REG - Sage Group PLC - Final Results <Origin Href="QuoteRef">SGE.L</Origin> - Part 3
03/12/2014 07:10
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(0.8) - 1.1 - (0.4)
Cash collected from customers (23.4) (15.5) - - (1.7) (40.6)
Total (384.3) (49.2) - (0.9) (2.8) (437.2)
Included in cash above is £40.6m (2013: £23.4m) relating to cash collected from customers, which the Group is contracted to
pay onto another party. A liability for the same amount is included in trade and other payables on the balance sheet and is
classified within net debt above.
10 Acquisitions and disposals
Acquisition of Exact
On 15 September 2014 the Group acquired 100% of the share capital of Exact Software Deutschland GmbH ("Exact"), a provider
of payroll services and software, for a cash consideration of £12.8m. As a result of the acquisition the Group is expected
to become one of leading providers of payroll software solutions in Germany.
Other
On 14 August 2014 the Group acquired 100% of the share capital of Sytax Systemas S.A in Brazil for consideration of £0.6m.
Details of net assets acquired and goodwill are as follows:
Summary of acquisitions £m
Purchase consideration
Cash 13.4
Deferred/contingent consideration -
Total purchase consideration 13.4
Fair value of net identifiable assets (5.8)
Goodwill 7.6
Provisional fair value of acquisitions Exact Other Total
£m £m £m
Intangible assets 6.6 - 6.6
Property, plant and equipment 0.2 - 0.2
Trade and other receivables 0.5 - 0.5
Cash and cash equivalents 2.7 - 2.7
Trade and other payables (1.5) - (1.5)
Deferred revenue (2.7) - (2.7)
Total net identifiable (liabilities)/assets acquired 5.8 - 5.8
Goodwill 7.0 0.6 7.6
Consideration satisfied by:
Cash 12.8 0.6 13.4
Deferred/contingent consideration - - -
Total purchase consideration 12.8 0.6 13.4
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
Cash consideration 12.8 0.6 13.4
Cash and cash equivalents acquired (2.7) - (2.7)
Deferred consideration, paid on prior period acquisitions - 3.4 3.4
Net cash outflow in respect of acquisitions 10.1 4.0 14.1
Contribution of acquisitions
From the dates of the acquisitions to 30 September 2014, the acquisitions contributed £0.4m to revenue and £0.0m to profit
before income tax. Had these acquisitions occurred at the beginning of the financial year, contribution to Group revenue
would have been £9.6m and Group profit before income tax would have increased by £0.4m.
Acquisition-related items
Acquisition-related items of £2.4m (2013: £0.1m) have been included in selling and administrative expenses in the
Consolidated income statement. These acquisition-related items (previously recognised in goodwill prior to IFRS 3
(Revised), "Business Combinations"), relate to completed transactions and include advisory, legal, accounting, valuation
and other professional or consulting services.
Disposals made during the period
On 11 March 2014, Sage Software India Pvt Ltd ("Sage India") sold trading assets with a value of less than £0.1m to
Greytrix Consulting Private Limited ("Greytrix") for consideration of less than £0.1m. As part of this transaction Greytrix
became the distributor of Sage products in India.
Acquisitions made after the year but before sign off of annual report
Acquisition of Pay Choice.
On 16 October 2014 the Group acquired PAI Group, Inc. ("PayChoice"), a provider of payroll and HR services for small and
medium sized businesses in North America, for a cash consideration of £75.2m. The acquisition strengthens Sage's position
in the large and growing US payroll market.
The net identifiable assets were recognised at their provisional fair values. The allocation of the consideration is
subject to a full purchase price allocation exercise, which due to the timing of the acquisition has not yet been
completed. The residual excess over the net assets acquired has been provisionally recognised as goodwill. PayChoice's
product portfolio provides easy to use online payroll solutions to SMB's, and strengthens the Sage value proposition to
customers with a more robust and comprehensive offering. The combined portfolio provides attractive growth opportunities,
particularly through new customer acquisition and cross-sell to the combined customer base.
