia & Asia delivered recurring revenue growth of 3% to
£54m and a total revenue decline of 2% to £70m, with Asia
continuing to be a drag on growth. Australia delivered total
revenue growth of 2% to £53m, reflecting slight growth from
local products with a small element of revenue from cloud
native solutions. Sage Intacct launched in Australia at the end
of August 2019.
50
Annual Report and Accounts 2019The Sage Group plc.
Operating Profit
The Group delivered an organic operating profit of £432m
and an organic operating margin of 23.7% in FY19. This margin
reflects the increased investment to accelerate strategic
execution, combined with increased colleague variable
compensation in line with the improved business performance
and the commitment to colleague success.
Earnings per Share
Statutory Basic EPS
Recurring items
Non-recurring items
Impact of foreign exchange
Underlying Basic EPS
FY19
24.49
3.67
0.24
–
28.40
FY18
% change
27.21
4.73
0.58
0.34
32.85
(10.0%)
(13.5%)
On an underlying basis, the operating profit is £448m (a 23.1%
margin). The difference between organic and underlying
operating profit reflects the operating profit from assets held
for sale of Sage Pay and the Brazilian business, combined with
adjustments in FY18, being the pro-forma IFRS 15 adjustment
and the net operating losses from assets disposed of (US
Payroll Processing and the South African payments business).
FY19 EBITDA is £509m, yielding an EBITDA margin of 26.3%.
Organic Operating Profit
Impact of IFRS 15
Impact of disposals
Impact of assets held
for sale
Underlying Operating Profit
Depreciation & amortisation
Share based payments
EBITDA
FY19
£432m
–
–
£16m
£448m
£35m
£26m
£509m
FY18 FY19 Margin %
£496m
£8m
(£3m)
£8m
£509m
£34m
£5m
£548m
23.7%
23.1%
26.3%
Net Finance Cost
The statutory net finance cost for the period was £21m
(FY18: £29m) and the underlying net finance cost was £23m
(FY18: £29m), with minor differences between statutory
and underlying net finance costs reflecting FX movements.
Net underlying financing costs have reduced due to a reduction
in the Group’s average debt balance during the year.
Taxation
The statutory income tax expense for FY19 was £95m
(FY18: £103m), yielding a statutory tax rate of 26% (FY18: 26%).
The underlying tax expense for FY19 was £116m (FY18: £123m),
yielding an underlying tax rate of 27% (FY18: 26%).
The difference between the underlying and statutory rate in
FY19 primarily reflects non-taxable accounting gains on the
disposal of the US Payroll Processing business and the South
African payments business, offset by the non-tax deductible
impairment charge of the Brazilian business asset held for sale.
Underlying basic earnings per share decreased by 14% to
28.40p (FY18: 32.85p), in line with the 12% decline in underlying
operating profit, net of taxation.
Statutory basic earnings per share decreased by 10%.
Recurring and non-recurring items arising from property
restructuring and M&A cost are lower than prior year,
contributing to a decrease in statutory basic EPS.
Cash Flow
The Group remains highly cash generative with underlying
cash flows from operating activities of £577m, which
represents underlying cash conversion of 129%, increasing
from 96% in FY18.
Cash Flow APMs
Underlying operating profit
Depreciation, amortisation and non-cash
items in profit
Share based payments
Net changes in working capital
Net capital expenditure
Underlying Cash Flow from
Operating Activities
Underlying cash conversion %
Non-recurring cash items
Net interest paid
Income tax paid
Profit and loss foreign exchange
movements
Free Cash Flow
Statutory Reconciliation of Cash Flow from
Operating Activities
Statutory cash flow from
operating activities
Recurring and non-recurring items
Net capital expenditure
Other adjustment including foreign
exchange translations
Underlying Cash Flow from
Operating Activities
FY19
£448m
£33m
£26m
£108m
(£38m)
FY18 (as
reported)
£504m
£28m
£5m
(£10m)
(£45m)
£577m
129%
£482m
96%
(£24m)
(£21m)
(£88m)
(£35m)
(£26m)
(£64m)
(£1m)
£443m
(£1m)
£356m
FY19
FY18 (as
reported)
£586m
£29m
(£38m)
£487m
£37m
(£45m)
–
£3m
£577m
£482m
51
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT
FINANCIAL REVIEW continued
The improvement in underlying cash conversion to 129% and
the £87m improvement in free cash flow to £443m largely
reflects an improvement in the collection of trade receivables
and lower levels of FY18 bonus payout in FY19.
Net debt was £393m at 30 September 2019 (30 September
2018: £668m). The decrease in the year is attributable to strong
free cash flow of £443m and proceeds from the disposal of the
US Payroll Processing business (£68m), offset by the full year
dividend of £181m paid in the year.
Group net debt as at 30 September 2019 was £393m and
reported EBITDA over the last 12 months was £509m, resulting
in a net debt to EBITDA ratio of 0.8x. Sage will adopt IFRS 16
Leases accounting standard with effect from 1 October 2019,
which will result in the recognition of financial liabilities of
£135m-145m. As a result, a 0.3x increase in the net debt to
EBITDA ratio in FY20 is expected. However, IFRS 16 will have no
material impact on our overall financial results.
Group return on capital employed (ROCE) for FY19 is 21%
(FY18: 23%).
Debt Facilities
The Group’s debt is sourced from a syndicated multi-currency
Revolving Credit Facility (“RCF”), a syndicated Term Loan and
US private placement (“USPP”). The Term Loan of £200m was
put in place in September 2019 and expires in September 2021.
The Group’s RCF expires in February 2024 (with a one-year
extension option to February 2025) with facility levels of £720m
(split between US$719m and £135m tranches). At 30 September
2019, £45m (FY18: £418m) of the multi-currency revolving debt
facility was drawn and the Term Loan was fully drawn (FY18: nil).
Net debt
EBITDA (last twelve months)
Net Debt/EBITDA Ratio
FY19
£393m
£509m
0.8x
FY18
(as reported)
£668m
£548m
1.2x
Sage plans to operate in a broad range of 1-2x net debt to
EBITDA over the medium term, with flexibility to move slightly
outside this range as the business needs require.
The Group’s total USPP loan notes at 30 September 2019 were
£523m (US$550m and EUR€85m) (FY18: £497m, US$550m and
EUR€85m). The USPP loan notes have a range of maturities
between May 2020 and May 2025.
Foreign Exchange
The Group does not hedge foreign currency profit and loss
translation exposures and the statutory results are therefore
impacted by movements in exchange rates.
The average rates used to translate the consolidated income
statement and to neutralise foreign exchange in prior year
underlying and organic figures are as follows:
AVERAGE EXCHANGE RATES
(EQUAL TO GBP)
Euro (€)
US Dollar ($)
South African Rand (ZAR)
Australian Dollar (A$)
Brazilian Real (R$)
FY19
1.13
1.28
18.30
1.81
4.93
FY18
1.13
1.35
17.56
1.77
4.72
Change
0%
(5%)
4%
3%
5%
Capital Allocation
Sage’s primary capital allocation focus remains on organic
investment in order to accelerate the execution of the strategy
as outlined above.
The Group will consider bolt-on acquisitions of complementary
technology and partnerships that will further accelerate the
strategy and enhance Sage Business Cloud, and has made
several small but strategically significant acquisitions in the
year. In line with focusing on core competences within the
business, management is also evaluating the disposal of
certain non-core assets, as it has recently done with Sage Pay,
which Sage has now reached an agreement to dispose of, and
the Brazilian business, which is held for sale at the end of FY19.
Acquisitions and disposals are always subject to stringent
financial criteria.
Sage will continue to maintain the dividend in real terms going
forward and the FY19 full year dividend has increased by 2.5%
to 16.91p.
The Group is committed to maintaining good financial
discipline and delivering strong shareholder returns and
will consider additional capital returns to shareholders if
appropriate. Sage announced on 20 November 2019 that it will
make a capital return of £250m, reflecting expected proceeds
on Sage Pay and strong cash generation. Further details will be
announced on the completion of the Sage Pay disposal.
52
Annual Report and Accounts 2019The Sage Group plc.
STRATEGIC REPORT
53
The Sage Group plc.Annual Report and Accounts 2019 RISK MANAGEMENT
RISK-INFORMED
DECISION MAKING
Effectively managing our operational, financial, people and strategic
risks helps us to drive forward our strategy, and simplify how
we do business. The Board’s role is to maintain and review the
effectiveness of our risk management activities, and challenge our
leaders to successfully deliver the business strategy in the most
efficient way possible.
How we identify risk
How we manage risk
Our risk identification process follows a “top-down, bottom-up”
approach, which seeks to identify:
– principal risks that may impact our ability to achieve our
objectives, with these strategic risks representing the risks
that most threaten delivery of our strategy; and
– operational risks that occur at the functional, country and
regional level. These risks most threaten local business
activities, and may also feed into our principal risks.
Operational risks are escalated in line with the Risk
Management Policy and via our Risk Governance Framework
to the Regional and Global Risk Committees. This escalation
process provides organisational visibility to emerging risks, as
well as driving action and accountability for risk management.
Our risk appetite
Our risk appetite reflects our ability or desire to accept a
certain level of risk in order to achieve our strategy. We
recognise that eliminating risk is often not feasible or desirable,
so we use risk appetite statements to provide our leaders
with the guidance they need to make decisions that fall within
acceptable risk boundaries.
All identified risks are measured on an inherent and residual
risk basis using the pre-determined scoring matrix set out in
our Risk Management Policy.
Each principal risk is monitored against defined appetite
targets using supporting metrics. These targets and metrics
are evaluated regularly throughout the year to ensure they
remain aligned with our strategic objectives, and within an
acceptable risk tolerance for the Group.
Our risk management framework enables us to identify,
evaluate, analyse, manage and mitigate those risks which
threaten the successful achievement of our business
strategy and objectives. Risks are owned and managed
within the business and functions, and are formally reviewed
on a quarterly basis through the Global and Regional Risk
Committees, which are described on pages 56 and 57.
Building on the deployment of the Sage Governance, Risk
and Compliance (GRC) tool in 2018, Sage Risk has developed
“always-on, on-demand” risk dashboards for the regions and
functions that provide leaders with ongoing visibility of their
current risk exposure, and the status of their risk management
activities. These dashboards also include information from
the Sage Business Integrity dashboard, and our Learning
Management System, to provide the business with a broad
snapshot of their risk, compliance, and assurance position.
During the year Sage Risk also supported the business in a
number of other key projects and reviews. In 2019, this included
leading the creation and development of Sage’s integrated
assurance framework. This work has now transitioned to Sage
Assurance, and, once fully implemented in 2020, will further
empower our frontline colleagues to own their risks and help
them to drive consistent application of their controls across
our business processes.
During 2019, Sage Risk focused on developing the capability
of regional and functional teams to own and manage their
risks. The team has dedicated resources in Europe, Africa, Asia,
North America and Latin America who support the business
and functions to manage their operational and strategic risks.
54
Annual Report and Accounts 2019The Sage Group plc. OUR THREE LINES OF DEFENCE
Sage’s three lines of defence approach ensures accountability
and transparency by setting out the roles and responsibilities of
all colleagues when it comes to the management of risk.
The model and its effective operation support a strong control
environment with best in class Governance, Risk and Control
procedures embedded across Sage.
1
ALL
COLLEAGUES
Identify, Own,
Operate
3
SAGE
ASSURANCE
Independent
and Objective
2
SAGE RISK AND
SAGE BUSINESS
INTEGRITY
Guide, Support,
Challenge
A natural outcome of our maturing model was the renaming
of Sage Compliance as Sage Business Integrity during 2019.
A strong corporate culture embraces ethics and compliance
and leverages that rigour for strategic advantage. This transition
helps to establish the foundations necessary to embed traits
common to high-performing organisations. The role of the team
is to fully empower our colleagues in line with our shared values
and behaviours, and help create a true SaaS culture.
Measure
Assess
Our risk
management
process
Mitigate
Evaluate
The team also started to evolve its structures
to align with the revised organisational design,
including the move to a two hubs model that can
provide focused support to the Northern Europe
and North American regions. The Sage Risk
team also manages the organisation’s corporate
insurance programme, ensuring that global and
local insurance placements are appropriate for the
risk exposure and in line with the organisation’s
risk appetite.
Sage Risk continued to roll out a single global
incident reporting portal in 2019, with all regions
now using a single, unified approach to reporting.
The team also consolidated our Incident,
Emergency and Crisis Management policies into a
single document to help streamline our response
capability, and ensure that all colleagues are able to
identify and respond effectively to any events that
impact the business.
Values and behaviours
The Board recognises that values and behaviours
underpin the effectiveness of Sage’s risk
management, and the operation of an effective
control environment. Sage’s values and behaviours
set out how our strategy should be executed.
Our Code of Conduct supports and reinforces these
values and behaviours, and sets clear expectations
across Sage for compliance with ethical standards.
Behaviour forms a significant part of our colleague
performance management process, and in FY19
continued to be managed as a principal risk.
As previously stated, our three lines of
defence model also articulates clear roles and
responsibilities for all colleagues, and establishes
accountability for individual actions and decisions.
It also describes how appropriate challenge and
assurance is provided over business activities,
including the ethical conduct of our operations.
With the development of the integrated assurance
framework, leaders will be able to build in relevant
and specific values and behaviours measures into
their own assurance self-assessments.
During 2019 we continued the transformation of
our compliance training into innovative, engaging
role-based education programmes. By adopting
specialist pedagogical methods into our training,
we can offer engaging training that meets the
specific learning objectives of our stakeholder
groups. By equipping colleagues with knowledge
relevant to their role in a way that is consistent
with Sage values and behaviours, we are able to
support accountability and decision making in the
business. In addition, the continued development
of a standardised business control framework will
provide additional guidance and direction on these
expected ways of working.
55
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT RISK MANAGEMENT continued
Risk governance
Vice
President,
Risk and
Assurance
Sage Risk
The Board
Audit and Risk
Committee
We operate a formal
governance structure
to manage risk.
Executive
Committee
Global Risk
Committee
Regional Risk
Committees
Risk governance
Board
The Board has overall responsibility for risk management and
establishing the Group’s risk appetite. It monitors the risk
environment and reviews the relevance and appropriateness of
the principal risks to the business.
Executive Committee
The Executive Committee is responsible for the stewardship
of the risk management approach. It develops the strategy
and oversees the delivery of the related operational plans that
help to manage the associated risks. Each principal risk is also
owned by a member of the Executive Committee.
Audit and Risk Committee
The Audit and Risk Committee supports the Board in setting
the Group’s risk appetite and ensuring that processes are in
place to identify, manage and mitigate the Group’s principal
risks. At each meeting, the Committee reviews the principal
risks and their associated appetite targets and metrics, to
assess whether they continue to be relevant, effective and
aligned to the achievement of Sage’s strategic objectives, and
within an acceptable tolerance for the Group. The Committee
also monitors the effectiveness of the control environment
through the review of Internal Audit reports and other
assurance activity from Sage Assurance and consideration
of relevant reporting from management, Sage Risk, Sage
Business Integrity and the external auditor. Further information
on the Committee’s activity in 2019 is set out in the Audit and
Risk Committee report on pages 89 to 95.
Global Risk Committee
The Global Risk Committee is chaired by the Chief Executive
Officer, supported by the VP Risk, Business Integrity and
Assurance, and has responsibility for providing direction and
support to the management of risk across Sage. It meets
quarterly and seeks to:
– Establish clear governance and accountability for risk,
and any associated (remediation) activities;
– Provide direction to functions, regions and countries,
including the creation and deployment of common
methodologies and practices;
– Provide a point of escalation for critical or emerging risks;
– Drive the consideration of risk in decision making;
– Drive the inclusion of risk management into performance
management;
56
Annual Report and Accounts 2019The Sage Group plc. – Oversee cultural change;
– Review and approve defined policies; and
– Provide the Board and Audit and Risk Committee with
sufficient effective information to enable them to discharge
their risk reporting requirements.
The Global Risk Committee’s membership includes all principal
risk owners and rotational representation from across the
business. The Chairman of the Audit and Risk Committee may
attend any meeting as desired.
Regional Risk Committees
Eight Regional Risk Committees were operational throughout
FY19 in Africa-Middle East, Asia-Australia, North America, Latin
America, Northern Europe, Central Europe, Southern Europe
and Iberia. Each Committee met four times during FY19. During
2019, these Committees received updated risk management
dashboards that outlined their key risks and activities, values
and behaviours measures, as well as providing them with an
overview of any incident trends.
Sage Business Integrity
Sage Business Integrity continues to transform the way
colleagues think and work so that Sage can thrive through
guiding, supporting and challenging the 1st line to ‘do the
right thing’, through effective education, frameworks and
technology enablers fit for a thriving SaaS business. The team,
led by the Business Integrity Director, drive compliance with
the Sage Governance Framework, the embedding of Sage
values and behaviours, the development and embedding of
sustainable processes and controls through the rollout and
monitoring of the Sage Business Control Framework and
also educate appropriate colleagues in the development
and delivery of ‘risk appropriate’ monitoring and oversight to
enhance the existing Sage due diligence framework.
Sage Assurance
Sage Assurance is led by the VP Risk, Business Integrity and
Assurance, and its purpose and activities are set out in the
Internal Audit section of the Audit and Risk Committee report
on page 94.
The Regional Risk Committee meetings occur in advance of
the Global Risk Committee. This allows regional or emerging
risks to be elevated to the Global Risk Committee where
necessary, and supports the management of principal and
local risks within each region.
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 2016 (the “Code”), the Board is responsible
for reviewing their effectiveness and confirms that:
– There is an ongoing 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; and
– The systems accord with the FRC guidance on risk
management, internal control and related financial and
business reporting.
There were no instances of significant control failing or
weakness in the year.
You can read more about our risk management and internal
controls systems in our Strategic Report on pages 2 to 65
and the associated work of the Audit and Risk Committee
on pages 89 to 95.
Vice President (“VP”) Risk, Business Integrity and
Assurance
The VP Risk, Business Integrity and Assurance is responsible
for the second and third line of defence functions, namely
Sage Risk, Sage Business Integrity and Sage Assurance. The
VP Risk, Business Integrity and Assurance is responsible for
the facilitation and implementation of the risk management
approach across Sage, including the consolidation of risk
reports from the Regional Risk Committees, and the provision
of appropriate risk reporting from Sage Risk for the Global Risk
Committee, the Audit and Risk Committee, and the Executive
Committee. The VP Risk, Business Integrity and Assurance
attends the quarterly Audit and Risk Committee meetings
and regularly meets with the Chairman of the Audit and Risk
Committee outside these meetings.
Sage Risk
Sage Risk supports the effective operation of the Sage Risk
Governance Structure, including the management of the
principal risks, the Global Risk Committee and the Regional
Risk Committees, providing guidance, support and challenge
to the business and functions to effectively manage risk.
Led by the Risk Director, the team continues to leverage
local and global relationships to support business activities.
Sage Risk also works closely with Sage Business Integrity as a
second line partner to improve controls and behaviours across
the business, and allow Sage to operate and grow within its
risk appetite.
57
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES
LEVERAGING OUR
RISK PROFILE
In FY19 we continued to accelerate into the cloud, with a clear focus on our
three strategic lenses of Customer Success, Colleague Success and Innovation.
Our principal risks have also continued to evolve as we aligned
the business with these strategic lenses, and continued to
leverage our risks and opportunities in support of our strategic
goals. We introduced “always-on, on-demand” risk reporting
that provided real-time risk information to leaders across the
organisation, which further enhances leaders’ ability to make
risk informed decisions in a timely manner. We also continued
to drive organisational engagement with the risk process to
enhance informed decision making.
We leveraged the Sage Governance, Risk and Compliance
tool to drive action on risks, values and behaviours across the
business, supporting the organisation to continue to grow the
right way. We supported risk owners across Sage to leverage,
exploit and manage their risks through considered risk taking.
We also worked to enhance our three lines of defence model
through the development of an approach to integrated
assurance, which will be further developed into a framework
in FY20.
Effect of Brexit
The uncertainty as to the status of the UK’s withdrawal from
the European Union has continued throughout this year, with
a hard Brexit remaining a real possibility as Brexit negotiations
continue. We recognise that Brexit may have an adverse
impact on the broader UK economy, which in turn may impact
a portion of Sage’s UK customer base.
As we reported in FY18, the Group has adopted an approach
that we believe will allow us to manage the risks that Brexit
may bring, including:
– focusing on changes which may be required to our products;
– the impact for our colleagues both in the UK and Europe; and
– other legal, financial or tax implications which could arise
from a “no deal” Brexit.
The Group does not currently foresee any adverse material
impact on day-to-day operations due to the domestic nature
of our UK business and customer needs. Additionally, we
have low numbers of UK and EU colleagues based outside
their home countries. Where this is the case, the risk has been
mitigated due to protections put in place by the UK and certain
EU governments to enable such citizens to continue to reside
and work outside their home countries.
Principal risks
The Board and the Audit and Risk Committee carried out a
robust and ongoing assessment of the principal risks facing
the Group throughout the year. This assessment considered
those risks that would threaten Sage’s business model, future
performance, solvency or liquidity, and ensured that the risks
continued to align with our business strategy. We continued to
simplify our risk reporting and align our risk metrics and appetite
statements with our strategic goals. We also introduced
reporting that increased our visibility of emerging risks.
The Board monitors the risk environment and reviews
the relevance and appropriateness of the principal risks
throughout the year in consultation with the Audit and Risk
Committee. These risks are proactively managed by executive
risk owners, supported by Sage Risk, with progress against plan
tracked on an ongoing basis. Local and regional engagement
is also undertaken to support the collective actions required to
manage these principal risks and to enable the identification
and escalation of any local risks as appropriate.
Principal risks are formally reported to the Global Risk Committee,
alongside escalated local risks and emerging risks. We manage
risk in line with our risk management policy and approach,
as set out in Risk Management on pages 54 to 57. In FY19 we
monitored and reported against ten principal risks. As detailed
in the following table, a range of measures are in place, or are
being deployed or developed, to manage and mitigate our
principal risks.
58
Annual Report and Accounts 2019The Sage Group plc. Principal risk
Risk background
Management and mitigation
1
Understanding Customer Needs
Improving risk environment
If we fail to understand
the products and
services our current
and future customers
need to be successful,
they will find alternative
solution providers.
Strategic lens alignment:
Customer Success
Sage is the leader in key global markets,
and we can use this position to gather
valuable insights into what our current
and future customers want and need.
It can also help us to better understand
the strengths and weaknesses of our
products and services, and better
position those products and services
to meet the needs of our current and
future customers.
By understanding the specific needs of
these customer groups in each country
and region, we will be better positioned
to efficiently manage our products,
marketing efforts and support services.
This in turn will allow us to maximise our
return on investment, and retain a loyal
customer and partner base over the
long term.
2
Product Strategy
If we fail to develop and
manage a prioritised
strategy for our products
that is aligned with our
goals and delivers against
customer needs, there
is a significant financial
risk that customers will
go elsewhere.
Strategic lens alignment:
Customer Success
Innovation
A key component of Sage’s transition to
a Software as a Service (SaaS) company
is the delivery of cloud-connected and
cloud-native products.
To achieve this, we will need to execute
on a prioritised product strategy that
moves our product portfolio to cloud-
native solutions. This may include a
transitional period of cloud-connected
products, with a clear path to the cloud-
native products our current and future
customers desire.
– Detailed customer segment and sector analysis was
used to develop segment-specific playbooks that
support customer-focused development
– An Accountants Advisory Board was established to
provide a feedback loop into the small business segment
– Customer Advisory Boards, Customer Design Sessions
and NPS detractor call-back channels are used to
constantly gather information on customer needs
– A Market and Competitive Intelligence team provides
insights that Sage uses to win in the market
– A product re-naming exercise was completed to simplify
the purpose of each product, and assist with customer
understanding, including the return to the X3 name
based on customer feedback
– Ongoing refinement and improvement of market data
through feedback from the business and partners
– Commenced the internationalisation of Sage Intacct
with a product launch in Australia to meet the needs of
the medium business segment
In progress:
– Making further investments in technology that can
help us better identify which customers may not be
utilising their software as fully as possible, allowing us to
intervene early and support their success
– Continue the internationalisation of Sage Intacct to
meet the needs of the medium business segment
Improving risk environment
– Following a product rationalisation and prioritisation
exercise Sage’s product strategy has been updated
to focus strongly on the small and medium business
segments, delivering against defined sectors within
these segments in key territories
– Acquisition and divestiture activities have been
completed and are ongoing to align Sage’s operating
model with these segment and sector priorities
– A licensing model transition strategy is in place,
anchored on the Sage Business Cloud
– Sage Business Cloud is available in United Kingdom and
Ireland, North America, France and Spain
– A Product Marketing team oversees competitive
positioning and product development to align products
with the needs of our customers
In progress:
– Embedding of the updated operating model for the
business to reflect and support the segment model
– The internationalisation of key cloud-native products
(Sage Intacct and Sage People) will continue
59
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES continued
Principal risk
Risk background
Management and mitigation
3
Innovation
If we fail to encourage and
sustain the innovation
that is required to create
disruptive technologies,
processes and services,
we will fail to deliver on
our commercial goals.
Strategic lens alignment:
Customer Success
Innovation
As Sage transitions into an SaaS
business powered by a subscription
licence model, we must be able to
rapidly deploy new innovations to
our customers and partners. This
innovation could relate to new
technologies, services, or new ways
of working.
Innovation will require us to address
how we encourage innovation across
our people, process and technology,
and how we make this innovation
sustainable. By building innovation into
our collective DNA, we can empower
our colleagues to improve the customer
experience, and drive efficiencies
in how we deliver our products
and services.
By strategically investing in platforms
and relationships, we can also harness
the innovation of our partners. By
providing opportunities for our partners
to interact with our products we can
drive scalable growth and improve the
customer experience.
4
Route to Market
If we fail to identify, develop
and maintain a blend of
channels to market, our
ability to sell and support
the right products and
services to the right
customers at the right time
is reduced.
Strategic lens alignment:
Customer Success
By offering our current and potential
customers the right information on
the right products and services at the
right time, we can maximise the value
we can obtain from our marketing and
customer engagement activities.
This can shorten our sales cycle, and
ensure that customer retention is
improved. It can also use new products
and services, such as payments and
banking technologies, to draw new
customers into the Sage family.
Improving risk environment
– Integration of the Pegg chat bot across Sage’s products
and internal processes to enhance the customer and
colleague experience using artificial intelligence
– Service Fabric is being implemented to support the
rapid development and deployment of shared features
in cloud products
– Prioritised product development based on the updated
Product Strategy, focusing on delivery of key segment
and sector capabilities
– Refinement of data principles to guide how data will
be used and protected in innovation and product
delivery activities
– Strategic acquisitions such as AutoEntry to complement
and enable accelerated innovation
– Development of an incubation framework to guide how
Sage interacts with its innovation partners
– Activities to drive colleague engagement such as
hackathons and idea competitions
In progress:
– Simple, smart and open technology strategy to provide
API and microservices through a Sage Developer Platform
– Platform Services delivered to Sage Business Cloud to
enhance value proposition for cloud adoption
Static risk environment
– The Go-To-Market function was re-organised to reflect
the new segment-based operating model, with a strong
focus on the UK and North America
– Market data and intelligence is disseminated internally
to support decision makers in the best routes to market
– Dedicated colleagues are in place to support partners,
and to help manage the growth of targeted channels
– The Sage Partner Programme has been moved into the
Marketing organisation to drive increased alignment of
the indirect channel to market
– New routes to market continue to be opened
through our partnerships with payment and banking
technology providers
In progress:
– The internationalisation of key cloud-native products
(Sage Intacct and Sage People) has continued through a
partner-led approach
– Embedding of the updated operating model for the
business to reflect and support the segment model,
including the differentiation between direct and
indirect channels
60
Annual Report and Accounts 2019The Sage Group plc.
Principal risk
Risk background
Management and mitigation
5
Customer Success
If we fail to align front and
back office activities to
deliver the best possible
customer experience,
including the cloud-based
products our customers
need to be successful, we
will not be able to achieve
sustainable growth.
Strategic lens alignment:
Customer Success
Colleague Success
In becoming a true SaaS business,
we must maintain a sharp focus on
the relationship we have with our
customers, constantly focusing on
delivering the products, services
and experiences our customers
need to be successful. If we do not
do this, they will likely find another
provider who does give them these
things. Conversely, if we do these
things well these customers will
stay with Sage, increasing their
lifetime value, becoming our greatest
marketing advocates.
While Sage is renowned for its quality
customer support, a focus on Customer
Success requires more proactive
engagement as well. By proactively
helping customers to recognise and
fully realise the value of Sage’s products
we can help increase the value of these
relationships over time, and reduce
the likelihood of customer loss. By
aligning our people, processes and
technology with this focus in mind, all
Sage colleagues can help support our
customers to be successful and in turn
drive increased financial performance.
Static risk environment
– Battlecards are in place for key products in all countries,
setting out the strengths and weaknesses of competitors
and their products
– Segment and product roadmaps are in place, detailing
how products fit together, any interdependencies, and
migration pathways for current and potential customers
– A data-driven Customer Success Framework is being
rolled out in the UKI and US to enhance the customer
experience and ensure that Sage is better positioned to
meet the current and future needs of the customer
– Continuous Net Promoter Score (NPS) surveying on
a segment and channel basis allows Sage to identify
customer challenges rapidly, and respond in a timely
manner to emerging trends
– ‘Large’ account managers are in place to provide a single
point of contact for X3 customers, and are empowered to
resolve customer issues at first contact
In progress:
– Consolidation of CRM systems continues to provide an
efficient single view of the customer across all markets
– The Customer Success Framework is being rolled
out in phases to other major markets to improve the
customer experience
6
Third Party Reliance
Static risk environment
If we fail to develop,
manage and maintain
relationships with
third parties that are
critical to the delivery
of our products and
services, we could suffer
significant reputational
and financial damage.
Strategic lens alignment:
Customer Success
Sage has an increasing reliance on
third-party providers that support
the delivery of our products to our
customers. Any interruption in
these services or relationships could
have a profound impact on Sage’s
reputation in the market and could
result in significant financial liabilities
and losses.
Equally, Sage has an extensive network
of sales partners critical to our success
in the market. Carefully selecting,
managing and supporting these
partners is critical to how we grow our
business, as well as ensuring that we
only engage with those people and
organisations that share Sage’s values
and aspirations.
As Sage continues its transition into an
SaaS business, this will likely split into
two risks. The first of these will focus
on our key supplier dependencies,
while the second will consider the
risks specifically associated with our
partner relationships.
– Dedicated colleagues are in place to support partners,
and to help manage the growth of targeted channels
– Standardised implementation plans for Sage products
that facilitate efficient partner implementation
– A specialised Procurement function supports the
business with the selection of strategic third-party
suppliers and negotiation of contracts, and to support
the ongoing management of key suppliers that are
critical to product and service delivery
– Clear roles and responsibilities for colleagues are
outlined in the Procurement Lifecycle Policy and
Procedures, which includes delegated levels of authority
for investment approval
– A Value-Added Reseller (VAR) programme was piloted in
the UK, Canada, US and South Africa to enhance partner
account manager capability
– An Independent Software Vendor (ISV) programme
was launched in the UK and US to simplify how ISVs
engage with Sage and provide them with a consistent
partnership experience
In progress:
– Rationalisation of targeted channels is continuing to
focus on value-add activities
– Managed growth of the API estate, including enhanced
product development that enables access by third-party
API developers
61
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES continued
Principal risk
Risk background
Management and mitigation
7
Sustainable Processes and Controls
Improving risk environment
If we fail to apply
sustainable and repeatable
end-to-end business
processes and controls, we
will not be able to deliver
against our goals.
Strategic lens alignment:
Customer Success
Innovation
Colleague Success
Sage operates in multiple geographies
and market segments which require
sustainable processes to drive
operational efficiencies. By consistently
delivering the right outcome from
its business processes each and
every time, Sage is able to efficiently
and effectively deliver an improved
customer experience.
By embedding a common business
control framework that prioritises the
critical people, process and technology,
the organisation can focus on delivering
the right outcomes at the right time.
By simplifying our control environment,
we can also drive an improved focus
on those outcomes that help support
Customer Success, in turn helping to
sustain our subscription growth.
8
Colleague Success
If we fail to ensure we have
colleagues with the critical
skills, capabilities and
capacity we need to deliver
on our strategy, we will not
be successful.
Strategic lens alignment:
Customer Success
Colleague Success
As Sage transitions into a SaaS
business, the capacity, knowledge and
leadership skills we need will change.
Sage will not only need to attract the
talent and experience we will need to
help navigate this change, we will also
need to provide an environment where
colleagues can develop to meet these
new expectations.
By empowering colleagues and
leaders to make decisions, be
innovative, and be bold in delivering
on our commitments, Sage will be
able to create an attractive working
environment. By addressing drivers
of colleague turnover, and embracing
the values of successful SaaS
businesses, Sage can increase
colleague engagement and create
an aligned workforce.
– Global and Regional Risk Committees oversee the
risk and internal control environment, and set the
tone-from-the-top
– The Sage Governance, Risk and Compliance technology
solution automates risk and compliance activity, and
provides a consolidated view of risk, compliance and
control environment
– The Sage Compliance Hub provides a one stop
repository and alert mechanism for the organisation,
simplifying how Sage colleagues interact with and
manage their compliance obligations
– Shared Service Centres in Newcastle, Johannesburg and
Atlanta enable the implementation of consistent and
standardised systems and processes
– Policy Approval Committee is in place to supervise and
approve policies within the Sage-wide policy suite
– Sage’s business control framework, focused on 14 key
processes, is starting to drive standardisation of practice
and process across the business
In progress:
– The Business Control Framework continues to evolve
as a way of supporting Sage’s consistent approach
to control
Static risk environment
– The Look, Evaluate, Assist, Deliver (L.E.A.D.) performance
development programme was embedded across the
business to support leaders and colleagues manage their
career performance
– Our Sage Business Cloud People solution is used across
the business to enhance colleague experience
– Conducted multiple activities throughout the year to
give colleagues a voice on what helps their engagement,
including regular colleague pulse surveys, and the
Big Conversation
– Fully embedded Sage Learning and deployed
the Leading@Sage and Growing@Sage training
programmes to support colleague and leader
development competencies
– Sage Save and Share scheme opened for a second year,
with over 25% of colleagues now invested
– Career frameworks were embedded within the Product
and Services functions to support colleague growth,
development and retention
In progress:
– Development of an executive development programme
that helps develop our next generation of senior and
executive leaders
– Focused efforts continue to be developed to address
regional and functional retention drivers
62
Annual Report and Accounts 2019The Sage Group plc.
Principal risk
Risk background
Management and mitigation
9
Values and Behaviours
Improving risk environment
If we do not fully
empower our
colleagues in line with
our shared values,
we will fail to develop
the behavioural
competencies
required to be a
successful SaaS
business.
Strategic lens
alignment:
Customer
Success
Colleague
Success
The development of a shared
behavioural competency
that encourages colleagues
to think small and act big
will be critical in Sage’s
successful transition to an
SaaS business. Devolution
of decision making, and the
acceptance of accountability
for these decisions, will
need to go hand in hand as
the organisation develops
and sustains its shared
values and behaviours, and
develops a true SaaS culture.
Sage will also need to create
a culture of empowered
leaders that support the
development of ideas, and
that provides colleagues
with a safe environment that
allows for honest disclosures
and discussions. Such a
trusting and empowered
environment can help
sustain innovation, enhance
customer service and drive
the engagement that results
in increased market share.
– Code of Conduct communicated to all colleagues, and subject to
annual certification
– Refreshed and delivered Sage’s values and behaviours, focusing on how
we deliver against our three strategic lenses
– The L.E.A.D. programme explicitly required colleagues to consider how
their behaviours helped them meet their goals, alongside the actual
performance delivered
– Whistleblowing and Incident Reporting mechanisms are in place to allow
issues to be formally reported, and investigated
– All colleagues are empowered to take up to five paid Sage Foundation
days each year, to support charities and provide philanthropic support to
the community
– Core eLearning modules have been rolled out across the enterprise, with
annual refresher training
– Compliance training has been transitioned into role-based education as a
way of supporting colleagues to apply expected values and behaviours
– A business integrity dashboard has been developed and delivered to all
regions to provide leaders with metric-based data on colleague values
and behaviours
– In-person anti-bribery and corruption training has been delivered to all
assessed higher risk regions
In progress:
– Embedding of the refreshed values and behaviours across the business
– Ongoing enhancements to the delivery of mandatory training to help
increase colleague engagement and retention
10
Information as an Asset
Worsening risk environment
If we fail to manage,
protect and maximise
the value of our
data, we will not be
able to realise the
full potential of our
assets.
Strategic lens
alignment:
Customer
Success
Innovation
Information is the life
blood of a SaaS business
– it tells us how we create
revenue, how we can
improve the customer
experience, and how we can
meet our obligations and
commitments. Analysed
using manual and machine
learning, it provides us with
the intelligence we need to
run and build our business.
Protecting the
confidentiality, integrity
and accessibility of
this data is critical for
a data-driven business.
The hardening post-
General Data Protection
Regulation (GDPR) external
environment has resulted in
increased risk likelihood and
potential for financial and
regulatory consequences.
– The IT and Product functions have been realigned under Executive
leadership to deliver against Sage’s strategy
– A product data strategy, accompanied by data principles, is being refined
to help guide and support the use of data internally, and in the ongoing
development of new solutions and services
– Accountability is established within both IT and Product for all internal
and external data being processed by Sage. Sage Chief Information
Security Officer oversees information security, with a network of
Information Security Officers that directly support the business
– The Chief Data Protection Officer oversees information protection and
development for Sage
– A network of country-level data champions support the business in
embedding Sage practices across the organisation, with a particular focus
on the requirements of the GDPR
– Formal certification schemes are maintained, across appropriate parts of
the business, and include internal and external validation of compliance
– An incident management framework is in place, which includes rating
of incidents and requirements for notification and escalation, and online
incident reporting to Sage Risk
– All colleagues are required to undertake awareness training for
information management and data protection, with a focus on the GDPR
requirements. Colleagues who frequently handle personal data also
undertake role-based training
In progress:
– A review of how Sage can provide maximum value to its current and
future customers, including through the use of enhanced AI/ML
capabilities in its products, aligned with the data principles
The principal risks are assessed as presenting the greatest threat to the successful delivery of Sage’s strategy. For this reason,
they are used as the basis for challenging and establishing our financial viability.
63
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES continued
Viability Statement
Assessment of prospects and viability period
In accordance with provision C.2.2 of the 2016 Code,
the Directors set out how they have assessed the Group’s
prospects, the period covered by the assessment and the
Group’s formal viability statement.
The Directors assess the prospects of the Group and
appropriateness of the period chosen by taking into account
various factors including the Group’s current position, the
nature of its business, its business model and strategy, its
principal risks, its liquidity analysis based on net debt and
available debt facilities and its expected performance.
Items of note include:
– Strong recurring revenue growth through software
subscription offering greater assurance in high-quality,
long-term revenue;
– Delivery of consistently strong cash conversion; and
– A diverse product portfolio across 23 countries.
The Directors have reviewed the period used for the
assessment and determined that a three-year period remained
suitable. This period aligns our viability statement with our
planning time horizon for our three-year strategic plan and
is appropriate given the nature and investment cycle of a
technology business. Cash flows over this period have a
relatively high degree of predictability, particularly as the
business continues its journey to be a great SaaS business.
Projections beyond this period become less reliable given the
inherent uncertainty of technology and market developments
although the Directors have no reason to believe the Company
will not be viable over a longer period. However, due to this
uncertainty, the Directors consider a three-year period to
be appropriate in forming a reasonable expectation on the
Group’s longer-term viability.
The assessment process
In forming a viability statement, the Directors are required to
consider those principal risks that could impair the solvency
and liquidity of the Group. This is based on the Group’s current
position, its strategy, and associated principal risks. These
are reviewed by the Board and the Audit and Risk Committee
quarterly, and are a foundation for the Group’s strategic plan.
The financial forecasts contained in the plan make certain
assumptions about the uptake of subscription services and
the acceptable performance of the core revenue streams and
market segments. They assume that debt instalments are paid
as they fall due, although the Group’s main debt facilities are
not due for renewal within the period of the assessment.
As part of the assessment the Group stress tests the plan
using various severe but plausible scenarios. To achieve this,
management reviewed the principal risks and considered
which 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 several different severe scenarios
were considered where principal risks arose in combination.
The scenarios were developed with input from the Group’s
Global Risk Committee which comprises representation from
critical areas across the business.
The scenarios considered to be the most plausible and
significant in performing the assessment of viability and the
combination of principal risks involved are shown on the
next page.
64
Annual Report and Accounts 2019The Sage Group plc. Description of scenario
Malicious data breach impacting EU data
The deliberate targeting of data relating to EU data by malicious or criminal
actors. This scenario considers the impacts on both customer data and Sage
colleague data as it impacts data confidentiality, integrity and availability.
It considers the direct financial and reputational impacts of the breach,
along with the potential for regulatory fines and penalties.
Two accidental data breaches in a major market
Two accidental releases of customer or colleague data within a major market
within a short period of time. This scenario considers the impacts on both
customer data and Sage colleague data as it impacts data confidentiality,
integrity and availability. It considers the financial and reputational impact of
the breaches, along with the potential for regulatory fines and penalties.
Legal breaches by Sage or an associated third party
Sage or a third party, acting on Sage’s behalf, fail to comply with legal
obligations relating to sanctions, anti-money laundering, bribery and
corruption or modern slavery, resulting in regulatory penalties and fines.
Collapse in subscription new customer acquisition (NCA) in core markets
impacting annualised recurring revenue (ARR) growth
A reduction in the perceived competitiveness of Sage’s subscription products
by potential new customers, resulting in an adverse impact on ARR growth.
Entry of a new market disruptor
The entry of a new player in the financial and accounting management
space with a free or very low cost offering in the small business space
could significantly disrupt Sage’s business model and ability to attract
new customers.
Principal risks involved
1
5
7
8
9
Understanding Customer Needs
Customer Success
Sustainable Processes and Controls
Colleague Success
Values and Behaviours
10
Information as an Asset
1
5
7
8
9
Understanding Customer Needs
Customer Success
Sustainable Processes and Controls
Colleague Success
Values and Behaviours
10
Information as an Asset
4
6
7
9
1
2
3
9
1
2
3
4
5
Route to Market
Third Party Reliance
Sustainable Processes and Controls
Values and Behaviours
Understanding Customer Needs
Product Strategy
Innovation
Values and Behaviours
Understanding Customer Needs
Product Strategy
Innovation
Route to Market
Customer Success
10
Information as an Asset
The monetary impact of each scenario was estimated by a cross functional group of senior leaders, including representatives
from Finance, Risk, IT, Product Marketing and Legal, who evaluated the possible consequences, primarily through reducing
revenues and net cash in-flows. These impacts were based on similar events in the public domain and internal estimates.
The impacts were modelled for both year one and year three 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, or repayment of financing did not
adversely impact on the Group’s viability.
As set out in the Audit and Risk Committee’s report on pages 89 to 95, 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 breach the Group’s covenants or exhaust all available cash.
In the event that scenarios such as those tested were to occur, management would have a number of options available to
maintain the Group’s financial position including cost reduction measures, the arrangement of additional financing and a review
of the sustainability of the dividend policy.
Confirmation of longer-term viability
Based on the assessment explained above, 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 at least the next three years.
65
Annual Report and Accounts 2019The Sage Group plc.STRATEGIC REPORT
CHAIRMAN’S INTRODUCTION
CORPORATE
GOVERNANCE
Creating long-term sustainability
Dear shareholder
It is important that we all remember the Board is not a
committee where individuals represent distinct interests
but rather a risk managing and capital allocation body
which, in addition to shaping the framework for strategic
development, participates in and is accountable for the taking
of appropriately calibrated risks.
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.
Good governance is about helping to run the Company well.
It involves being satisfied that an effective internal framework
of systems and controls is 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.
One way in which the Board has sought to ensure the voices
of stakeholders are heard is through our Board Associate
role, introduced in FY17. This role continues to be a successful
way of ensuring that the Board appropriately considers the
interests of colleagues in its deliberations and creating greater
understanding of the role of the Board amongst colleagues.
This year we appointed a new Board Associate, Albert
Sampietro, as a successor to Amy Lawson, our first appointee,
who will serve for an 18-month term.
66
The executive team is required to provide the information to
the Board that the Board needs to enable it to exercise its
judgement. 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 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. The Board
has ultimate responsibility for ensuring an appropriate culture
in the Company to act as a backdrop to the way in which the
Company behaves towards all stakeholders.
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 more Boards have fewer and fewer
Executive Directors.
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.
Sir Donald Brydon
Chairman
Annual Report and Accounts 2019The Sage Group plc. BOARD OF DIRECTORS
Sir Donald Brydon
Chairman of the Board
N
Chairman of the Nomination Committee
Dr John Bates
Independent Non-executive Director
Jonathan Bewes
Independent Non-executive Director
A
Chairman of the Audit and Risk Committee
Date appointed to the Board
6 July 2012 and as Chairman on 1 September 2012
Date appointed to the Board
31 May 2019
Date appointed to the Board
1 April 2019
Key strengths and experience
• Had a 35-year career in financial services
• Overseen comprehensive changes to the
Key strengths and experience
• Visionary technologist and highly accomplished
Key strengths and experience
• Has prior experience of serving as chairman on an
business leader
audit committee
composition of the Board and Committees
• Deep experience in the field of technology innovation
• A wealth of accounting and financial experience
• Navigated Sage through significant change since
his appointment as Chairman
• A strong advocate of Sage’s stakeholders including
the wider community
Sir Donald has a wealth of experience gained as
chairman and senior independent director of
companies across a wide range of sectors including
the London Stock Exchange Group plc, the Barclays
Group, the AXA Group, Royal Mail plc, Smiths Group
plc, the London Metal Exchange, Amersham plc,
Taylor Nelson Sofres plc, Allied Domecq plc, Scottish
Power plc, the ifs School of Finance, and EveryChild.
Key external commitments
Chair of the Government’s Independent Review into
the Quality and Effectiveness of Audit (the Brydon
Review)
including the use of AI and Machine Learning
functionality to improve the customer experience
• Pioneer focusing on areas such as event-driven
architectures, smart environments and business
activity monitoring
• Led the evolution of platforms for digital business
John brings valuable technology skills to the Board
having served as Co-founder, President and Chief
Technology Officer of Apama (now part of Software
AG), Executive Vice President of Corporate Strategy
and Chief Technology Officer at Progress Software,
Chief Technology Officer of Big Data, Head of
Industry Solutions and Chief Marketing Officer at
Software AG and Chief Executive Officer at Plat.One.
Key external commitments
Chief Executive Officer of the Eggplant Group
• Strong investment banking experience gained over
a 25-year career in the sector
• Advisor to boards of UK and overseas companies on a
wide range of financial and strategic issues, including
financing, corporate strategy and governance
Jonathan is a seasoned investment banker, having
worked at Robert Fleming, UBS and Bank of America
Merrill Lynch.
Key external commitments
Non-executive Director & Chair of the Audit
Committee of Next plc
Vice Chairman, Corporate and Institutional Banking
at Standard Chartered Bank plc
Board Committees key
A
N
R
Audit and Risk Committee
See page 89
Nomination Committee
See page 86
Remuneration Committee
See page 96
Annette Court
Independent Non-executive Director
A
R
Chairman of the Remuneration Committee
Blair Crump
Executive Director
Date appointed to the Board
1 April 2019
Date appointed to the Board
1 January 2018
Key strengths and experience
• Has experience of both executive and non-
executive director roles at the highest levels
including as chairman of a FTSE 100 company
• Has prior experience of serving as chairman of a
remuneration committee
• Strong technology background with a record of
using e-commerce to drive commercial success
• Expertise in mentoring leaders to achieve greater
clarity of purpose and provide a practical approach
to problem-solving
Annette’s prior roles include Senior Independent
Director of Jardine Lloyd Thompson Group, CEO of
Europe General Insurance for Zurich Financial
Services, CEO of the Direct Line Group and director
of the Board of the Association of British Insurers and
Foxtons Group plc.
