REG - Sage Group PLC - Final Results <Origin Href="QuoteRef">SGE.L</Origin> - Part 3
22/11/2017 07:18
- Part 3: For the preceding part double click ID:nRSV1647Xb
426 (2) 424
North America 308 39 347 - 347
International 143 32 175 (1) 174
Recurring revenue 1,093 117 1,210 (3) 1,207
Software and software related services ("SSRS") revenue by segment
Northern Europe 40 1 41 - 41
Central and Southern Europe 109 13 122 (1) 121
North America 70 9 79 - 79
International 53 10 63 (1) 62
SSRS revenue 272 33 305 (2) 303
Processing revenue by segment
Northern Europe 35 - 35 - 35
Central and Southern Europe 1 1 2 - 2
North America 27 4 31 - 31
International 11 2 13 - 13
Processing revenue 74 7 81 - 81
Total revenue by segment
Northern Europe 336 2 338 - 338
Central and Southern Europe 491 59 550 (3) 547
North America 405 52 457 - 457
International 207 44 251 (2) 249
Total revenue 1,439 157 1,596 (5) 1,591
Operating profit by segment
Year ended 30 September 2017
Statutory £m Underlying adjustments £m Underlying Organic adjustments £m Organic£m Change Change Change
£m Statutory Underlying Organic %
% %
Operating profit by segment
Northern Europe 135 25 160 5 165 26.2% 22.6% 25.8%
Central and Southern Europe 129 33 162 (1) 161 121.4% 14.8% 15.2%
North America 65 44 109 4 113 (14.2%) (5.6%) (2.1%)
International 19 17 36 - 36 (27.6%) (19.4%) (18.7%)
Total operating profit 348 119 467 8 475 30.3% 8.2% 10.3%
Year ended 30 September 2016
Statutory £m Underlying adjustments Underlying as reported Impact of foreign exchange Underlying Organic adjustments Organic
£m £m £m £m £m £m
Operating profit by segment
Northern Europe 107 22 129 2 131 - 131
Central and Southern Europe 59 66 125 16 141 (1) 140
North America 75 27 102 14 116 - 116
International 26 11 37 7 44 - 44
Total operating profit 267 126 393 39 432 (1) 431
Reconciliation of underlying operating profit to statutory operating profit
2017 2016£m
£m
Northern Europe 160 131
Central and Southern Europe 162 141
North America 109 116
Total reportable segments 431 388
International 36 44
Underlying operating profit 467 432
Impact of movement in foreign currency exchange rates - (39)
Underlying operating profit (as reported) 467 393
Amortisation of acquired intangible assets (22) (17)
Other M&A activity-related items (27) (1)
Non-recurring items (70) (108)
Statutory operating profit 348 267
3 Adjustments between underlying profit and statutory profit
2017 2017 2017 2016 2016 2016
Recurring Non-
Total
Recurring Non-
Total
£m recurring £m £m recurring £m
£m £m
M&A activity-related items
Amortisation of acquired intangibles 22 - 22 17 - 17
Gain on disposal of subsidiary - (3) (3) - - -
Adjustment to acquired deferred income 5 - 5 - - -
Other M&A activity-related items 22 - 22 1 - 1
Other items
Business transformationcosts - 73 73 - 110 110
Litigation-related items - - - - (2) (2)
Total adjustments made to operating profit 49 70 119 18 108 126
Fair value adjustments (6) - (6) (3) - (3)
Amortisation of acquired intangibles 1 - 1 1 - 1
Gain on remeasurement of existing investment in an associate - (13) (13) - - -
Foreign currency movements on intercompany balances (1) - (1) 6 - 6
Total adjustments made to profit before income tax 43 57 100 22 108 130
Recurring items
Acquired intangibles are assets which have previously been recognised as part of business combinations. These assets are
predominantly brands, customer relationships and technology rights.
The adjustment 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. A
further £12m will arise in FY18.
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. The main costs relate to the acquisitions in the year, see note 11.