Details of net assets acquired and goodwill are as follows:
Summary of acquisitions £m
Purchase consideration
Cash 75.2
Deferred/contingent consideration -
Total purchase consideration 75.2
Fair value of net identifiable liabilities 22.5
Goodwill 97.7
11 Contingent liabilities
The Group had no contingent liabilities at 30 September 2014 (30 September 2013: none).
12 Related party transactions
The Group's related parties are its subsidiary undertakings and Executive Committee members. The Group has taken advantage
of the exemption available under IAS 24, "Related Party Disclosures", not to disclose details of transactions with its
subsidiary undertakings.
Key management compensation 2014£m 2013£m
Salaries and short-term employee benefits 5.9 6.4
Post-employment benefits 0.5 0.5
Share-based payments 1.4 1.3
7.8 8.2
The key management figures given above include directors. Key management personnel are deemed to be members of the
Executive Committee and are defined in the Group's Annual Report & Accounts 2014.
Supplier transactions occurred during the year between Sage South Africa (Pty) Ltd, one of the Group's subsidiary companies
and Ivan Epstein, Chief Executive Officer, AAMEA. These transactions relate to the lease of four properties in which Ivan
Epstein has a minority and indirect shareholding. During the year £3.2m (2013: £1.1m) relating to these transactions was
charged through selling and administrative expenses. There were no outstanding amounts payable for the year ended 2014
(2013: £nil).
Supplier transactions occurred during the year between Sage SP, S.L., one of the Group's subsidiary companies and Álvaro
Ramírez, Chief Executive Officer, Europe. These transactions relate to the lease of a property in which Álvaro Ramírez has
a minority shareholding. During the year £1.1m (2013: £0.2m) relating to these transactions was charged through selling and
administrative expenses. There were no outstanding amounts payable for the year ended 2014 (2013: £nil). These arrangements
are subject to independent review using external advisers to ensure all transactions are at arm's length.
13 Group risk factors
Risks can materialise and impact on both the achievement of business strategy and the successful running of our business. A
key element in achieving our strategy and maintaining services to our customers is the management of risks. Our risk
management strategy is therefore to support the successful running of the business by identifying and managing risks to an
acceptable level and delivering assurances on this. In addition to the principal risks and uncertainties set out below, we
have reviewed our plans in light of potential risks to achieving our strategic objectives. Principal risks and
uncertainties reflect high level strategic risks. Lower level strategic risks are analysed and mitigated via the normal
embedded risk management process.
Risk Potential impact Principal mitigations
Strategic risks
Business changeWe do not successfully change our business, especially in relation to technology initiatives, business model, ecosystem and organisational design to support the change. · We do not keep up with market expectations or competitor activities.· Negative impact on future revenue and damage to future growth potential.· Loss of existing customers and inability to attract new customers.· Negative reputational impact.· We are slow to identify and respond to change. · Strategic opportunities are regularly reviewed by the Group Board.· Change and strategic
projects are identified and their delivery monitored by the Executive Committee and Group Project
Management Office ("PMO").· Technology Advisory Group review of key technology initiatives on a
regular basis.· Product development needs identified via customer input and external research.·
Detailed subscription and pricing initiatives planned and being delivered.
Change management With new business priorities and changes in senior personnel, there is a risk associated with the change management impact on people, processes and systems. · Loss of talent and resources key to strategic delivery.· Inability to operate effectively and maintain a competitive edge.· Loss of sensitive information and knowledge. · Change management programme, including talent reviews, system requirements reviews and
programme management.· Key man dependency and succession planning processes.
Financial risks
Processes and systemsOur processes and systems are not fit for purpose and/or do not provide data in a consistent or appropriate format. This risk is especially relevant as we seek to change the business (see business change risk). · Inaccurate reporting of financial and non-financial information, leading to damage to reputation.· Business decisions made on the basis of inaccurate information.· Reduced understanding of existing customers.· Negative impact on the speed and the ability to compare and/or consolidate information. · Increased data risk exposure. · Financial reporting review and external audit procedures.· Financial data verification.·
Internal audit process reviews, with areas for improvement identified and remediation plans put in
place.· System reviews and transformation projects.
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