Key external commitments
Chairman of Admiral Group plc
Key strengths and experience
• Significant leadership skills in the technology sector
• Strong background in sales, customer service and
driving growth
• Plays an integral part in the leadership of the
business and his commercial insights add further
depth to Board discussions
• Brings strong US geographic experience to the Board
Blair joined Sage in the role of President in 2016,
leading on sale and customer services across the
Group. Blair’s prior roles include Chief Operating
officer at PROS Holdings, leading Salesforce.com’s
Global Enterprise business, and Group President at
Verizon (and with MCI Communications before its
acquisition by Verizon).
Key external commitments
None
67
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE BOARD OF DIRECTORS continued
Drummond Hall
Senior Independent Director
A N
R
Steve Hare
Chief Executive Officer
Jonathan Howell
Chief Financial Officer
Date appointed to the Board
1 January 2014
Key strengths and experience
• Seasoned non-executive director and chairman
• Wealth of experience gained across a number of
customer-focused blue-chip businesses in the UK,
Europe and the US
• Strong knowledge of marketing and customer
service and bringing deep insight to how Sage may
expand markets and delight customers
Previously Drummond was the Senior Independent
Non-executive Director of FirstGroup, a Non-
executive Director then Chairman of Mitchells &
Butlers plc and Chief Executive of Dairy Crest Group
plc, prior to which the majority of his career was spent
with Procter and Gamble, Mars and PepsiCo.
Key external commitments
Senior Independent Director of WHSmith plc
Date appointed to the Board
3 January 2014 as Chief Financial Officer (CFO) ,
31 August 2018 as Chief Operating Officer, and as
Chief Executive Officer (CEO) on 2 November 2018
Key strengths and experience
• Significant financial, operational and transformation
experience which includes driving change
programmes in a number of his previous roles
• Broad knowledge of Sage, having joined the Board
in January 2014 as Chief Financial Officer
Date appointed to the Board
15 May 2013 as a Non-executive Director and as CFO
on 10 December 2018
Key strengths and experience
• Seasoned group finance director as well as
experience as a chairman and non-executive director
• Significant financial and accounting experience
gained across a number of sectors which allows
him to provide substantial insight into the Group’s
financial reporting and risk management processes
• Extensive understanding of the drivers and priorities
• Excellent working knowledge of Sage, having
needed to complete Sage’s evolution to a SaaS
business and to create a strong SaaS culture in
the organisation
joined the Board in May 2013 as an Independent
Non-executive Director and acting as the Chairman
of the Audit and Risk Committee for six years
Steve joined Sage in January 2014, having previously
been Operating Partner and Co-Head of the Portfolio
Support Group at the private equity firm Apax Partners.
Prior to this he held leading roles in the finance
function for listed companies including Chief Financial
Officer for Invensys plc, Spectris plc and Marconi plc.
Key external commitments
None
Prior to his appointment as CFO of Sage, Jonathan
had been Group Finance Director of Close Brothers
Group plc and the London Stock Exchange Group plc.
He has also been a Non-executive Director of EMAP
plc and Chairman of FTSE International.
Key external commitments
None
Gender (%)
70%
30%
Male
Female
Tenure
(Chairman and Non-executive Directors)
3
2
1
1
Less than 1 year
3-6 years
1-3 years
Over 6 years
Soni Jiandani
Independent Non-executive Director
N
Cath Keers
Independent Non-executive Director
R
Date appointed to the Board
28 February 2017
Date appointed to the Board
1 July 2017
Key strengths and experience
• 25 years’ experience in the technology industry with
a background of bringing innovative technologies
to market
• Helped establish multi-billion-dollar revenue
streams in the switching, storage networking and
server markets
• Extensive experience in marketing and driving
industry transformation through market disruption
Previously Soni was a marketing executive at
UB Networks and Excelan (before it was taken over
by Novell) and latterly she was SVP Marketing at
Cisco Systems Inc.
Key external commitments
None
Full biographies can be found at
sage.com
68
Key strengths and experience
• Brings a wealth of digital and customer experience
Experience (%)
insights to the Board
• Deep understanding of leveraging sales and
marketing activity to build successful brands
• Past experience in retail, after marketing and
business development roles, holding a number
of commercial roles, where she was in charge of
refocusing the organisation’s customer strategy
Cath is an experienced Non-executive Director, having
served on the boards of TalkTalk Telecom Group plc,
the Royal Mail group, Liverpool Victoria Friendly
Society Limited (LV=), and the Home Retail Group
Limited. She pursued her retail career with Thorn EMI
and, after marketing and business development roles
at Sky TV, Avon and Next, joined the BT Group, holding
a number of commercial roles.
Key external commitments
Non-executive Director of Funding Circle Holdings plc
Non-executive Director of The British United
Provident Association Limited
40%
33%
27%
Technology and
innovation
Sales & Marketing
Financial
Board composition
6
3
1
NEDs
Chairman
EDs
Annual Report and Accounts 2019The Sage Group plc. EXECUTIVE COMMITTEE
Steve Hare chairs the Executive Committee and Jonathan Howell and Blair Crump are also members. For their skills and
experience, please see pages 67 to 68.
Vicki Bradin
General Counsel and
Company Secretary
Amanda Cusdin
Chief People Officer
Aaron Harris
Chief Technology Officer
Rob Reid
Chairman Mid-Market Solutions
Key strengths and experience
Having worked as a corporate lawyer in
global and magic circle law firms, Vicki
brought this experience in-house in
large multi-nationals and UK Iisted
companies, latterly at Misys (now
Finastra) where she was responsible for
M&A, litigation, risk, intellectual
property and more.
Key strengths and experience
Amanda has almost 20 years of HR
experience across several global FTSE
organisations in a variety of sectors
where she focused on supporting
executive leaders to drive change and
transformation. Also, she has led in
M&A, growth in new geographies
and working across cultures and
matrix organisations.
Key strengths and experience
Aaron was CTO of Sage Intacct where
he was part of the founding team
establishing it as the innovation leader
in cloud financial management
solutions. As Sage’s CTO, he leads the
emerging technology and collective
intelligence functions and supports the
Service Fabric as a critical component
in Sage’s mission to become a great
SaaS company.
Key strengths and experience
With more than 30 years’ experience in
the software industry, Rob has a proven
track record of driving explosive growth
at innovative companies, and has
demonstrated a deep expertise in
bringing cloud computing to the world
of business applications.
Lee Perkins
Chief Product Officer
Ron McMurtrie
Chief Marketing and Business
Enablement Officer
Key strengths and experience
Lee has deep experience, understanding
and relationships across the business to
ensure progress in the product function.
As CPO, Lee has responsibility for
bringing together product marketing,
management and engineering under
customer-focused segments.
Key strengths and experience
Ron has over 20 years’ experience
in senior marketing roles. He is a
multi-dimensional leader with budgetary
and personnel responsibility spanning
direct sales, marketing, enterprise
consulting and professional services in
private and public sector markets.
Klaus-Michael Vogelberg
Chief Architect and Technology Advisor
Key strengths and experience
Klaus-Michael was a software
entrepreneur who set up his own business
while studying aeronautical engineering
and national economics. He went on to
work in research and development for a
well-known German group before joining
Sage in 1997, initially as R&D Director
and later as Chief Technology Officer
before moving to his current role.
The following individuals were appointed to the Executive Committee after 30 September 2019
Keith Robinson
Chief Strategy Officer and Advisor
to the Executive Committee
Keith has a wealth of SaaS
experience from working in
technology, including Lamond
Capital Partners LLC, Arma
Partners and Gartner.
Derk Bleeker
Chief Corporate Development Officer
Sue Goble
Chief Customer Officer
Key strengths and experience
Derk joined Sage to build its
Corporate Development function
and subsequently took responsibility
for Commercial Finance. Derk has
experience as a leader of corporate
development gained from working
for a global industrial and medical
technology leader, and prior to that he
worked in private equity and as an M&A
specialist in investment banking.
Key strengths and experience
Sue is accountable for Business
Operations responsibilities, ensuring
Sage lands major programmes
successfully across the organisation.
Sue has a distinguished career at a
range of cloud companies including
for a cloud consulting business
and senior roles in customer
relationship management.
Marc Linden
EVP and General Manager, Medium
Segment Native Cloud Solutions
Key strengths and experience
Marc has more than 30 years of finance,
business strategy, and general
management experience. Previously
CFO of Sage Intacct, he now oversees
Finance, Product Management,
Engineering, Operations, Marketing and
Business Operations.
69
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT
CORPORATE
GOVERNANCE
REPORT
Compliance with the UK Corporate
Governance Code 2016 (the Code) and
implementation of the new UK Corporate
Governance Code (the 2018 Code)
The Corporate Governance section of the Annual Report and
Accounts describes how we have applied the main principles
and complied with the provisions of the Code on pages 66
to 128. Sage has applied the 2018 Code since 1 October 2019
and will report on this fully in next year’s report.
Sage complied with the provisions of the Code throughout the
financial year ended 30 September 2019, except for a period of
non-compliance between December 2018 and March 2019 in
relation to provision C.3.1 (composition of the Audit and Risk
Committee). The membership of the Audit and Risk Committee
during the period fell below the recommended minimum
of three independent Non-executive Directors (NEDs). This
occurred when Jonathan Howell stepped down as Chairman
of the Audit and Risk Committee on 3 December 2018, prior to
the commencement of his executive role as CFO. The Board
immediately initiated a process to appoint a successor which
led to the appointment of Jonathan Bewes with effect from
1 April 2019. In the intervening period, Neil Berkett, who had
served as an independent NED of Sage since 2013 and was an
existing member of the Audit and Risk Committee, assumed
the role of Chairman of the Audit and Risk Committee and
Drummond Hall continued to serve as a member of the
Committee. Further information is available on page 88.
Steps taken to implement the 2018 Code
The Board took steps during FY19 to ensure it was well
positioned to follow the 2018 Code from 1 October 2019.
There are also a number of instances where the Company
decided to comply with the 2018 Code earlier than required
and these are set out below:
Annual governance reviews: The Board reviewed Matters
Reserved for the Board, Board Committee terms of reference
and other relevant corporate documents to ensure they are in
line with the provisions of the 2018 Code.
Board and Committee papers: The Board reviewed its key
stakeholders and the ways in which it engages with them.
Some key examples of the action taken are set out below:
– a standing Board paper setting out Sage’s stakeholders
(as determined by the Board) and why they are important
to us has been included in every Board pack;
– the executive summary of Board papers has been broadened
to require authors to note stakeholders’ interests in matters
being considered by the paper and to clearly demonstrate
how proposals put forward have taken those interests
into account;
– a risk assessment has been devised relating to remuneration
policy and practices to ensure reputational and other
risks from excessive rewards, and behavioural risks that
can arise from target-based incentive plans, are identified
and mitigated;
– the Company Secretary ensures that minutes of Board
discussions clearly record how stakeholder views have been
considered as part of the decision-making process; and
– we have formalised the reports back to the Board of the
matters considered by Board Committees and such reports
address how stakeholder factors have been considered.
Board Associate: The Board considers that the Board
Associate role, introduced in FY17, represents an appropriate
method of engaging with colleagues as it provides a two way
communication channel to create greater understanding of
the role of the Board amongst colleagues. This enables the
Board to hear more of colleagues’ views thereby ensuring that
the Board appropriately considers the interests of colleagues
when making decisions.
During FY19 our first Board Associate stepped down at the end
of her 18-month term of appointment and we appointed our
second Board Associate. We also sought new ways to enhance
the role’s profile and to enable more direct communication
and engagement with our colleagues. Our Board Associate
continues to share blogs on his Board experiences with all
Sage colleagues via the Your Sage intranet site and uses this
forum to explain how key decisions impacting colleagues made
by the Board during the year were reached. He also attends
Board engagement days alongside our NEDs.
Board engagement plan: The Board has continued its
engagement activities with stakeholders throughout the
year and has reviewed these to ensure appropriate coverage
across all stakeholder groups in line with the 2018 Code and
to prepare for the requirement to make a detailed s. 172(1)
statement in the annual report next year on how the Directors
have discharged their duties and taken stakeholder concerns
into account in their decision making. Please see pages 82
to 84 for more information on our stakeholders and how the
Board engages with them.
The Code and the 2018 Code are publicly available at the website
of the UK Financial Reporting Council on www.frc.org.uk.
70
Annual Report and Accounts 2019The Sage Group plc. Roles and responsibilities of the Board
Sage is headed by an effective Board which brings a wide range of commercial, technology and financial experience and
is collectively responsible for the long-term success of the Company and overall leadership of the Group. As required by the
Code, the division of responsibilities between the Chairman and the Chief Executive Officer are clearly established and agreed
by the Board. These are summarised below. In addition, while both the Non-executive and Executive Directors have the same
duties in law, they have different roles on the Board. These are also clarified below.
Chairman
– Responsible for the leadership and effective operation of
Chief Executive Officer (CEO)
– Proposes corporate strategy for consideration by the Board
the Board in all aspects of its role
– Sets the agenda for Board meetings to ensure coverage of
material topics
– Ensures that the views of stakeholders are understood and
considered in Board discussions (please see pages 82 to 84
for more details)
– Responsible for delivery of strategy and leads the executive
in overseeing the operational and financial performance
of Sage
– Ensures risks are rigorously managed and maintains a
disciplined internal control environment
– Identifies potential acquisitions and disposals and monitors
– Promotes a culture of open debate in the Boardroom and
competitive forces
encourages contribution by all Directors
– Responsible, with support from the Company Secretary, for
overseeing Sage’s corporate governance practices
– Ensures Sage operates in line with its values and vision by
fostering a culture of collaboration and empowerment
Senior Independent Director
– Provides support and acts as a sounding board for
the Chairman
Non-executive Directors (NEDs)
– Constructively challenge and monitor the delivery of
strategic objectives and Group performance
– Serves as an intermediary for the Non-executive Directors
– Bring an external perspective, independent insight and
– Acts as an alternative contact for shareholders and investors
– Leads the Non-executive Directors in the evaluation of the
performance of the Chairman
support based on relevant experience
– Engage with internal and external stakeholders and take
their views into account in their decision making
Other Executive Directors
– Support the CEO in the delivery of corporate strategy and
Company Secretary
– Provides appropriate and timely information to the Board
the day-to-day management of the business
and its Committees
– Oversee and report on their distinct areas of responsibility
– Engage with Sage’s stakeholder groups and lead on related
activity within their scope of activity
– Provide insights into the Group’s commercial and financial
position from within the business
– Ensures good information flows between the Board and its
Committees and between senior management and Non-
executive Directors
– Advises the Board on legal, compliance and corporate
governance matters
– Supports the Chairman with Board procedures by
facilitating the provision of inductions, training and
professional development, effectiveness reviews and
engagement plans
– Available to Directors for advice and assistance and obtains
independent professional advice at the Company’s expense
when required
Composition of the Board
At the date of this report, there are ten Directors on the Board. The Board currently comprises the Chairman, one Senior
Independent Director, five Non-executive Directors and three Executive Directors. With the exception of the Chairman, whose
independence is only determined on appointment, all Non-executive Directors remained independent throughout the year as
defined in the Code. The Directors’ terms of appointment are available for inspection at the Company’s registered office and at
each Annual General Meeting (AGM).
71
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
Meeting attendance and support
The Board held six scheduled meetings during the financial year ended 30 September 2019, with an additional five unscheduled
meetings held at short notice via telephone or written resolution. Directors are expected to attend every scheduled meeting and
as many unscheduled meetings as possible. Their individual attendance during the year is set out below.
If a Director is unable to attend a meeting, they are encouraged to provide comments on the Board papers to the Chairman so
that they may be shared with Directors at the meeting. Finalisation of meeting content is a collaborative process involving the
Chairman, CEO and the Company Secretary, who assists in setting the agenda and ensures adequate time is allocated to support
effective and constructive discussions.
Directors
Independent
Attendance/
scheduled meetings
Attendance/
additional meetings
Chairman
Sir Donald Brydon
Non-executive Directors
Dr John Bates2
Neil Berkett3
Jonathan Bewes4
Annette Court4
Drummond Hall
Soni Jiandani5
Cath Keers
Executive Directors
Blair Crump6
Steve Hare7
Jonathan Howell7
Company Secretary
Vicki Bradin
On appointment1
Independent
Independent
Independent
Independent
Senior Independent Director
Independent
Independent
Executive Director
Executive Director
Executive Director8
6/6
2/2
4/4
3/3
3/3
6/6
4/6
6/6
6/6
6/6
6/6
6/6
5/5
–
4/4
1/1
1/1
5/5
5/5
5/5
3/5
4/5
4/5
5/5
1. As required by the Code, the Chairman was independent on appointment.
2. Dr John Bates was appointed to the Board on 31 May 2019.
3. Neil Berkett stepped down from the Board on 1 April 2019.
4. Annette Court and Jonathan Bewes were appointed to the Board on 1 April 2019.
5. Soni Jiandani was unable to attend two scheduled Board meetings due to unforeseen circumstances.
6. Blair Crump was unable to attend two additional meetings called at short notice.
7. Steve Hare and Jonathan Howell recused themselves from meetings called to approve their appointments.
8. Jonathan Howell stepped down as the Chairman of the Audit and Risk Committee effective from 3 December 2018. He retained his position as
a Non-executive Director (albeit no longer independent) until the commencement of his appointment as an Executive Director in the role of
CFO on 10 December 2018.
Meeting schedule
Board
meeting
-3 years
-1 year
-1 month
-7 working days
-5 working days
+10 working days
Dates and
venues of Board
meetings are set
A rolling calendar of
standing and periodic
agenda items for the
following 12 months
is compiled and
updated whenever
appropriate
addressing key
developments in
the business with
reference to Sage’s
strategic pillars,
principal risks and
stakeholder concerns
The agenda of the meeting is prepared by
the Company Secretary in consultation with
the Chairman with reference to the rolling
calendar and any business need arising
The Non-executive Directors are provided
with an opportunity to raise questions on
agenda items to feedback to the authors
Report writers are sent template papers
addressing format, specific considerations
and high-quality content required,
reminders of the actions allocated to them
and deadlines for submission of draft and
final papers
Papers are
submitted to
the Company
Secretary for
final review
Papers are circulated
electronically to the
Board in real time via
a secure web portal
to allow Directors
sufficient time to
consider them
Minutes and schedule
of actions arising
from the meeting are
completed and sent to
the Chairman for review
The rolling calendar is
updated following each
meeting (as required)
and in readiness for the
next meeting
72
Annual Report and Accounts 2019The Sage Group plc.
Our Governance framework
The Board
Provides entrepreneurial leadership and sets our purpose, strategy and values to foster the long-term success of the
Company. The Board delegates powers to its Committees and the CEO, while retaining exclusive control over the key
decisions set out in the Matters Reserved for the Board. These include having primary responsibility for risk appetite
and systems of internal control, corporate governance policies, and for material changes to the Group’s capital
and corporate structure.
Audit and Risk
Committee
Oversees the Group’s financial
reporting; risk management and
internal control procedures;
and the work of its internal and
external auditors.
Please read Jonathan Bewes’
Audit and Risk Committee report
on pages 89 to 95
Remuneration
Committee
Agrees Executive Director
remuneration policy; sets
remuneration for the Chairman,
Executive Directors, the Company
Secretary and other Executive
Committee members; and reviews
workforce remuneration and policies.
Please read Annette Court’s
Remuneration Committee report
on pages 96 to 123
Nomination
Committee
Reviews the composition of the
Board and its Committees; plans
for progressive refreshing of
their membership; and considers
succession plans for the Board and
senior executives.
Please read Sir Donald Brydon’s
Nomination Committee report
on pages 86 to 88
Chief Executive Officer
Executive Committee
Assists the CEO to implement strategy, drive improved
operating and financial performance while remaining
focused on the strategic lenses and aware of the
risks which could derail Sage’s purpose and strategic
execution.
Please read pages 69 for the composition
of the Executive Committee.
Below the Board and its Committees, there is a clearly defined management governance structure reporting into one of the
Committees referenced above. Key decisions involving financial spend or associated risk are governed by the Group’s Delegation
of Authority matrix (DOA). The DOA is structured to ensure that day-to-day operational decisions can be taken efficiently, whilst
driving higher-risk and high-value commitments for approval through the appropriate channels.
The Matters Reserved to the Board and terms of reference of
Board Committees may be found on our website at sage.com
73
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
Communication between Board
Committees and cross membership
There is a standing invitation to Directors to attend any
Board Committee meeting irrespective of whether they are a
Committee member, subject only to recusal regarding matters
concerning the individual(s) or conflicts of interests. Following
each Board Committee meeting, the Committee Chairman
reports back to the Board on the matters considered.
To further assist information flows between the Board and its
Committees, there are cross memberships of the Committees.
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 consider
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.
Current Committee membership is shown in the table below.
Diversity and inclusion
Chairman
Sir Donald Brydon
Non-executive Directors
Dr John Bates
Jonathan Bewes
Annette Court
Drummond Hall
Soni Jiandani
Cath Keers
Executive Directors
Blair Crump
Steve Hare
Jonathan Howell
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
Chairman
Sage embraces diversity in all forms. Our ambition is to
reflect the diversity of our customers and partners in the
communities where we operate – which will accelerate growth
and innovation. We are creating a truly inclusive environment
where everyone contributes to our vision, whilst being their
true selves.
Chairman
X Chairman
X
X
X
X
X
Our Board Directors come from broad industry and
professional backgrounds, with varied experience and
expertise aligned to the needs of our business. Diversity was
a key consideration when assessing the candidates for the
Board appointments made during the year and we are pleased
to report that 30% of our Directors are female.
You can read more about how the Nomination Committee
addresses diversity and results achieved during the reporting
period on pages 86 and 88.
The Company Secretary acts as the Secretary to all
the Committees.
Independence of Non-executive Directors
(NEDs)
The independence of the NEDs is kept constantly under review
by monitoring their behaviour, commitments and interests
throughout the year. The Board also considers the Directors’
independence against the specific independence criteria of
the Code. As part of this process, the Board keeps the length of
tenure of all Directors under review, particularly any who have
given long service.
Having reviewed the independence of each Non-executive
Director, the Board considers all our NEDs to be independent
in character and judgement. Sir Donald Brydon was considered
independent at the date of his appointment as provided by
the Code.
74
Annual Report and Accounts 2019The Sage Group plc.
Time commitment
Induction
The NEDs devote considerable time to the Group beyond the
programme of Board and Board Committee meetings. Their
activities necessarily include further investigation of reports
submitted to them and discussion with the senior executives
and other subject matter experts, and extend to induction and
training to ensure they understand the business and are kept
up to date with emerging technology, regulations, and other
matters impacting the Group. Further information on these
activities is set out on this page and page 76. All Directors also
participate in site visits and undergo a formal engagement plan
to meet colleagues and other stakeholders. Please refer to
pages 77 and 79 for further details.
Annual re-election of Directors
Dr John Bates, Annette Court and Jonathan Bewes will be
subject to election by shareholders for the first time at the
AGM on 25 February 2020. All of the current Directors will also
submit themselves for re-election.
All Directors seeking election or re-election are subject to an
annual effectiveness review. Details of the review undertaken
in July 2019 are set out on page 76. The Board has considered
the results of the evaluation and has separately assessed
the independence and commitment of each individual. It
concluded that the Directors’ performance continues to be
effective and that they demonstrate commitment to their roles.
It was also confirmed the Directors have recent and relevant
experience and the skills required for the Board to discharge
its responsibilities. Further information on each Director’s skills
and contribution to the Board is on pages 67 to 68.
Upon appointment to the Board, all Directors engage in a
comprehensive induction programme which is tailored to
their individual needs. The programme consists of meetings
and events, designed to help the new Directors to get to
grips with their role and responsibilities as swiftly as possible
and help them to make a valuable contribution to the Board.
The programme is organised around three themes: business
familiarisation, corporate governance including Board duties,
and Director development.
Structured pre-reading materials are made available in a personal
reading room available via Sage’s Board portal, covering:
– the Group’s strategy and performance;
– governance documents including the Directors’ legal duties
and responsibilities;
– specific information relating to Committee membership;
– Sage policies and procedures; and
– other useful information such as meeting schedules,
the financial calendar and useful contacts.
During the induction period, the individuals (this year, Annette
Court, Jonathan Bewes and Dr John Bates) are asked for
regular feedback, so that the programme can be adapted
if needed. Please see pages 86 to 88 for more information
about their appointments.
Steve Hare was appointed to the role of CEO in November
2018, having served on the Board as CFO since January 2014
and as Interim Chief Operating Officer from August 2018.
Jonathan Howell was appointed as CFO in December 2018,
having served on the Board as a NED and Chairman of the
Audit and Risk Committee since May 2013. In view of their long-
standing service on the Board, and in Jonathan Howell’s case
his prior experience as serving as Chairman of the Company’s
Audit and Risk Committee as well as chief financial officer on
the boards of other listed companies, they did not undertake
further inductions.
75
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
Director training and
development programme
The evaluation sought views on a range of topics including:
– Stakeholder accountability, relationship and interface;
To assist the Board with their continuing knowledge
and familiarity with the business, and to undertake their
responsibilities, ongoing training and development activities
are provided for all Directors. The Board programme
includes presentations from management, site visits and
informal briefings. In addition, the Directors have access to
the Company Secretary for the provision of any additional
information or advice in carrying out their duties.
During the year, the Directors received briefings on the
following matters of topical interest to the Group:
– Market Abuse Regulation: update on market practice and
enforcement trends;
– the 2018 Code and the new requirements for reporting in
relation to s.172(1) of the Companies Act;
– external cyber threat overview; and
– an overview of the UK implementation of Salesforce as the
Company’s CRM system and the roll-out of the Perform sales
improvement process, both being tools designed to help
colleagues ensure Customer Success.
Board effectiveness and evaluation
An effective Board is key to the establishment and delivery of a
Company’s strategy. This year, as recommended by the Code,
an external evaluator, Independent Board Evaluation (IBE), was
engaged to conduct the Board evaluation. IBE, an independent,
external corporate governance consultancy with no other
connection to the Group or any of the Directors, was chosen to
facilitate the evaluation of the Board and its Committees and
provide informative output.
IBE carried out a thorough review and views were gathered
through a combination of interviews with the Directors, senior
management and advisors to obtain feedback on the matters
outlined below. IBE also attended Board and Board Committee
meetings as an observer and issued their final report on their
findings to the Board in July 2019.
The Chairman was provided with a report and feedback on
the performance of each of the Directors, and the Senior
Independent Director, along with the Non-executive Directors,
received a report on the Chairman. Feedback was also
provided on each Committee to the Committee chair and
its members.
– Strategy and risk management;
– Governance and compliance;
– Board focus and decision-making;
– Succession planning, selection of new Board members,
induction and Board composition;
– Performance evaluation;
– Board culture and relationship with senior management; and
– Meeting logistics: timing, preparation and content of
Board packs.
Based on the detailed reviews and interviews, the Board
felt most positively about stakeholder relationships and
accountability; governance and compliance; and Board
culture. The degree of support and challenge demonstrated
by the Directors was at the correct level, albeit there was
acknowledgement of the fact that a number of new NEDs
had joined during the year and that they would therefore
take time to settle. There was a view that the Board should
continue to focus on Board and Company succession
planning, the development of induction activities for new
Board members and high-level monitoring of execution
against business objectives.
In September 2019, the Board agreed an action plan focusing
on these key areas and based on best practice as described in
the 2018 Code and related guidance.
The Board’s key areas of focus
The Board adopts a written set of objectives for each financial
year, based on corporate strategy and the key responsibilities
of its role. The time spent on the Board’s key areas of focus
is set out below with further details of its activities set out on
pages 77 to 79.
Key areas of focus
26%
23%
18%
13%
8%
7%
5%
Finance and risk management
Other
Finance and risk management
Strategy
Governance and reporting
Culture
Other
Acquisitions and disposals
Leadership
76
Annual Report and Accounts 2019The Sage Group plc. Activities of the Board
During the year, the Board focused on the matters summarised in the table below in line with the Group strategy and our ten
principal risks.
Key
Strategic lenses
Principal risks
Customer Success
Colleague Success
Innovation
Understanding customer needs
Product strategy
Innovation
Route to market
Customer success
1
2
3
4
5
Third party reliance
Sustainable processes & controls
Colleague success
Values & behaviours
Information as an asset
6
7
8
9
10
Key area of
activity
Strategy
Leadership
Culture
Matters considered
Outcome
Strategic
lenses
Principal
risks
Approval and
execution of
strategy
Appointment
of Board and
Executive
Committee
members to fill
vacancies and
obtain additional
skills, experience
and diversity in
our leadership
Changes to
organisational
design and
ways of working
to drive more
accountability
and engagement
The Board approved Sage’s strategy for FY19 and beyond. It also routinely
received updates in order to consider the current and future dynamics
within Sage’s markets, its position within this context, and the strengths
Sage has that may serve as a foundation for its continued development.
These included ‘deep dives’ regarding the strategic lenses to monitor
progress in these areas.
In addition, the Board also met with senior executives for a strategy day to
consider in-depth presentations on key elements of Sage’s strategy and to
agree further developments to that strategy.
During the year, Annette Court, Jonathan Bewes and Dr John Bates joined
the Board. In addition, Steve Hare and Jonathan Howell moved from their
previous roles to become CEO and CFO respectively.
Aaron Harris, Lee Perkins and Robert Reid joined the Executive Committee
during the course of the year. Keith Robinson was also appointed as
Advisor to the Executive Committee.
Derk Bleeker, Sue Goble and Marc Linden were subsequently appointed to
the Executive Committee with effect from 1 October 2019.
The biographies of all current Board and Executive Committee members
are set out on pages 67 to 69.
The Board maintained a sustained focus on corporate culture during FY19
and it:
– received regular updates throughout the year from the Chief People Officer;
– maintained progress against the Colleague Success KPIs;
– oversaw the realisation of the new operating model; and
– participated in pairs in facilitated sessions with third party provider
‘Walk the Talk’ to input their thoughts into the fresh set of values and
behaviours created during the year.
This resulted in the development of refreshed corporate values
and behaviours aligned with our strategy. Please see pages 81 for
more information.
The Board endorsed a drive to further develop members of the senior
executive team to nurture a cohesive culture as part of the focus of
creating a great SaaS business. Further information is provided in our
culture case study on page 81.
6
7
8
9
10
6
7
8
9
10
1
2
3
4
5
1
2
3
4
5
8
9
77
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
Matters considered
Outcome
Strategic
lenses
Principal
risks
The Board discussed our strategy for Customer Success and participated
in ‘deep dive’ sessions to understand how our operational priorities were
ensuring delivery of our goals. These priorities included the roll-out of a
number of initiatives:
– repositioning Sage as a customer-centric business delivering
business solutions across customers’ lifecycles;
– the roll-out of the single CRM system and digitisation of customer
service functions to enhance our relationship with customers in
the UK; and
– the introduction of a globally consistent set of systems and
processes to manage the customer journey seamlessly across all
segments of the business.
Please see how the Board engages with customers on pages 83 to 84.
The Board recognises that rapid advancements in technology offer
new opportunities to deliver unique and differentiated customer value.
By cultivating a culture of innovation and experimentation, Sage can
continuously reinvent and bolster itself against unpredictable future
market disruptors. During the year the Board discussed the following:
– continued investment in cloud native and cloud connected solutions;
– the deployment of Service Fabric, a cloud technology which allows the
aggregation of microservices to be deployed in various combinations as
distinct cloud services; and
– the internationalisation of Sage Intacct in the UK and Australia and
the integration of the existing Compass and the new Allocate.AI
team to develop several advanced analytic capabilities powered by
artificial intelligence.
The Board closely monitored reports relating to the financial position of
Sage and regularly reviewed its risk profile and emerging risk themes,
as well as scrutinising regular updates on the internal controls and
framework. It assessed the effectiveness of the whistleblowing hotline,
and case management during the year. It also approved:
– the FY19 Budget and business plans;
– Sage’s quarterly trading reports and interim and final results;
– interim and final dividend payments; and
– significant capital expenditure proposals.
1
2
3
5
7
8
9
1
2
3
5
10
7
9
Key area of
activity
Customer
Developing
enduring
subscription
relationships
and having a
customer-centric
approach in
everything we do
Innovation
Understanding
the benefits
of and threats
posed by
technological
innovation
Finance
and risk
management
Financial
reporting
78
Annual Report and Accounts 2019The Sage Group plc.
Key area of
activity
Matters considered
Outcome
Strategic
lenses
Principal
risks
Group
structure
Acquisitions and
disposals
In January 2019, the Board approved the disposal of Sage Payroll
Solutions, its US-based payroll outsourcing business. The sale was in line
with Sage’s strategy to enable the business to focus on solutions either in
or with a clear pathway to the Sage Business Cloud.
In September 2019, the Board also approved the acquisition of AutoEntry,
an intelligent technology and an open ecosystem that allows data entry
automation to help accountants and bookkeepers to focus on what
matters most. This was a strategically significant acquisition to change
cloud services for customers.
In November 2019, the Board approved the disposal of Sage Pay, a leading
provider of payment gateway services in the UK and Ireland. The divested
business will remain an important payments partner for Sage after
completion, which is expected to complete in early 2020.
Also in November 2019, Sage announced that our Brazilian business has
been classified as held for sale as at the year-end as it is deemed to be
outside of Sage’s core strategic focus.
Governance
and reporting
Legal and
regulatory
developments
During the year, the Board considered and established the necessary
processes to ensure that Sage meets the requirements of the 2018 Code
and is prepared for the Companies Act 2006 requirement to include a
detailed s. 172(1) statement in future annual reports.
Cyber threat Resilience and
reduction of risk
The Board conducted its annual review of corporate policies and
procedures to update them in accordance with legal and regulatory
requirements, including the Matters Reserved for the Board and Board
Committees’ terms of reference.
It undertook its annual review of the effectiveness of the Board as a whole,
its Directors, and its main Committees, subsequently agreeing actions
to aid development. The evaluation was externally facilitated this year,
as described on page 76.
The Board continued to receive regular updates at each Board meeting
from the Chief Information Security Officer on improvements being made
to reduce cyber risks across the corporate estate and customer-facing
products. These included:
– the creation of a 24x7 global monitoring and response capability;
– creation of a specialist internal ‘red team’; and
– a bug bounty programme for cloud products and technologies to
support rapid identification and remediation of security vulnerabilities.
The Board also received an in-depth security review of all Sage Business
Cloud products during the year to ensure they remain sufficiently resilient
against cyber threats and attended an external briefing to bring Directors
up-to-date with emerging cyber security risks.
1
2
3
5
7
8
9
1
3
5
7
8
9
10
Regular reports are received at each meeting from the CEO, CFO (including Corporate Development and Investor Relations
updates), General Counsel and Company Secretary, and the Chief Information Security Officer.
Looking forward to 2020
In 2020, the Board intends to maintain its focus on Sage’s
transition to a leading SaaS company. In order to do so, the
Board will continue to:
– monitor the implementation of the People plan which
builds a high performance and nurturing culture in line with
the Sage values and behaviours and delivers high levels of
colleague engagement;
– monitor our talent identification, development and
succession plans for key roles within Sage;
– continue our drive to be customer centric and develop deep
and enduring customer and partner relationships;
– understand how the roadmaps for Sage Business Cloud
solutions in our key geographies are delivering competitive
edge and elevating the Sage Business Cloud product
portfolio into a digital environment for customers;
– maintain focus on understanding defence against cyber
attacks and keep abreast of cyber risks as an integral part of
Sage’s risk strategy; and
– continue to evolve our Board Associate role.
79
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
ENSURING WE
ARE HEARD ...
Albert Sampietro
Board Associate
My role as Board Associate is focused on bringing our
colleagues’ voice into the Boardroom, as well as explaining the
Board’s responsibilities to colleagues in order to create greater
two way communication between them and the Board.
There are many ways in which I can communicate with
colleagues around the Group thanks to the various internal
media available. These have proved very helpful in reaching out
to colleagues to hear their views first-hand and to put me in a
position to relay those views to the Board.
One of the biggest initiatives I was involved with was
the decision to move our offices in Newcastle from our
current premises at North Park to the Cobalt Business
Park. The premises house circa 1,800 colleagues and is the
central location for the engineering, sales and customer
support teams in the UK. It was quite clear from the start
that any decision would include analysis of the impact on
our colleagues, but also the impact on the wider community
including Sage operations in Newcastle and the environment.
The desire to transform the office environment meant that
a simple refurbishment was not enough. We needed more
space to reinvigorate the way we work, facilitating greater
collaboration between colleagues to generate new ideas.
It would also enable us to attract new talent.
It was important for the Board to be satisfied that colleagues
would be happy about the move and that any impacts from the
change, such as any increased travel to get to work, should be
considered and taken into account.
The Board asked me to act as a champion for colleagues
currently based in North Park. The Directors were keen to know
how they felt about the move, including any wishes they had in
relation to new premises and also their concerns. Please see
the case study on page 85 for more information.
Being a Board Associate has already influenced how I operate
in my work environment. I have changed my approach to
meetings after observing how the Board operates and I now
ensure meetings are focused with a clear agenda and I avoid
detailed presentations to focus on what is important.
One of my key observations of the Board is that the Directors
show a keen focus on product strategy and technological
innovation, obviously motivated by the rapid changes in our
sector, such as the introduction of machine learning, big
data, blockchain and chatbots. The quality of debates around
product strategy has been inspirational.
I have also seen some changes to the composition of our
Board during the course of the year. The addition of new
Non-executive Directors has enriched the Board with their
experience in their areas of expertise.
The role has truly delivered to my expectations, and in fact
exceeded them! The opportunity represents a great and
unforgettable professional experience because I am a close
witness of how a FTSE 100 company is managed from the top.
80
Annual Report and Accounts 2019The Sage Group plc. Case study: Fostering a new culture
The Board recognises that our colleagues are central to
creating a great SaaS company and understands the role it
plays in fostering an inclusive culture to support them, and
to evolve ways of working to create a winning team.
Throughout the year the Board placed a strong focus on
culture and Colleague Success. A key step was helping
shape the Sage values and behaviours which were created
during the year. The Non-executive Directors were teamed
up into pairs with each pair participating in a facilitated
session with our external provider, Walk the Talk, to provide
their own input on Sage culture and the development of
the core values and behaviours. The final result set out on
page 34 was shared with the Board and was approved.
The Board monitored culture across a number of its
meetings. This spanned reviews of executive team
development, updates on ‘Look.Evaluate.Assist.Deliver’
(L.E.A.D.), our new performance review programme, and the
culture KPI reviews.
The CEO instigated and regularly reported on a rigorous
self-development programme devised to build the individual
and collective capability of our 40 most senior leaders to
support the refined culture. The programme sought to do
this by:
– developing people to meet both their career goals and the
organisation’s goals;
– holding themselves and others accountable to
meet commitments;
– building strong-identity teams that apply their diverse
skills and perspectives to achieve common goals; and
– seeing ahead to future possibilities and translating them
into breakthrough strategies.
A further key activity in demonstrating commitment to
colleagues was to show that Sage had taken their feedback
into account. Sage undertook significant investment in
advancing this agenda including the deployment of a new
and best-in-class employee engagement pulse survey
platform, the delivery of L.E.A.D., and the continued focus on
Leading@Sage and Growing@Sage development modules.
The Board met with many colleagues throughout the year
during engagement days and in participating in a Sage
Foundation day. Group-wide engagement was stepped up,
including The Big Conversation, a discussion on culture
which helped to clarify our current culture and the future
culture needed to deliver on our strategy. The Board also
continued to identify the critical KPIs for desired behavioural
change and to enable monitoring over the next two to
three years.
The Board reviews the activities of the Sage Foundation and
supports colleagues’ participation in them. Directors also
personally attend certain events.
Our latest colleague culture pulse check undertaken in
FY19 Q3 received nearly 14,000 comments, with a response
rate of 84% of the Sage colleague population. The survey
showed an increase in employee NPS of 22 points since
Q4 FY18, as well as increasing levels of positivity in Sage’s
major sites. Further information is provided in our People
section on page 32.
81
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
Engagement with shareholders
Engagement with stakeholders
Communication with our shareholders is extremely important
for the Board. By maintaining dialogue with our shareholders,
we aim to ensure that their views are heard and that our
objectives are understood. In addition to publishing quarterly
trading updates, Executive Directors meet analysts invited
to attend presentations following the announcement of
Sage’s interim and final results. They also participate in
subsequent ‘roadshows’ presented in various of Sage’s
locations in order to meet our largest shareholders. With the
introduction of a new remuneration policy for approval at
the AGM in FY19, the Remuneration Committee Chairman
undertook engagement with shareholders regarding its new
terms. Please see page 83 for further information on how the
Board engages with shareholders.
Annual General Meeting
The AGM provides us with a valuable opportunity to engage
with our shareholders. In 2019, all members of the Board
attended the AGM to discuss the proposals and answer
questions where necessary. Senior executives also attended.
All resolutions at the 2019 AGM were voted on a poll. This
follows best practice and allows the Company to count all
votes, including the votes of all shareholders who are unable to
attend the meeting but who appointed a proxy to vote in their
stead. We received voting instructions from over 70% of shares
and all proposals were passed by over 95%.
We are committed to effective engagement with all our
stakeholders. The Board is mindful that Sage’s success
depends on its ability to engage effectively, work together
constructively, and to take stakeholder views into account.
The Board undertook an assessment during the year to map
the current engagement activities between the Board and its
stakeholders, the ways the Directors meet their obligations
under the 2018 Code and their new reporting obligations under
the Companies Act 2006.
The assessment demonstrated that the Board already engages
with stakeholders by various means and addresses matters
which concern them, both within the formal setting of the
Boardroom through reports concerning stakeholders, and
via the Non-executive Directors’ engagement plan. This plan
comprises engagement with our stakeholders on ‘engagement
days’, which generally precede Board meetings, and other
specific engagements.
Interaction with our colleagues has benefitted from the
appointment of a Board Associate to bring the colleague
voice into the Board room. The Board also considered
proposed enhancements intended to ensure that the ‘voice’
and interests of Sage’s stakeholders are brought to the fore
during Board discussions. These included:
– weaving consideration of s.172(1) matters in Board papers
including by encouraging authors to identify the interests of
our key stakeholders in the topic under discussion;
– clearly demonstrating how recommendations for decisions
put forward to the Board have taken stakeholder interests
and other matters referred to in s. 172(1) Companies Act 2006
into account;
– adding success criteria for decisions which the Board
is required to make and providing sufficient time for
appropriate check points for review; and
– reports back from Committee Chairs regarding Committee
decisions and strategic direction being formalised.
82
Annual Report and Accounts 2019The Sage Group plc. The Board reviewed and re-confirmed the Company’s key stakeholder groups during the year. These are set out below along with
details of the forms of engagement undertaken by the Board.
Our investors
Why they matter to us
They are our providers of capital without whom we could not grow and invest for future success.
What matters to them Our investors are concerned with a broad range of issues including, but not limited to, Sage’s financial and
operational performance, strategic execution, investment plans and capital allocation.
Type of engagement
– regular reports from the Investor Relations teams regarding their programme of engagement
– communications such as quarterly trading results, annual reports and notices of general meetings
– Stock Exchange announcements and press releases
– detailed information about Sage and matters of interest to investors at sage.com
How the
Board engages
– Board attendance at the AGM to answer questions in their areas of responsibility
– feedback on investor meetings held by the Chairman and Directors
– engagement with proxy advisors and the top 20 shareholders regarding the remuneration policy
– Executive Director meetings with investors in the UK, Canada and the US to discuss Sage’s strategy
How they influenced the
Board’s decision-making
Investors’ opinions were taken into account in the shaping of Sage’s strategy and operational performance,
remuneration policy and capital structure.
Our colleagues
Why they matter to us
They are a key resource, dedicated to creating, selling and supporting solutions that free our customers from
administration so that their businesses can thrive.
What matters to them Our colleagues are concerned with opportunities for personal development and career progression; a culture of
inclusion and diversity; compensation and benefits; and the ability to make a difference within Sage.
Type of engagement
– various activities and forums to foster participation in Group events, invite opinions, questions and ideas
– regular colleague opinion surveys to canvas views
– multimedia channels for sharing information and as a depository of in-house news items of interest
How the
Board engages
– Sage TV broadcasts and presentations of strategy and quarterly performance updates by the CEO and CFO
– representation at Board meetings through the Board Associate and further engagement as part of the Board
meetings programme
– NEDs attending a ‘town hall’ for all colleagues to participate in a Q&A session in Atlanta
– assessing results of ‘The Big Conversation’, an online three-day virtual conversation focusing on culture as
reported on page 25
– ‘talent lunches’ allowing Directors to meet promising individuals from the executive teams
– keen focus on culture ‘pulse checks’ results and whistleblowing reports
– Chief People Officer report on activities to enhance colleague engagement and senior leadership capability
How they influenced
the Board’s decision-
making
A key initiative during the year was the creation of corporate values and behaviours and monitoring cultural change
in the Boardroom. Further information is set out in our culture case study on page 81.
The Board sought the views of the Board Associate to understand the impact to our colleagues of the move from the
premises at North Park, Newcastle. Further information is set out in our case study on page 85.
The Board continued to encourage leaders to search internally to fill open positions, proactively manage career
development for high potential colleagues and enable them to drive their own career paths.
The Board also endorsed the simplification of processes and investment in systems; the provision of greater support
and clarity on career and development opportunities for colleagues; and improvements made to Sage’s reward and
recognition arrangements.
Our customers
Why they matter to us
They are the small and medium-sized businesses which are the growth engine of the economy, and the professionals
who rely on us to help them deliver a great service to their clients, whatever their size.
What matters to them Our customers are concerned with having products that keep their business compliant, improve their efficiency through
the use of time-saving software, provide greater visibility into their business and actionable insights from their data, while
being assured of great customer service and that the software can adapt with their business needs over time.
Type of engagement
– Board sessions focused on customers’ needs and the issues they face and regular reports on performance
– direct engagement with customers as part of the Board engagement programme
83
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
Our customers continued
How the
Board engages
– reviews strategy and monitors performance during the year with the aim of meeting customers’ needs
more effectively
– receives regular competitor updates to understand Sage’s competitive performance and its strengths and
weaknesses as regards meeting customer needs
– benchmarks Sage’s performance in relation to customers using research including net promoter scores
– participates in sessions listening to customer service and sales calls
– attends graduate and apprentice focused events to gain insights into the roles of marketing, sales and product
interns and receive their views relating to our customers
The Board has sought to ensure that the customer’s viewpoint is taken into account as part of its decision-making
process. Please refer to page 78 for further information.
How they influenced
the Board’s decision-
making
Our partners
Why they matter
to us:
They are an extension of Sage, representing our brand in the market, allowing us to scale our business. They bring our
solutions to life, serving our customers locally and creating an ecosystem of complementary solutions and services.
What matters
to them
Type of
engagement
How the
Board engages
Our partners harness Sage’s innovative technology to deliver customer success through creation of unique joint
value propositions. They share insights into what our current and future customers want, ultimately impacting
product strategy and roadmaps and accelerating business growth through Sage supported sales and marketing
programmes, as well as technical training.
– Partner Code of Conduct defining expectations of responsible business and behaviour, underlining Sage’s
strategic focus on customer needs
– Board reports, including updates on performance and key partner issues
– direct engagement on Board engagement days
– Board updates regarding partner relationships, development and engagement
– consideration of key strategic partnerships and technology
– understands our go-to-market approach with partners in relation to Sage Intacct in North America and Sage
Intacct internationalisation in the UK and Australia
How they influenced
the Board’s decision-
making
The Board routinely considered the interests of our Partners in their decision-making and to ensure that they are
aligned with Sage’s practices, values and behaviours.