The fair value adjustments comprises a £7m credit (2016: £nil) relating to a fair value adjustment of financial assets
offset by a charge of £1m (2016: gain of £3m) in relation to an embedded derivative asset which relates to contractual
terms agreed as part of the US private placement debt.
Amortisation of acquired intangibles below operating profit relates to the Group's share of the amortisation of intangible
assets arising on the acquisition of an investment in an associate accounted for under the equity method.
Foreign currency movements on intercompany balances of £1m (2016: charge of £6m) occurs 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, predominately the movement in Euro and US Dollar compared
to sterling.
Non-recurring items
Net charges in respect of non-recurring items amounted to £57m (2016: £108m).
Charges of £73m have been incurred in the current year as a result of the implementation of the business transformation.
This is comprised of people-related reorganisation charges of £32m (2016: £51m), net property exit costs of £14m (2016:
£40m) and other directly attributable costs, mainly relating to consultancy, contractor and asset write downs, of £27m
(2016: £19m).
The people-related reorganisation charges comprise severance costs of £29m (2016: £44m) with the remaining cost largely
arising from retention payments, transition and overlap costs whilst implementing the Group's new operating model. The
property exit costs consist of net lease exit costs following consolidation of office space used and impairment and
accelerated depreciation of leasehold improvement assets and other related assets that are no longer in use due to the
property exits. The other costs include expenditure that is directly attributable to the business transformation, including
advisory, legal, accounting, valuation and other professional or consulting services.
These charges are one-off in nature and directly linked to the business transformation undertaken in the current and prior
year. No further related non-recurring costs are expected to arise in FY18 and subsequent financial years in relation to
the business transformation.
Total cash paid in relation to the business transformation strategy totalled £72m (2016: £58m) in the year.
The gain on disposal of subsidiary relates to the sale of Syska, see note 11.
The gain on remeasurement of existing investment in an associate relates to the acquisition of Fairsail, see
note 11.
4 Income tax expense
The effective tax rate on statutory profit before tax was 25% (2016: 22% excluding discontinued operations), whilst the
effective tax rate on underlying profit before tax was 26% (2016: 25% excluding discontinued operations). The difference
between the statutory effective tax rate and the underlying tax rate relates to non-recurring items which are deductible in
countries with a tax rate higher than the UK.
5 Dividends
2017£m 2016£m
Finaldividend paid for the year ended 30 September 2016 of 9.35p per share 101 -
(2016: final dividend paid for the year ended 30 September 2015 of 8.65p per share) - 93
Interim dividend paid for the year ended 30 September 2017 of 5.22p per share 56 -
(2016: interim dividend paid for the year ended 30 September 2016 of 4.80p per share) - 52
157 145
In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2017 of
10.20p per share which will absorb an estimated £110m of shareholders' funds. It will be paid on 2 March 2018 to
shareholders who are on the register of members on 9 February 2018. These financial statements do not reflect this dividend
payable.
6 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to owners of the parent by the
weighted average number of ordinary shares in issue during the period, 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 dilutive potential ordinary shares. The Group has dilutive potential ordinary shares consisting of share options
granted to employees, where the exercise price is less than the average market price of the Company's ordinary shares
during the period.