Our communities
Why they matter
to us
We demonstrate Sage’s culture and commitment to doing business the right way through the work of the Sage
Foundation which combines charitable giving and supporting colleague engagement with non-profit organisations
delivering change.
What matters
to them
Type of
engagement
How the
Board engages
Freeing colleagues to volunteer in our communities, whether for favoured causes or in programmes sponsored
by Sage focusing on helping to build a workforce fit for tomorrow by creating routes into education, work and
entrepreneurships for marginalised young people, women and military veterans.
– regular Board updates regarding the Sage Foundation’s activities and approval of charitable giving
– direct involvement in Sage Foundation activities
– endorses a culture of giving back time, skills and technology within the Sage ecosystem of colleagues, customers
and partners
– ensures the Sage Foundation’s plans focus on what matters most to Sage’s colleagues and communities
– participation by the Board as a whole in a one-day Sage Foundation with Working Chance, helping female ex-
offenders to get back to work
– further individual participation by Directors in Sage Foundation activities of their choice to share colleagues’
experience
How they influenced
the Board’s decision-
making
The Board oversaw enhancements made to Sage’s software donation programme for FY19. These enhancements
resulted in increases in product donations (23%) and licences (19%) received by non-profit organisations across 14
countries over the prior year. It also supported the Sage Foundation’s activities, and received reports on these. See
pages 38 to 41 for further information on the Sage Foundation.
84
Annual Report and Accounts 2019The Sage Group plc.
Case study: Relocation from North Park
Background
The North Park property in Newcastle opened in 2003.
Recently, the move to more agile ways of working and the
need for greater collaboration have highlighted inadequacies
in the use of the space. This, together with the age of the
building, called for consideration of whether to undertake
a substantial refurbishment project on North Park or adopt
another approach.
Board deliberations
The Board considered three options for suitable premises in
Newcastle including remaining at North Park, involvement in
building a new property, or relocation to an alternative site.
From the start of the process the Board was committed
to retaining Sage’s presence in the North East and
respecting the Company’s heritage. It is Sage’s largest
employment base and the Board committed to investing
£40m in the hub over the next three years, creating jobs
with a view to growing the business and improving its
customer experience.
The primary requirement was to find the right space for
our colleagues and to foster collaboration and a great
environment for innovation. Newcastle as an operational
location is extremely attractive because of the ability to
attract resources and it has the potential to be a vital
resource hub for future recruitment of individuals with
key skills.
quickly discounted.
Sage considered all of the local business parks before
presenting a proposal to the Board to move to a site located
at Cobalt Business Park (Cobalt), which offers the space and
the modern, high-end fit-out required in a new world-class
technology hub.
Our colleagues
The Board noted that, at the time of the review, there were
c. 1,800 colleagues at North Park and that this number was
expected to increase by late 2020. For numbers of this scale,
sufficient space for colleagues would only be effectively
provided by the Cobalt premises.
In addition to the improvement in the office environment,
the benefits to colleagues of moving to Cobalt included
increased and environmentally-friendly travel options as well
as parking facilities. The Board has also allocated funds from
its overall investment to be spent on providing staff with
training, as well as employing 150 apprentices and graduates.
The Board noted that Sage had undertaken a demographic
study of the impact on our colleagues’ journeys to work
at Cobalt and was beginning a period of consultation with
them, designed to ease their transition to the new premises.
A range of support packages were being considered to
address impacts arising from the move to the new site,
including support around transport, working processes,
flexible working, and other incentives.
Our community
The news that Sage would retain a significant operational
presence in Newcastle was welcomed by the community,
particularly in view of its investment in the region, the
Company’s goal to further the UK’s technology sector as a
centre of excellence, and the consequent opportunities in
terms of employment, innovation and increased skills.
Sage’s move from North Park is not considered to greatly
impact the local community given that it is a standalone
building and particularly in view of the proximity of Cobalt.
The future of North Park is yet to be determined, but
use of the site will be influenced by planning regulation.
Any potential development will be supported by a full
environmental impact analysis which is a requirement of any
application of this type.
Remaining at North Park was discounted due to the
unattractive commercial proposition it presented. North
Park has an inefficient design with 40% of space allocated
to non-office use. In addition, its age and condition requires
significant investment in the mechanical and electrical
systems and other building components in order to continue
to operate effectively. Investment in a new build was also
Conclusion
In view of the benefits offered to our stakeholders and to
the business commercially, the Board concluded that
relocating to the Cobalt Business Park offered the
Company the best option.
85
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
NOMINATION
COMMITTEE
REPORT
Sir Donald Brydon
Chairman of the
Nomination Committee
Dear shareholder
This has been a busy year for the Nomination Committee
(“the Committee”) with the main focus on Board and Board
Committee composition. Following a global search conducted
by Egon Zehnder, and appropriate benchmarking, Steve Hare
was promoted to CEO in November 2018 creating a vacancy for
CFO. The Committee was fortunate that Jonathan Howell had
announced he was leaving Close Brothers Group plc and was
therefore available to take up the role of CFO shortly thereafter.
His knowledge of the business and of the Finance function
from his successful tenure as Chair of the Audit and Risk
Committee meant that a smooth and effective transition
could be achieved at pace. Subsequently, the Committee
working with the whole Board has reviewed the Company’s
succession and talent management plans and been consulted
on appointments to the Executive Committee.
86
During the year, Neil Berkett stepped down as a Board
Director and Chairman of the Audit and Risk Committee
and Drummond Hall stepped down as the Chairman of the
Remuneration Committee whilst retaining his role as the
Senior Independent Director. This created the opportunity
for the Nomination Committee to review the skills and shape
of the Board. The Committee decided to increase the size of
the Board to ensure that more SaaS experience was brought
into its deliberations. It also sought finance, remuneration
and governance skills. Consequently the Board appointed
three new NEDs during the year. Dr John Bates is a visionary
technologist with substantial native cloud technology
experience and CEO of Eggplant; Jonathan Bewes is an
accountant with a career in finance advisory work; and Annette
Court is Chair of Admiral Group and is very familiar with
technology disruption. Given their experience in chairing board
committees, Jonathan Bewes and Annette Court succeeded
the prior chairs of the Audit and Risk and Remuneration
Committees respectively. The Lygon Group was used to find
and assess suitable candidates.
The Committee will continue to monitor the composition and
balance of the Board to ensure that broad expertise is available
from the existing members and will recommend further
appointments as and when appropriate to assure the
long-term success of the Company.
Looking forward, the Committee will focus on the Board’s and
the Company’s succession planning and continue to oversee
the development of talent from within Sage and diversity
throughout the organisation.
Sir Donald Brydon
Chairman
Annual Report and Accounts 2019The Sage Group plc. Nomination Committee governance at a glance
The Committee reviews the leadership and succession needs of the Board and ensures appropriate procedures are in place for
nominating, training and evaluating Directors. The purpose is also to review the composition, skills and experience of the Board.
Committee composition and meetings
Activities and effectiveness review
The Committee is composed of
independent Non-executive Directors
(NEDs), Drummond Hall and Soni Jiandani,
and is chaired by Sir Donald Brydon.
Details of the skills and experience of the
Committee members can be found in their
biographies on pages 67 to 68.
During the year, there were two scheduled
meetings and four additional meetings
held at short notice to deal with specific
matters. Details of individual attendance
of meetings are set out below.
During the year, the Committee
recommended the appointment of
three NEDs and two Executive Directors.
Fuller details of the Committee’s activities
are set out below.
The Committee’s performance was reviewed
as part of the 2019 Board effectiveness
review. Following consideration of
the findings of the 2019 review of the
Committee, the Directors were content
that it was operating satisfactorily.
Succession planning*
Board and Committee
composition*
Corporate governance
14%
54%
32%
* Includes time spent on considering the diversity
of the Board.
Meeting attendance
Directors
Sir Donald Brydon
Drummond Hall
Soni Jiandani2
Company Secretary
Vicki Bradin
Independent
On appointment1
Senior Independent Director
Independent
Attendance/
scheduled meetings
Attendance/
additional meetings
2/2
2/2
1/2
2/2
4/4
4/4
4/4
4/4
1. As required by the Code, the Chairman was independent on appointment as Chairman of Sage.
2. Soni Jiandani was unable to attend a scheduled meeting due to unforeseen circumstances.
Activities of the Committee
During the year, the Committee focused on the matters summarised in the table below.
Key area of activity
Board and Board
Committee
composition
Matters considered
– Leading the selection process to identify a successor
Outcome
– Recommended to the Board the appointment of
to the CEO
Steve Hare as CEO
– Identified a successor to the CFO
– The appointment of Jonathan Howell as CFO, as
– Reviewed the skills, experience, independence and
knowledge on the Board and considered changes to
bring increased SaaS and other knowledge areas to
the Board
discussed further on page 88
– Recommended to the Board the appointments of
Dr John Bates, Jonathan Bewes and Annette Court
Succession planning
and talent
– Succession planning for the Board and for the
Executive Committee, having regard to diversity
– Progress made in the development of a diverse senior
– The Board as a whole discussed regular updates
from the Chief People Officer on progress made
across Sage
management succession pipeline
– Consulted on Executive Committee appointments
– Reviewed and approved talent strategy,
development priorities and the programmes
underpinning them
– Conducted a post year-end talent review of senior
executives across the Executive Committee and
Executive team level
Diversity and
inclusion
Corporate
governance
– Reviewing Sage’s progress towards continuing to
– Received updates on the work done to understand
build a diverse and inclusive workforce and to further
develop a diverse and gender-balanced workplace
gender diversity in Sage
– Mapping 2018 Code principles to ensure the
– Early adoption of key principles of the 2018 Code
Committee will be fully compliant with its provisions in
the next financial year
– Considered the outcome of the annual evaluation
relevant to the Committee
– Approved revised terms of reference for
consideration and adoption by the Board
of Directors
– Reviewed the Committee’s terms of reference
to ensure they were fit for purpose and addressed legal
and regulatory developments since the last review
87
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
Appointments
The Committee considers Board and Board Committee
composition at each meeting. This includes the consideration
of new appointments, both in respect of planned succession
and as a result of the ongoing review of skills.
The selection and appointment procedure commences with
the agreement of a role profile and selection of an executive
search firm to help identify potential candidates for the role.
During 2019, The Lygon Group was instructed to assist with the
search for new NEDs with the skills and experience identified as
necessary to assist Sage in its strategy to achieve its vision of
becoming a great SaaS company. The Lygon Group has signed
up to the Voluntary Code of Conduct and does not have any
other connection to Sage or with any individual Directors, other
than to provide recruitment services. Open advertising for Board
positions was not used this year.
When considering appointments to the Board, the Committee
evaluates the skills, experience and knowledge required
with due regard for the benefit of diversity. Any candidates
who are shortlisted are interviewed by the Chairman and
other Directors. The Board is updated on the progress of the
selection process and receives recommendations from the
Committee for appointment.
Appointment of Non-executive Directors
The procedure outlined above was initiated for the appointments
of the NEDs. A number of potential candidates were identified
and Dr John Bates, Annette Court and Jonathan Bewes were
selected as preferred candidates.
The Committee first satisfied itself that Jonathan, Annette and
John met requirements for independence purposes and then
considered their skills and experience. It noted that Jonathan
has considerable financial experience and had acted as an
audit committee chair for Next plc, Annette has the requisite
experience of serving as a remuneration committee chair
for Admiral Group plc and John brought considerable
experience in the field of technology innovation to the Board.
The Committee concluded that they were appropriate
candidates for the roles of NEDs on Sage’s Board and chairs
of its Audit and Risk and Remuneration Committees and
recommended them for appointment by the Board. They were
subsequently appointed with effect from 1 April 2019 (in the case
of Annette and Jonathan) and 31 May 2019 (in the case of John).
Appointment of the Chief Financial Officer
Following Steve Hare’s appointment as CEO on 2 November
2018, the Board acknowledged the need to find a new CFO in
order to support Steve in his role as soon as possible.
It became immediately obvious that Jonathan Howell
was exceptionally qualified to take over the role given his
knowledge, skills and experience which include:
– his significant financial, accounting and operational
experience as a public company chief financial officer,
having most recently been Group Finance Director of Close
Brothers Group plc for ten years, and prior to this, chief
financial officer of the London Stock Exchange Group plc;
– an excellent understanding of the business and the Finance
function, having joined the Board as a NED in May 2013
and as Chairman of the Audit and Risk Committee since
November 2013; and
88
– good working relationships with the CEO and the wider
executive team.
Jonathan consented to taking up the role and the Board
agreed his appointment would take effect from 10 December
2018. It was further agreed that he would step down
immediately as Chairman of the Audit and Risk Committee,
on 3 December 2018, to ensure the independence of the
Committee is maintained. It was also agreed that he should
cease to be a NED on commencement of his executive role.
Succession
The Board considers the length of service of the members
of the Board as a whole and the need for it to refresh its
membership progressively over time. Board succession
planning remains a priority for the Committee in FY20 to
ensure appropriate plans are in place for key Board positions.
Internal talent development and the ability to attract, retain
and develop skilled, high potential individuals within Sage
is an area that the Committee focuses on. The Committee
recognises the importance of this and the benefits to Sage
by developing a pipeline of internal talent as it continues to
work with the executive to develop internal talent during the
year. This approach was demonstrated most clearly by the
appointment of several internal promotions to the Executive
Committee during FY19. This will continue to be an area of
focus during FY20 and beyond.
Diversity
A diverse workforce brings a broader range of perspectives,
and drives innovation which will support us in better
understanding our customers and in creating innovative
products and providing services which customers need.
The Board and the executive play a key role in setting the tone
on diversity and inclusion, and the Nomination Committee
applies the principles of Sage’s Diversity & Inclusion Policy
when considering these appointments. Specifically, the policy
states that we are committed to:
– ensuring that the wording and images used in adverts and
job descriptions reflect and appeal to all sections of society,
and are relevant and non-discriminatory;
– short-listing only those whose skills, qualifications and
experience closely match the job requirements; and
– asking fair, objective and consistent questions during the
selection process. We use selection criteria that do not
discriminate in any direct or indirect way for all of our roles.
During FY19, the Committee has made two Executive and three
NED appointments to the Board. Their inclusion on the Board
further diversifies and strengthens the Board’s overall skills
and experience.
The Board and the Committee remain mindful of the targets
set by the Hampton Alexander Review and the Parker Review
respectively for FTSE 100 companies to have a minimum of 33%
female representation on their boards, executive committees
and reports to executive committee members by 2020 and at
least one ‘person of colour’ on their board by 2021. At the time
of publishing this report, female representation on the Board is
30%. Further information on gender diversity, including in our
broader executive team, may be found on pages 33 to 34.
Annual Report and Accounts 2019The Sage Group plc. AUDIT AND RISK
COMMITTEE
REPORT
Dear shareholder
I am pleased to present the annual report of the Audit and
Risk Committee (“the Committee”) for 2019. This report
explains the Committee’s responsibilities and shows how it
has delivered on these, whilst also considering and responding
to how the business has evolved during the year. In particular,
the Committee has continued to challenge and consider the
suitability, assessment of and response to the principal risks.
2019 was a transitional year for the Committee, with the
Chairmanship passing from Jonathan Howell upon the
announcement of his appointment as the Group’s Chief
Financial Officer, to Neil Berkett, in an interim capacity, then
onto myself. I would like to acknowledge and thank Jonathan
and Neil for their leadership which enabled the Board to retain
a strong focus on the Group’s risks and controls throughout
the year.
Jonathan Bewes
Chairman of the Audit and Risk Committee
Jonathan Bewes
Chairman of the Audit and
Risk Committee
We remain firmly focused
on ensuring that Sage’s risk
management procedures and
internal controls remain robust
and respond effectively to the
emerging opportunities and
challenges within the Group’s
revised operating model
89
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
Committee composition and meetings
Activities and evaluation
Allocation of time
The Committee is composed solely of
independent Non-executive Directors.
The current members are Drummond
Hall and Annette Court, with Committee
Chairman Jonathan Bewes. Details of the
skills and experience of the Committee
members can be found in their biographies
on pages 67 to 68.
During the year, there were four scheduled
meetings. Details of individual attendance
of meetings are set out below.
During the year, the Committee oversaw
the Group’s financial reporting, risk
management and internal control
procedures and the work of its internal
and external auditors. Fuller details of the
Committee’s activities are set out on pages
90 to 95.
The Committee’s performance was reviewed
as part of the 2019 Board evaluation
(see page 76). Following consideration
of the findings of the 2019 review of the
Committee, the Directors were satisfied
that it was operating effectively.
11%
7%
18%
38%
10%
18%
Financial reporting
Risk management and Internal control
Internal Audit
External audit
Incident management and whistleblowing
Other matters
In addition, the Board considers that the Committee has the
necessary competence and broad experience relevant to
the sector in which Sage operates as required by the Code.
Annette Court and Drummond Hall are both former Chief
Executive Officers with extensive experience of leading
complex, customer-focused businesses.
The membership of the Audit and Risk Committee changed
during the year when Jonathan Howell stepped down as
Chairman of the Audit and Risk Committee on acceptance
of his executive role as CFO on 3 December 2018. The Board
immediately initiated a process to appoint a successor which
led to the appointment of Jonathan Bewes, who joined the
Board and became Chairman of the Audit and Risk Committee
with effect from 1 April 2019. In the intervening period,
Neil Berkett, who was an existing member of the Audit and Risk
Committee, assumed the role of Chairman of the Committee.
Annette Court also joined the Board and the Committee on
1 April 2019. Neil Berkett who had served as an independent
NED of Sage since 2013 stood down on that date. Drummond
Hall continued to serve as a member of the Committee
throughout the year.
Activities during the year
The Committee had four scheduled meetings over the course
of the year in line with its terms of reference. Attendance at the
Audit and Risk Committee during the year to 30 September
2019 is shown in the table on page 91. The Chairman of the
Board was present at all four of the scheduled meetings.
Steve Hare in his capacity as either the Chief Operating Officer
or later Chief Executive Officer, Jonathan Howell in his capacity
as either the Chair of the Committee (one meeting) and later as
the Chief Financial Officer (three meetings), the Vice President
(”VP”) Risk and Assurance and the General Counsel & Company
Secretary were present at all four meetings. The Executive Vice
President (‘’EVP’’) Finance Control and Operations was present
at three of the four meetings.
Key activities during the year have included assessing the
ongoing effectiveness of internal controls, monitoring the
business’s application of IFRS 15 and IFRS 9, and reviewing
compliance with anti-bribery and corruption and sanctions
legislation. In addition, the Committee has monitored
progress on the implementation of IFRS 16 as well as the
appropriateness of the Group’s going concern, viability
assessment, financial reporting and accounting judgements.
The Committee operated during the year in accordance with
the principles of the Financial Reporting Council’s (“FRC”)
UK Corporate Governance Code 2016 (“the Code”) and the
associated recommendations set out in the FRC’s Guidance
on Audit Committees, as revised in 2016. The Committee
also considered the extent to which it already applied the
requirements of the UK Corporate Governance Code 2018 as
they affect audit committees, terms of reference and operating
procedures, and took action to enhance existing risk reporting
to reflect these new requirements. The Committee has applied
the UK Corporate Governance Code 2018 since 1 October 2019.
Role of the Committee
The Committee is an essential part of Sage’s overall
governance framework. The Board has delegated to the
Committee the responsibility for overseeing the Group’s
financial reporting, risk management and internal control
procedures, and the work of Sage Assurance and the external
auditor. These responsibilities are defined in the Committee’s
terms of reference, which were reviewed and approved by the
Board and the Committee in September 2019.
Composition
The Code requires that at least one member of the Committee
has recent and relevant financial experience. The Disclosure
Guidance and Transparency Rules (DTRs) require that at
least one member has competence in accounting and or
auditing. The Board is satisfied that the Chairman meets
these requirements, being a qualified chartered accountant
and a serving Audit Committee Chairman following 25 years
in financial services as a corporate finance advisor in the
investment banking sector.
90
Annual Report and Accounts 2019The Sage Group plc.
Directors
Neil Berkett1
Jonathan Bewes1
Annette Court1,2
Drummond Hall
Jonathan Howell1
Company Secretary
Vicki Bradin
Independent
Independent Non-executive Director
Independent Non-executive Director
Independent Non-executive Director
Senior Independent Director
Independent Non-executive Director
Attendance/
scheduled meetings
% attendance
Attendance/
additional meetings
2/2
2/2
1/2
4/4
1/1
4/4
100%
100%
50%
100%
100%
100%
n/a
n/a
n/a
n/a
n/a
n/a
1. Jonathan Howell stepped down from the Committee on 3 December 2018 prior to the commencement of his executive role. Neil Berkett retired from the
Board on 1 April 2019. Annette Court and Jonathan Bewes joined the Committee with effect from 1 April 2019.
2. Annette Court was unable to attend the May meeting of the Committee due to travel issues arranged prior to appointment to the Board.
Financial reporting, including significant reporting
and accounting matters
The agenda for every Committee meeting includes a formal
finance update from the EVP Finance Control and Operations.
This informs the Committee about developments in the
Group’s reporting and accounting environment. During the
year, the Committee considered how these developments
were addressed in preparing the Group’s financial statements.
The Committee assessed the overall quality of financial
reporting through review and discussion of the significant
accounting matters and the interim and annual financial
statements. The Committee’s review included assessing
the appropriateness of the Group’s accounting policies and
practices, confirming their compliance with financial reporting
standards and relevant statutory requirements, and reviewing
the adequacy of disclosures in the financial statements.
In performing its review of the Group’s financial reporting,
the Committee considered the work, judgements and
conclusions of management and the Group finance team.
The Committee also received reports from the external auditor
setting out its view on the accounting treatments included
in the financial statements, based on its review of the interim
financial statements and its audit of the annual financial
statements. The Committee’s review included assessing
the appropriateness of the Group’s accounting policies and
practices, confirming their compliance with financial reporting
standards and relevant statutory requirements, and reviewing
the adequacy of disclosures in the financial statements.
The Chairman of the Committee reported to the Board on key
matters arising after each of these meetings. At each meeting,
the Committee met with the external auditor, and at certain
meetings the VP Risk and Assurance, without management
being present.
Outside these formal meetings, the Chairman met regularly
with the Chief Financial Officer, the external auditor, the VP
Risk and Assurance, the EVP Finance Control and Operations
and the General Counsel & Company Secretary.
At each meeting, the Committee received and considered:
– scheduled finance updates on financial reporting, including
significant reporting and accounting matters;
– scheduled risk updates, including risk dashboards outlining
both principal and any escalated or emerging local risks.
The Committee also received summary reports and
supplementary briefings from Sage Risk and management
on selected principal risks and other ‘in-focus’ reviews;
– summary reports of escalated incidents and instances of
whistleblowing, together with status of investigations and,
where appropriate, management actions to remediate
issues identified;
– progress against the plan and results of Internal Audit
activities, including Sage Assurance and management
reports on internal control, including financial, compliance
and operational matters, and the implementation of
management actions to remediate issues identified and
make improvements to internal controls; and
– updates on delivery of the external audit plan and reports
from the external auditor on the Group’s financial reporting
and observations made on the internal financial control
environment in the course of their work.
During the year the Committee also received updates on
the legal and regulatory frameworks relevant to its areas of
responsibility, including the GDPR, the UK Bribery Act 2010 and
sanctions legislation.
91
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
CORPORATE GOVERNANCE REPORT continued
Significant reporting and accounting matters
The Committee considered a number of significant accounting
and financial judgements and estimates in relation to the
Group’s financial statements, which were addressed as
described below.
Revenue recognition
The Group has a detailed policy on revenue recognition for
each category of revenue. This includes the application of
rules relating to the various ways in which the Group sells its
products around the world and recognition policies for critical
estimates and judgements including (i) sales to partners versus
end users; and (ii) deferral of revenue for on-premise software
subscription offerings.
As reported last year, during FY18 the Committee oversaw
the in-depth review of revenue recognition policies carried
out by management as part of the IFRS 15 impact assessment
and implementation project. The conclusions from this
work and the resultant adjustments recorded on IFRS 15
adoption, at 1 October 2018, were revisited by the Committee
with both management and the external auditor as part of
its review of the interim financial statements, including the
transition disclosures.
The Committee has continued to monitor the application
of the Group’s revenue accounting policy in FY19, receiving
reports on the work performed to confirm adherence to the
updated Group policy. Specifically, the Committee sought to
understand the impact of IFRS 15 on the Group’s processes
and systems for revenue accounting and obtained updates
from management throughout the year on the progress made
in implementing globally a suite of IFRS 15 related financial
controls. The Committee obtained reports from, and discussed
with, the external auditor the nature, extent and findings of its
procedures over revenue recognition in the year.
The revenue recognition accounting policy is set out in note 3.1
to the financial statements and is referenced in the Group’s
significant accounting judgements.
Goodwill impairment testing
Given the Group’s goodwill balance of £2,098 million and the
continuing evolution of Sage’s business model, the annual
assessment of the recoverability of goodwill is a significant
area of focus for the Committee. The Committee reviewed and
considered the methodology applied, and the key inputs to
the impairment model including forecast cash flows, forecast
timeframe, discount rates and long-term growth rates to
determine the recoverable amounts on a value in use basis.
Specifically, in respect of the North America Intacct CGU, the
Committee enquired as to the drivers of the discount rate to
understand the difference between management and the
external auditor determined discount rates, whilst noting that
this did not impact the conclusion on the recoverability of
the goodwill.
Key to the Committee’s challenge and evaluation of the
recoverability of the goodwill for each CGU was the impact
on headroom of downside sensitivity analyses performed
separately by both management and the external auditor.
This enabled the Committee to evaluate if there are any
reasonably possible changes in assumptions that would result
in a material impairment and therefore require sensitivity
disclosure in the financial statements.
The Committee agreed with management’s conclusion
that a sensitivity disclosure continues to be required for the
Intacct CGU in relation to a reasonably possible change in a
combination of revenue growth and discount rate, and that an
additional sensitivity disclosure is required in respect of the
Asia CGU in the current year.
Office relocation
As described on page 85 and note 3.2 the Group announced
the move from its UK headquarter location at North Park to a
new site at Cobalt Business Park (‘Cobalt’), both in Newcastle.
This decision gave rise to a number of accounting judgements
to be reflected in the FY19 and FY20 financial statements in
relation to the carrying value of North Park, the accounting
treatment for leasehold improvement at Cobalt and other
associated costs incurred during the period up to completion
of the move anticipated to be in September 2020. The
Committee challenged each of the judgements and considered
potential alternative accounting treatments and the views of
the external auditor in reaching its own conclusion that the
approach adopted by management was appropriate.
New IFRS standards
In addition to IFRS 15 “Revenue from Contracts with
Customers”, IFRS 9 “Financial Instruments” has been adopted
by the Group for the first time in the current financial year.
IFRS 9 has had only a limited impact on the Group’s
recognition of impairment provisions for trade receivables
and the Committee reviewed and discussed the transition
adjustments at 1 April 2019 as part of its consideration of the
interim financial statements.
IFRS 16 “Leases” will be adopted by the Group in the financial
year ending in 2020 and the Committee received updates
on the progress of management’s assessment of the
expected impact of adoption for the purposes of disclosure
in FY19. IFRS 16 will change the way the Group accounts for
those leases where it is the lessee, and primarily relates to
property contracts. Specific judgements considered by the
Committee included the transition method to be followed and
the determination of the incremental borrowing rate to be
applied in calculating lease liabilities and right of use assets.
The Committee was satisfied with the approach taken by
management and with the results of the impact assessment
and will continue to monitor the implementation process over
the coming year.
The Committee considered management’s financial
statement disclosure of the effects of the new standards and
its compliance with accounting standards and related best
practice guidance. The Committee was satisfied that the
approach taken by management is appropriate and that the
disclosures show the impact that IFRS 15 and IFRS 9 have had
in their first year of application, and the expected impact of
IFRS 16 in 2020. These disclosures are contained in note 1 to
the financial statements.
92
Annual Report and Accounts 2019The Sage Group plc. Taxation
The Committee evaluated updates from management in
respect of uncertain tax positions, related provisions and the
deferred tax position. These reports included consideration
of the impact on the Group of the significant reforms of
taxation in the US which became effective from 1 January
2018 and which required further assessment in the current
year, as well as developments with regards to the European
Commission’s State Aid ruling. The Committee was satisfied
that management’s approach to accounting for taxation
was appropriate and took account of developments during
the year. The Committee considered the conclusions of the
external auditor and noted its use of tax specialist for certain
key matters.
Fair, balanced and understandable
Each year, the Committee advises the Board on whether the
Annual Report and Accounts taken as a whole is fair, balanced
and understandable and provides the information necessary
for shareholders to assess Sage’s position and performance,
business model and strategy. In reaching its conclusion,
the Committee considered the results of management’s
assessment of going concern, reviewed the Annual Report and
Accounts document as a whole, and assessed the results of
processes undertaken by management to provide assurance
that the Group’s financial statements were fairly presented.
These processes included an analysis of how the key events
in the year had been described and presented in the Annual
Report and Accounts, how alternative performance measures
(APMs) had been defined and presented, and the outcome of
representations received from country management teams on
the application of a range of financial controls. The Committee
also considered the perspective of the external auditor.
Viability statement and going concern
The Committee reviewed management’s process for assessing
the Group’s longer-term viability in order to allow the Directors
to make the Group’s viability statement. The Committee
considered and challenged the determination of the period over
which viability should be assessed, and which of the Group’s
principal risks should be reflected in the modelling of sensitivity
analysis for liquidity and solvency. It reviewed the results of
management’s scenario modelling and the reverse stress
testing of these models. The Committee’s principal review
was conducted at the September Committee meeting with all
comments and recommendations addressed by management
in advance of Committee approval of the viability statement.
At the November 2019 meeting the Committee reviewed
management’s going concern assessment and approved the
continued application of the going concern basis.
The Group’s going concern and viability statements can be
found on page 124 and 64 to 65, respectively.
Risk management and internal controls
The Committee assists the Board in its monitoring of the
Company’s internal control and risk management systems,
and in its review of their effectiveness. This monitoring
includes oversight of all material controls, including financial,
operational, regulatory and compliance controls, and assessing
whether the control systems are fit for purpose and whether
any corrective action is necessary.
During the year, the Committee:
– reviewed the principal risks, their evolution during the
year, and the associated risk appetites and metrics in light
of business changes and performance, challenging and
confirming their alignment to the achievement of Sage’s
strategic objectives. At each meeting, the Committee
considered the ongoing overall assessment of each risk,
their associated metrics and management actions and
mitigations in place and planned. This review was supported
through consideration of risk dashboards outlining both
principal risks and any escalated or emerging local risks;
– received updates from meetings of the Global Risk
Committee, including scrutinising its performance in
managing risk, and the suitability of its composition;
undertook detailed in-focus reviews on selected relevant
and current issues (see in-focus reviews section);
– reviewed and considered an assessment of the effectiveness
of risk management more broadly, and reviewed summary
reports from Sage Business Integrity on Group adherence
to policies, including Conflicts of Interest, Anti-Money
Laundering and Delegation of Authority;
– received reports from Sage Assurance and management
on internal control and monitored the implementation of
management actions to remediate issues identified and
make improvements. The Committee also satisfied itself
that management’s response to any financial reporting or
internal financial control issues identified by the external
auditor was appropriate;
– reviewed at each Committee meeting escalated incidents
and instances of whistleblowing and management actions to
remediate any issues identified (see Incident management,
fraud and whistleblowing section); and
– considered individual incidents and associated actions to
assess whether they demonstrated a significant failing or
weaknesses in internal controls.
In-focus reviews
The Committee uses in-depth reviews to consider relevant,
current and important issues. During the year the Committee:
– undertook a review of the Group’s approach to enhancing
Sage’s compliance culture;
– received briefings and updates on Sage’s compliance
with GDPR requirements, including post-implementation
activities and monitoring;
– reviewed papers on Sage’s obligations relating to conflicts of
interest and Sage’s framework for approving and keeping a
record of actual and potential conflicts of interest in order to
ensure effective management of those conflicts;
– reviewed papers on Sage’s Bribery Act compliance; and
– received briefings on the findings of Sage’s annual fraud
risk assessment.
93
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE CORPORATE GOVERNANCE REPORT continued
Incident management, fraud and whistleblowing
The Committee considered the suitability and alignment
of the Incident, Emergency and Crisis Management and
Whistleblowing policies and confirmed the effectiveness of
these policies in facilitating appropriate disclosure to senior
executive management and the Committee.
At each meeting, the Committee received a summary report
of any escalated incidents and instances of whistleblowing
and, together with management, considered whether there
were any thematic issues and identified remediating actions.
As part of this reporting process, the Committee was notified
of all whistleblowing matters raised, including any relating
to financial reporting, the integrity of financial management
or that included any allegations relating to fraud, bribery
or corruption. The Committee was also notified of all
non-whistleblowing incidents exceeding an agreed
materiality threshold.
Internal Audit
Internal Audit is delivered by the Sage Assurance function.
The Internal Audit Charter outlines the objectives, authority,
scope and responsibilities of Sage Assurance. The Charter,
performance against it, and the effectiveness of Sage
Assurance, is reviewed by the Committee on an annual basis.
The review of the Charter was undertaken at the Committee’s
February meeting. The Committee also considers and
evaluates the level of Sage Assurance resource and its quality,
experience and expertise, supplemented as appropriate by
third-party support and subject matter expertise, to ensure it is
appropriate to provide the required level of assurance over the
principal risks, processes and controls throughout the Group.
The Committee reviewed and approved the nature and scope
of the work of Sage Assurance, and the Sage Assurance
plan was approved by the Committee at the beginning of the
financial year, along with any subsequent quarterly updates.
Progress against the plan and the results of Sage Assurance’s
activities, including the quality and timeliness of management
responses, is monitored at each meeting, with the more
significant issues identified within Sage Assurance reports
considered by the Committee.
During the year, an assessment of Internal Audit was carried
out by the VP Risk and Assurance, based upon the criteria
and methodology set out in the 2018 KPMG assessment
which evaluated Internal Audit against IIA standards. This
review considered progress against recommended areas
for improvement from this evaluation, along with continuing
progress against the pillars of the Assurance Strategy. The
assessment concluded that significant progress continued
to be made and that Internal Audit remains effective and
meets the needs of the Group. This report was presented to
the Committee, its findings discussed, and the Committee
endorsed this conclusion.
Following its review of the Company’s internal control systems,
the Committee considered whether any matter required
disclosure as a significant failing or weakness in internal
control during the year. No such matters were identified.
94
External auditor EY
Each year, the Committee makes a recommendation to
the Board with regard to whether the external auditor
should be re-appointed. In making its recommendation, the
Committee considers the auditor’s effectiveness, including
its independence, objectivity and scepticism. The Committee
also reviews the application of, and compliance with, the
Group’s Auditor Independence Policy, in particular with regard
to any non-audit services provided by EY. The Committee also
considers business relationships between the Group and EY,
which primarily relate to EY’s procurement of Sage products
and applications.
Further consideration is given to partner rotation and any
other factors which may impact the Committee’s judgement
regarding the external auditor. EY has now been Sage’s
external auditor for five years since the formal tender process
conducted in 2014. The lead partner with overall responsibility
for the audit has been in the role for five years since FY15 and
will rotate following completion of the FY19 audit. The new
partner has been identified and approved by the Audit and
Risk Committee.
The Committee confirms that Sage has complied with
the requirements of the Statutory Audit Services for
Large Companies Market Investigation (Mandatory Use
of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014, which relates to the frequency
and governance of tenders for the appointment of the external
auditor and the role of the audit committee. Under these
requirements and the terms of the order Sage must undertake
a formal tendering process at least every ten years.
Following the rotation of the lead auditor, the Committee
considers a full tender for the Group’s external audit services,
subject to its annual reviews, likely in the year ending October
2024. This allows for any potential new audit firm to take up the
role for the year ending October 2025. The Committee believes
this approach is in the best interest of shareholders, as over
this period the Group will benefit from an efficient and effective
audit, whilst receiving fresh challenge from a new lead auditor.
Consistent with the previous year, the Committee received
feedback from the businesses evaluating the performance of
each assigned audit team. Management’s report to the Audit
and Risk Committee included a summary of the findings of a
survey of key Sage colleagues on the quality of the auditor’s
delivery, communication and interaction with the various
finance teams across the Group. Management concluded
that the working relationship between finance functions and
auditors across the Group was effective and the audit had
been carried out in an independent, professional, organised
and constructive manner. The Committee’s assessment of
auditor effectiveness is provided at page 95.
The Committee holds private meetings with the external
auditor after each Committee meeting to review key issues
within their sphere of interest and responsibility and provide
an opportunity for open dialogue and feedback from the
external auditor without management being present. Also, the
Chairman meets regularly with the external auditor outside
the formal Committee meeting schedule to facilitate effective
and timely communication. Further, the Committee received
a report from EY evaluating its independence and a formal
statement of EY’s independence as the external auditor.
Annual Report and Accounts 2019The Sage Group plc. Having considered all of the above, the Committee has
recommended to the Board that a resolution to reappoint
EY be proposed at the 2020 AGM and the Board has accepted
and endorsed this recommendation.
Oversight and assessment of the external auditor
To fulfil its responsibility for oversight of the external audit
process, the Committee reviewed and agreed:
Non-audit services
The Committee is responsible for the development,
implementation and monitoring of policies and procedures
on the use of the external auditor for non-audit services, in
accordance with professional and regulatory requirements.
At Sage this is governed by the Auditor Independence Policy
(the “Policy”). The Policy has been in place throughout the
year. It specifies the role of the Committee in reviewing and
approving non-audit services in order to ensure the ongoing
independence of the external auditor. A summary of non-audit
fees paid to the external auditor is provided to the Committee
on a quarterly basis.
The Policy states that Sage will not use the external auditor
for non-audit services, except in limited circumstances, and as
permitted by the Ethical Standard, where non-audit services
may be provided by the external auditor with pre-approval by
the Committee unless clearly trivial. This is provided that the
approval process set out in the Policy is adhered to and that
potential threats to independence and objectivity have been
assessed and safeguards applied to eliminate or reduce these
threats to an appropriate level.
The Committee considered the application of the Policy with
regard to non-audit services and confirms it was properly and
consistently applied during the year. The Policy also requires
that the ratio of audit fees to non-audit fees must be within
Sage’s pre-determined ratio, and non-audit fees for the year
must not exceed 70% of the average of the external audit fees
billed over the previous three years.
In 2019, the ratio of non-audit fees to audit fee was 8%,
principally reflecting the fee paid for the half year interim
review. A breakdown of total audit and non-audit fees charged
by the external auditor for the year under review is shown in
note 3.2 to the financial statements.
– the terms, areas of responsibility, associated duties and
scope of the audit as set out in the external auditor’s
engagement letter;
– the overall work plan and fee proposal;
– the issues that arose during the course of the audit and their
resolution;
– key accounting and audit judgements;
– the level of errors identified during the audit; and
– control recommendations made by the external auditor.
The Committee monitored the effectiveness, objectivity
and independence of the external auditor during the year.
The Committee based its assessment of EY on its own
observations and interactions with the external auditor,
and consideration of a number of aspects of the auditor’s
performance, including:
– the experience and expertise demonstrated by the
auditor in its direct communication with, and support to,
the Committee;
– the content, quality of insight and added value provided by
the auditor’s reports;
– the scope of the agreed external audit plan and the external
auditor’s execution and fulfilment of the plan;
– the robustness and perceptiveness of the auditor in its
handling of key accounting and audit judgements; and
– the interaction between management and the auditor.
Evaluation of the performance of the Committee
The evaluation of the Audit and Risk Committee for 2018/19
was completed as part of the 2019 Board evaluation process.
An explanation of how this process was conducted, the
conclusions arising from it and the action items identified is
set out on page 76. The Committee has considered this in the
context of the matters that are applicable to the Committee.
Jonathan Bewes
Chairman
95
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE DIRECTORS’ REMUNERATION REPORT
REMUNERATION
COMMITTEE
Objectives and responsibilities
The Remuneration Committee’s main objective is to determine
the framework, broad policy and levels of remuneration for the
Group’s Chief Executive Officer, the Group’s Chief Financial
Officer, the Group’s President, the Chairman of the Company
and other executives as deemed appropriate, ensuring
compliance with legal and regulatory requirements and striving
to meet best practice guidance.
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.
We achieve this through:
– Providing recommendations to the Board, within agreed terms
of reference, on Sage’s framework of executive remuneration;
– Determining the contract terms, remuneration and other
benets for each of the Executive Directors, including
performance share awards, performance-related bonus
schemes, pension rights and compensation payments and
aligning such to the Company’s purpose, values and culture;
– Reviewing workforce remuneration and related policies
across the Group and the alignment of incentives and
rewards with culture, taking these into account when setting
the remuneration policy for Executive Directors;
– Determining remuneration for senior executives below
Annette Court
Chairman of the Remuneration Committee
Our remuneration policy rewards the
achievement of clearly-defined goals
at the heart of our business strategy
and we consider it to be operating
as intended.
Dear shareholder
It is my pleasure to present the Directors’ Remuneration Report
for the year ended 30 September 2019.
Board level;
– Approving share awards; and
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
2016 UK Corporate Governance Code (the Code) and the
Listing Rules.
The report is in two sections:
– A summary of the Directors’ remuneration policy (pages 103
to 107).
– The Directors’ Annual Remuneration Report (pages 108
to 123). This section sets out details of how the 2019 Policy
was implemented for the year ended 30 September 2019
and how we intend the policy to apply for the year ending
30 September 2020.
– Ensuring the remuneration policy promotes long-term
shareholdings by Executive Directors by ensuring share
awards granted are released on a phased basis and subject
to total vesting and holding period of five years or more.
FY20 remuneration priorities
To further enhance Executive Directors’ shareholding, we are
introducing a post-employment shareholding guideline,
requiring them to retain the number of shares worth 250% of
salary or, if lower, their actual shareholding at leaving for one
year post-cessation of employment as a Director, reducing to
50% of this requirement for the second year.
Salary increases for Executive Directors for 2020 range from
0% to 1.9%, which is below the average salary increase in the
wider workforce.
There are no changes to incentive potentials or incentive plan
measures. We have considered the Annualised Recurring
Revenue growth measure and concluded that its integral role in
the incentive plans remains appropriate and strategically
aligned for FY20.
96
96
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Our remuneration principles
Our remuneration principles are designed to drive the behaviours and results required to support our short and longer-term
business strategy as outlined in the Strategic Report.
Attract and retain
We offer competitive rates of pay and
benets to attract and retain the best people
in a competitive international market.
Motivate and reward
Remuneration at Sage is designed to create a strong
performance-oriented environment for the taking
of appropriate risks and rewards achievement of our
Company strategy and business objectives.
Attract a n d re t a i n
A
l
i
g
n
m
e
n
t
w
it
h
w
id
er Group
M
otiv
a
t
e a
Remuneration
principles
n
d
r
e
w
a
r
d
n t w ith shareholderrs
m e
n
A li g
Alignment with the wider Group
Pay and employment conditions
elsewhere in the Group are considered
when determining executive base
salary and bonus reviews.
Alignment with shareholders
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,
together with a significant shareholding requirement.
Annual Report and Accounts 2019
The Sage Group plc
97
97
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
REMUNERATION
AT A GLANCE
Delivering our remuneration principles in FY20
The table below summarises the remuneration arrangements for our current Executive Directors in FY20 in accordance with the
2019 Policy approved by shareholders on 27 February 2019.
Element of policy
Purpose
Implementation in FY20
Base salary
Enables Sage to attract and retain Executive
Directors of the calibre required to deliver the
Group’s strategy.
Salary increases are effective 1 January 2020.
Pension
Provides a competitive post-retirement benefit, in a
way that manages the overall cost to the Company.
Steve Hare £785,000 (1.9% increase)
Jonathan Howell £545,000 (1.9% increase)
Blair Crump $700,000 (0% increase)
Steve Hare 15% of base salary
Jonathan Howell 10% of base salary
Blair Crump up to 3.5% of base salary
Benefits
Provide a competitive and cost-effective benefits
package to Executive Directors to assist them in
carrying out their duties effectively.
Annual bonus
Rewards and incentivises the achievement of annual
financial and strategic targets.
A minimum of one-third deferral into shares for
three years is compulsory, with the remainder
delivered in cash.
Standard benefits package plus costs of travel, accommodation
and subsistence for the Executive Directors and their partners
on Sage-related business. Sage covers the cost of Steve Hare’s
travel and accommodation for days on which he attends to
Sage matters in the London office. Sage tax equalises that
portion of Blair Crump’s remuneration that is subject to UK tax
for days on which he attends to Sage matters in the UK.
Maximum 175% of base salary
80% based on Annualised Recurring Revenue (ARR) growth
(with underlying operating profit margin underpin) and 20%
based on strategic goals.
Performance
Share Plan (PSP)
Supports achievement of our strategy by targeting
performance under our key financial performance
indicators. Vesting is after three years, and awards are
subject on vesting to a holding period for two years
before being released.
Face value of 200% of base salary
70% based on ARR growth (with ROCE underpin) and 30%
based on relative Total Shareholder Return performance
All-employee
share plans
Provides an opportunity for Executive Directors to
voluntarily invest in the Company.
Eligible to participate up to the tax-efficient limit of £500 per
month or US Dollar equivalent.
Chairman and
Non-executive
Director fees
Shareholding
guideline
Provide an appropriate reward to attract and retain
high-calibre individuals.
See page 119 of this report for a list of Non-executive
Director fees.
The shareholding guideline for Executive Directors
is 250% of base salary and achievement of this is
expected within a maximum of five years from the
time the Executive Director became subject to
the guideline.
The post-employment shareholding guideline
requires Executive Directors to retain shares
following cessation of employment as a Director.
Shareholding at 30 September 2019 (inclusive of deferred
shares held, net of tax at the current estimated marginal tax
withholding rate).
Steve Hare 316% of base salary
Jonathan Howell 102% of base salary
Blair Crump 52% of base salary
See page 120 for more information on the shareholding guideline.
98
98
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
FY19 single figure for total remuneration summary:
Director
Executive Directors
S Hare
J Howell1
B Crump2
Non-executive Directors
D Brydon
J Bates3
N Berkett4
J Bewes5
A Court6
D Hall
J Howell1
S Jiandani
C Keers
Notes:
2019
Total
£’000
2018 (re-stated)
Total
£’0007
2,515
1,642
1,702
434
20
36
39
39
82
14
60
60
1,207
–
616
407
–
60
–
–
87
77
60
60
1. Jonathan Howell was Non-executive Director and Chair of the Audit and Risk Committee to 3 December 2018, then Non-executive Director (albeit no longer
independent) until 10 December 2018, when he was appointed as Chief Financial Officer for the Group.
2. Blair Crump is based in the USA and is paid in US dollars. The single figure value for his remuneration is converted into GBP from US Dollars using the
average exchange rate for the year, consistent with the basis of the presentation of financial performance in the financial statements.
3. Dr John Bates was appointed as a Non-executive Director on 31 May 2019.
4. Neil Berkett stepped down from his role as a Non-executive Director on 1 April 2019.
5. Jonathan Bewes was appointed as a Non-executive Director on 1 April 2019.
6. Annette Court was appointed as a Non-executive Director on 1 April 2019.
7. 2018 values are re-stated. Full details are provided in the footnotes to the full single figure for total remuneration table on page 108
Key remuneration outcomes for FY19
2019 bonus: 92% to 96% of potential payable
The remaining 20% is determined by assessments of individual
Executive Directors’ performance against their goals.
In summary:
The 2019 bonus was aligned to our strategy of accelerating our
move to a cloud business and 80% of bonus potential was
based on Annualised Recurring Revenue (ARR) growth, with an
underlying operating profit margin underpin. I am pleased to
report that ARR in 2019 exceeded the level required to award
the maximum amount for this element of the bonus and the
Remuneration Committee determined that 80% would be
payable, the underlying operating margin underpin was also
met. The Remuneration Committee gave careful consideration
as to whether the formulaic outturn of the ARR performance
measure was appropriate in the context of Sage’s overall
business performance and the “stakeholder experience”
in FY19. Particular factors taken into account by the
Committee included:
– Delivery of strong financial performance in FY19 against a
range of metrics in addition to ARR, including renewal by
value of 101%, subscription penetration of 55% and Sage
Business Cloud penetration of 48%;
– An above-market return to shareholders during FY19; and
– Substantial increase in Group colleague engagement scores
during FY19.
– For Steve Hare, 14% would be payable
– For Jonathan Howell, 16% would be payable
– For Blair Crump, 12% would be payable
Further detail is set out on page 110.
2017 Performance Share Plan (PSP): 14.8% of the total shares
under award vesting
– PSP awards granted in December 2016 were based on
recurring revenue growth and relative Total Shareholder
Return (TSR) performance measured over the three-year
period to 30 September 2019. Reflecting on shareholder
experience over the period, the Remuneration Committee
determined that 14.8% of the total number of shares under
award will vest in December 2019. Further detail is set out on
page 112.
Annual Report and Accounts 2019
The Sage Group plc
99
99
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Board changes in FY19
Revised Corporate Governance Code
During the past year, the Remuneration Committee has
considered remuneration issues arising from Board changes
as follows:
– The appointment of Steve Hare as Chief Executive Officer (CEO)
with effect from 2 November 2018. Steve’s remuneration on
appointment was disclosed in the Directors’ Remuneration
report for 2018.
– Jonathan Howell was appointed as Chief Financial Officer
(CFO) with effect from 10 December 2018. On appointment,
his basic remuneration package comprised a basic annual
salary of £535,000, a pension contribution of 10% of salary,
plus bonus, long-term incentives and all other benefits in
accordance with the 2019 Policy. The Remuneration
Committee was satisfied that this was an appropriate
package for a highly experienced CFO.
– Additionally, as communicated on appointment, Jonathan
Howell was awarded a conditional award over 312,698 Sage
shares on 11 December 2018 with a face value of £1,807,398
(based on the Sage share price of £5.78 on 10 December 2018)
to replace share awards that he forfeited as a result of joining
Sage, but which would have been preserved had he retired
from Close Brothers and not accepted an Executive Director
position (the Replacement Award). This Replacement Award
was structured so as to mirror the forfeited award to the
extent that the original Close Brothers performance
conditions, vesting schedule, holding periods and malus
and clawback provisions applied. Full details relating to
this award are on page 113.
The 2018 Code comes into effect for Sage’s financial year
starting 1 October 2019 and we will be compliant with the
revised principles and provisions relating to remuneration.
In particular:
– PSP awards granted to Executive Directors will be subject to
a minimum release period of five years from grant. This policy
was applied for the first time to the PSP awards granted in
December 2017.
– Pension provision for any future Executive Director will be
aligned with the majority of Sage’s workforce (currently this
level is 10% of salary). This policy was applied for the first
time to the appointment of Jonathan Howell as CFO in
December 2018.
– Executive Directors will be required to build up and maintain
a significant holding of Sage shares both whilst an Executive
Director (250% of salary) and for a two-year period after
stepping down from that position (the lesser of 250% of
salary or the Executive Directors’ actual shareholding at
leaving this position in the first year and reducing to 50% of
this requirement in the second year).
– The Remuneration Committee has discretion to override
formulaic outcomes of either the annual bonus or the PSP
in appropriate circumstances.
– The Remuneration Committee will undertake in 2020
a review of remuneration and related policies for the
wider workforce.
– The Remuneration Committee’s terms of reference have
been updated to comply with the 2018 Code.
Additionally, I am pleased to present our CEO pay ratio
on page 115. I believe that shareholders will benefit from
early disclosure.
The Remuneration Committee reviewed the implementation of
the remuneration policy over 2019 and judged it to be operating
as intended.
I hope you find this report to be clear in understanding our
remuneration practices and that you will be supportive of the
resolutions relating to remuneration at the 2020 annual general
meeting (AGM). As ever, the Remuneration Committee
welcomes any questions or comments from shareholders.
Annette Court
Chairman of the Remuneration Committee
100
100
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Remuneration Committee governance
Committee composition and meetings
Activities and evaluation
Allocation of time
The Remuneration Committee is composed
solely of independent Non-executive
Directors, Drummond Hall and Cath Keers,
and is chaired by Annette Court. Details of
the skills and experience of the Remuneration
Committee members can be found in their
biographies on pages 67 to 68.
During the year, there were five scheduled
meetings and three additional meetings
held at short notice to deal with specific
matters. Details of individual attendance of
meetings are set out below.
Details of the Remuneration Committee’s
activities are set out on page 102.
The Remuneration Committee’s
performance was reviewed as part of the
2019 Board evaluation (see page 76).
Following consideration of the findings of
the 2019 review of the Remuneration
Committee, the Directors were satisfied
that it was operating satisfactorily.
15%
15%
10%
60%
Determining remuneration policy and its implementation
Reviewing the effectiveness of the remuneration policy
Considering the views on remuneration of our
shareholders and reviewing trends in executive
remuneration
Other
Meeting attendance
Directors
Independent
Attendance/
scheduled meetings
% attendance
Attendance/
additional meetings
Annette Court
(Chairman from 1 April 2019)
Drummond Hall
(Chairman to 1 April 2019)
Cath Keers
Neil Berkett
(to 1 April 2019)
Jonathan Howell
(to 10 December 2018)1
Company Secretary
Vicki Bradin
Note:
Independent
Senior Independent Director
Independent
Independent
Independent (to 3 December 2018)
3/3
5/5
5/5
1/2
2/2
5/5
100%
100%
100%
–
–
3
1/1
3/3
3/3
2/2
1/2
3/3
1. Jonathan Howell stepped down as the Chairman of the Audit and Risk Committee effective on 3 Dec 2018. He retained his position as a Non-executive
Director (albeit no longer independent) until the commencement of his appointment as an Executive Director in the role of a CFO on 10 December 2018.
Annual Report and Accounts 2019
The Sage Group plc
101
101
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Remuneration at a glance continued
Activities of the Committee
During the year, the Committee focused on the matters summarised in the table below.
Key area of activity
Matters considered
Outcome
Determining remuneration
policy and its
implementation
– Determined the remuneration for Steve Hare’s
– CEO’s remuneration as disclosed via Regulatory News
appointment as CEO.
Service on 2 November 2018.
– Determined the remuneration for Jonathan
– CFO’s remuneration as disclosed via Regulatory News
Howell’s appointment as CFO.
Service on 4 December 2018.
– Determined the remuneration for five new
appointments to the Executive Committee.
– Determined bonus targets and outcomes for
2018 and PSP outcomes for the 2016 award.
– The introduction of a post-employment
shareholding guideline to comply with the 2018
Corporate Governance Code (the Code).
– 2018 bonus determined at 5% to 12% of potential;
Executive Directors elected to waive their resulting
bonus, as disclosed in last year’s Directors’
Remuneration Report.
– 2016 PSP determined at 28.5% of the overall award
for vesting, as disclosed in last year’s Directors’
Remuneration Report.
– Introduced a post-employment shareholding
guideline for Executive Directors.
Reviewing the
effectiveness of the
remuneration policy
– Reviewed performance against in-flight
– Determined that the remuneration policy was
incentive plans and the forecast single figure
of remuneration for Executive Directors.
operating as intended.
– Introduced a remuneration risk review procedure to
– Reviewed remuneration-related risks.
identify risks, their controls and effectiveness.
Considering the views on
remuneration of our
shareholders and reviewing
trends in executive
remuneration
Other
– Reviewed the structure of remuneration.
– Discussed the bonus and PSP structure
for 2020.
– Consulted with over 50% of our investors by
market capitalisation on the proposed 2019
remuneration policy.
– Introduced the 2019 Sage Group plc.
Restricted Share Plan and amended 2010 Sage
Group plc. Restricted Share Plan.
– At least quarterly the Committee’s advisors
present on market trends, legislative changes
and corporate governance requirements in
executive remuneration.
– Considered the format and content of the
Directors’ Remuneration Report for 2018.
– Reviewed the Code and The Companies
(Miscellaneous Reporting) Regulations 2018
and determined the appropriate level of
disclosure for the 2019 Directors’
Remuneration Report.
– Reviewed the Committee’s terms of reference
in light of the Corporate Governance
Code 2018.
– The 2019 remuneration policy was approved by
shareholders, with 96% votes cast in favour.
– 2018 Directors’ Remuneration Report approved
November 2018.
– Approved the early disclosure of certain items within
this report that were believed to be of interest to
shareholders.
– Refreshed the terms of reference to incorporate
Code-compliant terms.
102
102
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
REMUNERATION POLICY
Purpose of this section:
– Provides detail of the key elements of our remuneration policy
The current policy report was approved by shareholders at the 2019 AGM and can be found on our website (www.sage.com).
The table below sets out a summary of key elements of the Company’s remuneration policy.
Alignment with
strategy/purpose
Base salary
Supports the
recruitment and
retention of
Executive Directors
of the calibre
required to deliver
the Group’s strategy.
Rewards executives
for the performance
of their role.
Set at a level that
allows fully flexible
operation of our
variable pay plans.
Operation
Maximum opportunity
Normally reviewed annually, with any
increases applied from January.
When determining base salary levels,
consideration is given to the following:
– Pay increases for other employees
in major operating businesses of
the Group;
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 Remuneration Committee’s
discretion to take account of individual
circumstances such as:
– Increase in scope and responsibility;
– The individual’s skills and responsibilities;
– Increase to reflect the individual’s
– 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.
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);
Performance
measures
None, although overall
performance of the
individual is
considered by the
Remuneration
Committee when
setting and reviewing
salaries annually.
Pension
Provides 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.
– Alignment to market level.
Accordingly, no monetary maximum has
been set.
Maximum pension provision of 15% of salary.
None.
No element other than base salary
is pensionable.
Annual Report and Accounts 2019
The Sage Group plc
103
103
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Remuneration policy continued
Remuneration policy table continued
Alignment with
strategy/purpose
Benefits
Provide a
competitive and
cost-effective
benefits package to
executives to assist
them to carry out
their duties
effectively.
Annual bonus
Rewards and
incentivises the
achievement of
annual financial and
strategic targets.
An element of
compulsory deferral
provides a link to the
creation of
sustainable
long-term
value creation.
Operation
Maximum opportunity
Set at a level which the Remuneration
Committee considers:
– 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 the Director’s individual circumstances,
the Remuneration Committee has not set a
monetary maximum.
175% of salary.
Up to 50% of the bonus can be paid for
delivering a target level of performance.
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 Remuneration Committee.
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.
The Remuneration Committee may, in
exceptional circumstances, amend the
bonus payout should this not, in the view
of the Remuneration Committee, reflect
overall business performance or
individual contribution.
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 deferral period will usually be a
minimum of three years.
Performance
measures
None.
– At least 70% of
the bonus will be
determined by
measure(s) of
Group financial
performance;
– No more than
30% 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 2020
are described in the
Directors’ Annual
Remuneration Report.
104
104
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Alignment with
strategy/purpose
Operation
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.
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 Remuneration 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 Remuneration 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 Remuneration Committee to
consider that an amended or substituted
performance condition would be more
appropriate and not materially less
difficult to satisfy, the Remuneration
Committee may amend or substitute any
performance condition.
Maximum opportunity
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) are 200%
of salary for the Executive Directors.
Overall individual limit of 300% of base
salary under the rules of the plan.
The Remuneration 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.
All-employee
share plans
Provide an
opportunity for
Directors to
voluntarily invest
in the Company.
UK-based Executive Directors are
entitled to participate in the Save and
Share 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.
Overseas-based Executive Directors
are entitled to participate in any similar
all-employee scheme operated by Sage in
their jurisdiction.
UK participation limits are those set
by the UK tax authorities from time
to time. Currently this is £500 per month
(or US Dollar equivalent).
Limits for participants in overseas
schemes are determined in line with any
local legislation.
Performance
measures
Vesting will be subject
to performance
conditions as
determined by the
Remuneration
Committee on an
annual basis.
The performance
conditions will initially
be Annualised
Recurring Revenue
growth (with a ROCE
underpin) and relative
TSR although the
Remuneration
Committee will retain
discretion to include
additional or
alternative
performance
measures which are
aligned to the
corporate strategy.
At its discretion,
the Remuneration
Committee may elect
to add additional
underpin performance
conditions.
Details of the targets
that will apply for
awards granted in
2020 are set out in the
Directors’ Annual
Remuneration Report.
None.
Annual Report and Accounts 2019
The Sage Group plc
105
105
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Remuneration policy continued
Remuneration policy table continued
Alignment with
strategy/purpose
Chairman and
Non-executive
Director fees
Provide an
appropriate reward
to attract and retain
high-calibre
individuals.
Non-executive
Directors do not
participate in any
incentive scheme.
Operation
Fees are reviewed periodically. The fee
structure is as follows:
– The Chairman is paid a single,
consolidated fee;
Maximum opportunity
Set at a level which:
– Reflects the commitment and contribution
that is expected from the Chairman and
Non-executive Directors;
– The Non-executive Directors are paid a
– Is appropriately positioned against
Performance
measures
None.
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.
basic fee, plus additional fees for
chairmanship (and, where appropriate,
membership) 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.
Shareholding
guideline
Aligns the interests
of Executive
Directors and
shareholders
and encourages
a focus on long-term
performance.
The shareholding guideline is expected
to be built up over five years from
the Director’s becoming subject to
the guideline.
The Remuneration Committee will review
progress towards the guideline on an
annual basis, and has the discretion to
adjust the guideline in what it feels are
appropriate circumstances.
Notes:
The guideline for Executive Directors
is a minimum shareholding worth 250%
of salary.
None.
– Annual bonus and PSP performance measures and targets are selected each year so as to align with key financial and operational objectives.
– 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.
106
106
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Provisions to withhold (malus) or recover (clawback) sums paid under the annual bonus and PSP in the event of material negative
circumstances, such as a 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 conduct), an error in assessing the performance metrics relating to
the award or the participant’s gross misconduct are incorporated into both the PSP and deferred bonus plan. These provisions
may apply up to three years from the release date of a PSP award or three 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.
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.
Annual Report and Accounts 2019
The Sage Group plc
107
107
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
DIRECTORS’ ANNUAL
REMUNERATION REPORT
Purpose of this section:
– Provides remuneration disclosures for Executive and Non-executive Directors
– Details financial measures for bonus and PSP
– Illustrates Company performance and how this compares to the pay of Executive Directors
– Outlines proposed implementation of the 2019 Policy for Executive and Non-executive Directors for 2020
Single gure for total remuneration (audited information)
The following table sets out the single gure for total remuneration for Executive Directors for the nancial years ended
30 September 2018 and 2019.
(a) Salary/fees10
£’000
(b) Benets11
£’000
(c) Bonus12
£’000
(d) Pension13
£’000
(e) PSP awards14
£’000
(f) Other15
£’000
Total16
£’000
Director
2019
2018
2019
2018
(re-stated)
2019
2018
2019
2018
2019
2018
(re-stated)
2019
2018
2019
2018
(re-stated)
Executive Directors
S Hare1
J Howell2
B Crump3
S Kelly17
765
435
549
–
538
–
390
743
130
5
115
–
107
1,258
–
123
205
Non-executive
Directors
D Brydon4
J Bates5
N Berkett6
J Bewes7
A Court8
D Hall9
J Howell
S Jiandani
C Keers
400
369
34
38
20
36
39
39
82
14
60
60
–
60
–
–
87
77
60
60
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
117
38
7
–
–
–
–
–
–
–
–
–
–
130
–
7
186
–
–
–
–
–
–
–
–
–
241
438
148
–
–
–
–
–
–
–
–
–
–
432
–
96
556
–
–
–
–
–
–
–
–
–
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,515
1,207
1,642
1,702
–
616
–
1,690
434
407
20
36
39
39
82
14
60
60
–
60
–
–
87
77
60
60
726
883
–
–
–
–
–
–
–
–
–
–
108
108
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Notes:
1. Steve Hare was appointed Group Chief Executive Officer on 2 November 2018 on a salary of £770,000 Prior to this, he was paid a step-up allowance of
£186,750 from 1 September 2018, providing an interim annual salary of £708,750. This step-up allowance ceased on appointment as CEO.
2. Jonathan Howell was appointed as an Executive Director on 10 December 2018. Previously, he was a Non-executive Director and, to 3 December 2018,
Chairman of the Audit and Risk Committee.
3. Blair Crump is based in the USA and is paid in US dollars. His remuneration has been converted into GBP at the average exchange rate for the relevant year,
consistent with the basis of the presentation of financial performance in the financial statements. He was appointed to the Board on 1 January 2018 and his
remuneration for 2018 was reported from this date.
4. Sir Donald Brydon’s fee increased from £360,000 to £400,000 on 6 July 2018, as previously reported on page 125 of the 2018 annual report. The increase in total
remuneration is reflective of the timing of the fee increase towards the end of the financial year 2018.
5. Dr John Bates was appointed as a Non-executive Director on 31 May 2019.
6. Neil Berkett stepped down from his role as a Non-executive Director on 1 April 2019.
7. Jonathan Bewes was appointed as a Non-executive Director on 1 April 2019.
8. Annette Court was appointed as a Non- executive Director on 1 April 2019.
9. Drummond Hall stepped down as Chairman of the Remuneration Committee on 31 March 2019 and from this date he no longer received the Remuneration
Committee Chairman fee. He remains a Senior Independent Director and his fee for this role increased to £17,000 from 1 April 2019.
10. Details of salary progression since 2017 for the current Executive Directors are summarised in the “Statement of implementation of the remuneration policy
in the following financial year” on page 118 of this report. The 2019 and 2018 values for Steve Hare include the step-up allowance for the period he was interim
COO and CFO.
11. Benefits provided to the Executive Directors included: car benefits or cash equivalent (Steve Hare only), private medical insurance, permanent health
insurance, life assurance, financial advice and, where deemed to be a taxable benefit, the grossed-up costs of travel, accommodation and subsistence for the
Directors and their partners on Sage-related business if required.
A portion of Steve Hare’s benefits related 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 he has been required to spend in London attending to Sage matters. In addition, £33,648 of Steve Hare’s
benefits value related to the grossed-up cost of travel, accommodation and subsistence for his hosting Platinum Elite, a major internal event for high-
performing colleagues, which is deemed by HMRC to be a taxable benefit. A portion of Blair Crump’s benefits related to the payment of UK tax on his US
income, which is payable under UK tax law for the days on which he is attending to Sage matters in the UK. Blair’s permanent workplace is in the US. He
receives assistance in the preparation of his tax returns. Additionally, £55,347 of Blair’s benefits value related to the grossed-up cost of travel, accommodation
and subsistence for his hosting Platinum Elite, which is deemed by HMRC to be a taxable benefit. Sir Donald Brydon receives a company car benefit.
The 2018 benefit value for Blair Crump has been updated for values that previously were estimated as a result of the timing of the US tax year in relation to
Sage’s financial reporting year. The 2019 value also contains estimates that may be updated, where applicable, in next year’s directors’ remuneration report
(to the extent that such a disclosure would be required).
12. Steve Hare’s 2019 bonus value was based on his salary inclusive of his step-up allowance for the period he was interim COO and CFO. Further information
about how the level of FY19 bonus award was determined is provided in the additional disclosures below.
13. Pension emoluments for Steve Hare from his appointment as CEO on 2 November 2018 were equal to 15% of base salary; prior to this they were equal to 25%
of base salary, excluding the step-up allowance. Pension emoluments for Jonathan Howell were equal to 10% of base salary (less a deduction for Employer
National Insurance Contributions). Both elected to receive them as a cash allowance. Pension emoluments for Blair Crump were 1.4% of base salary, which
were paid into a 401 (k) retirement account. Maximum pension contribution levels for the wider workforce in the UK is 10% of salary and the US 3.5% of salary,
subject to contributions from the colleagues themselves in both regions.
14. The 2019 PSP value for Steve Hare and Blair Crump is based on the PSP award granted in financial year 2017 which is due to vest in December 2019. The
performance conditions applicable to the awards are outlined on page 112 of this report. The value is based on the number of shares vesting under the 2017
PSP award multiplied by the average price of a Sage share between 1 July and 30 September 2019, which was £7.286, plus dividend equivalents accrued. For
Steve Hare, £33,755 of the value is attributable to movement in the share price between grant and vesting and for Blair Crump £20,692 of the value is
attributable to movement in the share price between grant and vesting. No discretion has been exercised by the Remuneration Committee in respect of
share price appreciation. Further detail is set out below in the notes to the table.
The 2019 PSP value for Jonathan Howell is based on elements of his Replacement Award that are vesting in respect of the year ended 30 September 2019,
plus dividend equivalents accrued. £59,357 of the value is attributable to movement in the share price between grant and vesting. Further detail is set out
below in the notes to the table.
The value of Steve Hare and Blair Crump’s 2016 PSP for 2018 has been updated. The change in value is as a result of changes in the share price reported in
2018 in line with the methodology set out in the 2013 Reporting Regulations (£6.211) and the share price actually achieved at vesting (£6.677).
15. Steve Hare’s award under the Save and Share Plan has been valued as the number of options multiplied by the difference on the grant date (14 June 2019)
between the share price £7.55 and the option price £6.04. Further details are set out on page 121.
16. Total remuneration for Directors in 2019 was £6,643,000 compared to £4,264,000 in 2018 (updated from the 2018 Directors’ Remuneration Report).
17. Stephen Kelly ceased to be a Director on 31 August 2018. Certain of his 2018 benefits have been restated, which relate to items which predated his stepping
down as CEO but whose tax status has been reviewed subsequent to the publication of the 2018 Directors’ Remuneration Report and been deemed to be
taxable. For completeness and consistency, an updated PSP value on the same basis as noted in footnote 14 to this table is shown.
Annual Report and Accounts 2019
The Sage Group plc
109
109
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
Additional disclosures for single gure for total remuneration table (audited information)
Annual bonus 2019
The bonus targets for FY19 were set by reference to the strategy for FY19, in particular the achievement of Annualised Recurring
Revenue growth, taking into account the Company’s annual budget and historical performance in determining the payout curve.
Bonus measure
% weighting
Threshold
performance
Target
performance
Stretch
performance
ARR growth
80%
6.7% (24%
of bonus
payable)
8.6% (40%
of bonus
payable)
10.0% (80%
of bonus
payable)
Strategic
measures
20%
The assessment of strategic measures is
set out below this table (between 0%
and 20% of bonus payable)
Total
Notes:
Actual
performance (at
Budget FX rates)
% of maximum
bonus payable
12.7%
80%
Steve Hare (CEO): 14% of maximum
Jonathan Howell (CFO): 16% of maximum
Blair Crump (President of Sage): 12% of maximum
Steve Hare: 94% of maximum bonus
(164.5% of salary)
Jonathan Howell: 96% of maximum bonus
(168% of salary, pro-rated for time in post)
Blair Crump: 92% of maximum bonus (161% of salary)
– Payout is on a straight line between the points (threshold, target and stretch performance).
– Payment of a bonus for ARR growth was subject to the achievement of an underpin condition of Group underlying operating profit margin. Group underlying
operating profit margin was 23.2%, which exceeded the underpin target of 22%.
– ARR growth and underlying operating profit margin are dened on pages 9 and 47. Actuals have been retranslated at budgeted foreign currency exchange
rates consistent with the basis on which the targets were set. The Remuneration Committee considered the movement of foreign currency exchange rates
over the year and determined that the effect was immaterial and that the use of like-for-like exchange rates was appropriate.
– The Remuneration Committee determined, after careful consideration of business performance and the interests of Sage’s stakeholders such as
shareholders, customers and employees, that the formulaic outcome on the financial portion of bonus and the judgement exercised in respect of
Executive Directors’ performance against their personal strategic objectives was appropriate.
– One-third of bonus is deferred into Sage shares for three years.
110
110
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Executive Directors’ personal strategic objectives
Executive Directors’ personal strategic objectives were set by the Remuneration Committee at the beginning of the financial year,
consistent with the key deliverables within the annual budget. Targets for strategic objectives are considered to be commercially
sensitive and are not disclosed. However, details of performance achievements that were taken into account by the Remuneration
Committee in coming to its assessment of this measure are set out below:
Steve Hare, CEO
Steve Hare was new to role in 2019 and was set a range of goals under four key headings linked to the execution of the 2019 plan.
These were: 1. Overall performance of the Group; 2. Colleague Success; 3. Customer Success; 4. Innovation.
The Remuneration Committee took into account the performance against those goals as follows:
1. Overall performance of the Group: the achievement of 12.6% ARR growth (at actual FX rates) within operating margin
guidance and strong underlying free cash flow, which exceeded the target set and a value retention rate of 101%, which
exceeded the target set;
2. Colleague Success: achieved a material improvement of 22 points in the Group colleague engagement score and over
30,000 Sage Foundation volunteer days logged across the Group, which exceeded the targets set; achieved a Group-wide
internal fill rate of 29%, which was slightly below targeted levels of positions to be filled through internal appointments;
3. Customer Success: Customer Core was launched in the UK and in parts of the US, South Africa and Australia, some of Sage’s
most significant markets, which met the target set, contributing to improved customer experience. However, ambitious
customer satisfaction scores were not achieved;
4. Innovation: this was based on the execution of the Sage Business Cloud product roadmap and involved the launch of Sage
Intacct in one country, with Service Fabric available and capable of delivering at least one service; this was delivered in
respect of Australia and now five services are available, thus the target was deemed to have been met.
Consequently, the Remuneration Committee determined that a bonus of 14% of the maximum 20% for this element was an
appropriate award.
Jonathan Howell, CFO
Jonathan Howell was new to role in 2019 and was set a range of goals under five key headings and linked to the execution of the
2019 plan. These were: 1. Overall performance of the Group; 2. Financial processes and controls; 3. Balance sheet management and
debt strategy; 4. Relationship with the market; and 5. Colleague Success.
The Remuneration Committee took into account the performance against those goals as follows:
1. Overall performance of the Group: the achievement of 12.6% ARR growth (at actual FX rates) within operating margin
guidance and strong underlying free cash flow, which exceeded the target set and a value retention rate of 101%, which
exceeded the target set;
2. Financial processes and controls: a number of optimisation projects were launched and executed to drive the move to an
SaaS business. This included a balance sheet review which led to smooth and clean financial close at reporting periods and
improvements in debtor collections leading to an increase in operating cash conversion to 129% at year end. In total this met
the requirement to enhance financial processes and controls;
3. Balance sheet management and debt strategy: a revised balance sheet and debt strategy was developed and approved by the
Board. Optimal working capital thresholds were identified and met, and balance sheet risk associated with counterparty limits
was mitigated by tighter control and disposal activity. In addition, debt capacity was increased through a £200m term loan
raise, enhancing available liquidity, thereby meeting the target;
4. Relationship with the market: a revised financial reporting format was launched to enhance and simplify reporting to the
market and reflect the changing areas of focus / relevant metrics. This was positively received by both internal and external
stakeholders, therefore meeting the objective;
5. Colleague Success: contributed to a material improvement of 22 points in the Group colleague engagement score, which
exceeded the target set; internal fill rates within the Finance function of 37%, which met targeted levels of positions to be filled
through internal appointments.
Consequently, the Remuneration Committee determined that a bonus of 16% of the maximum 20% for this element was an
appropriate award.
Annual Report and Accounts 2019
The Sage Group plc
111
111
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
Blair Crump, President of Sage
Blair Crump was set a range of goals under three key headings linked to the execution of the 2019 plan. These were: 1.
Overall performance of the Group and Enterprise division; 2. Colleague Success; and 3. Customer Success.
The Committee took into account the performance against those goals as follows:
1. Overall performance of the Group and Enterprise division: the achievement of 12.6% ARR growth (at actual FX rates) within
operating margin guidance and strong underlying cash flow, a value retention rate of 101%, which exceeded the targets set,
and Enterprise Management recurring revenue growth, which did not meet the target set;
2. Colleague Success: contributed to a material improvement of 22 points in the Group colleague engagement score and over
30,000 Sage Foundation volunteer days logged across the Group, which exceeded the targets set; achieved a Group-wide
internal fill rate of 29%, which was slightly below targeted levels of positions to be filled through internal appointments;
3. Customer Success: Customer Core was launched in the UK and in parts of the US, South Africa and Australia, some of Sage’s
most significant markets, which met the target set, contributing to improved customer experience. However, ambitious
customer satisfaction scores were not achieved.
Consequently, the Remuneration Committee determined that a bonus of 12% of the maximum 20% for this element was an
appropriate award.
PSP awards
Awards granted under the PSP to Steve Hare and Blair Crump in December 2016 vest depending on performance against two
equally weighted measures, measured over three years, from 1 October 2016 to 30 September 2019:
– 50% recurring revenue growth with underpins for earnings per share (EPS) growth and organic revenue growth.
– 50% relative TSR performance against the FTSE 100 (excluding nancial services and extracting companies).
For each measure, three levels of performance are dened below, with straight-line vesting between each level of performance:
target, stretch and exceptional.
Measure
Between target (20% vests) and stretch (80% vests)
Between stretch (80% vests) and exceptional (100% vests)
Recurring revenue growth (Compound
Annual Growth Rate (“CAGR’”))
Between 8.7% and 10.7% (with EPS growth
CAGR of 8% p.a. and organic revenue growth
CAGR of 6.7% p.a.)
Between 10.7% and 12.7% (or above)
(with EPS growth CAGR of 8% p.a. and
organic revenue growth CAGR of 6.7% p.a.)
Relative TSR
Between median and upper quartile
Between upper quartile and upper decile (or above)
Measure
Recurring revenue growth (CAGR)
Relative TSR
Total
Achieved
8.6%
54th percentile
Vesting
0%
14.8%
14.8%
The definition of organic revenue was updated for FY18, part-way through the performance cycle as outlined on page 95 of the 2017
Annual Report. Consequently, the recurring revenue growth target and the organic revenue growth underpin were adjusted to
reflect the updated definition of organic revenue which from FY18 included Intacct and Fairsail (Sage People). The impact of the
acquisitions was pro-rated across the FY17 PSP to reflect the proportionate contribution of the acquired businesses over the
performance period (an increase of 0.7% p.a. respectively). The EPS underpin was not changed, aligning to the Company’s
commitment to maintain margin following the acquisitions. For the purposes of assessing performance under the 2017 PSP,
recurring revenue includes “processing revenue”. Processing revenue is defined on page 155 of this report.
112
112
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
The organic revenue growth was 6.3% p.a. (compared to 6.7% p.a.) and EPS was 2.6% p.a. (compared to 8.0% p.a.), meaning that the
underpin condition was not achieved.
The Remuneration Committee determined, after careful consideration of business performance and the interests of Sage’s
stakeholders such as shareholders, customers and employees, that the formulaic outcome was appropriate. Consequently,
14.8% of the total award will vest.
Awards are scheduled to vest and be released on 14 December 2019.
Jonathan Howell PSP award
As outlined in the Remuneration Committee Chairman’s statement, Jonathan Howell was awarded a conditional award over
312,698 Sage shares on 11 December 2018 with a face value of £1,807,398 (based on the Sage share price of £5.78 on 10 December
2018) to replace share awards that he forfeited at Close Brothers. This Replacement Award was structured so as to mirror the
forfeited award to the extent that the original Close Brothers performance conditions, vesting schedule, holding periods and malus
and clawback provisions applied. Other terms of the Replacement Award, principally relating to dividend equivalents and
treatment upon ceasing employment or on a change of control, are consistent with the Sage PSP rules.
Up to 213,779 shares of the Replacement Award (plus dividend equivalent shares) could have vested and been released on
4 October 2019 based on the vesting of the performance condition applying to Close Brothers’ LTIP and Share Matching Plan
over the three-year period to July 2019. As disclosed on page 88 of the Close Brothers Group 2019 Annual Report, the performance
conditions vested at 29.9%. Accordingly, 63,919 shares (plus 1,596 dividend equivalent shares) vested on 4 October 2019. Due to
dealing restrictions in place at the time of vest, these will be released to Jonathan Howell once the dealing restrictions have been
lifted (anticipated to be 20 November 2019). Those vested shares are included in the single figure table on page 108 at a value of
£438,033, based on the share price at vesting of £6.686.
The Remuneration Committee determined, after careful consideration of business performance and the interests of Sage’s
stakeholders such as shareholders, customers and employees, that vesting the award in line with the formulaic outcome
was appropriate.
98,919 shares of the Replacement Award (plus dividend equivalent shares) could vest on 3 October 2020 and be released on
3 October 2022 based on the vesting of the performance condition applying to Close Brothers’ LTIP over the three-year period
to July 2020 (details of which are outlined on page 96 of the Close Brothers Group 2018 Annual Report).
Annual Report and Accounts 2019
The Sage Group plc
113
113
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
PSP awards granted in FY19 (audited information)
Awards were granted under the PSP on 4 December 2018 at a market value of £5.79 to selected senior employees in the form of
conditional share awards. A separate grant took place on 28 February 2019 for Executive Directors, following the approval the 2019
Policy at the 2019 AGM. In alignment with our business strategy for FY19, performance conditions for awards granted in FY19 are:
Relative TSR
30%
of award
Annualised Recurring Revenue (ARR ) growth
70%
of award
This has an underpin of Return on Capital Employed before the Annualised
Recurring Revenue growth element of the PSP awards can vest. The target for
this underpin condition is 12.0% per annum:
Return on Capital Employed underpin met?
No
Yes
This portion of the award lapses
ARR growth (CAGR)
% of award vesting
%
0
7
%
6
5
%
4
1
.
.
a
p
%
8
.
.
a
p
%
0
1
.
.
a
p
%
1
1
TSR ranking
% of award vesting
%
0
3
%
6
i
n
a
d
e
M
%
4
2
e
l
i
t
r
a
u
q
r
e
p
p
U
e
l
i
c
e
d
r
e
p
p
U
Vesting is on a straight line between the points. The following key areas are highlighted in relation to the performance measures:
– Annualised Recurring Revenue growth as a medium-term performance condition provides close alignment with our
medium-term strategic priorities to grow our subscription-based services and acquire new customers.
– Continued focus on overall Group growth and delivery of shareholder value is achieved by:
– Requiring the achievement of a Return on Capital Employed (ROCE) underpin before the Annualised Recurring Revenue
growth element of the PSP awards can vest. The target for this underpin condition is 12.0% p.a. The Remuneration Committee
will exclude from the ROCE calculation, where appropriate, any write down that arises from an asset that was acquired prior to
the appointment of the current Executive Directors.
– 30% of the awards being determined by relative TSR performance;
Awards will vest, subject to satisfaction of those performance conditions, in December 2021. A holding period for the PSPs will
apply for two years from the vesting date. No further performance conditions attach to the awards during the holding period.
Type of award
Maximum number
of shares
Steve Hare
Jonathan Howell
Performance shares
Blair Crump
Note:
265,975
184,801
190,027
Face value
(£)1
1,540,000
1,070,000
1,100,260
Face value
(% of salary)
Threshold vesting
(% of award) End of performance period
200%
200%
200%
20%
20%
20%
30 September 2021
30 September 2021
30 September 2021
1. The face value of the PSP awards has been calculated using the market value (middle market quotation) of a Sage share on 3 December 2018 (the day prior to
the main grant for all eligible employees) of £5.79. The FX rate used to calculate Blair Crump’s award was 1 GBP = 1.27 USD.
114
114
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
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 all
UK employees over the same time period. Sage has employees based all around the world, some of whom work in countries with
comparatively higher inflation than the UK; therefore, a comparison to Sage’s UK-based Group employees is more appropriate
than to all employees.
Salary1
Taxable benets2
Annual incentive3
Notes:
CEO
-5.0%
12.0%
N/A
All UK employees
9.1%
16.6%
189.0%
1. The CEO’s salary in 2019 includes that portion of the year where Steve Hare was paid a “step-up” allowance for the period he was Interim COO & CFO.
The prior-year comparative is the sum of Stephen Kelly’s salary to his cessation as CEO and Steve Hare’s salary including his “step-up” allowance from the
date of his appointment as Interim COO & CFO. The percentage change for UK colleagues shown is the 2018 annual pay review and promotions/market
adjustments during 2019 (excluding leavers and joiners). This is consistent with the basis of the disclosure in previous reports.
2. Steve Hare’s taxable benefits as set out on page 108 of this report compared to an amalgamated 2018 figure comprising Stephen Kelly’s taxable benefits to
his cessation as CEO and Steve Hare’s taxable benefits from the date of his appointment as Interim COO and CFO as reported.
3. Annual incentive is shown as N/A as no bonus was paid for Stephen Kelly in 2018 and Steve Hare waived his entitlement to a 2018 bonus. The annual
incentive value is inclusive of bonus and commission for all UK employees.
Ratio of the pay of the Chief Executive Officer to that of the UK lower quartile, median and
upper quartile employees
The table below shows the ratio of the pay of the Chief Executive Officer to that of the UK lower quartile, median and upper
quartile employees in 2019, consistent with The Companies (Miscellaneous Reporting) Regulations 2018.
Pay ratio
Method
25th percentile
(lower quartile)
50th percentile
(median)
75th percentile
(upper quartile)
Remuneration values
Y25 (25th
percentile)
Y50 (50th
percentile)
Y75 (75th
percentile)
A
95 : 1
62 : 1
38 : 1
Salary only
£20,281
£34,184
£51,087
Total remuneration
£26,463
£40,385
£66,095
Year
2019
Notes
– Under method A, employee data is based on full-time equivalent pay for UK colleagues as at 30 September 2019. Pay for each colleague is calculated in
accordance with the single figure of remuneration. All components of remuneration except long-term incentives are presented on a full-time equivalent
basis by dividing sums by the average working hours divided by full-time equivalent hours for the portion of the year worked. Colleagues who worked no
hours during the year are excluded from the dataset.
– Method A has been selected as the basis of the disclosure as it is the best reflection of the underlying colleague data required by The Companies
(Miscellaneous Reporting) Regulations 2018.
– Certain benefits have been omitted from the remuneration of colleagues except the CEO. These principally comprise sums paid by way of expenses
allowance chargeable to UK income tax and not paid through the payroll. Such expenses are typically irregular and generally immaterial to remuneration and
are excluded to enable more meaningful comparison of the ratio of underlying colleague remuneration over time.
– The CEO’s pay is based on the single figure of remuneration set out on page 108 of this report. Because a large portion of the CEO’s pay is variable,
the pay ratio is heavily dependent on the outcomes of variable pay plans and, in the case of long-term share-based awards, share price movements.
Further information on these outcomes for the CEO in FY19 is set out on page 110-113 of this report.
Annual Report and Accounts 2019
The Sage Group plc
115
115
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
Historical executive pay and Company performance
The table below summarises the Chief Executive Officer single gure for total remuneration, annual bonus payout and PSP vesting
as a percentage of maximum opportunity for the current year and previous nine years.
CEO single gure of
remuneration (in £’000)
Annual bonus payout
(as % maximum opportunity)
PSP vesting
(as % of maximum
opportunity)
Notes:
CEO
Steve Hare1
Stephen Kelly2
Guy Berruyer3
Paul Walker4
Steve Hare
Stephen Kelly
Guy Berruyer
Paul Walker
Steve Hare
Stephen Kelly
Guy Berruyer
Paul Walker
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
–
–
–
–
–
–
–
–
–
–
–
98 2,515
1,521
1,723
3,547
1,690
–
–
–
–
–
–
–
–
0%5 94%
–
–
–
–
–
–
–
–
2,935
1,196
1,670
1,616
108
–
–
–
–
–
–
–
–
–
–
–
–
–
–
67%
69%
19%
0%
66%
21%
72%
55%
0%
–
–
–
61%
–
–
–
–
0%
–
–
–
–
0%
–
–
–
–
–
–
–
0%
64%
–
–
–
–
–
–
–
–
–
–
–
29%
15%
66%
29%
–
–
–
–
–
–
–
–
–
–
2,196
–
–
–
83%
–
–
–
26%
1. Steve Hare was appointed Interim COO & CFO on 31 August 2018. Whilst Steve Hare’s job title at 30 September 2018 was Interim Chief Operating Officer &
Chief Financial Officer, not Chief Executive Officer, he is regarded as being the equivalent of Chief Executive Officer for the purposes of the disclosure.
2. Stephen Kelly stepped down from the position of CEO on 31 August 2018.
3. Guy Berruyer stepped down from the position of CEO on 5 November 2014.
4. Paul Walker resigned as CEO on 1 October 2010.
5. Steve Hare waived his entitlement to a bonus in respect of 2018.
Historical Group performance against FTSE 100
The graph below shows the Total Shareholder Return of the Group and the FTSE 100 over the last ten 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.
Value (£)
500
400
300
200
100
0
30-Sep-09
30-Sep-10
30-Sep-11
30-Sep-12
30-Sep-13
30-Sep-14
30-Sep-15
30-Sep-16
30-Sep-17
30-Sep-18
30-Sep-19
Sage
FTSE 100 Index
Note:
– This graph shows the value, by 30 September 2019, of £100 invested in The Sage Group plc on 30 September 2009 compared with the value of £100 invested
in the FTSE 100 index. The other points plotted are the values at intervening nancial year ends.
116
116
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Payments to past Directors (audited information)
As noted in the RNS announcement on 31 August 2018, Stephen Kelly stepped down as CEO on 31 August 2018 and remained
employed until 31 May 2019. During FY19 until his departure date, Stephen continued to be paid on a monthly basis, his base salary
of £810,000 p.a. and benefits (including car allowance, pension contributions, private medical insurance, permanent health
insurance and life assurance). Following cessation he received, in lieu of the remaining three months of his notice period, his base
salary, pension contributions and car allowance. These payments were made in monthly instalments and subject to mitigation for
any remuneration received at an alternative employment over the 12-month period that began on 31 August 2018 (which was not
required to be applied). Following cessation, Stephen was paid £84,000 in respect of accrued, unused holiday entitlement at
cessation of employment, a portion of which relates to qualifying services as a Director prior to his cessation as CEO. He did not
accrue holiday entitlement during the period for which he was paid in lieu of notice.
Stephen Kelly retains interests in the Company’s PSP and Deferred Bonus Plan (DBP). PSP awards will vest on their normal vesting
dates, to the extent that the performance conditions are satisfied and the number of shares under award will be pro-rated by
reference to the proportion of the applicable period that elapsed by 31 May 2019. The performance conditions for Stephen Kelly’s
PSP awards are set out in the Annual Report for the year of grant.
His shares in the DBP will vest on their normal vesting dates and not be subject to time pro-rating.
In FY19, Stephen Kelly’s PSP award granted on 2 March 2016 vested; values are noted in the single figure of remuneration for 2018
(as updated in this report at page 108). Additionally, his Deferred Bonus Share Plan award granted on 14 December 2016 vested on
14 December 2018.
Relative importance of spend on pay
The charts below show the all-employee pay cost (as stated in the notes to the accounts), prot before tax (PBT) and returns to
shareholders by way of dividends and share buybacks for 2018 and 2019.
The information shown in this chart is based on the following:
– Underlying PBT – Underlying prot before income tax taken from the consolidated income statement on page 140. Underlying
PBT has been chosen as a measure of our operational profitability;
– Returns to shareholders – Total dividends taken from note 14.5 on page 193; share buyback taken from consolidated statement
of changes in equity on page 143;
– Total employee pay – Total staff costs from note 3.3 on page 158, including wages and salaries, social security costs, pension and
share-based payments.
Underlying PBT (£m)
Returns to shareholders (£m)
Total employee pay (£m)
Ordinary dividends
Shares repurchased for
discretionary share plans
-56
1
8
4
5
2
4
18
19
+10
1
7
1
18
1
8
1
19
0
0
18
0
19
18
19
+105
2
4
9
m
X
X
X
X
£
,
7
3
8
Annual Report and Accounts 2019
The Sage Group plc
117
117
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
Statement of implementation of remuneration policy in the following nancial year
This section provides an overview of how the Remuneration Committee is proposing to implement our remuneration policy
in 2020.
Base salary
An annual salary review was carried out by the Remuneration Committee in November 2019. Following that review, the
Remuneration Committee approved the following:
Salary 1 January 2020
Salary 1 January 2019
Salary 1 January 2018
Salary 1 January 2017
Steve Hare1
£785,000 (1.9% increase)
Jonathan Howell2
£545,000 (1.9% increase)
£770,000 (appointed CEO
2 Nov 2018)
£535,000 (appointed CFO
10 Dec 2018)
£522,000 (0% increase)
£522,000 (2.5% increase)
N/A
N/A
N/A
Blair Crump
$700,000 (0% increase)
$700,000 (0% increase)
$700,000
Notes:
1. Steve Hare was appointed CEO on 2 November 2018. His 2017 and 2018 salary reflected his prior role as CFO.
2. Jonathan Howell was appointed CFO on 10 December 2018.
2020 salary increases for Executive Directors are lower than the equivalent average increases for colleagues eligible for an annual
pay award, which are 3% (in respect of employees based in the United Kingdom) and 3.25% (in respect of employees based in the
United States).
Pension and benets
The Chief Executive Officer and Chief Financial Officer will continue to receive a pension provision worth 15% of salary and 10% of
salary respectively, as a contribution to a dened contribution plan and/or as a cash allowance. Blair Crump will receive a pension
provision in line with our US benefits policy, currently up to 3.5% of salary. Executive Directors will also receive a standard package
of other benets and where deemed necessary the costs of travel, accommodation and subsistence for the Directors and their
partners on Sage-related business, consistent with that in FY19. In addition, the Company will continue to cover the cost of Steve
Hare’s travel and accommodation for days on which he attends to Sage matters in the Company’s London offices. Sage will also
continue to tax equalise that portion of Blair Crump’s remuneration that is subject to UK tax for days on which he attends to Sage
matters in the UK.
Annual bonus
Key features of the Executive Directors’ annual bonus plan for 2020 are as follows:
– The maximum annual bonus potential is 175% of salary;
– One-third of any bonus earned will be deferred into shares for three years under The Sage Group Deferred Bonus Plan;
– Annual bonuses awarded in respect of performance in 2020 will be subject to potential withholding (malus) or recovery
(clawback) if specied “trigger events” occur within three years of the payment/award of the annual bonus. “Trigger events” will
include a material misstatement of the audited results, error in calculation of the bonus payout, serious reputational damage or
signicant nancial loss as a result of an individual’s conduct or gross misconduct which could have warranted an individual’s
summary dismissal.
The annual bonus for 2020 for Executive Directors will be determined as detailed below:
As a percentage of maximum bonus opportunity:
Measure
Annualised Recurring Revenue (ARR) growth1
Strategic goals
Note:
80%
20%
1. Payout is dependent upon the satisfaction of the underpin condition of underlying operating profit margin.
The selection of measures and targets takes into account the Company’s strategic priorities, its internal budgeting and, where
relevant, consensus. The Annualised Recurring Revenue growth measure is based on the definition of Annualised Recurring
Revenue set out on page 201. Targets are not disclosed because they are considered by the Board to be commercially sensitive.
Many of the Company’s competitors are unlisted companies and not required to disclose their targets; the Company’s disclosure
could provide its competitors with a considerable advantage. It is intended for retrospective disclosure to be made in next year’s
Directors’ Remuneration Report.
118
118
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
Performance Share Plan (PSP)
The Chief Executive Officer, Chief Financial Officer and President of Sage will be amongst the participants in the PSP award to be
granted in December 2019. Awards will be of shares worth 200% 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 nancial
years to 30 September 2022. A holding period to the PSPs granted for the financial year FY20 will apply for two years from the
vesting date. No further performance conditions attach to the awards during the holding period.