Underlying 2017 Underlying Underlying Statutory Statutory
as reported 2016 2016 2017 2016
Earnings attributable to owners of the parent
- Continuing operations (£m)
Profit for the year 327 280 308 257 188
Number of shares (millions)
Weighted average number of shares 1,080 1,077 1,077 1,080 1,077
Dilutive effects of shares 4 6 6 4 6
1,084 1,083 1,083 1,084 1,083
Earnings per share attributable to owners of the
parent - Continuing operations (pence)
Basic earnings per share 30.28 25.90 28.59 23.86 17.43
Diluted earnings per share 30.18 25.75 28.42 23.78 17.33
Underlying 2017 Underlying Underlying Statutory Statutory
as reported 2016 2016 2017 2016
Earnings attributable to owners of the parent
- Continuing and discontinued operations (£m)
Profit for the year 345 300 332 300 208
Number of shares (millions)
Weighted average number of shares 1,080 1,077 1,077 1,080 1,077
Dilutive effects of shares 4 6 6 4 6
1,084 1,083 1,083 1,084 1,083
Earnings per share attributable to owners of the parent
- Continuing and discontinued operations (pence)
Basic earnings per share 31.90 27.84 30.82 27.80 19.28
Diluted earnings per share 31.79 27.67 30.64 27.71 19.16
Statutory Statutory
2017 2016
Earnings attributable to owners of the parent - Discontinued operations (£m)
Profit for the year 43 20
Number of shares (millions)
Weighted average number of shares 1,080 1,077
Dilutive effects of shares 4 6
1,084 1,083
Earnings per share attributable to owners of the parent - Discontinued operations (pence)
Basic earnings per share 3.94 1.85
Diluted earnings per share 3.93 1.83
Reconciliation of earnings - Continuing operations 2017 2016
£m £m
Underlying earnings attributable to owners of the parent (after exchange movement) 327 308
Impact of movement in foreign currency exchange rates - (28)
Underlying earnings attributable to owners of the parent (as reported) 327 280
Amortisation of acquired intangible assets and adjustment to acquired deferred income (28) (18)
Fair value adjustments to debt-related financial instruments 6 3
Gain on disposal of subsidiary 3 -
Foreign currency movements on intercompany balances 1 (6)
Other M&A activity-related items (22) (1)
Transformation costs and litigation related items (73) (108)
Gain on remeasurement of existing investment in an associate 13 -
Taxation on adjustments 30 38
Net adjustments (70) (92)
Earnings statutory profit for period 257 188
Reconciliation of earnings - Continuing and discontinued operations 2017£m 2016£m
Underlying earnings attributable to owners of the parent (after exchange movement) 345 332
Impact of movement in foreign currency exchange rates - (32)
Underlying earnings attributable to owners of the parent (as reported) 345 300
Net adjustments - Continuing operations (70) (92)
Gain on disposal of subsidiaries - discontinued operations 25 -
Net adjustments (45) (92)
Earnings statutory profit for period 300 208
7 Non-current assets
Goodwill Otherintangibleassets£m Property, plant and equipment £m Total
£m £m
Opening net book amount at 1 October 2016 1,659 109 123 1,891
Additions - 22 30 52
Acquisition 593 185 6 784
Disposals of subsidiaries (189) (1) (1) (191)
Disposals - (1) (2) (3)
Depreciation, amortisation and other movements - (36) (22) (58)
Exchange movement (40) (4) (1) (45)
Closing net book amount at 30 September 2017 2,023 274 133 2,430
Goodwill£m Otherintangibleassets£m Property, plant and equipment £m Total£m
Opening net book amount at 1 October 2015 1,446 104 123 1,673
Additions - 8 23 31
Acquisition - 6 - 6
Disposals - (1) - (1)
Depreciation, amortisation and other movements - (29) (28) (57)
Exchange movement 213 21 5 239
Closing net book amount at 30 September 2016 1,659 109 123 1,891
Goodwill is not subject to amortisation, but is tested for impairment annually at the year-end or whenever there is any
indication of impairment. At 30 September 2017, there were no indicators of impairment to goodwill. Full details of the
outcome of the 2017 goodwill impairment review are provided in the 2017 financial statements.
Detail of the current period acquisitions and disposals has been provided in note 11.
8 Financial instruments
For financial assets and liabilities, the carrying amount approximates the fair value of the instruments, with the
exception of US senior loan notes due to these bearing interest at fixed rates which are currently higher than floating
rates. The fair value of borrowings is determined by reference to interest rate movements on the US $ private placement
market and therefore can be considered as a level 2 fair value as defined within IFRS 13 with the respective book and fair
values included in the table below.