Annualised Recurring Revenue growth (“ARR”) performance condition (70% of award)
Below target
Target
Stretch
Exceptional
Note:
ARR growth (CAGR)
Less than 8.0% p.a.
8.0% p.a.
10.0% p.a.
11.0% p.a.
% of award vesting1
0%
14%
56%
70%
1. For any of this portion of the PSP awards to vest, an underpin condition must be met: Return on Capital Employed (ROCE) of 12.0% p.a. ROCE is defined on
page 215. Vesting is on a straight line between the points.
Relative TSR performance condition (30% of award)
Below target
Target
Stretch
Exceptional
TSR ranking
Below median
Median
Upper quartile
Upper decile
% of award vesting
0%
6%
24%
30%
TSR performance comprises share price growth and dividends paid. Vesting is on a straight line between the points.
Sage’s TSR performance will be measured relative to the TSR of the constituents of the FTSE 100, excluding nancial services and
extracting companies. PSP awards granted in 2020 will be subject to potential withholding (malus) or recovery (clawback) if
specied 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 signicant nancial loss as a result of an individual’s conduct 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 2020. 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. Non-executive fees will
next be reviewed by the Remuneration Committee in 2020.
Chairman of the Board all-inclusive fee
Basic Non-executive Director fee
Senior Independent Director additional fee
Audit and Risk Committee Chairman additional fee
Remuneration Committee Chairman additional fee
Notes:
2020 fees
£400,000
£60,000
£17,0001
£17,000
£17,000
1. Drummond Hall stepped down from his role as Chairman of the Remuneration Committee on 31 March 2019. While in his role as Chairman of the
Remuneration Committee and Senior Independent Director, he received a reduced Senior Independent Director fee of £10,000. From 1 April 2019 the Senior
Independent Director fee Drummond Hall received was aligned to the Audit and Risk Committee Chairman and the Remuneration Committee Chairman fee
of £17,000.
Annual Report and Accounts 2019
The Sage Group plc
119
119
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
Directors’ shareholdings and share interests (audited information)
The shareholding guideline for Executive Directors was increased from the date of the 2019 AGM to 250% of salary. Executive
Directors are expected to build up the required shareholding within a ve-year period of an Executive Director’s becoming subject
to the guideline. As at 30 September 2019, Steve Hare held shares worth 316% of salary, Jonathan Howell held shares worth 102%
of salary and Blair Crump held shares worth 52% of salary. Values include unvested deferred shares net of tax at the estimated
marginal withholding rates. The values for Executive Directors are derived from interests in shares valued using the average
market price of a share in the three months to 30 September 2019 (the last trading day of the financial year), which was £7.286, and
the executive’s basic salary over the same period, translated into GBP using the average middle foreign currency exchange rate for
the same period used to calculate the share price.
Additionally, from 11 September 2019 the Remuneration Committee has introduced a requirement for Directors to hold Sage
shares for a two-year period after stepping down from that position, being in the first year the lesser of 250% of salary (the
shareholding guideline prior to cessation as an Executive Director) or the Executive Directors’ actual shareholding at leaving this
position and reducing to 50% of this requirement in the second year. The Executive Directors’ actual shareholding will include any
shares acquired through the vesting or release of shares from share incentive plans (net of tax, where applicable) after the date the
policy was adopted and unvested shares granted under the Deferred Bonus Plan (net of tax) but excludes shares acquired through
purchase and the release of shares under share incentive plans where the release occurred prior to the Remuneration
Committee’s adoption of the policy. Additionally, Performance Share Plan shares vesting after cessation are subject to a two-year
holding period at vesting.
Interests in shares
The interests as at 30 September 2019 of each person who was a Director of the Company during the year (together with interests
held by his or her connected persons) were:
Director
J Bates1
N Berkett2
J Bewes3
D Brydon
A Court4
B Crump
D Hall
S Hare
J Howell
S Jiandani
C Keers
Total
Notes:
Ordinary shares at
30 September 2019
number
Ordinary shares at
30 September 2018
number
0
50,661
10,000
100,024
1,350
35,692
10,000
331,206
75,000
0
0
n/a
50,661
n/a
78,024
n/a
15,000
10,000
260,019
31,000
0
0
613,933
444,704
1. Dr John Bates was appointed as a Non-executive Director on 31 May 2019.
2. Neil Berkett stepped down from his role as Non-executive Director on 1 April 2019. His shareholding is shown to that date.
3. Jonathan Bewes was appointed as a Non-executive Director on 1 April 2019
4. Annette Court was appointed as a Non-executive Director on 1 April 2019.
– 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 2019 and
the date of this report.
– Details of the Executive Directors’ interests in outstanding share awards under the PSP, Deferred Bonus and all-employee share option plans are set
out below.
120
120
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
All-employee share options (audited information)
UK-based Executive Directors were entitled to participate in the Sage Group Savings-Related Share Option Plan (SRSOP),
which closed to new invitations on 1 June 2017. In addition, all Executive Directors are eligible to join the all-employee share plan,
the Sage Save and Share Plan, on the same terms as all employees based in their respective local jurisdiction. See note 14.2 on
page 191 for more detail of this plan. In the year under review, Steve Hare participated in this scheme. Blair Crump was a participant
in the 2017 Save and Share Plan and did not participate in the 2019 scheme. The outstanding all-employee share options granted
to each Director of the Company are as follows:
Exercise price
per share
Shares under option at
1 October 2018
number
Granted
during the year
number
Exercised
during the year
number
Lapsed
during the year
number
Shares under option at
30 September 2019
number
Date exercisable
317p
604p
610p
9,463
–
1,964
11,427
–
2,980
–
–
(9,463)
–
(1,964)
(11,427)
–
–
–
–
–
1 August 2019– 31 January 2020
2,980
1 August 2022- 31 January 2023
– 1 August 2019-1 September 2019
2,980
Director
S Hare
B Crump
Total
Notes:
– No performance conditions apply to options granted under the SRSOP and Save and Share Plans. For the 2014 SRSOP, the exercise price was set at £3.17,
a 20% discount to the average share price on 15, 16 and 19 May 2014 of £3.9625.
– Blair Crump participated in the 2017 Save and Share Plan. Under the US Save and Share plan rules, the scheme has a two-year saving period. No performance
conditions apply to options granted under this Plan. For the 2017 US Save and Share grant, the exercise price was set at £6.10, a 15% discount on the average
share price on the three dealing days prior to grant which was on 1 June 2017. Blair exercised 1,964 options during 2019 at a fair market value per share of
£6.97; this resulted in a gain of £1,709.
– Steve Hare participated in the 2019 Save and Share plan. Under the UK Save and Share plan rules, the scheme has a three-year saving period. No performance
conditions apply to options granted under this plan. For the 2019 UK Save and Share grant, the exercise price was set at £6.04, a 20% discount on the average
share price on 20, 21 and 22 May 2019 of £7.546. Steve exercised 9,463 options during 2019 at a fair market value per share of £6.9782; this resulted in a gain
of £36,037.
– Jonathan Howell did not participate in the 2019 Save and Share Plan.
– The market price of a share of the Company at 30 September 2019 (the last trading day of the financial year) was £6.914 (mid-market average) and the lowest
and highest market prices during the year were £5.256 and £8.204 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:
Director
S Hare
Grant date
28 February 2019
7 December 2017
14 December 2016
2 March 2016
J Howell
28 February 2019
11 December 2018
11 December 2018
B Crump
28 February 2019
7 December 2017
14 December 2016
22 September 2016
Total
Notes:
Under award
1 October 2018
number
Awarded
during the year
number
Vested
during the year
number
Lapsed
during the year
number
Under award
30 September 2019
number
–
265,975
171,597
208,300
211,356
591,253
–
–
–
–
–
171,814
196,379
98,993
467,186
1,058,439
–
–
–
–
–
–
(60,236)
(151,120)
–
–
–
265,975
(60,236)
(151,120)
184,801
98,919
213,779
497,499
190,027
–
–
–
190,027
953,501
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(28,213)
(28,213)
(70,780)
(70,780)
(88,449)
(221,900)
265,975
171,597
208,300
–
645,872
184,801
98,919
213,779
497,499
190,027
171,814
196,379
–
558,220
1,701,591
Vesting date
4 December 2021
7 December 2020
14 December 2019
2 March 2019
4 December 2021
3 October 2020
4 October 2019
4 December 2021
7 December 2020
14 December 2019
2 March 2019
– No variations were made in the terms of the awards in the year.
– PSP awards for 2019 were granted to Executive Directors on 28 February 2019, following the approval of the 2019 Policy at the 2019 Annual General Meeting.
The market price of the award was £5.79 aligned to the market price of 2019 awards granted on 4 December 2018 to senior colleagues except Executive Directors.
– The performance conditions for awards granted in March 2016, September 2016, December 2016 and December 2017 are set out in the respective
Annual Reports for the year of grant and for awards granted in February 2019 on page 114.
– The performance conditions for Steve Hare’s and Blair Crump’s awards that vested during 2019 are set out on page 118 of the 2018 Annual Report.
– Awards for Steve Hare granted in December 2017 and after are subject to a holding period of two years on vesting. Awards for Jonathan Howell vesting in
2020 and after are subject to a holding period of two years on vesting. Awards for Blair Crump granted in February 2019 are subject to a holding period of
two years on vesting.
– The performance conditions for awards granted in December 2018 and February 2019 are on page 114.
Annual Report and Accounts 2019
The Sage Group plc
121
121
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REMUNERATION REPORT continued
Directors’ Annual Remuneration report continued
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
Grant date
7 December 2017
14 December 2016
9 December 2015
B Crump
7 December 2017
Total
Notes:
Under award at
1 October 2018
number
Awarded
during the year
number
Vested
during the year
number
Lapsed
during the year
number
Under award at
30 September 2019
number
Vesting date
5,491
23,528
13,673
8,488
51,180
–
–
–
–
–
–
(23,528)
(13,673)
–
(37,201)
–
–
–
–
–
5,491
7 December 2019
–
–
8,488
13,979
14 December 2018
9 December 2018
7 December 2019
– No bonus payments were made to Executive Directors in the year ended 30 September 2019, therefore no deferred share awards were made in this timeframe.
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 30 September 2019
(the last practicable date prior to publication of this document) are set out below:
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
2.94%
3.68%
The Company has previously satised all awards under the Performance Share Plan through the market purchase of shares or
transfer of treasury shares and will continue to consider the most appropriate approach, based on the relevant factors at the time.
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, reecting the personal responsibility they undertake in these roles.
The Board recognises the signicant demands that are made on Executive and Non-executive Directors and has therefore adopted
a policy that no Executive Director should hold more than one directorship of other listed companies. Except in exceptional
circumstances, where approved in advance by the Chairman of the Remuneration 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. The Executive Directors do not currently hold any appointments of this nature.
No formal limit on other board appointments applies to Non-executive Directors under the 2019 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
Date of contract
Unexpired term of contract
on 30 September 2019,
or on date of contract if later
Notice period under contract
Executive Directors
S Hare
J Howell
B Crump
Non-executive Directors
J Bates
J Bewes
D Brydon
A Court
D Hall
S Jiandani
C Keers
3 January 2014
10 December 2018
1 January 2018
12 months
12 months
12 months
12 months from the Company and/or individual
12 months from the Company and/or individual
12 months from the Company and/or individual
31 May 2019
2 years 8 months
1 month from the Company or 1 month from the individual
1 April 2019
6 July 2017
1 April 2019
1 January 2017
28 February 2017
1 July 2017
2 years 6 months
1 month from the Company or 1 month from the individual
8 months
6 months from the Company and/or individual
2 years 6 months
1 month from the Company or 1 month from the individual
3 months
1 month from the Company or 1 month from the individual
5 months
1 month from the Company or 1 month from the individual
9 months
1 month from the Company or 1 month from the individual
122
122
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
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:
– Annette Court (Chair from 1 April 2019);
– Neil Berkett (to 1 April 2019);
– Drummond Hall (Chair to 1 April 2019);
– Jonathan Howell (prior to his appointment as CFO on 10 December 2018);
– Cath Keers.
The Remuneration Committee received assistance from Amanda Cusdin (Chief People Officer), Tina Clayton (Executive Vice
President, Reward & Recognition) and Vicki Bradin (General Counsel and Company Secretary) and other members of management
(including the CEO and CFO), who may attend meetings by invitation, except when matters relating to their own remuneration are
being discussed.
External advisors
The Remuneration Committee continues to receive advice from Deloitte LLP, an independent rm of remuneration consultants
appointed by the Remuneration Committee after consultation with the Board. During the year, Deloitte’s executive compensation
advisory practice advised the Remuneration Committee on developments in market practice, corporate governance, institutional
investor views, the development of the Company’s incentive arrangements and the review of the 2019 Policy. Total fees for advice
provided to the Remuneration Committee during the year were £88,510.
The Remuneration Committee is satised that the advice it has 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, specic corporate nance support in the
context of merger and acquisition activity and unrelated corporate advisory services.
Stitch, a Deloitte business, provided the Sage reward team with communication support on employee reward and share plan
communications during 2019.
Statement of shareholding voting
The table below sets out the results of the vote on the 2019 Policy and report at the 2019 AGM:
Remuneration policy
Remuneration report
Votes for
Votes against
Number
%
Number
%
Votes
cast
Votes
withheld
747,391,904
842,860,938
96.23
98.74
29,250,695
10,713,722
3.77
776,642,599
97,632,667
1.26
853,574,660
20,700,606
Annette Court
Chairman of the Remuneration Committee
19 November 2019
Annual Report and Accounts 2019
The Sage Group plc
123
123
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their report together with the audited
consolidated financial statements for the year ended
30 September 2019. The Annual Report and 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 127.
Information included in the Strategic Report
This Directors’ Report, together with the Strategic Report,
on pages 2 to 65, represent the management report for the
purpose of compliance with DTR 4.1.R.
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
Future
developments
Page
12-15 – In conversation with
Steve Hare
79 Corporate Governance Report
Greenhouse gas emissions 42-45 – Environment section
Important events since
the financial year end
Page 205 Note 19 to the
Group financial statements
Corporate Governance Report
The Disclosure Guidance 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
70 to 128, 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 188
within the notes to the Group financial statements.
Results and dividends
The results for the year are set out from page 129. Full details
of the proposed final dividend payment for the year ended
30 September 2019 are set out on page 193. The Board is
proposing a final dividend of 11.12p per share following the
payment of an interim dividend of 5.79p per share on 14 June
2019. The proposed total dividend for the year is therefore
16.91p 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 from the date of the financial statements.
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 13 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 46 to 53;
– Consideration of downside sensitivities, including a range of
conservative cash flow scenarios applying more moderate
growth drivers throughout the period. This resulted in
current cash balances reducing over time but maintaining
ample liquidity; and
– Mitigating actions that would be available to the Directors to
alleviate the impact of any extreme scenario should it occur.
Viability statement
The full viability statement and the associated explanations
made in accordance with provision C.2.2 of the Code can be
found on page 64.
Research and development
During the year, we incurred a cost of £220m (2018: £192m)
in respect of research and development. Please see page 157
for further details.
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 108. 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.
124
Annual Report and Accounts 2019The Sage Group plc. The names of all persons who, at any time during the year,
were Directors of the Company can be found on pages 67 to
68. Neil Berkett also served as a Director during the year, and
stepped down from the Board on 1 April 2019.
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 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 and consulting, where appropriate,
with employees on matters of concern to them. Colleagues
regularly receive updates on the financial and economic factors
affecting the Group. Many colleagues are stakeholders in the
Company through participation in share option schemes and a
long-term Performance Share Plan. Further details of colleague
engagement are given on pages 34, 70, 80 and 83.
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; and
– On a poll, every member who is present in person or by proxy
shall have one vote for every share of which he or she is
the holder.
No member shall be entitled to vote at any general meeting
or class meeting in respect of any shares held by them if any
call or other sum then payable by them 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 25 February 2020 will be set out
in the Notice of Annual General Meeting.
Major shareholdings
Dividends and distributions
At 30 September 2019, the Company had been notified,
in accordance with the DTRs, of the following interests in its
ordinary share capital:
Name
Blackrock, Inc.
Lindsell Train Limited
Fundsmith LLP
Aviva Investors
Ordinary shares
% of
capital1
Nature of holding
64,021,267
54,140,022
53,635,451
43,314,672
5.90 Direct and Indirect
Direct
5.01
5.00
Direct
3.982 Direct and Indirect
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.
Notes:
1. % as at date of notification. The DTRs require notification when the %
voting rights (through shares and financial instruments) held by a person
reaches, exceeds or falls below an applicable threshold specified in
the DTRs.
2. In the period from 30 September 2019 to the date of this report,
we received the following further notification:
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):
Name
Ordinary shares
% of
capital1
Nature of holding
– Divide among the members in specie the whole or any part
Aviva Investors
45,686,129
4.19 Direct and Indirect
of the assets of the Company; or
– Information provided to the Company under the DTRs is publicly available
via the regulatory information service and on the Company website.
– Vest the whole or any part of the assets in trustees upon such
trusts for the benefit of members as the liquidator shall think fit.
Share capital
The Company’s share capital is as set out on page 188.
The Company has a single class of share capital which is
divided into ordinary shares of 1 4⁄77p each.
125
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE DIRECTORS’ REPORT continued
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 provided in the articles of association).
Repurchase of shares
The Company obtained shareholder authority at the last
Annual General Meeting on 27 February 2019 to buy back up
to 108,569,466 ordinary shares. The minimum price which
must be paid for each ordinary share is its nominal value and
the maximum price set out in the resolution is the higher of
an amount equal to 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 an amount
equal to the higher of the price of the last independent trade
of an ordinary share and the highest current independent bid
for ordinary shares on the trading venue where the purchase
is carried out (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.
The Company made no share repurchases during the year
under review.
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 not 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 may, by unanimous decision 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
which 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 has
agreed not to vote any shares held in the Employee Benefit Trust
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 note purchase agreement dated 20 May 2013 relating
to 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 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
a date specified in such offer which shall be a business day
occurring subsequent to the effective date of the change of
126
Annual Report and Accounts 2019The Sage Group plc. 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 the terms of the bank debt facilities above, “control”
is defined as per section 840 of the Income and Corporation
Taxes Act 1998;
– 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; and
– 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 shown in
note 13.6 to the financial statements. Our approach to risk
management generally and our principal risks can be found in
note 13.6 on pages 58 to 65.
Disclaimer
The purpose of this Annual Report and Accounts is to provide
information to the members of the Company. The Annual
Report and 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 advisors
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 and 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 and Accounts
and the Company undertakes no obligation to update these
forward-looking statements. Nothing in this Annual Report and
Accounts should be construed as a profit forecast.
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 the purchase agreements above,
“control” is defined as per section 450 of the Corporation
Tax Act 2010, and a “change of control” occurs if any person
or group of persons acting in concert gains control of
the Company.
– Under a dual tranche US$719 million and £135 million
five-year multi-currency revolving credit facility agreement
dated 7 February 2018 between, amongst others, Sage
Treasury Company Limited and the 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 £200 million two-year term loan credit facility
agreement dated 10 September 2019 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,
127
Annual Report and Accounts 2019The Sage Group plc.GOVERNANCE DIRECTORS’ REPORT continued
Statement of Directors’ responsibilities
Directors’ statement
The Directors are responsible for preparing the Annual Report
and 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; and
– Prepare the financial statements on the going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping 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.
The Directors as at the date of this report, whose names and
functions are listed in the Board of Directors on pages 67 to 68,
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 or loss of the
Group; and
– 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; and
– The Director has taken all the steps that he or she ought to
have taken as a Director in order to make himself/herself
aware of any relevant audit information and to establish that
the Company’s auditors are aware of that information.
This confirmation is given and should be interpreted
in accordance with the provisions of section 418 of the
Companies Act 2006.
In addition, the Directors as at the date of this report consider
that the Annual Report and 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
Vicki Bradin
Company Secretary
19 November 2019
The Sage Group plc.
Company number 02231246
128
Annual Report and Accounts 2019The Sage Group plc. CONTENTS
Group financial statements
Independent auditor’s report to the members of The Sage Group plc
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 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. IFRS 15
18. Group undertakings
19. Post-balance sheet events
130
140
141
142
143
144
145
149
154
161
163
165
169
171
174
175
177
180
183
188
194
197
198
202
205
129
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE SAGE GROUP PLC
Opinion
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 2019 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.
Separate opinion in relation to IFRS as issued by the International Accounting Standards Board
As explained in note 1 to the consolidated financial statements, the Group, in addition to applying IFRS as adopted by the
European Union, has also applied IFRS as issued by the International Accounting Standards Board (IASB). In our opinion, the
consolidated financial statements also comply with IFRS as issued by the IASB.
We have audited the financial statements of The Sage Group plc which comprise:
Group
Parent Company
Consolidated balance sheet as at 30 September 2019
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year then ended
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 19 to the financial statements, including a summary of
significant accounting policies
Parent Company balance sheet as at 30 September 2019
Parent Company statement of changes in equity for the
year then ended
Related notes 1 to 7 to the financial statements including
a summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law
and International Financial Reporting Standards (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, including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”
(United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report below. We are independent of the Group and Parent Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require
us to report to you whether we have anything material to add or draw attention to:
– the disclosures in the Annual Report set out on pages 58 to 63 that describe the principal risks and explain how they are being
managed or mitigated;
– the Directors’ confirmation set out on page 58 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 Directors’ statement set out on page 124 in the Directors’ Report 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
130
Annual Report and Accounts 2019The Sage Group plc. – whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
– the Directors’ explanation set out on pages 64 to 65 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.
Overview of our audit approach
Key audit matters
– Revenue recognition
– First time application of IFRS 15
Audit scope
– Recoverability of goodwill and other intangible assets allocated to the Intacct cash generating unit (‘CGU’)
– We performed an audit of the complete financial information of 6 components and audit procedures on
specific balances for a further 5 components.
– The components where we performed full or specific audit procedures accounted for 95% of adjusted Profit
before tax* and 89% of Revenue.
Materiality
– Overall group materiality of £18.8m which represents 5% of adjusted Profit before tax*.
* Profit before tax and non-recurring items as defined in the ‘Our application of materiality’ section of this report.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the
allocation of resources in the audit, and directing the efforts of the engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion
on these matters.
Key audit matter
Revenue recognition
The Group has reported revenues of £1,936m (FY18: £1,846m) with deferred revenue at 30 September 2019 of £645m (FY18: £626m).
We assessed revenue recognition as a fraud risk as revenue forms the basis for certain of the Group’s key performance indicators,
both in external communications and for management incentives.
We identified two specific risks of fraud and error in respect of inappropriate revenue recognition given the nature of the Group’s
products and services as follows:
– Inappropriate timing of revenue recognition, including cut-off and deferral; and;
– Inappropriate measurement of revenue attributed to products and services provided when sold together as a bundle.
Our judgment is that the level of risk in this area remains consistent with the prior year.
We have not made significant changes to our audit response compared to the prior year other than the extension of the use of data
analysis at certain component locations.
Refer to the Audit and Risk Committee Report (page 89). Revenue recognition is disclosed in notes 2.1 and 3.1 of the consolidated
financial statements and relevant accounting policies in note 3.1.
Our audit response
We performed full or specific scope audit procedures over this risk area in 8 components with significant revenue streams,
which covered 89% of the Group’s revenue.
131
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE SAGE GROUP PLC continued
Revenue recognition continued
Audit Response
Area of audit focus
– We performed walkthroughs of each significant class of revenue transactions and assessed the design
Walkthroughs and
controls
effectiveness of key controls.
– For 2 components, we tested the operating effectiveness of certain internal controls as this was identified
as the most efficient audit approach.
Timing of revenue
recognition, including
cut-off and deferral
– We evaluated management’s determination of whether the nature of the Group’s products and services
results in the provision of a good or service at a point in time or over a contractual term. This included the
assessment of new or one-off transactions.
– For products and services where revenue is earned over a contractual term, we:
– tested a sample of transactions to ensure the amount of revenue recognised in the year and the
amount deferred at the balance sheet date were accurately calculated based on progress of the
contract, and/or
– at certain components, with support from EY IT team members, we utilised bespoke data analysis to
facilitate independent reperformance of certain management calculations, including deferred revenue.
– We performed cut-off testing around the year-end.
– Where practicable, at certain components we extended the use of data analysis in the current year.
Our procedures involved testing full populations of transactions, including correlation analysis between
invoiced revenue, receivables and cash, as well as analysis of credit notes.
– We performed tests of details and analytical procedures to validate the recognition of revenue throughout
the year.
– We performed a search for revenue recorded through journal entries outside of normal business
processes. We investigated any unusual items to establish whether a service had been provided or a sale
had occurred in the financial year to support the revenue recognised.
Measurement of revenue
attributed to products
and services provided
– 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 tests of details and analytical procedures to validate the measurement of revenue
throughout the year.
Management override
– Audit teams at full and specific scope components with significant revenue streams performed certain
specific procedures to address the risk of management override, including testing to identify unusual,
new or significant transactions or contractual terms.
Disclosures
– We also considered the adequacy of the Group’s disclosures relating to revenue recognition in notes 1
(critical accounting estimates and judgments) and note 3.1 (Revenue).
Key observations communicated to the Audit and Risk Committee
Based on procedures performed, we did not identify any evidence of material misstatement in the revenue recognised in the year.
132
Annual Report and Accounts 2019The Sage Group plc. Key audit matter
First time application of IFRS 15
The Group adopted IFRS 15 Revenue from Contracts with Customers (‘IFRS 15’) from 1 October 2018 and applied the modified
retrospective method to recognise the effect of the transition in equity at this date. The transition adjustment as at 1 October 2018
resulted in an increase to the Group’s net assets of £24 million, as described in note 17 to the consolidated financial statements.
The application of IFRS 15 is complex and involves management judgment and estimation. For Sage this complexity is increased as a
result of diversity in both the products and services offered by the Group and the sales channels.
The principal risk is that the transition adjustment at 1 October 2018, and subsequently revenue recognised in the income statement
in the year ended 30 September 2019, is not materially correct. This may result from an inappropriate or incomplete analysis of the
effects of IFRS 15 on Sage’s revenue recognition. The Group’s systems are not yet fully configured to record the adjustments for IFRS
15 and therefore a number of manual calculations and adjustments are required.
Disclosure is required of the effect of the first time application of IFRS 15 and of FY19 financial information to reflect what would have
been reported under IAS 18 Revenue.
We consider that the risk profile has increased in the current year as IFRS 15 is the basis for recognising the Group’s revenue in FY19,
as compared to disclosure on the expected impact of the initial application of IFRS 15 in the prior year.
Refer to the Audit and Risk Committee Report (page 92). The first time application of IFRS 15 is disclosed in note 17 to the consolidated
financial statements and the relevant accounting policies in note 3.1. The disclosure of what would have been reported in FY19 under
IAS 18 is in note 17.
Our audit response
As described in our 2018 auditor’s report, procedures were performed as part of the prior year audit to gain assurance over the
disclosures on the expected impact of the initial adoption of IFRS 15 as at 1 October 2018. In the prior year audit, procedures were
performed by the Primary Team as well as testing at a component level by all full and specific scope components with significant
revenue streams (8 components). There have been no significant changes to the transition adjustments since these procedures
were performed.
Procedures over the application of the Group’s IFRS 15 accounting policies in the year ended 30 September 2019 were performed in
conjunction with the testing of revenue recognition at all full and specific scope audit components with significant revenue streams
(8 components which covered 89% of the Group’s revenue). Our audit approach for the adjustments to reflect the effects of IFRS 15
are substantive in nature across all components.
Area of audit focus
Audit Response
Transition adjustments
to reflect initial
adoption of IFRS 15
as at 1 October 2018
Our procedures in respect of the transition adjustments for the initial adoption of IFRS 15 were principally
performed as part of the prior year audit (and reported as a key audit matter in the 2018 auditor’s report).
At a Group level, these procedures included:
– Appraising the revisions to the Group’s revenue recognition accounting policy under IFRS 15, including
both its technical appropriateness and its completeness in reflecting the diversity of the Group’s products
and services.
– Evaluating the impact analysis and the accounting judgments made based on the characteristics of the
Group’s products and their method of delivery to customers.
– Assessing the appropriateness of the methods used to determine the estimated impact of the initial
application of IFRS 15.
As part of the prior year audit, we instructed component audit teams in all full and specific scope locations
with significant revenue streams to perform:
– audit procedures on a sample basis to test the accuracy and completeness of local management’s
analysis of product types, contract terms and sales channel mechanisms; and
– substantive testing to gain assurance on the quantitative impact of the transition to IFRS 15 at
each location.
As part of the FY19 audit, we assessed the results of our audit procedures on revenue recognised in the year
ended 30 September 2019 for indications that the assessment and calculation of the transition adjustment
was inappropriate.
133
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE SAGE GROUP PLC continued
First time application of IFRS 15 continued
Area of audit focus
Audit Response
Application of the
Group’s IFRS 15
accounting policies
in the year ended 30
September 2019 (FY19)
Disclosures in the first
year of application as
required by IFRS 15
Appendix C.
Component audit teams in all full and specific scope locations with significant revenue streams
(8 components) performed:
– Analysis of products sold and ways of selling these in the year to assess whether there are changes that
would require further assessment with respect to the requirements of IFRS 15 and the Group’s updated
accounting policies for revenue recognition; and
– Substantive testing to gain assurance on the adjustments posted to reflect the application of the Group’s
updated IFRS 15 accounting policy on FY19 revenue including:
– the measurement of adjustments to revenue recognised in the year in respect of the recognition and
deferral of revenue for on-premise subscription products;
– the assessment of whether business partners represent customers of the Group in the sale of product
and services and the related classification of amounts payable to business partners;
– the recognition or deferral of non-refundable contract sign-up fees; and
– the capitalisation and amortisation of costs incurred in order to acquire customer contracts.
– We assessed whether these disclosures, including the Group’s accounting policy for revenue under IFRS 15,
were complete and consistent with the results of our testing of the effects of adoption, both qualitatively
and quantitively.
Key observations communicated to the Audit and Risk Committee
Based on the procedures performed, we concluded that management’s adoption of IFRS 15, including the specific considerations
around the recognition and presentation of revenue under this standard is appropriate. We did not identify any significant new
revenue matters requiring consideration beyond those identified at adoption.
Key audit matter
Recoverability of goodwill and other intangible assets allocated to the Intacct CGU
Goodwill of £2,098 million is recognised in the Group’s consolidated balance sheet at 30 September 2019. Included in this balance is
the North America Intacct Cash Generating Unit (‘CGU’) goodwill of £479 million, as at 30 June 2019, the date of the Group’s annual
goodwill impairment test. In addition, other intangible assets of £137 million are recognised within the Intacct CGU at 30 June 2019.
We focused on this CGU as the director’s assessment of its ’value in use’ involves estimation about the future performance of the
business, particularly as Intacct has been recently acquired, is currently loss making and is in a period of growth. Furthermore,
estimation is required in determining the discount rate to be applied to the forecasts of future cash flows.
In addition, for the Intacct CGU:
– forecasts for a nine-year period are applied to reflect the ongoing investment in new customer acquisition; and
– the recoverable value is sensitive to reasonably possible changes in certain key assumptions.
There is no change in the risk profile in the current year.
Our audit response to this risk is consistent with the prior year.
Refer to the Audit and Risk Committee Report (page 92). Management’s assessment of the estimation required is set out in note 1 to
the consolidated financial statements, with results of management’s assessment of the recoverability of goodwill in note 6.1.
134
Annual Report and Accounts 2019The Sage Group plc. Recoverability of goodwill and other intangible assets allocated to the Intacct CGU
Our audit response
The recoverability of the goodwill balance carried by the North America Intacct CGU of the Group was subject to full scope audit
procedures performed by the Primary audit team with support from the Intacct component audit team on certain procedures.
Area of audit focus
Valuation model
Audit Response
– We tested the methodology applied in the value in use calculation as compared to the requirements of
IAS 36, Impairment of Assets, including the appropriateness of the forecast period, and the mathematical
accuracy of management’s model.
– We have evaluated management’s forecasting for Intacct through comparison of actual performance to
budget since acquisition.
Key assumptions in the
valuation
– We evaluated the key underlying assumptions used in the valuation including growth rates, margin and
the discount rate applied.
– We assessed the appropriateness of the key assumptions used in the FY20 forecast including new
customer acquisition, upsell/add-ons and level of churn by assessing these against the results achieved in
FY19 and the prior track record of growth.
– For forecasts for FY21-FY23, we considered the latest market trends to evaluate whether there is any evidence
that the forecast growth rates assumed for this period should be lower than the current growth rate.
– We assessed whether there are any contra indicators, such as new market entrants or new technology,
which may indicate that the forecast revenue growth for FY24-FY28 will not be realised.
– With assistance from EY valuation specialists, we performed audit procedures on the reasonableness of
the discount rate and long-term growth rate used by management, including comparison to economic
and industry forecasts where appropriate.
– We evaluated if and why the forecasts differed from the original acquisition plan used in the purchase
price allocation at the date of acquisition and evaluated management’s track record of delivering against
budget since acquisition.
– We performed downside sensitivity analyses on key assumptions in the model, including combinations
thereof, to understand the parameters that, should they arise, cause an impairment of goodwill.
– We considered the appropriateness of the related disclosures provided in note 6.1 in the Group financial
statements, in particular the disclosure of the forecast period used in the value in use calculation and
sensitivity disclosures.
Disclosures
Key observations communicated to the Audit and Risk Committee
Whilst the discount rate used by management was below the lower end of EY’s determined range for Intacct, applying a discount
rate at the top-end of our range would not erode all the headroom in the value in use calculation. Accordingly, we agree with
management’s conclusion that no impairment of Intacct goodwill is required in the current year.
We agree with management that additional sensitivity disclosures are required in note 6.1 of the Group financial statements on the basis
that a reasonably possible change in certain key assumptions could lead to a different conclusion in respect of the recoverability of
goodwill. The variables to which the goodwill is most sensitive are the revenue growth rate assumptions and the discount rate applied.
The disclosures of sensitivities which would cause the headroom to be reduced to £nil reflect management’s discount rate.
We reported to the Audit and Risk Committee our sensitivities which considered the mid-point of the EY range as a starting point.
We do not consider the differences between these sensitivities to be material.
The current year key audit matters are consistent with prior year except for:
– the risk with respect to IFRS 15 has changed from disclosure of the impact of IFRS 15 adoption in FY18 to implementation of the
standard in FY19, and
– the allocation of Intacct goodwill is no longer relevant, this being finalised in the prior year.
An overview of 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 entity 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 20 components of the Group, we identified 11 components
which represent the principal business units within the Group. These include entities within the United Kingdom and Ireland, France,
North America, Spain, Germany, Brazil and South Africa.
135
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE SAGE GROUP PLC continued
Of the 11 components identified, 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 5 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. For the remaining 9 components, audit procedures were undertaken as set out below 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.
Reporting components
Number
2019
% Group
adjusted
Profit before
tax*
Full scope
Specific scope
Full and specific scope coverage
Remaining components
Total Reporting components
Notes
6
5
11
9
20
77%
18%
95%
5%
100%
% Group
Revenue
61%
28%
89%
11%
100%
Note
1,2
2,3
4
2018
% Group
adjusted
Profit before
tax
81%
19%
100%
0%
100%
Number
6
5
11
10
21
% Group
Revenue
60%
29%
89%
11%
100%
1. 3 of the 6 full scope components relate to the Parent Company and other corporate entities whose activities include the Group’s treasury management
and consolidation adjustments. The other 3 full scope components are UKI, France, and North America Sage Business Solutions Division.
2. The Group audit risk in relation to revenue recognition was subject to audit procedures at each of the full and specific scope locations with significant
revenue streams (being 3 full scope components and 5 specific scope components). The Group audit risk in relation to the recoverability of goodwill and
other intangible assets allocated to the Intacct CGU was subject to audit procedures by the Primary audit team on the entire balance, with support from
the Intacct component audit team on certain procedures.
3. Specific scope components are Brazil, Germany, North America Intacct, Spain, and South Africa. The audit scope of these specific scope components
may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts selected for
testing by the Primary audit team.
4. In the current year, the remaining 9 components contributed a net 5% of adjusted Profit before tax* and the individual contribution of these components
ranged from (1)% to 3% of the Group’s adjusted Profit before tax*. For 5 components, being Asia, Australia, Middle East, Sage People and Switzerland,
the Primary audit team performed review scope procedures, including analytical review and inquiries of component management (FY18: 3 components
being Asia, Australia and Middle East). In addition, the Primary team performed specified procedures on pension related balances in Switzerland. For the
remaining 4 components, the Primary audit team performed other procedures, including overall 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.
* Profit before tax and non-recurring items as defined in the ‘Our application of materiality’ section of this report.
Changes from the prior year
The change in the total number of reporting components
from 21 to 20 results from the disposal of the North America
payroll business.
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, the Primary audit team
performed audit procedures directly on 3, with the remaining
3 being performed by component audit teams. For the 3 full
scope components and the 5 specific scope components
where the work was performed by component auditors, we
were responsible for the scoping and direction of the audit
process and determined the appropriate level of involvement
to enable us to determine that sufficient audit evidence
had been obtained as a basis for our opinion on the Group
as a whole. The Primary audit team also performed review
procedures directly on a further 5 components.
The Group audit team followed a programme of planned
visits that was designed to ensure that the Senior Statutory
Auditor, or another Group audit partner, would visit all full
scope and select specific scope components. During the
current year’s audit cycle, visits were undertaken at least
once by the primary audit team to the component teams
in UKI, France, North America Sage Business Solutions
Division, North America Intacct, Spain, and South Africa.
These visits involved discussing with the component team
their audit approach and any issues arising from their work,
reviewing key audit working papers on the Group’s audit risk
areas, and meeting with local management to discuss the
component’s business performance and matters relating to
the local finance organisation including the internal financial
control environment. The Primary team interacted regularly
with all component teams during various stages of the audit,
attended closing meetings and reviewed those working papers
considered necessary to conclude we had obtained sufficient
appropriate audit evidence. This, together with the additional
procedures performed at Group level, gave us appropriate
evidence for our opinion on the Group financial statements.
136
Annual Report and Accounts 2019The Sage Group plc. 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 £18.8 million (2018: £20.4 million), which is
5% (2018: 5%) of Profit before tax adjusted for
non-recurring items reported by the Group.
We believe that Profit before tax adjusted
for non-recurring items provides us with the
most relevant performance measure to the
stakeholders of the entity. Non-recurring
items are set out in note 3.6 of the Group’s
financial statements and are summarised in
the graphic to the right.
Starting
basis
Total profit before tax of £361m
Adjustments for non-recurring items:
– Gain on disposal of subsidiary (£28m)
Adjustments
– Property restructuring costs £16m
– Impairment of assets held for sale £14m
– Office relocation £12m
Materiality
Total £375m
Materiality of £18.8m (5% of materiality basis)
During the course of our audit, we reassessed initial materiality
with the only change in the final materiality from our original
assessment at planning being to reflect the actual reported
performance of the Group in the year.
We determined materiality for the Parent Company to be £27.9
million (2018: £28.7 million), which is 1% (2018: 1%) of equity.
We believe that equity is an appropriate basis to determine
materiality given the nature of the Parent Company as the
holding company of the Group. Any balances in the Parent
Company financial statements that were relevant to our audit
of the consolidated Group were audited using an allocation of
Group performance materiality.
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 assessment together with our assessment
of the Group’s overall control environment, our judgment was
that performance materiality should be 50% (2018: 50%) of our
planning materiality, namely £9.4m (2018: £10.2m). For the current
year our judgment is that the percentage applied in calculating
performance materiality should remain at 50%. This reflects prior
year audit experience and the maturity of the finance organisation
and internal financial control environment.
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 components was £0.9m to £6.3m (2018:
£1.0m to £5.7m).
Reporting threshold
An amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would
report to them all uncorrected audit differences in excess of
£0.9m (2018: £1.0m), 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.
Other information
The other information comprises the information included
in the Annual Report set out on pages 1 to 128, other than
the financial statements and our auditor’s report thereon.
The directors are responsible for the other information.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly
stated in this report, we do not express any form of assurance
conclusion thereon.
137
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE SAGE GROUP PLC continued
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in
the other information and to report as uncorrected material
misstatements of the other information where we conclude
that those items meet the following conditions:
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the Group
and the Parent Company and its environment obtained
in the course of the audit, we have not identified material
misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
– adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
– the Parent Company financial statements and the part of
the 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
– Fair, balanced and understandable set out on page 128
– we have not received all the information and explanations
– the statement given by the directors that they consider
the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Group’s performance, business model and strategy, is
materially inconsistent with our knowledge obtained in the
audit; or
– Audit and Risk Committee reporting set out on page 89
– the section describing the work of the Audit and Risk
Committee does not appropriately address matters
communicated by us to the Audit and Risk Committee; or
– Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 70 – the parts of the
directors’ statement required under the Listing Rules relating
to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review
by the auditor in accordance with Listing Rule 9.8.10R(2) do
not properly disclose a departure from a relevant provision of
the UK Corporate Governance Code.
Opinions 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.
In our opinion, based on the work undertaken in the course of
the audit:
– 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; and
– the strategic report and the directors’ report have been
prepared in accordance with applicable legal requirements.
we require for our audit
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 128, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group and Parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the directors either intend to
liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance but is not a guarantee
that an audit conducted in accordance with ISAs (UK)
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions
of users taken on the basis of these financial statements.
138
Annual Report and Accounts 2019The Sage Group plc. Explanation as to what extent the audit was
considered capable of detecting irregularities,
including fraud
The objectives of our audit, in respect to fraud, are; to
identify and assess the risks of material misstatement of
the financial statements due to fraud; to obtain sufficient
appropriate audit evidence regarding the assessed risks
of material misstatement due to fraud, through designing
and implementing appropriate responses; and to respond
appropriately to fraud or suspected fraud identified during the
audit. However, the primary responsibility for the prevention
and detection of fraud rests with both those charged with
governance of the entity and management.
Our approach was as follows:
– The Primary team obtained an understanding of the legal
and regulatory frameworks that are applicable to the
Group and determined that the most significant are those
that relate to the reporting framework (IFRS, FRS 102, the
Companies Act 2006 and UK Corporate Governance Code),
the relevant tax compliance regulations in the jurisdictions
in which the Group operates and the EU General Data
Protection Regulation (GDPR).
– We understood how the Group is complying with those
frameworks by making enquiries of management, internal
audit, those responsible for legal and compliance procedures
and the company secretary. We corroborated our enquiries
through our review of board minutes and papers provided
to the Audit and Risk Committee and attendance at all
meetings of the Audit and Risk Committee, as well as
consideration of the results of our audit procedures across
the Group.
– Based on our understanding we designed our audit
procedures to identify non-compliance with laws and
regulations, including instructions to full and specific
scope component audit teams. At a Group level our
procedures involved: enquiries of Group management
and those charged with governance, legal counsel and
internal audit; journal entry testing, with a focus on manual
consolidation journals and journals indicating large or
unusual transactions based on our understanding of the
business. At a component level, our full and specific scope
component audit team’s procedures included enquiries of
component management; journal entry testing; and focused
testing, including as referred to in the key audit matters
section above.
– We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how
fraud might occur by: meeting with management from
various parts of the business to understand where it
considered there was susceptibility to fraud; and assessing
whistleblowing incidences for those with a potential
financial reporting impact. We also considered performance
targets and their propensity to influence on efforts
made by management to manage revenue and earnings.
We considered the programmes and controls that the
Group has established to address risks identified, or that
otherwise prevent, deter and detect fraud; and how senior
management monitors those programs and controls.
Where the risk was considered to be higher, including
areas impacting Group key performance indicators or
management remuneration, we performed audit procedures
to address each identified fraud risk or other risk of material
misstatement. These procedures included those on revenue
recognition detailed above, the assessment of items
identified by management as non-recurring and testing
manual journals and were designed to provide reasonable
assurance that the financial statements were free from
fraud or error.
A further description of our responsibilities for the audit of the
financial statements is located on the
Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Other matters we are required to address
– We were appointed by the Company at the AGM on
27 February 2019 to audit the financial statements for the
year ended 30 September 2019 and subsequent financial
periods. The period of total uninterrupted engagement
including previous renewals and reappointments is
five years, covering the years ended 30 September 2015,
30 September 2016, 30 September 2017, 30 September 2018
and 30 September 2019.
– The non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the Group or the Parent
Company and we remain independent of the Group and the
Parent Company in conducting the audit.
– The audit opinion is consistent with the additional report to
the Audit and Risk Committee.
Use of our report
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.
Alison Duncan (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
19 November 2019
Notes:
1. The maintenance and integrity of The Sage Group plc web site is the
responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
139
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2019
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Owners of the parent
Earnings per share attributable to the owners
of the parent (pence)
Underlying
2019
£m
Note
2.1, 3.1
1,936
(138)
1,798
(1,350)
448
6
(29)
425
(116)
309
2.2, 3.2, 3.3, 3.6
3.5
3.5
4
Adjustments
(note 3.6)
2019
£m
–
–
–
(66)
(66)
2
–
(64)
21
(43)
Statutory
2019
£m
1,936
(138)
1,798
(1,416)
382
8
(29)
361
(95)
266
Underlying
as reported*
2018
£m
Adjustments
(note 3.6)
2018
£m
1,857
(130)
1,727
(1,223)
504
4
(33)
475
(123)
352
(11)
–
(11)
(66)
(77)
1
(1)
(77)
20
(57)
Statutory
2018
£m
1,846
(130)
1,716
(1,289)
427
5
(34)
398
(103)
295
309
(43)
266
352
(57)
295
– Basic
– Diluted
5
5
28.40p
28.17p
24.49p
24.29p
32.51p
32.35p
27.21p
27.07p
All operations in the year relate to continuing operations.
Note:
* Underlying as reported is at 2018 reported exchange rates.
140
140
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2019
Profit for the year
Other comprehensive (expense)/income:
Items that will not be reclassified to profit or loss:
Actuarial loss on post-employment benefit obligations
Deferred tax charge on actuarial loss on post-employment benefit obligations
Items that may be reclassified to profit or loss:
Gain on available-for-sale fixed asset investment*
Exchange differences on translating foreign operations
Exchange differences recycled through income statement on sale of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Owners of the parent
Note
2019
£m
266
2018
£m
295
10, 14.4
4, 14.4
13.1
14.3
14.3
(1)
–
(1)
–
42
(4)
38
37
–
–
–
1
15
–
16
16
303
311
303
311
* See note 1 for detail on transition to IFRS 9 and the disposal of the available-for-sale fixed asset investment during the year ended 30 September 2019.
Annual Report and Accounts 2019
The Sage Group plc
141
141
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
As at 30 September 2019
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Fixed asset investment
Other financial assets
Trade and other receivables
Deferred income tax assets
Current assets
Trade and other receivables
Current income tax asset
Cash and cash equivalents (excluding bank overdrafts)
Assets classified as held for sale
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Provisions
Deferred income
Liabilities classified as held for sale
Non-current liabilities
Borrowings
Post-employment benefits
Deferred income tax liabilities
Provisions
Trade and other payables
Deferred income
Total liabilities
Net assets
Equity attributable to owners of the parent
Ordinary shares
Share premium
Other reserves
Retained earnings
Total equity
Note
6.1
6.2
7
13.1
8.1
11
8.1
12.3
15.3
8.2
12.4
9
8.3
15.3
12.4
10
11
9
8.3
14.1
14.3
2019
£m
2018
£m
2,098
228
117
–
4
73
31
2,551
364
3
371
63
801
2,008
260
129
17
1
2
51
2,468
460
4
272
113
849
3,352
3,317
(291)
(32)
(122)
(11)
(637)
(33)
(1,126)
(643)
(25)
(24)
(15)
(7)
(8)
(722)
(249)
(39)
(8)
(26)
(620)
(63)
(1,005)
(913)
(22)
(25)
(11)
(8)
(6)
(985)
(1,848)
1,504
(1,990)
1,327
12
548
184
760
12
548
146
621
1,504
1,327
The consolidated financial statements on pages 140 to 205 were approved by the Board of Directors on 19 November 2019 and are
signed on their behalf by:
Jonathan Howell
Chief Financial Officer
142
142
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2019
At 1 October 2018 as originally presented
Adjustment on initial application of IFRS 15 net of tax
Adjustment on initial application of IFRS 9 net of tax
At 1 October as adjusted
Profit for the year
Other comprehensive income/(expense):
Exchange differences on translating foreign operations
Exchange differences recycled through income statement on sale of
foreign operations
Actuarial loss on post-employment benefit obligations
Total comprehensive income
for the year ended 30 September 2019
Transactions with owners:
Employee share option scheme:
– Value of employee services including deferred tax
Proceeds from issuance of treasury shares
Dividends paid to owners of the parent
Total transactions with owners
for the year ended 30 September 2019
At 30 September 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2018
Note
17
1
14.3
14.3
14.4
14.4
14.4
14.4, 14.5
Ordinary
shares
£m
Share
premium
£m
Attributable to owners of the parent
Total
Retained
equity
earnings
£m
£m
Other
reserves
£m
12
–
–
12
–
–
–
–
–
–
–
–
–
548
146
–
–
548
–
–
–
–
–
–
–
–
–
–
–
146
–
42
(4)
–
38
–
–
–
–
12
548
184
621
24
(5)
640
266
–
–
(1)
(1)
33
3
1,327
24
(5)
1,346
266
42
(4)
(1)
37
33
3
(181)
(181)
(145)
760
(145)
1,504
Attributable to owners of the parent
At 1 October 2017
Profit for the year
Other comprehensive income/(expense):
Exchange differences on translating foreign operations
Gain on available-for-sale fixed asset investment
Total comprehensive income
for the year ended 30 September 2018
Transactions with owners:
Employee share option scheme:
– Value of employee services, net of deferred tax
– Proceeds from issuance of treasury shares
– Dividends paid to owners of the parent
Total transactions with owners
for the year ended 30 September 2018
At 30 September 2018
Ordinary
shares
£m
Note
14.3
13.1, 14.4
14.4
14.4
14.4, 14.5
12
–
–
–
–
–
–
–
–
Share
premium
£m
548
–
–
–
–
–
–
–
–
Other
reserves
£m
Retained
earnings
£m
Total
equity
£m
1,168
295
15
1
477
295
–
1
296
311
16
3
16
3
(171)
(171)
(152)
621
(152)
1,327
131
–
15
–
15
–
–
–
–
12
548
146
Annual Report and Accounts 2019
The Sage Group plc
143
143
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
Note
12.1
15.1
15.3
6.2
7
3.5
14.5
12.2
12.2
12.2
2019
£m
586
(26)
(88)
472
(41)
(3)
70
17
(15)
(27)
–
6
7
3
414
(594)
(78)
(1)
(181)
(437)
42
8
50
322
372
2018
£m
487
(30)
(64)
393
(8)
–
–
–
(36)
(20)
2
4
(58)
3
330
(389)
2
(3)
(171)
(228)
107
2
109
213
322
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 September 2019
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
Investment in non-current asset
Disposal of subsidiaries, net of cash disposed
Proceeds on settlement of equity investment
Purchases of intangible assets
Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Interest received
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Proceeds from issuance of treasury shares
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
144
144
Annual Report and Accounts 2019
The Sage Group plc.
Annual Report and Accounts 2019The Sage Group plc.
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”) and IFRS as issued by the International Accounting
Standards Board (“IASB”). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. The differences
have no impact on the Group’s consolidated financial statements for the years presented. 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. The Company controls an entity when it is exposed, or has rights, to variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity, which is usually from date of acquisition.
All figures presented are rounded to the nearest £m, unless otherwise stated.
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 with the exception of the adoption of IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts
with Customers”, the impact of which has been detailed below.
IFRS 9
The Group has adopted IFRS 9 “Financial Instruments” from 1 October 2018 and applied the modified retrospective approach.
Comparatives for 2018 have not been restated and the cumulative impact of adoption has been recognised as a decrease to
retained earnings with a corresponding decrease in net assets as at 1 October 2018 as follows:
Retained earnings
Provision for losses against trade debtors
Tax impact
Total impact at 1 October 2018
Non-current assets
Deferred income tax asset
Current assets
Trade and other receivables
Total impact at 1 October 2018
1 October
2018
£m
(6)
1
(5)
1
–
(6)
(5)
The adjustment above arises from adoption of IFRS 9’s simplified approach to providing for lifetime expected credit losses at the
date of initial recognition of trade receivables. Previously under IAS 39 an impairment allowance for credit losses was not
recognised until there was an indicator of impairment. Under IFRS 9, the Group uses a matrix approach to determine the credit
loss provisions, with default rates assessed for each country in which the Group operates.
The Group continues to apply the hedge accounting requirements of IAS 39 instead of those in IFRS 9.
IFRS 9 made changes to the classification and measurement requirements for financial assets compared to IAS 39. These did not
have any significant impact on the balances reported by the Group. The changes applicable to the Group are:
– Trade receivables and other financial assets were classified as loans and receivables under IAS 39. Under IFRS 9, they are
classified and measured as financial assets held at amortised cost because they are held to collect contractual cash flows and
give rise to cash flows representing solely payments of principal and interest. This did not result in any change in the carrying
amount or presentation of these balances.
– On transition to IFRS 9, the Group elected to classify its unquoted equity investment, which is presented in the balance sheet as
a fixed asset investment, as at fair value through other comprehensive income. The investment has since been derecognised on
its redemption in the year ended 30 September 2019. The investment had previously been classified as an available-for-sale
financial asset under IAS 39. The investment is carried at its fair value under both IAS 39 and IFRS 9 and as a result of the
election made under IFRS 9, changes in the fair value of the investment prior to its derecognition continued to be recognised in
the statement of other comprehensive income when they arose. However, in a change to the previous treatment, under IFRS 9
the cumulative gain was not reclassified to profit for the period when the investment was derecognised.
145
145
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
BASIS OF PREPARATION AND CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS continued
1 Basis of preparation and critical accounting estimates and judgements continued
The following table summarises these reclassifications:
As at 1 October 2018
IAS 39 measurement category
Loans and receivables
Trade receivables*
Other financial assets
Available for sale
Fixed asset investment
Total balance
under IAS 39
£m
IFRS 9 measurement category
Amortised cost
£m
Fair value through OCI
£m
370
3
17
390
364
3
–
367
–
–
17
17
* The change in carrying amount results from the increase in the provision for losses as explained above.
The change in the closing balance of allowances for impairment losses under IAS 39 to the opening loss allowances on adoption of
IFRS 9 is as follows:
As at 1 October 2018
Loans and receivables under IAS 39 / financial assets
held at amortised cost under IFRS 9
Allowance for
impairment
under IAS 39
£m
Remeasurement
£m
Expected credit losses
under IFRS 9
£m
20
6
26
IFRS 15
As disclosed in our Annual Report 2018, the Group has adopted IFRS 15 retrospectively with the cumulative effect of initially
applying the standard recognised on the date of initial application, being 1 October 2018 for the Group (the “cumulative catch up”
approach) and the practical expedient to apply the standard only to contracts in progress but not completed at the date of initial
application. Prior year comparatives are not restated and retained earnings at 1 October 2018 have been restated for the full
cumulative impact of adopting the standard.
Information on the changes resulting from the adoption of IFRS 15, quantitative information on their impact at 1 October 2018 and
a reconciliation for the year ending 30 September 2019 between the primary financial statements under IFRS 15 and the financial
position and performance that would have been reported in accordance with IAS 18 are set out in note 17.
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 65.
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in
operation for the foreseeable future, for 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, in accordance with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS. Further details for adopting the going concern basis are set
out in the Directors’ Report on page 124.
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.
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 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, except for foreign currency movements on intercompany balances where settlement is not planned or
likely in the foreseeable future, in which case they are recognised in other comprehensive income. Foreign exchange movements
on external borrowings which are designated as a hedge of the net investment in its related subsidiaries are recognised in the
translation reserve.
146
146
Annual Report and Accounts 2019The Sage Group plc.
The assets and liabilities of the Group’s subsidiaries outside 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 and Risk Committee.
Revenue recognition
Approximately 35% of the Company’s revenue is generated from sales to partners rather than end users. The key judgement is
determining whether the business partner is a customer of the Group. The key criteria in this determination is whether the
business partner has taken control of the product, which is usually assessed based on whether the business partner has
responsibility for payment and takes on the risks and rewards of the product from Sage.
Where the business partner is a customer of Sage, discounts are recognised as a deduction from revenue.
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 contract acquisition costs.
An additional area of judgement is the recognition and deferral of revenue on on-premise subscription offerings, for example the
sale of a term licence with an annual maintenance and support contract as part of a subscription contract. In such instances, the
transaction price is allocated between the constituent performance obligations on the basis of standalone selling prices (SSPs).
Judgement is required when estimating SSPs. The Group has established a hierarchy to identify the SSPs that are used to allocate
the transaction price of a customer contract to the performance obligations in the contract. Where SSPs for on-premise offerings
are observable and consistent across the customer base, SSP estimates are derived from pricing history. Where there are no
directly observable estimates available, comparable products are utilised as a basis of assessment or residual approach is used.
Under the residual approach, the SSP for the offering is estimated to be the total transaction price less the sum of the observable
SSPs of other goods or services in the contract. The Group uses this technique in particular for its on-premise subscription
offerings.
Goodwill impairment
A key judgement 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 strategy and the shift to
global product development. Management continues to monitor goodwill at a regional level, thus it was determined that the use
of CGUs based on geographical area of operation remains appropriate.
The assumptions applied in calculating the value in use of the CGUs being tested for impairment is a source of estimation
uncertainty. The key assumptions applied in the calculation relate to the future performance expectations of the business –
average medium-term revenue growth 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, and further information on the level at which goodwill is
monitored, are disclosed in note 6.1.
Classification and measurement of businesses held for sale
The Group’s Brazilian and Sage Pay businesses have been classified as businesses held for sale. Classification as held for sale
requires judgements to be made on whether the qualifying criteria have been met. The Group considers these businesses to meet
the criteria to be classified as held for sale for the following reasons:
– Management has approved the plans to sell these businesses;
– The businesses are available for immediate sale and can be sold to a buyer in their current condition;
– The sales are expected to be completed within one year from the date of initial classification; and
– Potential buyers have been identified and negotiations are ongoing as at the reporting date.
147
147
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
BASIS OF PREPARATION AND CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS continued
1 Basis of preparation and critical accounting estimates and judgements continued
The assets of businesses held for sale are measured at the lower of their carrying amount and their fair value less costs to sell.
Determination of fair value less costs to sell requires estimates to be made of the selling price that might be obtained for the
business and the costs to be incurred on completing the transaction. Management has reached its conclusions based on the bids
received from potential buyers to date, the status of negotiations and its past experience of similar transactions.
For more details on the businesses held for sale, see note 15.3.
Future accounting standards
The Directors also considered the impact on the Group of new and revised accounting standards, interpretations or amendments
which have been issued but were not effective for the Group for the year ended 30 September 2019. The most significant of these
is IFRS 16 “Leases”, which has been endorsed for use in the EU and has been adopted by the Group with effect from 1 October
2019. IFRS 16 will have a significant effect on the Group’s financial reporting and its impact is discussed below. Other new and
revised accounting standards, interpretations or amendments that have been issued but are not yet effective for the Group are
not expected to have a material impact on the consolidated financial statements when first applied.
IFRS 16
IFRS 16 is effective for the Group for the financial year commencing on 1 October 2019, replacing the existing lease accounting
standard IAS 17. The new standard will impact the accounting for leases in which the Group is the lessee. The Group currently
accounts for these leases as operating leases, with rentals payable charged to the income statement on a straight-line basis as an
operating expense. Under the new standard, the Group will recognise additional lease assets and lease liabilities on the balance
sheet to account for the right to use the leased items and the obligation to make future lease payments. The right of use asset will
be presented within property, plant and equipment and the lease liabilities within current and non-current borrowings. The costs of
most leases will be recognised in the income statement split between depreciation of the lease asset and a finance charge on the
lease liability. Depreciation will be presented within selling and administrative expenses and finance charges within finance costs.
The Group will apply the modified retrospective approach to transition to IFRS 16 with the cumulative impact recognised in equity
on 1 October 2019 and no restatement of the financial statements for the prior year. Under this approach, lease liabilities are
measured at the present value of future lease payments discounted using the Group’s incremental borrowing rate applicable to
the currency and remaining term of each lease. Right of use assets are measured either as if IFRS 16 had been in place since the
commencement of the lease or at an amount equal to the lease liability at adoption, adjusted for any existing prepaid or accrued
lease payments. Measurement as if IFRS 16 had been in place since commencement of the lease is applied to the Group’s
property leases.
The Group’s implementation of the new standard is substantially complete and data has been collected on all the leases to which
the standard applies. The Group has elected to apply the exemptions available for short-term leases with a lease term of 12 months
or less and leases of low value items. The leases to which these exemptions apply will be accounted for in the same way as current
operating leases, with no lease assets or liabilities recognised. The low value exemption is expected to apply to most of the Group’s
leases of IT and other office equipment. On transition, the Group will make use of the following practical expedients available
under the modified retrospective approach:
– For leases other than property leases, the Group will measure the right of use assets at an amount equal to the lease liability at
adoption, adjusted for any existing prepaid or accrued lease payments, and will also apply a single discount rate to a portfolio of
those leases with reasonably similar characteristics;
– For all leases, the Group will exclude from the measurement of the right of use asset initial direct costs incurred when obtaining
the lease; and
– The Group will rely on its existing onerous lease assessments under IAS 37 to impair right of use assets instead of performing a
new impairment assessment for those assets.
The Group currently estimates that on transition it will recognise right of use assets of between approximately £120m and £130m
and lease liabilities of between approximately £135m and £145m. Taking account of the elimination of the Group’s existing assets
and liabilities for prepaid and accrued lease payments, net assets will decrease by approximately £5m, with a corresponding
adjustment recognised in equity. The Group’s total undiscounted operating lease commitment at 30 September 2019 as disclosed
under existing reporting requirements was £162m (note 3.4). The Group’s most significant leases by value are those for office
buildings which comprise over 95% of existing current lease commitments. For the year ending 30 September 2020 and
subsequent years, there will be a reduction in lease expenses charged to operating profit and an increase in finance costs in the
income statement compared to the current treatment. The impact will depend on the future make-up of the Group’s lease
portfolio but, assuming the existing portfolio remains unchanged, the previous operating expense is estimated to reduce by
approximately £5m and finance costs to increase by approximately £5m. The Group’s total rental expense for the year ended 30
September 2019 under existing reporting requirements was £30m (note 3.2). The standard will not impact net cash flow, but cash
flows from most lease payments will be reclassified from cash flows from operating activities to cash flows from financing
activities, as the payments will represent the repayment of lease liabilities.
148
148
Annual Report and Accounts 2019The Sage Group plc.
RESULTS FOR THE YEAR
2 Segment information
This note shows how Group revenue and Group operating profit are generated across the three reportable segments in which
we operate, being Northern Europe, Central and Southern Europe and North America. The Group’s operations in Africa and
the Middle East, Asia (including Australia) and Latin America do not meet the quantitative thresholds for disclosure as
reportable segments under IFRS 8, and so are presented together in the analyses and described as International. This is
explained further below.
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 statutory and underlying
operating profit.
– Statutory results reflect the Group’s results prepared in accordance with the requirements of IFRS.
– “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. Management applies
judgement in determining which items should be excluded from underlying performance. See note 3.6 for details of
these adjustments.
In addition, the prior year underlying amounts are translated at current year exchange rates, so that exchange rate impacts do
not distort comparisons. Prior year underlying amounts at prior year exchange rates are “underlying as reported”; prior year
and current year amounts at current year exchange rates are “underlying”.
– Organic is a non-GAAP measure. The contributions from discontinued operations, disposals and assets held for sale of
standalone businesses in the current and prior period are removed so that results can be compared to the prior year on a
like-for-like basis. Results from acquired businesses are excluded in the year of acquisition. Adjustments are made to the
comparative period to present prior period acquired businesses as if these had been part of the Group throughout the
prior period. Acquisitions and disposals which occurred close to the start of the opening comparative period where the
contribution impact would be immaterial are not adjusted. Financial year 2018 comparative includes the impact of IFRS 15
applied in a manner consistent with financial year 2019.
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).
149
149
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
2 Segment information continued
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 its designated responsibility for the allocation of resources to operating
segments and assessing their performance, through the Quarterly Business Reviews chaired by the President of Sage and
Chief Financial Officer. The Executive Committee uses 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 nine key operating segments: North America (excluding Intacct) (US and Canada), North America
Intacct, Northern Europe (UK and Ireland), Central Europe (Germany, Austria and Switzerland), France, Iberia (Spain and
Portugal), Africa and the Middle East, Asia (including Australia) and Latin America. For reporting under IFRS 8, the Group is
divided into three reportable segments. These segments are as follows:
– North America (North America (excluding Intacct) and North America Intacct)
– Northern Europe
– Central and Southern Europe (Central Europe, France and Iberia)
The remaining operating segments of Africa and the Middle East, Asia (including Australia) and Latin America do not meet
the quantitative thresholds for presentation as separate reportable segments under IFRS 8, and so are presented together
and described as International. They include the Group’s operations in South Africa, UAE, Australia, Singapore, Malaysia and
Brazil.
The reportable segments reflect the aggregation of the operating segments for Central Europe, France and Iberia, and also
of those for North America (excluding Intacct) and North America Intacct. In each case, the aggregated operating segments
are considered to share similar economic characteristics because they have similar long-term gross margins and operate in
similar markets. Central Europe, France and Iberia operate principally within the EU and the majority of their businesses are in
countries within the Euro area. North America (excluding Intacct) and North America Intacct share the same North American
geographical market and therefore share the same economic characteristics.
Segment reporting
The tables overleaf show a segmental analysis of the results for continuing operations.
The revenue analysis in the table overleaf 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.
150
150
Annual Report and Accounts 2019The Sage Group plc.
2.1 Revenue by segment
Recurring revenue by segment
North America
Northern Europe
Central and Southern Europe
International
Recurring revenue
Software and software related services (“SSRS”) revenue
by segment
North America
Northern Europe
Central and Southern Europe
International
SSRS revenue
Processing revenue by segment
North America
Northern Europe
Central and Southern Europe
International
Processing revenue
Total revenue by segment
North America
Northern Europe
Central and Southern Europe
International
Total revenue
Year ended 30 September 2019
Change
Statutory and
Underlying
£m
Organic
adjustments*
£m
Organic
£m
Statutory
Underlying
Organic
574
341
490
207
1,612
68
27
118
47
260
15
38
–
11
64
657
406
608
265
1,936
(1)
(1)
–
(51)
(53)
–
(2)
–
(3)
(5)
(15)
(37)
–
(4)
(56)
(16)
(40)
–
(58)
(114)
573
340
490
156
1,559
68
25
118
44
255
–
1
–
7
8
641
366
608
207
1,822
23.0%
14.4%
3.1%
4.7%
11.3%
14.9%
14.2%
3.1%
8.2%
10.0%
(8.4%)
(13.5%)
(37.5%)
(37.9%)
(21.7%)
(14.6%)
(21.7%)
(13.0%)
(18.5%)
(20.5%)
11.8%
16.4%
6.9%
8.5%
10.8%
(11.5%)
(37.2%)
(19.2%)
(8.0%)
(17.9%)
(52.8%)
(55.2%)
(8.7%)
(1.4%)
(1.4%)
(30.3%)
–
–
(26.4%)
(23.5%)
(24.7%)
(25.7%)
14.8%
6.8%
(2.8%)
(1.0%)
4.9%
7.5%
6.6%
(2.9%)
2.0%
3.1%
–
6.3%
(3.0%)
8.8%
9.7%
0.6%
4.4%
5.6%
151
151
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
2 Segment information continued
Statutory
£m
Underlying
adjustments
£m
Underlying as
reported
£m
Year ended 30 September 2018
Impact on
foreign
exchange
£m
Underlying
£m
Organic
adjustments*
£m
Organic
£m
Recurring revenue by segment
North America
Northern Europe
Central and Southern Europe
International
Recurring revenue
468
297
475
197
1,437
Software and software related services (“SSRS”) revenue by segment
North America
Northern Europe
Central and Southern Europe
International
SSRS revenue
Processing revenue by segment
North America
Northern Europe
Central and Southern Europe
International
Processing revenue
Total revenue by segment
North America
Northern Europe
Central and Southern Europe
International
Total revenue
75
44
150
55
324
31
39
–
15
85
574
380
625
267
1,846
10
1
–
–
11
–
–
–
–
–
–
–
–
–
–
10
1
–
–
11
478
298
475
197
1,448
75
44
150
55
324
31
39
–
15
85
584
381
625
267
1,857
22
–
1
(6)
17
3
–
–
(1)
2
2
–
–
–
2
27
–
1
(7)
21
500
298
476
191
1,465
78
44
150
54
326
33
39
–
15
87
611
381
626
260
12
(6)
(18)
(47)
(59)
(1)
(4)
(4)
(6)
(15)
(33)
(37)
–
(9)
(79)
(22)
(47)
(22)
(62)
512
292
458
144
1,406
77
40
146
48
311
–
2
–
6
8
589
334
604
198
1,878
(153)
1,725
* Adjustments relate to the disposal of Sage Payroll Solutions and assets held for sale in the current year (note 15.3). Adjustments to the prior year
comparatives include proforma adjustments for the areas of impact of IFRS 15 adoption assuming the same contractual basis as the current year. This is to
enable like-for-like comparison across the periods.
2.2 Operating profit by segment
Year ended 30 September 2019
Change
Statutory
£m
Underlying
adjustments
£m
Underlying
£m
Organic
adjustments
£m
Organic
£m
Statutory
Underlying
Organic
Operating profit by segment
North America
Northern Europe
Central and Southern Europe
International
Total operating profit
Operating profit by segment
North America
Northern Europe
Central and Southern Europe
International
Total operating profit
152
152
128
134
120
–
382
5
23
9
29
66
133
157
129
29
448
–
(14)
–
(2)
(16)
133
143
129
27
432
36.6%
3.1%
(31.4%)
(98.7%)
(10.5%)
(15.1%)
(22.9%)
10.9%
13.7%
(29.5%)
(25.5%)
1.7%
4.9%
(12.1%)
(13.0%)
Statutory
£m
Underlying
adjustments
£m
Underlying
as reported
£m
Year ended 30 September 2018
Impact of
foreign
exchange
£m
Underlying
£m
Organic
adjustments
£m
Organic
£m
94
130
174
29
427
55
11
10
1
77
149
141
184
30
504
8
–
(1)
(2)
5
157
141
183
28
509
15
(15)
(11)
(2)
(13)
172
126
172
26
496
Annual Report and Accounts 2019The Sage Group plc.
The results by segment from continuing operations were as follows:
North
America
£m
657
128
Northern
Europe
£m
406
134
Central and
Southern
Europe
£m
Total
reportable
segments
£m
International
£m
608
120
1,671
382
265
–
Year ended 30 September 2019
Revenue
Segment statutory operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year – continuing operations
Note
3.5
3.5
4
Reconciliation of underlying operating profit to statutory operating profit
Underlying operating profit
Amortisation of acquired intangible assets (note 3.6)
Other acquisition-related items (note 3.6)
Non-recurring items (note 3.6)
Statutory operating profit
North
America
£m
Northern
Europe
£m
Central and
Southern
Europe
£m
Total
reportable
segments
£m
International
£m
133
(19)
(9)
23
128
157
(6)
(5)
(12)
134
129
(5)
–
(4)
120
419
(30)
(14)
7
382
29
(1)
(7)
(21)
–
The results by segment from continuing operations were as follows:
North
America
£m
574
94
Northern
Europe
£m
380
130
Central and
Southern
Europe
£m
625
174
Total
reportable
segments
£m
1,579
398
International
£m
267
29
Year ended 30 September 2018
Revenue
Segment statutory operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year – continuing operations
Note
3.5
3.5
4
Reconciliation of underlying operating profit to statutory operating profit
Underlying operating profit as reported
Amortisation of acquired intangible assets (note 3.6)
Other acquisition-related items (note 3.6)
Non-recurring items (note 3.6)
Statutory operating profit
North
America
£m
149
(26)
(28)
(1)
94
Northern
Europe
£m
141
(3)
(4)
(4)
Central and
Southern
Europe
£m
Total
reportable
segments
£m
International
£m
184
(5)
–
(5)
474
(34)
(32)
(10)
398
30
(1)
–
–
29
130
174
Group
£m
1,936
382
8
(29)
361
(95)
266
Group
£m
448
(31)
(21)
(14)
382
Group
£m
1,846
427
5
(34)
398
(103)
295
Group
£m
504
(35)
(32)
(10)
427
153
153
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
2 Segment information continued
2.3 Analysis by geographic location
Management considers 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
USA
UK
France
Other individually immaterial countries
2019
£m
561
380
277
718
2018
£m
486
353
292
715
1,936
1,846
Management considers 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
USA
UK
France
Other individually immaterial countries
3 Profit before income tax
2019
£m
913
371
237
931
2018
£m
1,348
416
243
390
2,452
2,397
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 in the consolidated balance sheet.
This note also provides a breakdown of any material recurring and non-recurring items that have been reported separately on
the face of the income statement.
154
154
Annual Report and Accounts 2019The Sage Group plc.
3.1 Revenue
Accounting policy
The Group’s new IFRS 15 accounting policy is disclosed below. Differences from policies applied to 2018 comparatives are
disclosed in note 17, and full revenue policies applied to 2018 figures can be found in the Annual Report and Accounts 2018.
The Group reports revenue under three revenue categories and the basis of recognition for each category is described below:
Category and examples
Accounting treatment
Recurring revenue
Subscription contracts
Maintenance and support contracts
Software and software-related
services
Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Hardware and stationery
Processing revenue
Payment processing services
Payroll processing services
Recurring revenue is revenue earned from customers for the provision of a good or service
over a contractual term, with the customer being unable to continue to benefit from the
full functionality of the good or service without ongoing payments.
Subscription revenue is recurring revenue earned from customers for the provision of a
good or service over a contractual term. In the event that the customer stops paying, they
lose the legal right to use the software and the Group has the ability to restrict the use of
the product or service.
Subscription revenue and maintenance and support revenue are usually recognised on a
straight-line basis over the term of the contract as control is transferred to the customer
(including non-specified upgrades, when included). An exception is revenue from term
licences embedded within a subscription contract for software with significant standalone
functionality which are expected to recur upon renewal of the subscription offering.
Revenue for these term licences is recognised when control is transferred at inception of
each subscription contract period.
Perpetual software licences with significant standalone functionality and specified
upgrades revenue are recognised when the control relating to the licence has been
transferred. 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 hardware and stationery) is recognised as the
products are shipped to the customer.
Other services revenue (which includes 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.
Identification of performance obligations
When the Group enters into an agreement with a customer, goods and services deliverable under the contract are identified
as separate performance obligations (“obligations”) to the extent that the customer can benefit from the goods or services on
their own and that the separate goods and services are considered distinct from other goods and services in the agreement.
Where individual goods and services do not meet the criteria to be identified as separate obligations they are aggregated with
other goods and/or services in the agreement until a separate obligation is identified.
Typically, the products and services outlined in the categories of revenue section qualify as separate performance obligations
and the portion of the contractual fee allocated to them is recognised separately. However, certain on-premise subscription
contracts, which combine the delivery of on-premise software and maintenance and support services, require unbundling.
Sage native cloud services usually do not require unbundling as the terms usually do not provide the customer with a right to
terminate the hosting contract and take possession of the software.
When selling goods or services, in certain instances, customers pay a non-refundable contract sign-up fee when they enter
into a new initial contract for a software product, and no equivalent fee is payable on subsequent renewals. The Group applies
judgement in determining whether such sign-up fees provide a material right to the customer that the customer would not
receive without entering into that contract. In applying this judgement, the Group considers whether the options entitle the
customer to a discount that exceeds the discount that would normally be granted for the respective goods or services if they
were to be sold without the option. Where this is the case, the non-refundable contract sign-up fee is treated as a separate
performance obligation.
Determination of transaction price and standalone selling prices
The Group determines the transaction price it is entitled to in return for providing the promised obligations to the customer
based on the committed contractual amounts, net of sales taxes and discounts. Contract terms generally are monthly or
annual and customers either pay up-front or over the term of the related service agreement.
155
155
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
3 Profit before income tax continued
3.1 Revenue continued
The transaction price is allocated between the identified obligations according to the relative standalone selling prices (SSPs)
of the obligations. The SSP of each obligation deliverable in the contract is determined according to the prices that the Group
would obtain by selling the same goods and/or services included in the obligation to a similar customer on a standalone basis.
See “Critical accounting estimates and judgements” in note 1 for details.
Timing of recognition
Revenue is recognised when the respective obligations in the contract are delivered to the customer and payment remains
probable.
– Licences for standard on-premise software products are typically delivered by providing the customer with access to
download the software. The licence period starts when such access is granted. Licence revenue is recognised at a point in
time or over time depending on whether the Group delivers software with significant standalone functionality or software
which is dependent on updates for ongoing functionality. The Group recognises revenue for these licenses which have
significant standalone functionality at the point in time when the customer has access to and thus control over the software.
For licences which are dependent on updates for ongoing functionality the Group recognises revenue based on time
elapsed and thus rateably over the term of the contract. Typically, this includes our payroll and tax compliance software.
– Where the Group’s performance obligation is the grant of a right to continuously access a cloud offering for a certain term,
revenue is recognised based on time elapsed and thus rateably over the term.
– Maintenance and support revenue is typically recognised based on time elapsed and thus rateably over the term of the
support arrangement. Under the standardised maintenance and support services, the Group’s performance obligation is to
stand ready to provide technical product support and unspecified updates, upgrades and enhancements on a when-and-if-
available basis. The customers simultaneously receive and consume the benefits of these services.
– Professional services and training revenue are typically recognised over time. Where the Group stands ready to provide the
service (such as access to learning content), revenue is recognised based on time elapsed and thus rateably over the
service period. Consumption-based services (such as separately identifiable professional services and premium support
services, messaging services, and classroom training services) are recognised over time as the services are utilised,
typically following the percentage-of-completion method or rateably.
– Non-refundable contract sign-up fees that qualify as separate performance obligations are recognised as revenue over the
anticipated period of benefit to the customer, which takes account of the likelihood of the customer renewing the contract.
Identification of contract with the customer
When the Group sells goods or services through a business partner, a key consideration is determining whether the business
partner or the end user is Sage’s customer. The key criteria in this determination is whether the business partner has taken
control of the product. This is usually assessed based on whether the business partner has responsibility for payment and
takes on the risks and rewards of the product from Sage. See “Critical accounting estimates and judgements” in note 1
for details.
Principal versus agent considerations
When the Group has control of third-party goods or services prior to delivery to a customer, then the Group is the principal in
the sale to the customer. As a principal, receipts from customers and payments to suppliers are reported on a gross basis in
revenue and cost of sales. If the Group does not have control of third-party goods or services prior to transfer to a customer,
then the Group is acting as an agent for the other party and revenue in respect of the relevant obligations is recognised net of
any related payments to the supplier and reported revenue represents the margin earned by the Group. Whether the Group is
considered to be the principal or an agent in the transaction depends on analysis by management of both the legal form and
substance of the agreement between the Group and its supplier. This takes into account whether Sage bears the price,
inventory and performance risks associated with the transaction.
Practical expedients
As the majority of contracts have a term of one year or less, the Group has applied the following practical expedients.
– The aggregate transaction price allocated to the unsatisfied or partially unsatisfied performance obligations at the end of
the reporting period is not disclosed.
– Any financing component is not considered when determining the transaction price.
156
156
Annual Report and Accounts 2019The Sage Group plc.
3.2 Operating profit
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 from continuing operations
Staff costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
(Gain)/loss on disposal of subsidiary
Other operating lease rentals payable
Other acquisition-related items
Note
7
6.2
3.6
3.6
2019
£m
885
34
44
(28)
30
21
2018
£m
837
20
48
1
27
32
The Group incurred £220m (2018: £192m) of research and development expenditure in the year, of which £194m (2018: £174m)
relates to total Group staff costs included above. See note 6.2 for the research and development accounting policy.
Depreciation of property, plant and equipment includes £12m of accelerated depreciation charge relating to the Group’s UK
flagship office move from North Park to Cobalt Business Park, announced on 1 July 2019. The Group has reviewed its estimates of
the useful lives and residual values of the assets relating to the existing site. These assets are presented in the balance sheet
within property, plant and equipment. The effect of these changes in estimates is to depreciate the remaining carrying amounts of
these assets down to their revised residual values over the period July 2019 to September 2020, by which time the relocation is
expected to be complete and the existing property vacated. This has resulted in an increase of £12m in the amount of depreciation
charged in the income statement in the year ended 30 September 2019. These changes are also expected to increase the
depreciation charge for the year ending 30 September 2020 by £48m. These accelerated depreciation charges are classified as
non-recurring adjustments between underlying and statutory results as explained in note 3.6. Expenses incurred whilst preparing
the new property for occupation, including related lease costs, are capitalised as leasehold improvement assets within property,
plant and equipment.
Services provided by the Group’s auditor and network firms
During the year, the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs
as detailed below:
Fees payable to the Group’s auditor for the audit of 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
Other non-audit services
Total fees
* Includes costs relating to half year review.
2019
£m
2018
£m
2
3
–
5
–
5
2
2
–
4
–
4
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 95.
157
157
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
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:
North America
Northern Europe
Central and Southern Europe
International
Staff costs (including Directors on service contracts)
Wages and salaries
Social security costs
Post-employment benefits
Share-based payments
2019
number
2018
number
2,551
2,865
4,334
3,005
2,704
3,109
4,396
3,451
12,755
13,660
2019
£m
788
104
18
32
942
2018
£m
706
100
13
18
837
Note
10
14.2
Staff costs include a total of £57m of capitalised commission costs which are amortised over the expected contract life including
probable contract renewals.
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
2019
£m
9
–
7
16
2018
£m
4
–
2
6
Key management personnel are deemed to be members of the Group’s Executive Committee members and the Non-executive
Directors as shown on pages 67 to 69. The key management figures given above include the Executive Directors of the Group.
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
2019
Property,
vehicles,
plant and
equipment
£m
2018
Property,
vehicles,
plant and
equipment
£m
30
76
56
162
30
89
32
151
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.
158
158
Annual Report and Accounts 2019The Sage Group plc.
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. Derivative financial
instruments are measured at fair value through profit or loss. Foreign currency movements on intercompany balances are
recognised in the profit and loss account unless settlement is not planned or likely in the foreseeable future, in which case
they are recognised in other comprehensive income.
Finance income:
Interest income on short-term deposits
Foreign currency movements on intercompany balances
Finance income
Finance costs:
Finance costs on bank borrowings
Finance costs on US senior loan notes
Fair value adjustments to debt-related financial instruments
Amortisation of issue costs
Finance costs
Finance costs – net
3.6 Adjustments between underlying and statutory results
2019
£m
2018
£m
6
2
8
(11)
(16)
–
(2)
(29)
4
1
5
(14)
(17)
(1)
(2)
(34)
(21)
(29)
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 applies 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 to fair value adjustments on financial instruments and merger and acquisition (“M&A”)
related activity, although other types of recurring items may arise. M&A activity by its nature is irregular in its impact and
includes amortisation of acquired intangible assets, adjustments to acquired deferred income and acquisition and disposal-
related costs, including integration costs relating to an acquired business and acquisition-related remuneration. Foreign
currency movements on intercompany balances that are charged through the income statement are excluded from
underlying results, so that exchange rate impacts do not distort comparisons. Recurring items are adjusted each year
irrespective of materiality to ensure consistent treatment.
Non-recurring items
These are items which are non-recurring and are adjusted on the basis of either their size or their nature. These items
can include, but are not restricted to, gains and losses on the disposal of assets, impairment charges and reversals, and
restructuring-related costs. As these items are one-off or non-operational in nature, management considers that they would
distort the Group’s underlying business performance.
159
159
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
3 Profit before income tax continued
M&A activity-related items
Amortisation of acquired intangibles
(Gain)/loss on disposal of subsidiary
Impairment of assets held for sale
Adjustment to acquired deferred income
Other M&A activity-related items
Other items
Litigation items
Restructuring costs
Property restructuring costs
Office relocation
Total adjustments made to operating profit
Fair value adjustments
Gain on foreign currency movements on intercompany balances
Total adjustments made to profit before income tax
Recurring
2019
£m
Non-recurring
2019
£m
Total
2019
£m
Recurring
2018
£m
Non-recurring
2018
£m
Total
2018
£m
31
–
–
–
21
–
–
–
–
52
–
(2)
50
–
(28)
14
–
–
–
–
16
12
14
–
–
14
31
(28)
14
–
21
–
–
16
12
66
–
(2)
64
35
–
–
11
21
–
–
–
–
67
1
(1)
67
–
1
–
–
–
4
5
–
–
10
–
–
10
35
1
–
11
21
4
5
–
–
77
1
(1)
77
Recurring items
Acquired intangibles are assets which have previously been recognised as part of business combinations or similar transactions.
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.
Other M&A activity-related items relate to completed transaction costs and include advisory, legal, accounting, valuation and
other professional or consulting services as well as acquisition-related remuneration and directly attributable integration costs.
This includes a provision for future selling costs for assets held for sale. Further details can be found in note 15.3.
Foreign currency movements on intercompany balances of £2m (2018: credit of £1m) occur due to retranslation of intercompany
balances other than those where settlement is not planned or likely in the foreseeable future. The balance arises in the current
year due to fluctuation in exchange rates, predominantly the movement in Euro and US Dollar compared to sterling.
The adjustment made in the prior year to acquired deferred income represents the additional revenue that would have been recorded in
the year had deferred income not been reduced as part of the purchase price allocation adjustment made for business combinations.
The prior year fair value adjustment was in relation to an embedded derivative asset which relates to contractual terms agreed as
part of the US private placement debt.
Non-recurring items
Net charges in respect of non-recurring items amounted to £14m (2018: £10m).
Property restructuring costs of £16m (2018: £nil) relate to the reorganisation of the Group’s properties and consist of net lease exit costs
following consolidation of office space and impairment of leasehold and other related assets that are no longer in use. The Group is
anticipating incurring additional costs in the following year in connection with the further reorganisation of the Group’s property portfolio.
The prior year restructuring costs relate to costs arising from the restructure of parts of the senior leadership team.
Office relocation costs relate to the incremental depreciation charge resulting from accelerated depreciation following the
announced UK office move. Further details can be found in note 3.2.
The adjustment relating to litigation costs of £4m in the prior year related to two specific employment related matters that, based
on the Group’s experience, are one-off in nature. Both cases were settled during the year. All other litigation costs which have been
incurred through the normal course of business are included within underlying operating profit.
Details of gain on disposal of subsidiary and impairment of assets held for sale can be found in note 15.3.
In the prior year, the loss on disposal of subsidiary related to the sale of Sage XRT Brasil Ltda.
See note 4 for the tax impact of these adjustments.
160
160
Annual Report and Accounts 2019The Sage Group plc.
4 Income tax expense
This note analyses the tax expense 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 recognise liabilities or benefits that are expected to arise in the future due to differences between
the carrying values of assets and liabilities and their respective tax bases.
This note outlines the tax accounting policies, analyses the current and deferred tax expenses in the year and presents a
reconciliation between profit before tax in the income statement multiplied by the UK rate of corporation tax and the tax
expense for the year.
Accounting policy
The taxation expense for the year represents the sum of current tax payable and deferred tax. The expense is recognised in
the income statement, in the statement of comprehensive income or in equity 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 expense in the year
Current income tax
– Current tax on profit for the year
– Adjustment in respect of prior years
Current income tax on continuing operations
Current income tax on discontinued operations
Deferred tax
Origination and reversal of temporary differences
Impact of rate changes
Adjustment in respect of prior years
Deferred tax
The current year tax expense is split into the following:
Underlying tax expense
Tax credit on adjustments between the underlying and statutory operating profit
Tax only adjustments between the underlying and statutory operating profit
Income tax expense on continuing operations
Income tax expense on discontinued operations
Income tax expense reported in income statement
Tax on items credited to other comprehensive income
Deferred tax charge on actuarial gain on post-employment benefit obligations
Deferred tax credit on foreign exchange movements
Total tax on items credited to other comprehensive income
Note
2019
£m
11
91
3
94
–
94
5
–
(4)
1
116
(21)
–
95
–
95
2019
£m
–
–
–
2018
£m
103
–
103
–
103
–
(4)
4
–
123
(17)
(3)
103
–
103
2018
£m
–
–
–
Deferred tax charge relating to share options and IFRS15 and 9 of £4m (2018: charge of £2m) has been recognised directly in equity.
161
161
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
4 Income tax expense continued
The tax for the year is higher (2018: higher) than the rate of UK corporation tax applicable to the Group of 19% (2018: 19%).
The differences are explained below:
Profit before income tax from continuing operations
Profit before income tax from discontinued operations
Total profit before income tax
Statutory profit before income tax multiplied by the rate of UK corporation tax of 19% (2018: 19%)
Tax effects of:
Adjustments in respect of prior years
Foreign tax rates in excess of UK rate of tax
US tax reform
Non-deductible expenses and permanent items
Other corporate taxes (withholding tax, business tax)
Tax incentive claims
Recognition of tax losses and amortisation
At the effective income tax rate of 26% (2018: 26%)
Income tax expense reported in the income statement
Income tax attributable to discontinued operations
2019
£m
361
–
361
69
(1)
20
1
6
7
(7)
–
95
95
–
95
2018
£m
398
–
398
76
4
26
(3)
(1)
5
(5)
1
103
103
–
103
The effective tax rate on statutory profit before tax was 26% (2018: 26%), whilst the effective tax rate on underlying profit before tax
on continuing operations was 27% (2018: 26%). The effective tax rate is higher than the UK corporation tax rate applicable to the
Group primarily due to the geographic profile of the Group, the inclusion of local business taxes in the corporate tax expense
offset by innovation tax credits for registered patents and research and development activities which are government tax
incentives in a number of operating territories. 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 £27m as at 30 September 2019 (2018: £27m).
The carrying amount is sensitive to a number 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 with 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 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 advisers on
specific items.
162
162
Annual Report and Accounts 2019The Sage Group plc.
EU State Aid
The Group continues to monitor developments following the EU Commission’s decision published on 25 April 2019 in respect
of its State Aid investigation into the UK’s Controlled Foreign Company regime. The EU Commission concluded that the UK law
did not comply with EU State Aid rules in certain circumstances. The UK Government has appealed to the European Court seeking
annulment of the EC Commission’s decision. The Group, in line with a number of UK corporates, is making a similar appeal. We
have calculated our maximum potential liability, excluding interest, to be approximately £35m. Based on current advice, we
consider that no provision is required at this time. The assessment of uncertain tax positions is subjective and significant
management judgement is required. This judgement is based on current interpretation of legislation, management experience and
professional advice.
5 Earnings per share
This note sets out how earnings per share (“EPS”) is calculated. EPS is the amount of post-tax profit attributable to each
ordinary share. Diluted EPS shows what the impact would be if all potentially dilutive ordinary shares in respect of 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,
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 attributable to owners of the parent 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.
Reconciliations of the earnings and weighted average number of shares
Earnings attributable to owners of the parent (£m)
Underlying
2019
Underlying as
reported
2018
Underlying
2018
Statutory
2019
Statutory
2018
Profit for the year
309
352
356
266
295
Number of shares (millions)
Weighted average number of shares
Dilutive effects of shares
1,086
9
1,095
1,083
6
1,089
1,083
1,086
6
9
1,089
1,095
1,083
6
1,089
Earnings per share attributable to owners of the parent – continuing
operations
Basic earnings per share (pence)
28.40
32.51
32.85
24.49
27.21
Diluted earnings per share (pence)
28.17
32.35
32.68
24.29
27.07
163
163
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
RESULTS FOR THE YEAR continued
5 Earnings per share continued
Reconciliation of earnings
Earnings – statutory profit for the year attributable to owners of the parent
Adjustments:
– Amortisation of acquired intangible assets and adjustment to acquired deferred income
– Fair value adjustments to debt-related financial instruments
– (Gain)/loss on disposal of subsidiary
– Foreign currency movements on intercompany balances
– Other M&A activity-related items
– Impairment of assets held for sale
– Restructuring costs and litigation-related items
– Office relocation
– Taxation on adjustments between underlying and statutory profit before tax
Net adjustments
Earnings – underlying profit for the year (before exchange movement)
Exchange movement
Taxation on exchange movement
Net exchange movement
2019
£m
266
31
–
(28)
(2)
21
14
16
12
(21)
43
309
–
–
–
2018
£m
295
46
1
1
(1)
21
–
9
–
(20)
57
352
5
(1)
4
Earnings – underlying profit for the year (after exchange movement) attributable to owners of the parent
309
356
Exchange movement relates to the retranslation of prior year results to current year exchange rates as shown in the table on
page 52 within the financial review.
164
164
Annual Report and Accounts 2019The Sage Group plc.
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, which is the price that would be received to sell an asset in an orderly transaction between
market participants at the measurement date.
Goodwill represents the excess of the amount paid to acquire a business over the fair value of the identifiable net assets of
that business 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.
Goodwill is tested for impairment annually and when circumstances indicate that it may be impaired. Goodwill is assessed
for the purpose of impairment testing, at either the individual CGU level or group of CGUs, consistent with the level at which
goodwill is monitored internally. Impairment is determined by assessing the recoverable amount of each CGU or group of
CGUs to which the goodwill relates. When the recoverable amount of the CGU or group of CGUs is less than its carrying
amount, an impairment loss is recognised.
At recognition, goodwill is allocated to those CGUs expected to benefit from the synergies of the combination.
Cost at 1 October
– Additions
– Disposals*
– Transfer to held for sale
– Exchange movement
At 30 September
Impairment at 1 October
– Transfer to held for sale
– Exchange movement
At 30 September
Net book amount at 30 September
* Includes finalisation of the sale of Sage Payroll Solutions. See note 15.3.
Note
15.1
15.3
15.3
15.3
2019
£m
2,100
41
3
(119)
73
2018
£m
2,115
–
–
(32)
17
2,098
2,100
92
(93)
1
–
113
–
(21)
92
2,098
2,008
165
165
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
6 Intangible assets continued
6.1 Goodwill continued
Cash-generating units
The following table shows the allocation of the carrying value of goodwill at the end of the reporting period by CGUs or group
of CGUs:
North America
– Sage Business Solutions Division (SBS)
– Sage Intacct
UK & Ireland
France
Iberia
Central Europe
Africa and the Middle East
Australia
Asia
Sage Pay Europe (note 15.3)
Unallocated – Ocrex business combination*
2019
£m
752
494
287
224
134
87
31
28
20
–
41
2018
£m
705
466
287
225
135
85
32
28
19
26
–
2,098
2,008
* Unallocated goodwill relates to Ocrex Limited, which was acquired on 27 September 2019 and calculated on a provisional basis. See note 15.1. In accordance
with IAS 36 “Impairment of assets”, goodwill will be allocated before the end of the first annual period beginning after the acquisition date, being by
30 September 2020. Management assessed whether there have been any triggering event or indicator that could lead to an impairment of the goodwill
acquired through the Ocrex Limited acquisition and concluded that there were no indicators that the fair value is lower than the amount paid by Sage.