At 30 September 2017 At 30 September 2016
Book Value£m Fair Value£m Book Value£m Fair Value£m
Long-term borrowing 914 924 535 559
Short-term borrowing 55 56 43 44
9 Ordinary shares and share premium
Number of shares Ordinary Shares £m Share premium £m Total£m
At 1 October 2016 1,119,480,363 12 544 556
Shares issued/proceeds 1,157,758 - 4 4
At 30 September 2017 1,120,638,121 12 548 560
OrdinaryShares£m SharePremium£m Total£m
Number ofShares
At 1 October 2015 1,118,298,748 12 541 553
Shares issued/proceeds 1,181,615 - 3 3
At 30 September 2016 1,119,480,363 12 544 556
During the year, the Group transferred 1,019,166 (2016: nil) of treasury shares to the Employee Benefit Trust in order to
satisfy vested PSP awards.
During the year, the group purchased 1,376,583 (2016: 385,000) shares at a cost of £9m (2016: £2m) through the Employee
Benefit Trust.
10 Cash flow and net debt
2017 2016£m
£m
Statutory operating profit - continuing operations 348 267
Recurring and non-recurring items 119 126
Underlying operating profit - continuing operations 467 393
Underlying operating profit - discontinued operations 29 34
Underlying operating profit (as reported) 496 427
Recurring and non-recurring items (94) (58)
Depreciation/amortisation/impairment/profit on disposal of non-current assets 36 30
Share-based payments 6 8
Net changes in working capital (18) (10)
Exchange rate translation movements 2 1
Underlying cash flow from operating activities 428 398
Net interest paid (20) (20)
Income tax paid (102) (92)
Net capital expenditure (52) (32)
M&A activity-related expenditure 22 -
Free cash flow 276 254
Net debt at 1 October (398) (425)
Acquisitions and disposals of subsidiaries, net of cash (544) (16)
Dividends paid to owners of the parent (157) (145)
Purchase of treasury shares (9) (2)
Share issue 4 3
Exchange movement 13 (65)
Other 2 (2)
Net debt at 30 September (813) (398)
Analysis of change in net debt (inclusive of finance leases) At Cash flow Acquisitions Disposal of subsidiaries Non-cash movements Exchange movement At 30 September 2017
1 October 2016 £m £m £m £m £m £m
£m
Cash and cash equivalents 264 (6) - (23) - (4) 231
Bank overdrafts (4) (14) - - - - (18)
Cash, cash equivalents and bank overdrafts 260 (20) - (23) - (4) 213
Loans due within one year (39) 48 (9) - (37) - (37)
Loans due after more than one year (535) (435) - - 37 19 (914)
Cash held on behalf of customers (84) (9) - 20 - (2) (75)
Total (398) (416) (9) (3) - 13 (813)
Included in cash above is £75m (2016: £84m) relating to cash held on behalf of customers. This arises as a consequence of
providing payment transaction processing and electronic fund transfer services. The balance represents cash in transit from
third parties to Sage Customers. Accordingly, a liability for the same amount is included in trade and other payables on
the balance sheet and is classified within net debt.
The Group continues to be able to borrow at competitive rates and currently deems this to be the most effective means of
raising finance. The Group's current syndicated bank multi-currency revolving credit facility expires in June 2019 with
facility levels of £603m (US$551m and E218m tranches). At 30 September 2017, £318m (FY16: Nil) of the multi-currency
revolving debt facility was drawn, the increased drawings were due to the Intacct and Fairsail acquisitions.
Total US private placement ("USPP") loan notes at 30 September 2017 were £523m (US$600m and EURE85m) (FY16: £575m, US$650m
and EURE85m). £41m (US$50m) of USPP borrowings were repaid in March 2017.
The Group arranged a £296m ($390m) term loan in July 2017 to partially fund the Intacct acquisition, £186m ($240m) was
repaid on 31 August 2017 following receipt of consideration from the North American Payments business disposal. At 30
September 2017, £112m ($150m) remained outstanding.