Annual goodwill impairment tests
The recoverable amount of a CGU or group of CGUs is determined as the higher of its fair value less costs of disposal and its value
in use. In determining value in use, estimated future cash flows are discounted to their present value. The Group performed its
annual test for impairment as at 30 June 2019. In all cases, the 2020 budget and the approved Group plan for the three years
following the current financial year form the basis for the cash flow projections for a CGU or group of CGUs with an extension of a
further six years for the Sage Intacct CGU to reflect the planned growth following its acquisition in 2017. Beyond the three-year
Group plan period and additional six-year period for the Sage Intacct CGU 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 rates
and the long-term growth rates of net operating cash flows.
– The average medium-term revenue growth rates represent the compound annual revenue growth for the first five (2018: five)
years. The average medium-term revenue growth rate 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 rates*
– Long-term growth rates to net operating cash flows
2019
2018
2%-17%
4%-22%
1%-3%
1%-4%
* Average medium-term revenue growth rate is calculated on value in use projections that exclude intercompany revenue.
166
166
Annual Report and Accounts 2019The Sage Group plc.
In accordance with IAS 36, key assumptions for the value in use calculations are disclosed for those CGUs and groups of CGUs
where significant goodwill is held. These are deemed by management to be CGUs or groups of CGUs holding more than 10% of
total goodwill. The discount rate, average medium-term revenue growth rate and long-term growth rate assumptions used for the
value in use calculation for these are shown below:
2019
– UKI
– France
– North America – SBS
– North America – Sage Intacct
2018
– UKI
– France
– North America – SBS
– North America – Sage Intacct
Local
discount rate
(post-tax)
Approximate
local discount
rate (pre-tax)
equivalent
Long-term
growth
rate
Average
medium-term
revenue
growth rate*
7.9%
7.7%
9.0%
9.0%
9.1%
9.6%
11.6%
10.7%
2.1%
2.0%
1.9%
1.9%
5.2%
3.9%
4.8%
16.8%
Local
discount rate
(post-tax)
Approximate
local discount
rate (pre-tax)
equivalent
Long-term
growth
rate
Average
medium-term
revenue
growth rate*
7.9%
7.7%
8.9%
10.5%
9.1%
9.8%
11.6%
12.5%
2.1%
1.7%
1.9%
1.9%
4.5%
5.2%
5.8%
21.7%
* 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 or group of CGUs,
applying local government yield bonds and tax rates to each CGU or group of CGUs on a geographical basis. The discount rate
applied to a CGU or group of CGUs represents a post-tax rate that reflects the market assessment of the time value of money as
at 30 June 2019 and the risks specific to the CGU or group of CGUs. The post-tax discount rates applied to CGUs or group of CGUs
were in the range of 7.2% (2018: 7.2%) to 15.6% (2018: 15.3%), reflecting the specific rates for each territory.
Sensitivity analysis
A sensitivity analysis was performed for each of the significant CGUs or group of CGUs and other than for the Sage Intacct CGU
management concluded that no reasonably possible change in any of the key assumptions would result in the carrying value of
the CGU or group of CGUs to exceed its recoverable amount.
For the Intacct CGU, a reasonably possible change of a 2% increase in the discount rate combined with a decrease in the average
medium-term revenue growth rate by 6% p.a. for the initial five years would reduce the value in use by £968m down to its carrying
value. The Group has concluded that no reasonably possible change in the long-term growth rate would reduce the recoverable
amount to below its carrying value.
For the Asia CGU, a reasonably possible change in the average medium-term revenue growth rate by 3% p.a. for the subsequent
three years would reduce the value in use by £7m down to its carrying value. The Group has concluded that no reasonably possible
change in discount rate or long-term growth rate would reduce the recoverable amount to below its carrying value.
Impairment charge
The Group performed its annual test for impairment as at 30 June 2019. The recoverable amount exceeded the carrying value for
each CGU or group of CGUs, accordingly no impairment charge has been recognised in the year (2018: £nil).
167
167
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
6 Intangible assets continued
6.2 Other intangibles
Accounting policy
Intangible assets arising on business combinations are recognised initially at fair value at the date of acquisition.
Subsequently they are carried at cost less accumulated amortisation and impairment charges. 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
– 1 to 20 years
Customer relationships
– 4 to 15 years
Technology/In-process R&D (“IPR&D”)
– 3 to 7 years
Computer software
– 2 to 7 years
Other intangible assets that are acquired by the Group are stated at cost, which is the asset’s purchase price and any directly
attributable costs of preparing the asset for its intended use, 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 when 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; and
– 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.
Cost at 1 October 2018
– Additions
– Disposals*
– Transfer to held for sale
– Exchange movement
At 30 September 2019
Accumulated amortisation at 1 October 2018
– Charge for the year
– Disposals*
– Transfer to held for sale
– Exchange movement
At 30 September 2019
Net book amount at 30 September 2019
* Includes finalisation of the sale of Sage Payroll Solutions. See note 15.3.
168
168
Brands
£m
Technology
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
41
–
–
(5)
1
37
35
2
–
(4)
1
34
3
187
4
–
(14)
5
182
99
15
–
(14)
2
102
80
4
–
–
–
–
4
4
–
–
–
–
4
–
135
11
(1)
(4)
5
146
85
13
(1)
(3)
4
98
48
183
–
(8)
(10)
7
172
67
14
(3)
(6)
3
75
97
Total
£m
550
15
(9)
(33)
18
541
290
44
(4)
(27)
10
313
228
Annual Report and Accounts 2019The Sage Group plc.
Brands
£m
Technology
£m
Internal
IPR&D
£m
Computer
software
£m
Customer
relationships
£m
Cost at 1 October 2017
– Additions
– Acquisitions
– Disposals
– Transfer to held for sale
– Exchange movement
At 30 September 2018
Accumulated amortisation at 1 October 2017
– Charge for the year
– Disposals
– Transfer to held for sale
– Exchange movement
At 30 September 2018
Net book amount at 30 September 2018
42
–
–
–
–
(1)
41
33
3
–
–
(1)
35
6
195
12
11
–
(34)
3
187
102
18
–
(19)
(2)
99
88
4
–
–
–
–
–
4
4
–
–
–
–
4
–
106
27
–
(1)
–
3
135
67
13
–
–
5
85
50
Total
£m
534
39
11
(1)
(40)
7
550
260
48
–
(20)
2
290
187
–
–
–
(6)
2
183
54
14
–
(1)
–
67
116
260
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 purchase price less depreciation, which is an expense that is charged over the useful life of these assets to
reflect annual usage and 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 to write down an asset to its residual value over its useful
life as follows:
Freehold buildings
– Up to 50 years
Long leasehold buildings and improvements
– over period of lease
Plant and equipment
Motor vehicles
Office equipment
Freehold land is not depreciated.
– 2 to 7 years
– 4 years
– 2 to 7 years
An item of property, plant and equipment is reviewed for impairment whenever events indicate that its carrying value may not
be recoverable.
169
169
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
7 Property, plant and equipment continued
Cost at 1 October 2018
– Additions
– Disposals
– Disposal of subsidiaries
– Transfer to assets held for sale
– Exchange movement
At 30 September 2019
Accumulated depreciation at 1 October 2018
– Charge for the year
– Impairment
– Disposals
– Disposal of subsidiaries
– Transfer to assets held for sale
– Exchange movement
At 30 September 2019
Net book amount at 30 September 2019
Cost at 1 October 2017
– Additions
– Disposals
– Exchange movement
At 30 September 2018
Accumulated depreciation at 1 October 2017
– Charge for the year
– Disposals
– Exchange movement
At 30 September 2018
Net book amount at 30 September 2018
Motor
vehicles and
office
equipment
£m
Plant and
equipment
£m
130
25
(4)
(2)
(14)
2
137
94
16
2
(4)
(2)
(12)
2
96
41
60
2
(3)
–
(2)
2
59
41
5
1
(3)
–
(1)
1
44
15
Land and
buildings
£m
92
–
–
–
–
–
92
18
13
–
–
–
–
–
31
61
Land and
buildings
£m
Plant and
equipment
£m
Motor vehicles
and office
equipment
£m
120
13
(4)
1
130
83
15
(4)
–
94
58
6
(3)
(1)
60
38
4
(2)
1
41
93
1
(2)
–
92
17
1
–
–
18
74
Total
£m
282
27
(7)
(2)
(16)
4
288
153
34
3
(7)
(2)
(13)
3
171
117
Total
£m
271
20
(9)
–
282
138
20
(6)
1
153
36
19
129
All depreciation charges in the year have been charged through selling and administrative expenses. Of these depreciation
charges, £12m (2018: £nil) has been classified as a non-recurring adjustment, see note 3.6.
170
170
Annual Report and Accounts 2019The Sage Group plc.
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 trade and other receivables, trade and other payables and deferred income.
Trade and other receivables are made up of amounts owed to the Group by customers, amounts that we pay to our suppliers
in advance and unamortised incremental costs to acquire a contract. 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 provides an
understanding of the credit risk faced by the Group as a part of everyday trading. Credit risk is further disclosed in note 13.6.
8.1 Trade and other receivables
Accounting policy
Trade receivables and contract assets
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less an allowance for expected credit losses.
The Group uses the term “Trade receivables” for contract receivables. These are recognised when the right to consideration is
unconditional. Typically, the Group invoices fees for perpetual licences on contract closure and delivery. For performance
obligations satisfied over time, judgement is required in determining whether a right to consideration is unconditional. In such
situations, a receivable is recognised for the transaction price of the non-cancellable portion of the contract when the Group
starts satisfying the performance obligation.
When revenue recognised in respect of a customer contract exceeds amounts received or receivable from the customer a
contract asset is recognised.
The Group has accounted for its trade receivables in accordance with IFRS 9 for the first time in the year ended 30 September
2019. Information relating to the year ended 30 September 2018 is presented in accordance with the Group’s previous
accounting policies under IAS 39. Under IAS 39, a provision for impairment of trade receivables was established when there
was objective evidence that the Group would not be able to collect all amounts due according to the original terms of the
receivables. Further explanation of the changes arising on transition to IFRS 9 is included in note 1.
The carrying amounts of trade receivables and contract assets are reduced by allowances for expected credit losses using the
simplified approach under IFRS 9. The Group uses a matrix approach to determine the allowance, with default rates assessed for
each country in which the Group operates. The default rates applied are based on the ageing of the receivable, past experience of
credit losses and forward looking information. An allowance for a receivable’s estimated lifetime expected credit losses is first
recorded when the receivable is initially recognised, and subsequently adjusted to reflect changes in credit risk until the balance is
collected. In the event that management considers that a receivable cannot be collected, the balance is written off.
Incremental costs of obtaining customer contracts
The incremental costs of obtaining customer contracts are capitalised under IFRS 15. Contract acquisition costs primarily
consist of sales commissions earned by the Group’s sales force. Differences between IFRS 15 and previous accounting policy
are set out in note 17.
Judgement is required in determining the amounts to be capitalised, particularly where the commissions are based on
cumulative targets. The Group capitalises such cumulative target commissions for all customer contracts that count towards
the cumulative target but only if nothing other than obtaining customer contracts can contribute to achieving the
cumulative target.
The capitalised assets are amortised over the period during which the related revenue is recognised, which may extend
beyond the initial contract term where the Group expects to benefit from future renewals as a result of incurring the costs.
Typically, either the Group does not pay sales commissions for customer contract renewals or such commissions are not
commensurate with the commissions paid for new contracts. Consequently, the Group amortises sales commissions paid for
new customer contracts on a straight-line basis over the expected contract life including probable contract renewals.
Judgement is required in estimating these contract lives. In exercising this judgement, the Group considers respective
renewal history adjusted for indications that the renewal history is not fully indicative of future renewals.
The amortisation periods range from one year to ten years depending on the type of commission arrangement.
Amortisation of the capitalised costs of obtaining customer contracts is reported within selling and administrative expenses.
171
171
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
8 Working capital continued
8.1 Trade and other receivables continued
Non-current:
Customer acquisition costs
Other receivables
Prepayments
Current:
Trade receivables
Less: allowance for expected credit losses
Trade receivables – net
Other receivables
Prepayments
Customer acquisition costs
2019
£m
65
4
4
73
2019
£m
280
(23)
257
15
55
37
364
2018
£m
–
–
2
2
2018
£m
390
(20)
370
24
66
–
460
The Group has incurred £111m to obtain customer contracts and an amortisation expense of £76m was recognised in operating
profit during the year. There were no material contract assets.
Movements on the Group allowance for expected credit losses of trade receivables were as follows:
At 1 October
Impact of adoption of IFRS 9
Increase in allowance for expected credit losses
Receivables written off during the year as uncollectable
Unused amounts reversed
Transfer to held for sale
Exchange movement
At 30 September
2019
£m
20
6
7
(5)
(3)
(1)
(1)
23
2018
£m
21
–
7
(6)
(5)
–
3
20
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’s businesses implement policies, procedures and controls to manage customer credit risk. Outstanding balances are
regularly monitored and reviewed to identify any change in risk profile. The Group recognises a loss allowance against trade receivables
using the simplified approach under IFRS 9. The amount of the allowance reflects the lifetime expected credit losses measured using
historical payment default rates determined for each geographical market in which the Group operates. The historical default rates are
adjusted where necessary if they do not reflect the level of future expected credit losses, for example because of changes in the local
economy or other commercial considerations. The allowance for expected credit losses is calculated using a provision matrix.
The amount of the allowance increases as outstanding balances age. A customer balance is written off when it is considered that
there is no reasonable expectation that the amount will be collected and legal enforcement activities have ceased.
An analysis of the gross carrying amount of trade receivables showing credit risk exposure by age of the outstanding balance is
as follows:
Trade receivables at 30 September 2019
Expected credit loss rate
Estimated total gross carrying amount at default
Expected credit loss
Not yet due
£m
1-30 days
overdue
£m
31-60 days
overdue
£m
61-90 days
overdue
£m
91+ days
overdue
£m
2%
203
(3)
2%
39
(1)
17%
47%
77%
10
(1)
12
(6)
16
(12)
Total
£m
–
280
(23)
Disclosures for the prior year are presented in accordance with the requirements that applied under IAS 39:
At 30 September 2018, trade receivables of £22m were either partially or fully impaired.
172
172
Annual Report and Accounts 2019The Sage Group plc.
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 due date but not impaired at 30 September 2018 were £82m.
The ageing of these receivables was as follows:
Less than six months past due
More than six months past due
2018
£m
–
2
20
22
2018
£m
67
15
82
Included in selling and administrative expenses in the income statement is £17m (2018: £16m) in relation to receivables
credit losses.
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.
8.2 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.
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
8.3 Deferred income
2019
£m
16
37
38
–
200
291
2018
£m
29
52
31
19
118
249
Accounting policy
If amounts received or receivable from a customer exceed revenue recognised for a contract, a contract liability is recognised.
The Group uses the term “Deferred income” for a contract liability. Contract liabilities primarily reflect invoices due or
payments received in advance of revenue recognition. Deferred revenue is unwound as related performance obligations
are satisfied.
In all material respects current deferred income at 1 October 2018 was recognised as revenue during the year. Other than
business-as-usual movements there were no significant changes in contract liability balances during the year.
173
173
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
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, employee severance, onerous leases 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 is 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.
At 1 October 2018
– Additional provision in the year
– Provision utilised in the year
– Unused amounts reversed
– Exchange movement
– Transfer to held for sale
At 30 September 2019
Maturity profile
< 1 year
1 – 2 years
2 – 5 years
> 5 years
At 30 September 2019
Restructuring
£m
Legal
£m
Building
£m
Other
£m
2
1
(2)
–
–
–
1
11
4
(4)
(1)
(1)
(2)
7
22
13
(19)
–
–
–
16
2
–
–
–
–
–
2
Restructuring
£m
Legal
£m
Building
£m
Other
£m
1
–
–
–
1
3
4
–
–
7
5
7
3
1
16
2
–
–
–
2
Total
£m
37
18
(25)
(1)
(1)
(2)
26
Total
£m
11
11
3
1
26
Restructuring provisions are for the estimated costs of Group restructuring activities and relate mainly to employee severance
which remains unpaid at the balance sheet date. These provisions will be utilised as obligations are settled which is generally
expected to be within one year.
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.
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. This includes the non-recurring property
restructuring costs which remain unpaid at the balance sheet date (see note 3.6).
Other provisions comprise mainly those for the costs of warranty cover provided by the Group in respect of products sold to third
parties. The timing of the cash flows associated with warranty provisions is spread over the period of warranty with the majority of
the claims expected in the first year.
174
174
Annual Report and Accounts 2019The Sage Group plc.
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
operates 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 within 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.
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 significant 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
2019
£m
16
2
18
2018
£m
11
2
13
175
175
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
10 Post-employment benefits continued
Defined benefit plans
The most recent actuarial valuations of the post-employment benefit plans were performed by KPMG (France) and PwC
(Switzerland) during the year for the year ended 30 September 2019.
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
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)
2019
%
2.0
0.3
2.0
2019
Years
21
23
40
43
2019
£m
(48)
23
(25)
£m
6
6
7
19
£m
8
6
9
23
2019
%
35
26
39
100
Expected contributions to post-employment benefit plans for the year ending 30 September 2020 are £1m (2018: expected
contributions for the year ending 30 September 2019: £1m).
Amounts recognised in the income statement
Net interest costs on obligation
Current service cost
Total included within staff costs – all 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)/gain – financial assumptions
Actuarial (loss)/gain – experience
At 30 September
176
176
2018
%
2.0
1.0
2.0
2018
Years
21
23
40
43
2018
£m
(41)
19
(22)
2018
%
29
34
37
100
2018
£m
–
(2)
(2)
2018
£m
(43)
–
(2)
(1)
–
3
1
1
2019
£m
–
(2)
(2)
2019
£m
(41)
(1)
(2)
(1)
(1)
2
(3)
(1)
(48)
(41)
Annual Report and Accounts 2019The Sage Group plc.
Changes in the fair value of plan assets
At 1 October
Exchange movement
Employer’s contributions
Plan participant contributions
Benefits paid
Actuarial gain on plan assets
At 30 September
Analysis of the movement in the balance sheet liability
At 1 October
Total expense as recognised in the income statement
Benefits paid
Contributions paid
Actuarial loss
At 30 September
Sensitivity analysis on significant actuarial assumptions
Discount rate applied to scheme obligations
Salary increases
11 Deferred income tax
2019
£m
19
1
1
1
(2)
3
23
2019
£m
(22)
(3)
–
1
(1)
(25)
2019
£m
3
2
2018
£m
21
–
1
1
(2)
(2)
19
2018
£m
(22)
(2)
1
1
–
(22)
2018
£m
2
1
+/- 0.5% pa
+/- 0.5% pa
Deferred income tax is an accounting adjustment to recognise liabilities or benefits that are expected to arise in the future
due to differences in the carrying value of assets and liabilities and their respective 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.
177
177
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OPERATING ASSETS AND LIABILITIES continued
11 Deferred income tax continued
The movement on the deferred tax account is as shown below:
At 1 October
Income statement (charge)/credit
Acquisition of subsidiaries
Disposal of subsidiaries
Transfer to held for sale
Other balance sheet reclassification
Exchange movement
Other comprehensive income/equity movement in deferred tax
At 30 September
The net deferred tax asset at the end of the year is analysed below:
Deferred tax assets
Deferred tax liabilities
Net deferred tax asset
2019
£m
26
(1)
–
–
(13)
–
(1)
(4)
7
2019
£m
31
(24)
7
2018
£m
36
–
(3)
–
1
(1)
(5)
(2)
26
2018
£m
51
(25)
26
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. Each of these assets are reviewed to ensure there is sufficient
evidence to support their recognition. All underlying temporary differences where a deferred tax liability arising from investments
in subsidiaries and associates have been appropriately recognised where it is probable the temporary difference will reverse in the
foreseeable future.
In particular, there are tax losses carried forward in respect of Brazilian entities generating a potential net tax asset of £13m.
There is sufficient supporting evidence of future profitability which is available to allow for the recognition of this asset.
This evidence includes detailed financial projections for each individual entity as adjusted for tax sensitive items. As at
30 September 2019 following a decision to sell the Brazilian entities this asset has been transferred to held for sale and can be
recovered on transfer of ownership. See note 15.3.
The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as required by
IAS 12 “Income Taxes”, during the year are shown below. Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances net.
Deferred tax assets and liabilities categorised as “other deferred tax” of £32m (2018: £36m) includes various balances in relation to
accounting provisions/accruals (asset £22m) (2018: £31m), goodwill amortisation (liability £21m) (2018: £13m), deferred revenue
(asset £17m) (2018: £16m), deferred tax on stock options (asset £7m) (2018: £1m), interest carried forward (asset £3m) (2018: nil),
R&D capitalisation (asset £2m) (2018: nil), and other sundry amounts (asset £2m) (2018: £1m).
178
178
Annual Report and Accounts 2019The Sage Group plc.
All underlying temporary differences arising from investments in subsidiaries and associates have been appropriately recognised
where it is probable the temporary difference will reverse in the foreseeable future.
Deferred tax
At 1 October 2017
Income statement credit/(debit)
Acquisition/disposal
Transferred to assets held for sale
Other comprehensive income/equity movement in deferred tax
Other balance sheet reclassification
Exchange movement
At 30 September 2018
Income statement (debit)/credit
Acquisition/disposal
Transferred to assets held for sale
Other comprehensive income/equity movement in deferred tax
Exchange movement
At 30 September 2019
Intangible
assets
£m
(60)
22
(3)
8
–
–
(1)
(34)
(1)
–
2
–
(2)
(35)
Tax
losses
£m
59
(27)
–
(7)
–
–
(1)
24
(5)
–
(10)
–
1
10
Other
£m
37
5
–
–
(2)
(1)
(3)
36
5
–
(5)
(4)
–
32
Total
£m
36
–
(3)
1
(2)
(1)
(5)
26
(1)
–
(13)
(4)
(1)
7
The company has unrecognised carried forward losses of £62m (2018: £50m) in the UK and the US available indefinitely to reduce
certain future taxable profits. Deferred tax assets have not been recognised in respect of these losses due to uncertainty whether
suitable profits will arise in future periods against which the deferred tax asset would reverse.
179
179
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE
12 Cash flow and net debt
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 consolidated statement of cash flows. This section outlines the
adjustments for any non-cash accounting items to reconcile our accounting profit for the year to the amount of cash we
generated from our operations.
Net debt represents the amount of cash held less borrowings, overdrafts, 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 costs
– Amortisation and impairment of intangible assets
– Depreciation and impairment of property, plant and equipment
– Impairment and cost of disposal of assets held for sale
– Loss on disposal of tangible assets
– R&D tax credits
– Equity-settled share-based transactions
– (Gain)/loss on disposal of subsidiary
– Exchange movement
Changes in working capital (excluding effects of acquisitions and disposals of subsidiaries):
– Decrease in trade and other receivables
– Increase/(decrease) in trade and other payables and provisions
– Increase in deferred income
Cash generated from continuing operations
12.2 Net debt
Reconciliation of net cash flow to movement in net debt
Increase in cash in the year (pre-exchange movements)
Cash outflow from movement in loans, 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
180
180
2019
£m
266
95
(8)
29
44
37
19
–
(2)
32
(28)
–
18
46
38
586
2019
£m
158
142
300
1
(2)
(24)
275
(668)
(393)
2018
£m
295
103
(5)
34
48
20
–
1
(6)
18
1
–
7
(61)
32
487
2018
£m
107
60
167
–
(2)
(20)
145
(813)
(668)
Annual Report and Accounts 2019The Sage Group plc.
Cash flow
£m
Acquisitions
£m
Reclassification
as held for sale
Disposal of
subsidiary
£m
Non-cash
movements
£m
Exchange
movement
£m
At
30 September
2019
£m
At
1 October
2017
£m
At
1 October
2018
£m
231
(18)
272
(8)
–
58
120
5
33
213
322
158
Analysis of change in net debt
Cash and cash equivalents
Bank overdrafts
Cash and bank overdrafts
amounts included in held for sale
Cash, cash equivalents and bank
overdrafts including cash held
for sale
Liabilities arising from
financing activities
Loans due within one year
(37)
–
–
Loans due after more than
one year
Cash held on behalf of
customers
Cash held on behalf of customers
included in held for sale
(914)
(913)
181
(75)
(19)
(6)
–
(1,026)
(58)
(990)
(33)
142
Total
(813)
(668)
300
1
–
–
1
–
–
–
–
–
1
(4)
3
1
–
–
–
–
–
–
–
(26)
–
(91)
(117)
–
–
26
91
117
–
–
–
–
8
–
–
8
371
–
1
372
(115)
(7)
(122)
113
(24)
(643)
–
–
(2)
(1)
–
(32)
–
–
(765)
–
(2)
(24)
(393)
Included in cash above is £nil (2018: £77m) relating to cash held on behalf of customers. The reduction in the year is due to the
disposals made in the current year, see note 15.3.
12.3 Cash and cash equivalents (excluding bank overdrafts and cash amounts included in held for sale)
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 and cash equivalents are measured at amortised cost.
Cash at bank and in hand
Cash held on behalf of customers
Short-term bank deposits
2019
£m
370
–
1
371
2018
£m
252
19
1
272
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.
Cash and cash equivalents are classified and measured at amortised cost under IFRS 9 and are therefore subject to the expected
loss model requirements of that standard. However, no material expected credit losses have been identified. At 30 September 2019,
93% (2018: 80%) 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.
The Group’s maximum exposure to credit risk in relation to cash and cash equivalents is their carrying amount in the balance sheet.
181
181
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE continued
12 Cash flow and net debt continued
12.4 Borrowings (excluding borrowings included in held for sale)
Accounting policy
Interest-bearing borrowings are recognised initially at fair value less attributable issue costs, which are amortised over the
period of the borrowings. 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
US senior loan notes – unsecured
Non-current
Bank loans – unsecured
US senior loan notes – unsecured
2019
£m
–
122
122
2019
£m
243
400
643
2018
£m
8
–
8
2018
£m
416
497
913
Included in loans above is £765m (2018: £913m) of unsecured loans (after unamortised issue costs).
In the table above, bank loans and loan notes are stated net of unamortised issue costs of £2m (2018: £2m). Unsecured bank loans
attract an average interest rate of 2.6% (FY18: 2.1%).
Borrowings
US private placement
– 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
2013
2013
2013
2015
2015
2015
3.08% 20-May-20
3.71% 20-May-23
3.86% 20-May-25
1.89% 26-Jan-22
2.07% 26-Jan-23
3.73% 26-Jan-25
Loan value
2019
£m
122
122
40
49
27
162
2018
£m
115
115
38
49
27
153
Unsecured bank loans comprises a fixed term loan of £200m (2018: £nil) expiring in September 2021 and £45m drawings (2018:
£418m) under the multi-currency revolving credit facility of £720m (2018: £686m) expiring in February 2024, which consists both of
US$719m/£585m (2018: US$719m/£551m) and of £135m (2018: £135m) tranches.
182
182
Annual Report and Accounts 2019The Sage Group plc.
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 and cash at bank and in hand. These items are all classified as “financial
instruments” under accounting standards. Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
In order to assist users of these financial statements in making an assessment of any risks relating to financial instruments,
this note also sets out the maturity of these items and analyses their sensitivity to changes in key inputs, such as interest
rates and foreign exchange rates. An explanation of the Group’s exposure to, and management of, capital, liquidity, credit,
interest rate and foreign currency risk is set out in the financial risk management section at the end of this note.
Accounting policy
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets are derecognised when the rights to receive cash flows from the asset have expired, or when the Group
has transferred those rights and either has also transferred substantially all the risks and rewards of the asset or has neither
transferred nor retained substantially all the risks and rewards of the asset but no longer has control of the asset.
Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.
The amounts in the consolidated balance sheet that are accounted for as financial instruments, and their classification under
IFRS 9, are as follows:
As at 30 September 2019
Non-current assets
Other financial assets
Trade and other receivables: other receivables
Current assets
Trade and other receivables: trade receivables
Trade and other receivables: other receivables
Cash and cash equivalents
Current liabilities
Trade and other payables excluding other tax and social security
Borrowings
Non-current liabilities
Borrowings
IFRS 9 classification
At amortised
cost
£m
Note
At fair value
through profit
or loss
£m
8.1
8.1
8.1
12.3
8.2
12.4
3
1
257
13
371
(254)
(122)
(643)
(374)
1
3
–
2
–
–
–
–
6
Total
£m
4
4
257
15
371
(254)
(122)
(643)
(368)
183
183
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE continued
13 Financial instruments continued
For the year ended 30 September 2018, financial instruments are reported under IAS 39. The amounts in the consolidated
balance sheet at that date that are accounted for as financial instruments, and their classification under IAS 39, are as follows.
The changes resulting from the adoption of IFRS 9 are explained in note 1.
As at 30 September 2018
Non-current assets
Fixed asset investment
Other financial assets
Current assets
Trade and other receivables: trade receivables
Trade and other receivables: other receivables
Cash and cash equivalents (excluding bank
overdrafts)
Current liabilities
Trade and other payables: trade payables
Trade and other payables: other payables
Trade and other payables: cash held on behalf of
customers
Borrowings
Non-current liabilities
Borrowings
Trade and other payables
IAS 39 classification
Loans and
receivables
£m
Available
-for-sale
£m
Note
At fair value
through profit
or loss
£m
At
amortised cost
£m
–
2
370
23
272
–
–
–
–
–
–
8.1
8.1
12.3
8.3
8.3
8.3
12.4
12.4
17
–
–
–
–
–
–
–
–
–
–
666
17
–
1
–
–
–
–
–
–
–
–
1
–
–
–
–
–
(29)
(31)
(19)
(8)
(913)
(8)
(1,008)
Total
£m
17
3
370
23
272
(29)
(31)
(19)
(8)
(913)
(8)
(324)
13.1 Fair values of financial instruments
The carrying amounts of the following financial assets and liabilities approximate to their fair values: trade and other payables
excluding tax and social security, trade and other receivables excluding prepayments and accrued income, short-term bank
deposits and cash at bank and in hand.
Borrowings
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
2019
Note
12.4
12.4
Book value
£m
Fair value
£m
Book value
£m
(643)
(122)
(660)
(122)
(913)
(8)
2018
Fair value
£m
(906)
(8)
Fixed asset investment
At 30 September 2018, the Group had a US$ fixed asset investment in an unquoted equity instrument which was classified as an
available-for-sale financial asset under IAS 39 and carried at its fair value of £17m. During the year ended 30 September 2019, the
investment was derecognised on its redemption by the issuer. The fair value of the investment at the date of derecognition was
£17m, and no gain or loss arose on disposal. On transition to IFRS 9, the Group elected to classify the investment as held at fair
value through other comprehensive income as the investment was not considered to be held for trading. As a result, changes in
the fair value of the investment continued to be recognised in the statement of other comprehensive income when they arose.
However, in a change to the previous treatment, the cumulative gain was not reclassified to profit for the period when the
investment was derecognised. At 30 September 2018, the fair value of the investment was determined using a discounted
cash flow valuation technique. The main inputs to the calculation for which assumptions were made were the discount rate,
the timing of future cash flows and the period over which the investment would continue to be held. The gain on revaluation of
£1m was recognised in other comprehensive income in the year ended 30 September 2018. The remaining movement was due to
foreign currency exchange. This was a level 3 fair value as defined within IFRS 13.
184
184
Annual Report and Accounts 2019The Sage Group plc.
Contingent consideration receivable
On the disposal of Sage Payroll Solutions during the year, the Group recognised contingent consideration receivable of £5m.
This is classified as a financial asset measured at fair value through profit or loss. An explanation of the measurement basis applied
is set out in note 15.3.
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
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.
Trade and
other
payables
excluding
other tax and
social security
£m
255
1
–
–
2019
Total
£m
403
218
278
206
256
1,105
Borrowings
£m
148
217
278
206
849
Trade and
other payables
excluding
other tax and
social security
£m
197
3
5
–
Borrowings
£m
36
144
667
202
2018
Total
£m
233
147
672
202
1,049
205
1,254
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
2019
£m
675
2018
£m
268
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.
185
185
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE continued
13 Financial instruments continued
13.4 Market risk sensitivity analysis
Financial instruments affected by market risks include borrowings and deposits.
The following analysis, required by IFRS 7 “Financial Instruments: Disclosures”, is intended to illustrate the sensitivity to changes in
market variables, being sterling, US Dollar and Euro interest rates, and sterling/US Dollar and sterling/Euro exchange rates.
The sensitivity analysis assumes reasonable movements in foreign exchange and interest rates before the effect of tax. The Group
considers a reasonable interest rate movement in LIBOR to be 1%, based on interest rate history. Similarly, sensitivity to
movements in sterling/US Dollar and sterling/Euro exchange rates of 10% are shown, reflecting changes of reasonable proportion
in the context of movement in those currency pairs over the last year.
Using the above assumptions, the following table shows the illustrative effect on the consolidated income statement and equity
resulting from changes in market interest rates.
1% increase in market interest rates
1% decrease in market interest rates
2019
2018
Income
(losses)/gains
£m
Equity
(losses)/gains
£m
Income
(losses)/gains
£m
Equity
(losses)/gains
£m
(2)
2
(2)
2
(3)
3
(3)
3
The following table shows the illustrative effect on equity resulting from changes in Sterling/US Dollar and Sterling/Euro exchange 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
13.5 Hedge accounting
2019
2018
Equity
gains/(losses)
£m
Equity
gains/(losses)
£m
41
7
(50)
(8)
38
7
(47)
(8)
Accounting policy
On transition to IFRS 9, the Group has elected to continue to apply the hedge accounting requirements of IAS 39. The Group
applies hedge accounting to external borrowings that are designated as a hedge of a net investment in foreign operations.
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 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.
The Group hedges the risk exposure to foreign currency exchange movements of its net investment in its subsidiaries in the US and
Eurozone. A proportion of the Group’s external US Dollar denominated borrowings, and the total of its Euro denominated borrowings,
are designated as the hedging instruments. The underlying risk of the hedging instruments exactly matches the hedged risk as the
borrowings and net investments in subsidiaries are denominated in the same currencies, giving a hedge ratio of 1:1. Hedge ineffectiveness
will arise if the carrying amount of the net investment falls below the carrying amount of the designated borrowings.
The impact of the hedging instrument on the consolidated balance sheet is:
Nominal amount
USD 133m
USD 400m
USD 533m
EUR 85m
Change in carrying amount as a
result of foreign currency
movements in the year
recognised in OCI
£m
Carrying amount
£m
108
324
432
76
508
25
–
25
Current borrowings
Non-current borrowings
USD loan notes
USD loan notes
Non-current borrowings
EUR loan notes
186
186
Annual Report and Accounts 2019The Sage Group plc.
The impact of the hedged item on the statement of financial position is as follows:
Net investment in foreign subsidiaries – USD
Net investment in foreign subsidiaries – EUR
Change in value of
hedged item used to
determine hedge
effectiveness
£m
Foreign currency
translation reserve
£m
25
–
25
82
12
94
The hedging movement recognised in other comprehensive income is equal to the change in value for measuring effectiveness.
No ineffectiveness is recognised in profit or loss.
On disposal of Sage Payroll Solutions during the year, an exchange difference of £6m related to hedge instruments was recycled
through the income statement in proportion to the disposed net investment.
Further information on the Group’s exposure to foreign currency risk and how the risk is managed is included in note 13.6.
13.6 Financial risk management
The Group’s exposure to and management of capital, liquidity, credit, interest rate and foreign currency risk are summarised below.
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 returns 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 1.0x 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 Group 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.
Further information on the credit risk management procedures applied to trade receivables is given in note 8.1 and to cash and
cash equivalents in note 12.3. The carrying amounts of trade receivables and cash and cash equivalents shown in those notes
represent the Group’s maximum exposure to credit risk.
Interest rate risk
The Group is exposed to interest rate risk on floating rate deposits and borrowings. The Group’s borrowings comprise principally
US private placement loan notes which are at fixed interest rates, and a bank revolving credit facility and a term loan, which are
subject to floating interest rates. At 30 September 2019, the Group had £371m (2018: £272m) 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 2019, the Group’s borrowings comprised US private placement loan notes of £522m (2018: £497m), which have an
average fixed interest rate of 3.33% (2018: 3.31%); and unsecured bank loans of £243m (2018: £416m), comprising a fixed term loan
and a bank revolving credit facility, which have an average interest rate of 2.6% (2018: 2.1%).
187
187
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE continued
13 Financial instruments continued
13.6 Financial risk management continued
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 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 Euro denominated borrowings and a proportion of its US Dollar 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 2019 and 30 September 2018, these exposures
were immaterial to the Group.
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. The Group incurs costs in respect of these schemes in the 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.
14.1 Ordinary shares
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.
Issued and fully paid ordinary shares of 14/77 pence each
At 1 October
Shares issued
At 30 September
2019
shares
1,120,789,295
–
1,120,789,295
2019
£m
12
–
12
2018
shares
1,120,638,121
151,174
1,120,789,295
2018
£m
12
–
12
Issues of ordinary shares
No new shares were issued during the year (2018: Executive Share Option Scheme – 23,179 14/77p ordinary shares; Savings-related
Share Option Scheme – 127,995 14/77p ordinary shares).
188
188
Annual Report and Accounts 2019The Sage Group plc.
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”) are subject to some non-market performance conditions. These are
organic revenue, EPS and annualised recurring revenue 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 plans was £32m (2018: £18m), all of which related to
equity-settled share-based payment transactions.
Scheme
Performance Share Plan
Restricted Share Plan
Share options
Total
2019
£m
6
23
3
32
2018
£m
1
9
8
18
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 3,690,288 (2018: 2,704,069) awards were made
during the year.
Awards from 2016-2018
These performance shares are subject to a service condition and two performance conditions. Performance conditions are
weighted one half on the achievement of a revenue growth target and one half on the achievement of a TSR target. The revenue
growth target is subject to two underpin performance conditions relating to EPS growth and organic revenue growth.
The revenue growth target is based on the Company’s compound annual recurring revenue growth. Where the Company’s annual
recurring revenue growth is between 8% and 10% or 10% and 12%, the extent to which the revenue performance condition
is satisfied will be calculated on a straight-line pro rata basis between 10% and 40% or between 40% and 50% respectively.
Notwithstanding the extent to which the revenue performance condition has been satisfied, the revenue tranche will not
be released and will lapse on the Board’s determination that (i) the compound growth of the Company’s underlying EPS over
the performance period is less than 8% per annum; or (ii) the compound growth of the Company’s organic revenue over the
performance period is less than 6% per annum.
The performance target relating to TSR 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 10% and 40% 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 40% and 50%.
The comparator group for awards granted from 2016 onwards is the companies comprised in the FTSE 100 Index at the start of the
performance period, excluding financial services and extraction companies.
Awards from 2019
These performance shares are subject to a service condition and two performance conditions. Performance conditions are
weighted 70% on the achievement of a revenue growth target and 30% on the achievement of a TSR target.
189
189
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE continued
14 Equity continued
14.2 Share-based payments continued
The revenue growth target is based on the Company’s compound annualised recurring revenue growth. Where the Company’s
annualised recurring revenue growth is between 8% and 10% or 10% and 11%, the extent to which the revenue performance
condition is satisfied will be calculated on a straight-line pro rata basis between 14% and 56% or between 56% and 70%
respectively.
The performance target relating to TSR 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% and 24% 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 24% and 30%.
The comparator group for awards granted from 2019 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(s) 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
Fair value per award
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
Fair value per award
December
2018
February
2019
5.78/5.86
94
6.61
8
May
2019
7.39
2
September
2019
6.71
1
2,921,885
712,414
45,526
10,463
1-3
3
3
3
22.7%
25.1%
22.6%
22.7%
1-3
1-3
0.75%
4.88
3
3
3
3
3
3
0.85%
5.58
0.71%
6.84
0.46%
5.88
December
2017
May
2018
£7.59
£6.73
84
14
2,561,092
142,977
3
3
20.9%
21.4%
3
3
3
3
0.95%
6.10
0.83%
4.64
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.
190
190
Annual Report and Accounts 2019The Sage Group plc.
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
Number
‘000s
6,245
3,690
(2,085)
(482)
7,368
–
2019
Weighted
average
exercise
price
£
–
–
–
–
–
–
2019
Weighted
average
remaining life
years
Number
‘000s
7,627
2,704
(2,392)
(1,694)
6,245
–
2018
Weighted
average
exercise
price
£
–
–
–
–
–
–
2018
Weighted
average
remaining life
years
Expected
Contractual
Expected
Contractual
1.3
1.3
1.3
1.3
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 either purchased in the market or treasury shares are utilised to satisfy vesting awards. During the year
5,258,827 (2018: 2,609,526) 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 579-739p.
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
2019
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
‘000s
2,734
5,259
(423)
(794)
6,776
–
2018
Weighted
average
exercise
price
£
–
–
–
–
–
–
Number
‘000s
740
2,610
(226)
(390)
2,734
–
2019
Weighted average
remaining life
years
2018
Weighted average
remaining life
years
Expected
Contractual
Expected
Contractual
1.5
1.5
1.6
1.6
Share options
Share options comprise The Sage Global Save and Share Plan (the “Save and Share Plan”) and acquisition options.
The Save and Share Plan is a savings-related share option scheme for employees of the Group and is available to employees in the
majority of countries in which the Group operates. The UK plan is an HMRC-approved savings-related share option scheme, and similar
arrangements apply in other countries where they are available. The fair value of the options is expensed over the service period of three,
five or seven years on the assumption that 5% of options will lapse over the service period as employees leave the Group.
In the year, 1,002,584 (2018: 1,363,310) options were granted under the terms of the Save and Share Plan.
191
191
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NET DEBT AND CAPITAL STRUCTURE continued
14 Equity continued
14.2 Share-based payments continued
As part of certain acquisitions, the Group awards certain employees with options proportional to previously held options in the
company acquired. Nil (2018: nil) options have been granted in the year. The awards granted in 2017 only have service conditions
with the fair value portion of the options relating to pre-acquisition services being included as part of the purchase consideration
and the remaining fair value of options being expensed over the service period ranging from 1-36 months.
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
22p-681p
14.3 Other reserves
At 1 October 2017
Exchange differences on translating foreign operations
At 30 September 2018
Exchange differences on translating foreign operations
Exchange differences recycled through income statement on sale of foreign operations
At 30 September 2019
Number
‘000s
5,319
–
(97)
(1,006)
4,216
3,282
2019
Weighted
average
exercise
price
£
1.92
–
3.41
1.35
2.03
1.65
2019
Number
‘000s
6,542
–
(292)
(931)
5,319
3,396
2018
Weighted
average
exercise
price
£
1.85
–
2.93
1.09
1.92
1.34
2018
Weighted average
remaining life
years
Weighted average
remaining life
years
Expected
Contractual
Expected
Contractual
1.7
6.0
1.1
7.0
Translation
reserve
£m
Merger
reserve
£m
70
15
85
42
(4)
123
61
–
61
–
–
61
Total
other
reserves
£m
131
15
146
42
(4)
184
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.
192
192
Annual Report and Accounts 2019The Sage Group plc.
14.4 Retained earnings
Retained earnings
At 1 October
Adjustment on initial application of IFRS 15 net of tax
Adjustment on initial application of IFRS 9 net of tax
Profit for the year
Actuarial loss on post-employment benefit obligations (note 10)
Gain on available-for-sale fixed asset investment
Value of employee services including deferred tax
Proceeds from issuance of treasury shares
Dividends paid to owners of the parent (note 14.5)
Total
2019
£m
621
24
(5)
266
(1)
–
33
3
(181)
760
2018
£m
477
–
–
295
–
1
16
3
(171)
621
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 agreed to satisfy the vesting of certain share awards,
utilising a total of 3,781,720 (2018: 3,022,375) treasury shares.
At 30 September 2019 the Group held 31,699,170 (2018: 35,480,890) treasury shares.
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 these by the Company for use in connection with the Group’s share-based payments
arrangements. The Trust holds 35,792 ordinary shares in the Company (2018: 254,525) at a cost of £nil (2018: £2m) and a nominal
value of £nil (2018: £nil).
During the year, the Trust agreed to satisfy the vesting of certain share awards, utilising a total of 368,733 (2018: 707,190)
shares held in the Trust. The Trust received £2m (2018: £nil) additional funds for future purchase of shares in the market
(2018: nil funds received).
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 2019 was £nil (2018: £1m).
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 2018 of 10.85p per share
(2018: final dividend paid for the year ended 30 September 2017 of 10.20p per share)
Interim dividend paid for the year ended 30 September 2019 of 5.79p per share
(2018: interim dividend paid for the year ended 30 September 2018 of 5.65p per share)
2019
£m
118
–
63
–
181
2018
£m
–
110
–
61
171
In addition, the Directors are proposing a final dividend in respect of the financial year ended 30 September 2019 of 11.12p per share
which will absorb an estimated £121m of shareholders’ funds. If approved at the AGM, it will be paid on 2 March 2020 to
shareholders who are on the register of members on 7 February 2020. These financial statements do not reflect this proposed
dividend payable.
193
193
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
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 and the effects on the results of the Group are highlighted.
Additional disclosures are presented for disposals and planned disposals that qualify as businesses held for sale or for
presentation as discontinued operations.
Accounting policy
Acquisitions:
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any
non-controlling interests in the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3 “Business Combinations” are recognised at their fair values at the acquisition date.
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 are 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.
Businesses held for sale and discontinued operations:
The Group classifies the assets and liabilities of a business as held for sale if their carrying amounts will be recovered
principally through a sale of the business rather than through continuing use. These assets and liabilities are measured at the
lower of their carrying amount and fair value less costs to sell. The criteria for classification as held for sale are met only when
the sale is highly probable and the business is available for immediate sale in its present condition. Actions required to
complete the sale must indicate that it is unlikely that significant changes will be made to the plan or that the decision to sell
will be withdrawn. Management must be committed to the sale and completion must be expected within one year from the
date of the classification. Property, plant and equipment and intangible assets are not depreciated or amortised once
classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current items in the
consolidated balance sheet.
A business qualifies as a discontinued operation if it is a component of the Group that either has been disposed of, or is
classified as held for sale, and:
– represents a separate major line of business or geographical area of operations; and
– is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.
Discontinued operations are excluded from the results of continuing operations in both the current and prior years and are
presented as a single amount in the consolidated income statement as profit or loss on discontinued operations.
194
194
Annual Report and Accounts 2019The Sage Group plc.
15.1 Acquisitions
Acquisitions made during the current year
On 27 September 2019, the Group acquired 100% of the equity capital of Ocrex Limited (“Ocrex”) for total consideration of £42m
paid in cash. Ocrex is a leading provider of data entry automation for accountants, bookkeepers and businesses through its main
product, AutoEntry. The acquisition of Ocrex and AutoEntry allows the Group to accelerate its vision to become a software as a
service (SaaS) company.
Summary of acquisition
Purchase consideration
Cash
Provisional fair value of identifiable net assets
Goodwill
Provisional fair
values
£m
42
1
41
The provisional fair value of identifiable net assets comprises cash and cash equivalents of £1m. Provisional fair values have been
determined as the purchase price allocation exercise is incomplete because of the short period between the acquisition date and
the approval of the Annual Report. Pending completion of the fair value exercise, the residual excess of consideration over the net
assets acquired has been provisionally recognised entirely as goodwill. Goodwill is expected to reflect benefits from the assembled
workforce and growth opportunities. No goodwill is expected to be deductible for tax purposes.
The outflow of cash and cash equivalents on the acquisition is as follows:
Cash consideration
Cash and cash equivalents acquired
Net cash outflow
£m
(42)
1
(41)
Costs of £2m directly relating to the completion of the business combination have been included in selling and administrative
expenses in the consolidated income statement as other M&A activity-related items and relate to advisory, legal and other
professional services. Arrangements have been put in place for retention payments to remunerate employees of Ocrex for future
services. The costs of these arrangements will be recognised in future periods over the retention period. No amounts have been
recognised to date in respect of these arrangements. The consolidated income statement does not include any revenue or profit
or loss reported by Ocrex for the period due to the acquisition date being close to the year end date. The revenue and profit of the
Group for the year ended 30 September 2019 would not have been materially different if Ocrex had been included in the Group for
the whole of the year.
15.2 Costs relating to business combinations in the year
Costs directly relating to completion of the business combinations in the year of £2m (2018: £1m) 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.
195
195
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OTHER NOTES continued
15 Acquisitions and disposals continued
15.3 Disposals and discontinued operations
Disposals made during the current year
On 21 February 2019, the Group completed the sale of Sage Payroll Solutions, the US-based payroll outsourcing business (“SPR”)
for total consideration of £76m. On 18 July 2019, the Group completed the sale of its South African payments business for £5m.
The gain on disposal is calculated as follows:
Gain on disposal
Cash consideration
Deferred consideration
Contingent consideration
Gross consideration
Transaction costs
Net consideration
Net assets disposed
Cumulative foreign exchange differences reclassified from other comprehensive income to
the income statement
Gains on disposal
Net assets disposed comprise:
Goodwill
Other intangible assets
Trade and other receivables
Cash and cash equivalents
Total assets
Trade and other payables
Deferred income tax liabilities
Total liabilities
Net assets
SPR
£m
71
–
5
76
(4)
72
(51)
6
27
SPR
£m
28
25
1
91
145
(93)
(1)
(94)
51
South African
payments
£m
3
2
–
5
–
5
(2)
(2)
1
South African
payments
£m
1
–
1
26
28
(26)
–
(26)
Total
£m
74
2
5
81
(4)
77
(53)
4
28
Total
£m
29
25
2
117
173
(119)
(1)
(120)
2
53
The gains are reported within continuing operations, as an adjustment between underlying and statutory results. The contingent
consideration is measured at its fair value determined using a discounted cash flow valuation technique. The main inputs to the
calculation for which assumptions have been made are the discount rate and the period over which the consideration will be
received. This is a level 3 fair value under IFRS 13.
Prior to the disposals, SPR formed part of the Group’s North America reporting segment and South African payments part of the
International segment. The inflow of cash and cash equivalents on the disposal is calculated as follows:
Inflow of cash and cash equivalents on disposal
Cash consideration
Transaction costs
Net consideration received
SPR
£m
71
(4)
67
South African
payments
£m
3
–
3
Total
£m
74
(4)
70
196
196
Annual Report and Accounts 2019The Sage Group plc.
15.3 Disposals and discontinued operations continued
Discontinued operations and assets and liabilities held for sale
The Group had no discontinued operations during the years ended 30 September 2019 or 30 September 2018. Assets and liabilities
held for sale at 30 September 2019 relate to the subsidiaries forming the Group’s Sage Pay and Brazilian businesses, which were
classified as held for sale during the year. The sale of the Group’s Brazilian businesses is expected to be finalised during the year
ending 30 September 2020. An agreement was signed on 18 November 2019, for the sale of the Sage Pay business to Elavon Inc.,
a subsidiary of U.S. Bancorp (as disclosed in note 19). The transaction is subject to regulatory approval with completion and loss of
control expected to occur in Q2 FY20. The Sage Pay business forms part of the Group’s Northern Europe reportable segment, and
the Brazilian business is part of the International segment.
On classification of the Brazilian business as held for sale, the Group recognised a write down of net assets of £19m, comprising
£14m impairment of assets and £5m provision for future selling costs, to reduce the carrying value of the business to its fair value
less costs to sell. This is included within selling and administrative expenses in the income statement as an adjustment between
underlying and statutory operating profit (see note 3.6). Note that the fair value less costs of sale of the disposal groups held for
sale was determined using observable inputs that required some adjustments using unobservable data, leading to level 3
classification when considering the fair value hierarchy under IFRS 13.
Upon disposal, the income in relation to cumulative foreign exchange differences that have been recognised in other
comprehensive income relating to the assets and liabilities of these businesses from the date of their acquisition to the date of
disposal will be recycled to the income statement. Assets and liabilities held for sale at 30 September 2018 relate to the Group’s
subsidiary Sage Payroll Solutions which was sold on 21 February 2019.
Assets and liabilities held for sale comprise:
Goodwill
Other intangible assets
Property, plant and equipment
Deferred income tax asset
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Trade and other payables
Borrowings
Current income tax liabilities
Provisions
Deferred income
Total liabilities
Net (liabilities)/assets
16 Related party transactions
Brazil
2019
£m
–
–
–
7
–
16
–
23
(8)
(3)
(1)
(6)
(10)
(28)
Sage Pay
2019
£m
26
1
2
–
1
6
4
40
(4)
–
–
–
(1)
(5)
Total
2019
£m
26
1
2
7
1
22
4
63
(12)
(3)
(1)
(6)
(11)
(33)
Total
2018
£m
32
20
–
–
–
3
58
113
(62)
–
–
–
(1)
(63)
(5)
35
30
50
This note provides information about transactions between the Group and its related parties. A group’s related parties include
any entities over which it has control, joint control or significant influence, and any persons who are members of its key
management personnel.
The Group’s related parties are its subsidiary undertakings and its key management personnel, which comprises the Group’s
Executive Committee members and the Non-executive Directors. Prior to 17 March 2018, related parties also included the Group’s
investment in its associated undertaking. Transactions and outstanding balances between the parent and its subsidiaries within
the Group and between those subsidiaries have been eliminated on consolidation and are not disclosed in this note.
Compensation paid to the Executive Committee is disclosed in note 3.3.
No other related party transactions occurred during the current year or the prior year.
197
197
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OTHER NOTES continued
17 IFRS 15
This note provides information on the changes resulting from the adoption of IFRS 15, quantitative information on their impact at
1 October 2018 and a reconciliation for the year ending 30 September 2019 between the primary financial statements under
IFRS 15 and the financial position and performance that would have been reported in accordance with IAS 18.
Differences between IFRS 15 and previous accounting policies
There are several differences between the Group’s accounting policies under IFRS 15 and its previous accounting policies under
IAS 18. The most significant of these are as follows.
– Unbundling of subscription software and related maintenance and support contracts for on-premise products
IFRS 15 introduces a new concept of performance obligations. This requires changes to the way the transaction price is
allocated to separately identifiable components of a bundle within a contract, which can impact the timing of recognising
revenue. As a result, the revenue recognition pattern changes for certain on-premise subscription contracts, which combine the
delivery of software and support services and the obligation to deliver, in the future, unspecified software upgrades under a
maintenance contract. Under IAS 18 policies, the Group recognised the entire price as revenue on a straight-line basis over the
subscription term. Under IFRS 15, a portion of the transaction price is recognised upon delivery of the initial software at the
outset of the arrangement with the remainder recognised over the term of the contract due to the fact that these are deemed
to be separate performance obligations.
– Non-refundable contract sign-up fees
In some cases, customers pay a non-refundable contract sign-up fee when they enter into a new initial contract for a software
product, and no equivalent fee is payable on subsequent renewals. As a result of paying the contract sign-up fee, the customer
has an option to renew the contract and to pay a lower price on renewal than would have been the case had the contract sign-
up fee not been paid. Under IFRS 15, the fee is considered to provide the customer with a material right that the customer would
not receive without having entered into the initial contract. Therefore, the upfront fee is recognised as revenue over the
anticipated period of benefit to the customer, which ranges from four to seven years and takes account of the likelihood of the
customer renewing the contract. Under IAS 18 policies, the full amount of the contract sign-up fee was recognised as revenue
on a straight-line basis over the initial contract term.
– Costs of obtaining customer contracts
Under IFRS 15, all incremental costs of obtaining a contract with a customer, including commission to internal sales employees,
are recognised as an asset on the balance sheet, within trade and other receivables, if the Group expects to recover those costs.
The costs are amortised over the period during which the related revenue is recognised, which may extend beyond the initial
contract term where the Group expects to benefit from future renewals as a result of incurring the costs. The amortisation
periods range from one year to ten years depending on the type of offering. Amortisation is reported within selling and
administrative expenses. Under previous policies, costs to obtain a contract were recognised as assets, within trade and other
receivables, and amortised only if they were payable to a third-party agent and related to a contract where revenue was
recognised over time. As a result, compared to previous policies the amount recognised as an asset under IFRS 15 increases and
the recognition of costs is deferred.
– Business partner arrangements
Under IFRS 15, the Group is required to assess whether it controls a good or service before it is transferred to the end customer
to determine whether it is principal or agent in that transaction. This is in contrast to the previous guidance which was focused
on assessing whether the Group had the risks and rewards of a principal. For Sage, the application of IFRS 15 results in a change
in principal versus agent assessment for a number of business partner arrangements. The Group has therefore identified an
increase in the number of business partner arrangements where Sage is considered to be the principal under IFRS 15 with
respect to the end customer. As a result, there is an increase in the gross revenue recognised for these arrangements as the
amounts payable to business partners are classified as a cost of sale rather than a deduction from revenue. On the balance
sheet, the unamortised amounts payable to business partners which were previously netted within deferred income are now
presented as part of customer acquisition costs.
– Timing of recognising a receivable
Under IFRS 15, a receivable is recognised when the right to consideration is unconditional. Typically, for a non-cancellable
contract this happens when the Group starts providing the service. Under IAS 18 receivables were recognised based on the
billing arrangement agreed under the contract, even where the contract was not unconditional or the group had not started
providing services under the contract. As a result, compared to previous policies the amount recognised as a receivable
decreased with a corresponding decrease in deferred income.
198
198
Annual Report and Accounts 2019The Sage Group plc.
Quantitative impact of policy changes on consolidated balance sheet at 1 October 2018
The financial impact of the policy changes explained above on the Group’s consolidated balance sheet on initial application is
as follows:
Unbundling of
subscription
software
£m
Non-
refundable
contract
sign-up fees
£m
Costs of
obtaining
customer
contracts
£m
Business
partner
arrangements
£m
Timing of
recognising
a receivable
£m
Other
adjustments
£m
Tax impact
£m
Total
Impact
£m
As at 1 October 2018
–
–
–
–
–
–
21
(21)
–
21
21
–
(21)
(21)
34
–
4
–
–
38
38
–
–
–
–
16
(43)
–
–
–
(16)
43
(6)
–
–
–
–
–
–
–
(6)
(6)
–
(4)
–
–
(4)
(8)
(8)
34
(4)
(23)
21
(4)
24
24
Non-current assets
Trade and other receivables
Deferred income tax assets
Current assets
Trade and other receivables
Current liabilities
Deferred income
Non-current liabilities
Deferred income tax liabilities
Net assets
Total equity
Primary statements under IAS 18
The Group’s consolidated financial statements for the year ended 30 September 2019 are prepared in accordance with IFRS 15;
comparative periods have not been restated. Where there are differences between the primary consolidated financial statements
presented in accordance with IFRS 15 and comparable presentation under the Group’s previous revenue accounting policy
(in accordance with IAS 18 “Revenue”), the effects are disclosed below. The Group’s consolidated statement of cash flows is not
affected by the implementation of IFRS 15 and so is not re-presented.
199
199
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OTHER NOTES continued
Consolidated income statement (reconciliation to IAS 18)
Year ended 30 September 2019
Revenue
Cost of sales
Gross profit
Selling and administrative expenses
Operating profit
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Owners of the parent
Earnings per share attributable to the owners
of the parent (pence)
– Basic
– Diluted
IFRS 15 basis
£m
Adjustments
£m
IAS 18 basis
£m
1,936
(138)
1,798
(1,416)
382
8
(29)
361
(95)
266
(8)
(6)
(14)
7
(7)
–
–
(7)
2
(5)
1,928
(144)
1,784
(1,409)
375
8
(29)
354
(93)
261
266
(5)
261
24.49p
24.29p
24.03p
23.83p
Under IFRS 15 basis revenue from software licence and support showed a net increase of £8m, with most of the difference
resulting from an increase in the number of business partner arrangements where the end user is considered to be the customer
for the Group and by upfront recognition of software for certain on-premise subscription contracts. This is mitigated by a revised
revenue pattern for non-refundable contract sign-up fees which are spread over the anticipated period of benefit to the customer.
Cost of sales showed a net decrease of £6m, with most of the difference resulting from business partner arrangements where
there is a change in principal versus agent assessment for third-party products.
Selling and administrative expenses showed a net increase of £7m, with most of the difference resulting from an increase in the
number of business partner arrangements where the end user is considered to be the customer under IFRS 15. This is mitigated by
higher capitalisation of sales commissions offset by the related amortisation charge.
200
200
Annual Report and Accounts 2019The Sage Group plc.
Consolidated balance sheet (reconciliation to IAS 18)
30 September 2019
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Fixed asset investment
Other financial assets
Trade and other receivables
Deferred income tax assets
Current assets
Trade and other receivables
Current income tax asset
Cash and cash equivalents (excluding bank overdrafts)
Assets classified as held for sale
IFRS 15 basis
£m
Adjustments
£m
IAS 18 basis
£m
2,098
228
117
–
4
73
31
2,551
364
3
371
63
801
–
–
–
–
–
(65)
1
(64)
11
–
–
(1)
10
2,098
228
117
–
4
8
32
2,487
375
3
371
62
811
Total assets
3,352
(54)
3,298
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Provisions
Deferred income
Liabilities classified as held for sale
Non-current liabilities
Borrowings
Post-employment benefits
Deferred income tax liabilities
Provisions
Trade and other payables
Deferred income
Total liabilities
Net assets
Equity attributable to owners of the parent
Ordinary shares
Share premium
Other reserves
Retained earnings
Total equity
(291)
(32)
(122)
(11)
(637)
(33)
(1,126)
(643)
(25)
(24)
(15)
(7)
(8)
(722)
(1,848)
1,504
12
548
184
760
–
2
–
–
16
–
18
–
–
7
–
–
–
7
25
(29)
–
–
–
(29)
(291)
(30)
(122)
(11)
(621)
(33)
(1,108)
(643)
(25)
(17)
(15)
(7)
(8)
(715)
(1,823)
1,475
12
548
184
731
1,504
(29)
1,475
201
201
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OTHER NOTES continued
17 IFRS 15 continued
Under IFRS 15 basis non-current trade and other receivables are higher by £65m (FY18: higher by £34m) due to the higher
capitalisation of sales commissions.
Current trade and other receivables are lower by £11m (FY18: £23m) resulting from changes in the timing of and amounts
recognised as receivables and the capitalisation of business partner commissions where the end user is considered to be the
customer under IFRS 15, with corresponding impact in current deferred income.
Current deferred income is higher by £16m (FY18: £21m), resulting from revised revenue pattern for non-refundable contract
sign-up fees which are spread over the anticipated period of benefit to the customer and the capitalisation of business partner
commissions where the end user is considered to be the customer under IFRS 15, with corresponding impact in current deferred
income. This is mitigated by changes in the timing of and amounts recognised as receivables and by upfront recognition of
software for certain on-premise subscription contracts.
Deferred income tax assets are lower by £1m (FY18: £4m), current income tax liabilities and deferred income tax liabilities are higher
by £2m and £7m (FY18: £nil and £4m respectively) due to the tax impact of the above adjustments.
18 Group undertakings
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 pages are subsidiaries of the Company or the Group. The Group percentage of equity
capital and voting rights is 100% for all subsidiaries listed below. The results for all of the subsidiaries have been consolidated
within these financial statements.
Name
Registered address
Handisoft Software Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Ocrex Australia Pty Ltd
7 Catherine Ct, Yarra Glen, Vic 3775, Australia
Sage Australia Holdings Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Sage Business Solutions Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Sage Intacct Australia Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Sage One Pty. Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Sage Software Australia Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Snowdrop Systems Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Softline Australia Holdings Pty Ltd
Level 11, The Zenith Tower B, 821 Pacific Hwy, Chatswood, 2067, Australia
Sage GmbH
Stella-Klein-Löw-Weg 15, 1020 Wien, Austria
Intelligent Apps Holdings Ltd
Providence House, East Hill Street, Nassau, Bahamas
Sage S.A.
Buro & Design Center, Esplanade 1, 1020, Brussels, Belgium
Sage Software Botswana (Pty) Ltd
Plot 50371, Fairground Office Park, Gaborone, Botswana
IOB Informações Objetivas Publicações
Jurídicas Ltda.
Sage Brasil 3 Empreendimentos e
Participações Ltda
Rua Antonio Nagib Ibrahim, 350, São Paulo, São Paulo, CEP 05036-60,
Brazil
Rua Antônio Nagib Ibrahim, 350, Part A, Água Branca, São Paulo, São
Paulo, CEP 05036-060, Brazil
Sage Brasil Software S.A.
Rodovia Luiz de Queiroz (SP 304), Km 127,5, Bairro Nova Americana, São
Paulo, CEP 13466-170, Brazil
Sytax Sistemas S.A.
Rua Antonio Nagib Ibrahim, 350, Part B, São Paulo, São Paulo, CEP 05036-
060, Brazil
Sage Software Canada Ltd.
111, 5th Avenue SW, Suite 3100-C, Calgary AB T2P 5L3, Canada
Sage Holding France SAS
Atrium Defense, Paris la Defense, 10 Place de Belgique, 92250, Le Garenne
Colombes, Paris, France
Sage Overseas Limited (Branch
Registration)
Atrium Defense, Paris la Defense, 10 Place de Belgique, 92250, Le Garenne
Colombes, Paris, France
Country
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Austria
Bahamas
Belgium
Botswana
Brazil
Brazil
Brazil
Brazil
Canada
France
France
202
202
Annual Report and Accounts 2019The Sage Group plc.
Country
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
India
India
India
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Ireland
Israel
Kenya
Name
Sage SAS
Registered Address
Atrium Defense, Paris la Defense, 10 Place de Belgique, 92250, Le Garenne
Colombes, Paris, France
Best Software (Germany) Gmbh
Franklinstraße 61-63, 60486, Frankfurt am Main, Germany
eWare GmbH
Sage bäurer GmbH
Untere Weidenstr. 5, c/o RAè Becker & Koll., 81543, München, Germany
Josefstraße 10, 78166 Donauerschingen, Germany
Sage CRM Solutions GmbH
Franklinstraße 61-63, 60486, Frankfurt am Main, Germany
Sage GmbH
Franklinstraße 61-63, 60486, Frankfurt am Main, Germany
Sage Management & Services GmbH
Franklinstraße 61-63, 60486, Frankfurt am Main, Germany
Sage Pay GmbH
Sage Services GmbH
Franklinstraße 61-63, 60486, Frankfurt am Main, Germany
Karl-Heine-Straße 109-111, 04229, Leipzig, Germany
Intacct Software Private Limited
No. 26/1 3rd Floor, Esteem Arcade, Devearaju Urs Road, Race Course
Road, Bangalore, 560001, India
Ocrex Entreprises Private Limited
House No 546, Sector-10D, Chandigarh 160011, Chandigarh, India
Sage Software India Private Ltd (In
Liquidation)
N-34, Lower Ground Floor, Kalkaji, New Delhi, 110 019, India
Ocrex Limited
11/12 Warrington Place, Dublin 2, Ireland
Sage Global Services (Ireland) Limited
Number One Central Park Leopardstown, Dublin 18, Ireland
Sage Hibernia Limited
Number One Central Park Leopardstown, Dublin 18, Ireland
Sage Irish Finance Company Unlimited
Company
Number One Central Park Leopardstown, Dublin 18, Ireland
Sage Pay (Dublin) Limited
Number One Central Park Leopardstown, Dublin 18, Ireland
Sage Pay Ireland Limited
Number One Central Park Leopardstown, Dublin 18, Ireland
Sage Technologies Limited
Number One Central Park Leopardstown, Dublin 18, Ireland
Sage Treasury Ireland Unlimited
Company
Number One Central Park Leopardstown, Dublin 18, Ireland
TAS Software Limited
Number One Central Park Leopardstown, Dublin 18, Ireland
Tonwomp Unlimited Company
Number One Central Park Leopardstown, Dublin 18, Ireland
Budgeta Technologies Ltd
Derech Menachem Begin 144, Tel Aviv-Yafo, 6492102, Israel
Sage Software East Africa Limited
LR No. 1870/IX/96, 114 & 115 Nivina Towers, Westlands Road, Westlands,
Nairobi, P.O Box 38283, Kenya
Malaysia
Creative Purpose Sdn Bhd
(In Liquidation)
Suite B13A-4, Tower B, Level 13A, Northpoint Offices, Mid Valley City, No. 1
Medan Syed Putra Utara, 59200 Kuala Lumpur
Malaysia
Sage Software Sdn Bhd
Suite B13A-4, Tower B, Level 13A, Northpoint Offices, Mid Valley City, No. 1
Medan Syed Putra Utara, 59200 Kuala Lumpur
Morocco
Sage Software
Tour Crystal 1, Niveau 9, Bd Sidi Mohammed Ben Abdellah, Casablanca,
20030, Morocco
Namibia
Sage Software Namibia (Pty) Ltd
3rd Floor, 344 Independence Avenue, Windhoek, P O BOX 1571, Namibia
Nigeria
Sage Software Nigeria Limited
Landmark Towers, 5B Water Corporation Road, Victoria Island, Lagos,
Nigeria
Poland
Portugal
Sage sp. z o.o.
Aleje Jerozolimskie 132, 02-305 Warsaw, Poland
Sage Portugal – Software, S.A.
Edifício Olympus II, Av. Dom Afonso Henriques 1462, 4450 013,
Matosinhos, Portugal
Romania
Intacct Development Romania SRL
Cluj-Napoca, Bd. 21 Decembrie 1989 no. 77, 1st floor, room C.1.2 building C-
D, The Office, Cluj county, Romania
Singapore
Singapore
Sage Singapore Holdings Pte. Limited
12 Marina View, #25-02/03 Asia Square Tower 2, 01896, Singapore
Sage Software Asia Pte. Limited
12 Marina View, #25-02/03 Asia Square Tower 2, 01896, Singapore
South Africa
Sage Alchemex (Pty) Ltd
23A Flanders Drive, Mount Edgecombe, Durban, 4321, South Africa
South Africa
Sage South Africa (Pty) Ltd*
Floor 6 Gateway West, 22 Magwa Crescent, Waterfall 5-1R, Midrand,
Gauteng, 2066, South Africa
203
203
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
OTHER NOTES continued
18 Group undertakings continued
Name
Country
Registered Address
Spain
Spain
Spain
Switzerland
Switzerland
Switzerland
Tunisia
United Arab
Emirates
Sage Pay S.L.U.
C/ Labastida, 10-12 28934, Madrid, Spain
Sage Spain Holdco. S.L.U.
Moraleja Building One – Planta 1, Parque Empresarial de La Moraleja,
Sage Spain, S.L.
KHK Software AG
Sage Bäurer AG
Sage Schweiz AG
Ulysoft
Avenida de Europa no19, 28108 Alcobendas, Madrid, Spain
Moraleja Building One – Planta 1, Parque Empresarial de La Moraleja,
Avenida de Europa no19, 28108 Alcobendas, Madrid, Spain
Platz 10, Root D4, CH-6039, Switzerland
Platz 10, Root D4, CH-6039, Switzerland
Platz 10, Root D4, CH-6039, Switzerland
Immeuble Mélika, rez de chausse, rue Lac Windermere, Berge du Lac,
1053, Tunisia
Sage Software Middle East FZ-LLC
Suite 118, Building No. 11, Dubai Internet City, Dubai (U.A.E)
United Kingdom
ACCPAC UK Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Interact UK Holdings Limited*
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
KCS Global Holdings Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom Multisoft Financial Systems Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Ocrex UK Ltd
Quatro House, Frimley Road, Frimley, Camberley, Surrey, GU19 5EW,
United Kingdom
United Kingdom
Protx Group Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Protx Limited
United Kingdom
Sage (UK) Ltd
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Brazilian Investment One Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Brazilian Investment Two Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage CRM Solutions Limited
Sage House, Wharfedale Road, Winnersh, Wokingham, Berkshire,
RG41 5RD, United Kingdom
United Kingdom
Sage Euro Hedgeco 1
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Euro Hedgeco 2
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Far East Investments Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Global Services Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Hibernia Investments No.1 Limited North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Hibernia Investments No.2 Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Holding Company Limited*
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Holdings Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Intacct UK Limited
North Park, Newcastle Upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Irish Investments LLP
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Irish Investments One Limited*
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Irish Investments Two Limited*
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Online Holdings Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Overseas Limited.
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Pay (GB) Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Pay Europe Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Payments (UK) Ltd.
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage People Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Software Ltd
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage Treasury Company Limited*
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage US LLP
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage USD Hedgeco 1
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sage USD Hedgeco 2
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
204
204
Annual Report and Accounts 2019The Sage Group plc.
Country
Name
Registered Address
United Kingdom
Sage Whitley Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Sagesoft
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
Snowdrop Systems Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United Kingdom
TAS Software Limited
North Park, Newcastle upon Tyne, NE13 9AA, United Kingdom
United States
Ocrex, Inc.
15 John Poulter Road, Lexington, MA 02421, United States
United States
Sage Budgeta, Inc.
300 Park Avenue, Suite 300, San Jose, CA 95110, United States
United States
Sage Global Services US, Inc.
271 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Sage Intacct, Inc.
300 Park Avenue, Suite 300, San Jose, CA 95110, United States
United States
Sage People, Inc.
270 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Sage Software Holdings, Inc.
271 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Sage Software International, Inc.
272 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Sage Software North America
273 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Sage Software, Inc.
274 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Sage Tempus, Inc.
275 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Softline Holdings USA, Inc.
276 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Softline Software USA, LLC
277 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
Softline Software, Inc.
278 17th Street NW, Suite 1100 Atlanta, Georgia 30363, United States
United States
South Acquisition Corp.
C/O Corporation Service Company, 251 Little Falls Drive, Wilmington, New
Castle, Delaware, 19808, United States
* Direct subsidiary
19 Post-balance sheet events
An agreement was signed on 18 November 2019, for the sale of the Group’s Sage Pay business for £232m (subject to customary
debt and working capital adjustments) to Elavon Inc., a subsidiary of U.S. Bancorp. Sales proceeds are payable in cash upon
completion. The business was classified as held for sale at 30 September 2019 (see note 15.3) and is part of the Group’s Northern
Europe reportable segment. Completion of the transaction and loss of control is expected to occur in Q2 FY20, subject to Elavon
Inc. obtaining regulatory approval by the Board of Governors of the Federal Reserve System in the United States as well as the
Central Bank of Ireland. The statutory gain on the transaction is expected to be approximately £180m on completion.
The board has approved a capital return of £250m, largely reflecting the expected proceeds from the disposal of Sage Pay.
205
205
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
CONTENTS
Company financial statements
Company financial statements
Company balance sheet
Company statement of changes in equity
Company accounting policies
Notes to the Company financial statements
1. Dividends
2. Fixed assets: investments
3. Cash at bank and in hand
4. Debtors
5. Creditors: amounts falling due within one year
6. Obligations under operating leases
7. Equity
207
208
209
211
211
211
212
212
212
213
206
206
Annual Report and Accounts 2019The Sage Group plc.
COMPANY BALANCE SHEET
At 30 September 2019
Non-current assets: investments
Current assets
Cash at bank and in hand
Debtors – amounts due greater than one year £418m (2018: £378m)
Creditors: amounts falling due within one year
Trade and other payables
Net current liabilities
Total assets less current liabilities
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
2019
£m
3,088
2018
£m
3,088
2
1,120
1,122
1
1,052
1,053
5
(1,420)
(1,219)
(298)
(166)
2,790
2,922
2,790
2,922
7.1
7.2
12
548
(77)
2,307
2,790
12
548
(94)
2,456
2,922
The Company’s profit for the year was £14m (2018: £103m).
The financial statements on pages 207 to 213 were approved by the Board of Directors on 19 November 2019 and are signed on
its behalf by:
Jonathan Howell
Chief Financial Officer
207
207
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
COMPANY STATEMENT OF CHANGES IN EQUITY
At 1 October 2018
Profit for the year
Total comprehensive income for the year ended
30 September 2019
Transactions with owners:
Employee share option scheme:
– Value of employee services
Utilisation of treasury shares
Proceeds of issuance of treasury shares
Dividends paid to owners of the parent
Total transactions with owners for the year ended 30 September 2019
Attributable to owners of the parent
Called up
share capital
£m
12
–
–
–
–
–
–
–
Share
premium
£m
548
Other
reserves
£m
Profit and loss
account
£m
(94)
2,456
–
–
–
–
–
–
–
–
–
–
17
–
–
17
14
14
32
(17)
3
(181)
(163)
Total
equity
£m
2,922
14
14
32
–
3
(181)
(146)
At 30 September 2019
12
548
(77)
2,307
2,790
Attributable to owners of the parent
At 1 October 2017
Profit for the year
Total comprehensive income for the year ended
30 September 2018
Transactions with owners:
Employee share option scheme:
– Value of employee services, net of deferred tax
Utilisation of treasury shares
Proceeds of issuance of treasury shares
Dividends paid to owners of the parent
Total transactions with owners for the year ended 30 September 2018
Called up
share capital
£m
12
–
–
–
–
–
–
–
Share
premium
£m
548
–
–
–
–
–
–
–
(107)
–
–
–
13
–
–
13
Other
reserves
£m
Profit and loss
account
£m
2,516
103
Total
equity
£m
2,969
103
103
103
18
(13)
3
(171)
(163)
18
–
3
(171)
(150)
At 30 September 2018
12
548
(94)
2,456
2,922
208
208
Annual Report and Accounts 2019The Sage Group plc.
COMPANY ACCOUNTING POLICIES
Company accounting policies
Statement of compliance
These financial statements were prepared in accordance
with Financial Reporting Standard 102 (FRS 102) “The Financial
Reporting Standard applicable in the UK and Republic
of Ireland”.
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. A summary of the more important
Company accounting policies, which have been consistently
applied, is set out below. These accounting policies have been
consistently applied to all periods presented.
The Company is deemed a qualifying entity under FRS 102, and
so may take advantage of the reduced disclosures permitted
under the standard. As a result, the following disclosures have
not been provided:
– a statement of cash flows and related disclosures under
Section 7 Statement of Cash Flows and Section 3
Financial Statement Presentation paragraph 3.17(d);
– disclosures about financial instruments under Section 11
Basic Financial Instruments and Section 12 Other Financial
Instruments Issues paragraphs 12.26 (in relation to those
cross-referenced paragraphs from which a disclosure
exemption is available), 12.27, 12.29(a), 12.29(b), and 12.29A;
this exemption is permitted as equivalent disclosures are
included in the consolidated financial statements of The
Sage Group plc;
– disclosures about share-based payments under Section 26
Share-based Payment paragraphs 26.18(b), 26.19 to 26.21
and 26.23; this exemption is permitted as the Company is an
ultimate parent, the share-based payment arrangements
concern its own equity instruments, its separate financial
statements are presented alongside the consolidated
financial statements of The Sage Group plc and equivalent
disclosures are included in those consolidated financial
statements; and
– key management personnel compensation in total under
Section 33 Related Party Disclosures paragraph 33.7.
Foreign currencies
The UK is the home country of The Sage Group plc. Monetary
assets and liabilities expressed in foreign currencies are
translated into sterling at rates of exchange prevailing at
the balance sheet date. 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. Any impairment is charged to the profit and
loss account as it arises.
Parent Company profit and loss account
No profit and loss account is presented for the Company
as permitted by section 408 of the Companies Act 2006.
Details of the average number of people employed by the
parent Company and the staff costs incurred by the Company
are as follows.
Average monthly number of people employed
(including Directors)
2019
number
2018
number
By segment:
Northern Europe
Staff costs (including Directors on service contracts)
Wages and salaries
Social security costs
Post-employment benefits
Share-based payments
27
2019
£m
6
2
–
–
8
112
2018
£m
10
2
1
2
15
Staff costs are net of recharges to other Group companies.
Auditor’s remuneration
The audit fees payable in relation to the audit of the financial
statements of the Company are £30,000 (2018: £30,000).
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 96 to 123.
Share-based payments
The Company issues equity-settled share-based payments
to certain employees and employees of its subsidiaries.
Equity-settled share-based payments granted to employees
of the Company 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.
209
209
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
COMPANY ACCOUNTING POLICIES continued
The Company also provides certain employees and employees
of its subsidiaries with the ability to purchase the Company’s
ordinary shares at a discount to the current market value at
the date of the grant. For awards made to its own employees,
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.
For awards made to subsidiary employees, the fair value of
awards made is recognised by the Company through profit and
loss account. Intergroup recharges to the employing subsidiary,
up to the fair value of awards made to employees of that
subsidiary, subsequently reverse the decrease to the profit and
loss account.
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 Company only enters into basic financial instrument
transactions that result in the recognition of basic financial
assets and liabilities, including trade and other receivables and
payables and loans to and from related parties. These transactions
are initially recorded at transaction price, unless the arrangement
constitutes a financing transaction where the transaction is
measured at the present value of the future receipt discounted
at a market rate of interest, and subsequently recognised at
amortised cost.
Financial assets
At the end of each reporting period financial assets measured
at amortised cost are assessed for objective evidence of
impairment. If an asset is impaired the impairment loss is the
difference between the carrying amount and the present value
of the estimated cash flows discounted at the asset’s original
effective interest rate. The impairment loss is recognised in
comprehensive income or expense.
Financial assets are derecognised when (a) the contractual
rights to the cash flows from the asset expire or are settled,
or (b) substantially all the risks and rewards of the ownership of
the asset are transferred to another party or (c) control of the
asset has been transferred to another party who has the
practical ability to unilaterally sell the asset to an unrelated
third party without imposing additional restrictions.
Financial liabilities
Financial liabilities are derecognised when the liability is
extinguished, that is when the contractual obligation is
discharged, cancelled or expired.
Dividends
Dividends are recognised through equity when approved by the
Company’s shareholders or on payment, whichever is earlier.
210
210
Annual Report and Accounts 2019The Sage Group plc.
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1 Dividends
Final dividend paid for the year ended 30 September 2018 of 10.85p per share
(2018: final dividend paid for the year ended 30 September 2017 of 10.20p per share)
Interim dividend paid for the year ended 30 September 2019 of 5.79p per share
(2018: interim dividend paid for the year ended 30 September 2018 of 5.65p per share)
2019
£m
118
63
–
181
2018
£m
–
110
–
61
171
In addition, the Directors are proposing a final dividend in respect of the financial year ended 30 September 2019 of 11.12p per share
which will absorb an estimated £121m of shareholders’ funds. If approved at the AGM, it will be paid on 2 March 2020 to
shareholders who are on the register of members on 7 February 2020. These financial statements do not reflect this proposed
dividend payable.
2 Fixed assets: investments
Equity interests in subsidiary undertakings are as follows:
Cost
At 1 October 2018
At 30 September 2019
Provision for diminution in value
At 1 October 2018
At 30 September 2019
Net book value
At 30 September 2019
At 30 September 2018
£m
3,224
3,224
136
136
3,088
3,088
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
Subsidiary undertakings, included in the Group financial statements for the year ended 30 September 2019, are shown in note 18
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 Group financial statements. The accounting reference date of all subsidiaries
is 30 September, except for Brazilian subsidiaries which have an accounting reference date of 31 December due to Brazilian
statutory requirements.
3 Cash at bank and in hand
Cash at bank and in hand
2019
£m
2
2018
£m
1
211
211
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
4 Debtors
Prepayments and accrued income
Other debtors
Amounts owed by Group undertakings
2019
£m
1
2
1,117
1,120
Of amounts owed by Group undertakings £418m (2018: £378m) is due greater than one year, on which interest is charged at
4.2% and is repayable in full on 21 October 2023 but may be repaid, in whole or in part, in advance of this date at the option of
the borrower.
5 Trade and other payables
Amounts owed to Group undertakings
Accruals and deferred income
2019
£m
1,414
6
1,420
2018
£m
1
–
1,051
1,052
2018
£m
1,216
3
1,219
Amounts owed to Group undertakings are unsecured and attract a rate of interest of between 0.0% and 6.8% (2018: 0.0% and 8.3%).
6 Obligations under operating leases
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
2019
2018
Property,
vehicles,
plant and
equipment
£m
Property,
vehicles,
plant and
equipment
£m
2
5
20
27
1
5
3
9
The Company leases various offices under non-cancellable operating lease agreements. These leases have various terms,
escalation clauses and renewal rights.
212
212
Annual Report and Accounts 2019The Sage Group plc.
7 Equity
7.1 Called up share capital
Issued and fully paid ordinary share of 14/77 pence each
At 1 October
Proceeds from shares issued
At 30 September
7.2 Other reserves
At 1 October 2018
Utilisation of treasury shares
At 30 September 2019
At 1 October 2017
Utilisation of treasury shares
At 30 September 2018
2019
shares
1,120,789,295
–
1,120,789,295
2019
£m
12
–
12
2018
shares
1,120,638,121
151,174
1,120,789,295
Treasury
shares
£m
(157)
17
(140)
Treasury
shares
£m
(170)
13
(157)
Merger
reserve
£m
61
–
61
Merger
reserve
£m
61
–
61
Capital
redemption
reserve
£m
2
–
2
Capital
redemption
reserve
£m
2
–
2
2018
£m
12
–
12
Total other
reserves
£m
(94)
17
(77)
Total other
reserves
£m
(107)
13
(94)
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 no treasury shares (2018: none).
During the year the Group agreed to satisfy the vesting of certain share awards, utilising a total of 3,781,720 (2018: 3,022,375)
treasury shares. The Group gifted nil shares (2018: nil) to the Employee Share Trust.
At 30 September 2019 the Group held 31,699,170 (2018: 35,480,890) of treasury shares.
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 35,792 ordinary shares in the Company (2018: 254,525) at a cost of £nil (2018: £2m) and a nominal
value of £nil (2018: £nil).
During the year, the Trust agreed to satisfy the vesting of certain share awards, utilising a total of 368,733 (2018: 707,190) shares held in
the Trust. The Trust received £2m (2018: £nil) additional funds for future purchase of shares in the market (2018: nil funds received).
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 2019 was £nil (2018: £1m).
213
213
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS
GLOSSARY
Non-GAAP measures
Measure/Description
Underlying (revenue and profit) measures
Underlying measures are adjusted to exclude items which would distort the
understanding of the performance for the year or comparability between periods:
– Recurring items include purchase price adjustments including amortisation of
acquired intangible assets and adjustments made to reduce deferred income
arising on acquisitions, acquisition-related items, FX on intercompany balances
and fair value adjustments; and
– Non-recurring items that management judge to be one-off or non-operational such
as gains and losses on the disposal of assets, impairment charges and reversals,
and restructuring related costs.
All prior period underlying measures (revenue and profit) are retranslated at the
current year exchange rates to neutralise the effect of currency fluctuations.
Organic (revenue and profit) measures
In addition to the adjustments made for Underlying measures, Organic measures:
– Exclude the contribution from discontinued operations, disposals and assets held
for sale of standalone businesses in the current and prior period; and
– Exclude the contribution from acquired businesses until the year following the
year of acquisition, at which point they are included for the full current and
prior period; and
For FY19 this includes the impact of IFRS15. FY18 is restated to reflect proforma
adjustments for the areas of impact of IFRS 15 adoption assuming the same
contractual basis as FY19.
Acquisitions and disposals which occurred close to the start of the opening
comparative period where the contribution impact would be immaterial are not
adjusted. Please note that organic operating profit margin as reported is not
necessarily comparable from period to period.
Underlying Cash Flow from Operating Activities
Rationale
Underlying measures allow management
and investors to compare performance
without the potentially distorting effects
of foreign exchange movements, one-off or
non-operational items.
By including part-period contributions from
acquisitions, discontinued operations,
disposals and assets held for sale of
standalone businesses in the current and/or
prior periods, the impact of M&A decisions on
earnings per share growth can be evaluated.
Organic measures allow management and
investors to understand the like-for-like
revenue and current period margin
performance of the continuing business.
During FY19, the organic measure adjusts
the prior period (FY18) for IFRS15 to enable
like-for-like comparison across the periods.
Underlying Cash Flow from Operating Activities is Underlying Operating Profit
adjusted for non-cash items, net capex (excluding business combinations and
similar items) and changes in working capital.
To show the cashflow generated by the
operating activities and calculate underlying
cash conversion.
Underlying Cash Conversion
Underlying Cash Flow from Operating Activities divided by Underlying Operating Profit.
EBITDA
EBITDA is Underlying Operating Profit excluding depreciation, amortisation and share
based payments.
Annualised recurring revenue
Annualised recurring revenue (“ARR”) is the normalised reported organic recurring
revenue in the last month of the reporting period, adjusted consistently period to
period, multiplied by twelve. Adjustments to normalise reported recurring revenue
include those components that management has assessed should be excluded in
order to ensure the measure reflects that part of the contracted revenue base which
(subject to ongoing use and renewal) can reasonably be expected to repeat in future
periods (such as non-refundable contract sign-up fees).
Renewal Rate by Value
The ARR from renewals, migrations, upsell and cross-sell of active customers at the
start of the year, divided by the opening ARR for the year.
Free Cash Flow
Free Cash Flow is Cash Flow from Operating Activities minus non-recurring cash items,
interest paid, tax paid and adjusted for profit and loss foreign exchange movements.
Cash conversion informs management and
investors about the cash operating cycle of
the business and how efficiently operating
profit is converted into cash.
To calculate the Net Debt to EBITDA leverage
ratio and to show profitability before the
impact of major non-cash charges.
ARR represents the annualised value of the
recurring revenue base that is expected to
be carried into future periods, and its growth
is a forward-looking indicator of reporting
recurring revenue growth.
As an indicator of our ability to retain and
generate additional revenue from our existing
customer base through up and cross sell.
To measure the cash generated by the
operating activities during the period
that is available to repay debt, undertake
acquisitions or distribute to shareholders.
214
Annual Report and Accounts 2019The Sage Group plc. Measure/Description
% Subscription Penetration
Organic software subscription revenue as a percentage of organic total revenue
% Sage Business Cloud Penetration
Organic recurring revenue from the Sage Business Cloud (native and connected cloud)
as a percentage of the organic recurring revenue of the Future Sage Business Cloud
Return on Capital Employed (ROCE)
ROCE is calculated as:
– Underlying Operating Profit; minus
– Amortisation of acquired intangibles; the result being divided by
– The average (of the opening and closing balance for the period) total net assets
excluding net debt, provisions for non-recurring costs and tax assets or liabilities
(i.e. capital employed).
Rationale
To measure the progress of migrating
our customer base from licence and
maintenance to a subscription relationship.
To measure the progress in the migration of
our revenue base to the Sage Business Cloud
by connecting our solutions to the cloud
and/or migrating our customers to cloud
connected and cloud native solutions.
As an indicator of the current period
financial return on the capital invested in the
company. ROCE is used as an underpin in the
FY19 PSP awards.
Revenue Type
Recurring revenue
Subscription contracts
Maintenance and support contracts
Software and software-related services
Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Hardware and stationery
Processing revenue
Payment processing services
Payroll processing services
Description
Recurring revenue is revenue earned from customers for the provision of a good or service
over a contractual term, with the customer being unable to continue to benefit from the full
functionality of the good or service without ongoing payments.
Subscription revenue is recurring revenue earned from customers for the provision of a good
or service over a contractual term. In the event that the customer stops paying, they lose the
legal right to use the software and the Group has the ability to restrict the use of the product
or service.
Subscription revenue and maintenance and support revenue are usually recognised on a
straight-line basis over the term of the contract as control is transferred to the customer
(including non-specified upgrades, when included). An exception is revenue from term
licences embedded within a subscription contract for software with significant standalone
functionality which are expected to recur upon renewal of the subscription offering. Revenue
for these term licences is recognised when control is transferred at inception of each
subscription contract period.
Perpetual software licences with significant standalone functionality and specified upgrades
revenue are recognised when the control relating to the licence has been transferred. 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 hardware and stationery) is recognised as the
products are shipped to the customer.
Other services revenue (which includes 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.
215
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS GLOSSARY continued
A&RC
Audit and Risk Committee
ERP
Enterprise Resource Planning
LSE
London Stock Exchange
AAMEA
Africa Australia Middle East Asia
ESOS
Executive Share Operating Scheme
LTIP
Long Term Incentive Plan
NED
Non-Executive Director
NPS
Net Promoter Score
PBT
Profit Before Tax
PSP
Performance Share Plan
R&D
Research and Development
SBC
Sage Business Cloud
S&M
Sales and Marketing
SaaS
Software as a Service
SSRS
Software & Software Related Services
TSR
Total Shareholder Return
VSGM
Vision, Strategy, Goals, Measures
AGM
Annual General Meeting
API
Application Program Interface
C4L
Customer For Life
CAGR
Compound Annual Growth Rate
CDP
Carbon Disclosure Project
CFO
Chief Financial Officer
CGU
Cash Generating Unit
CMD
Capital Markets Day
CR
Corporate Responsibility
CRM
Customer Relationship Management
DTR
Disclosure Guidance
and Transparency Rules
EBITDA
Earnings Before Interest Taxes
Depreciation and Amortisation
EBT
Employee Benefit Trust
ED
Executive Director
EPS
Earnings Per Share
EU
European Union
FCF
Free Cash Flow
FY16
Financial year ending 30 September
2016
FY17
Financial year ending 30 September
2017
FY18
Financial year ending 30 September
2018
FY19
Financial year ending 30 September
2019
G&A
General and Administrative
GAC
Global Accounting Core
GHG
Green House Gas
HR
Human Resources
HCM
Human Capital Management
IFRS
International Financial
Reporting Standards
ISV
Independent Software Vendor
KPI
Key Performance Indicator
216
Annual Report and Accounts 2019The Sage Group plc. SHAREHOLDER INFORMATION
Financial calendar
Annual General Meeting
Dividend payments
Final payable – year ended 30 September 2019
Interim payable – period ending 31 March 2020
Results announcements
Interim results – period ending 31 March 2020
Final results – year ending 30 September 2020
2 March 2020
12 June 2020
13 May 2020
20 November 2020
Shareholder information online
The Sage Group plc’s registrars are able to notify shareholders by email of the availability of an
electronic version of shareholder information. Whenever new shareholder information becomes
available, such as The Sage Group plc’s interim and full year results, Equiniti will notify you by
email and you will be able to access, read and print documents at your own convenience.
To take advantage of this service for future communications, please go to www.shareview.
co.uk, 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 “email” to “post”. If you wish to continue receiving shareholder
information in the current format, there is no need to take any action.
Our corporate website has more information about our business, products, investors, media,
sustainability, and careers at Sage Group.
Stay up to date at www.sage.com
Advisers
Corporate brokers
and financial advisers
Citigroup Global Markets,
33 Canada Square, Canary
Wharf, London, E14 5LB
Morgan Stanley & Co.
International plc
25 Cabot Square
Canary Wharf
London, E14 4QA
United Kingdom
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
Investor enquiries
Enquiries can be directed via
our website or by contacting
our Investor Relations
department:
Tel: +44 (0)191 294 3457
The Sage Group plc
Registered office:
North Park
Newcastle upon Tyne,
NE13 9AA
Registered in England
Company number 2231246
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
This report is printed
utilising vegetable based
inks on Magno Matt
which is sourced from
well managed forests
independently certified
according to the rules of
the Forest Stewardship
Council (FSC®). This report
was printed by an FSC®
certified and a carbon
neutral printing company
and Magno Matt is
manufactured at a mill that
is certified to the ISO14001
and EMAS environmental
standards.
Designed and produced
by Black Sun Plc
Printed by Park
Communications
217
Annual Report and Accounts 2019The Sage Group plc.FINANCIAL STATEMENTS Sage is a global market leader for technology that helps
small and medium businesses perform at their best.
Sage is trusted by millions of customers worldwide to
deliver the best cloud technology and support, with our
partners, to manage finances, operations, and people.
We believe in doing everything we can to help people
be the best they can be, so the combined efforts of
13,000 Sage colleagues working with businesses and
communities make a real difference to the world.
www.sage.com
The Sage Group plc
North Park,
Newcastle upon Tyne,
NE13 9AA.
Registered in England
Company number 2231246