11 Acquisitions and disposals
Acquisitions made during the period
Intacct Corporation
On 3 August 2017, the Group acquired 100% of the share capital of Intacct Corporation (Intacct) for total consideration of
£627m. Intacct is a leading provider of cloud Financial Management Solutions in North America and is incorporated in the
USA. Acquiring Intacct strengthens the Group's position as a leading cloud provider to customers throughout their
development from start-up to global enterprise and in the short term provides a further platform for growth, with
medium-term aspirations for geographical expansion. The combination of Sage and Intacct's existing product portfolio,
brand, resources and partners, will put the Group in prime position to establish itself as the leading provider of cloud
Financial Management Solutions in North America in its chosen segments.
Summary of acquisition £m
Purchase consideration
Cash 607
Cost of replacement share-based payments 20
627
Provisional fair value of identifiable net assets 104
Goodwill 523
Cost of replacement share-based payments consists of contingent share awards granted to employees of the acquired business
under the Sage Group Restricted Share Plan in place of their existing unvested share option arrangements. The amount
treated as consideration is the fair value of awards attributable to pre-acquisition service.
Provisional fair value of identifiable net assets acquired £m
Intangible assets 142
Property, plant and equipment 5
Cash 2
Trade and other receivables 14
Other financial assets 1
Trade and other payables (10)
Deferred income (18)
Borrowings (9)
Deferred tax liability (23)
Provisional fair value of identifiable net assets acquired 104
Goodwill 523
Total consideration 627
Provisional fair values have been determined as the initial accounting for acquired intangible assets and goodwill is
incomplete because of the short period between the acquisition date and the approval of the annual report. Goodwill is
expected to reflect benefits from the assembled workforce and growth opportunities through customer acquisition and
cross-sell to the combined customer base. No goodwill is expected to be deductible for tax purposes.
The outflow of cash and cash equivalents on the acquisition is as follows: £m
Cash consideration 607
Cash and cash equivalents acquired (2)
Net cash outflow 605
As part of the purchase an additional £5m has been paid in relation to future services.
Costs of £9m 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 Intacct for future services. The
costs of these arrangements will be recognised in future periods over the retention period. The amount recognised to date
of £4m is included in selling and administrative expenses in the consolidated income statement as M&A activity-related
items.
The consolidated income statement includes revenue of £8m and a loss after tax of £6m reported by Intacct for the period
since the acquisition date. The revenue of the Group for the year ended 30 September 2017 would have increased by £78m and
the profit would have reduced by £17m if Intacct had been included in the Group for the whole of the year.
Sage People Limited (formerly Fairsail Limited)
On 17 March 2017, the Group obtained control of Fairsail Limited (Fairsail) by acquiring the remaining share capital for a
cash consideration of £89m and cost of replacement share based payments of £1m. This brought the Group's ownership interest
to 100%. Subsequent to the acquisition, Fairsail changed its name to Sage People Limited. Sage People Limited is a leading
Human Capital Management (HCM) cloud provider to mid-sized, multinational companies. It is a private entity incorporated in
the UK and not listed on any public exchange. The Group became a minority shareholder in 2016 and subsequently launched a
shared product, Sage People. Taking full ownership will build on the success of that product, and the resulting combined
portfolio provides growth opportunities, particularly through new customer acquisition internationally, and cross-sell to
the combined customer base.
Summary of identifiable net assets acquired £m
Purchase consideration
Cash 89
Cost of replacement share-based payments 1
Fair value of previously-held interest 20
110
Provisional fair value of identifiable net assets (40)
Goodwill 70
Cost of replacement share-based payments consists of contingent share awards granted to employees of the acquired business
under the Sage Group Restricted Share Plan in place of their existing unvested share option arrangements. The amount
treated as consideration is the fair value of awards attributable to pre-acquisition service. The Group recognised a gain
of £13m on the remeasurement to fair value of its existing investment in an associate. This gain is included on a separate
line in the consolidated income statement.
Fair value of acquisition £m
Intangible assets 37
Cash 10
Trade and other receivables 3
Trade and other payables (2)
Deferred income (3)
Deferred tax liability (5)
Provisional fair value of identifiable net assets acquired 40
Goodwill 70
Total consideration 110
When the Group reported its results for the six months ended 31 March 2017, provisional fair values were used for
accounting for the acquisition. Subsequently, the accounting has been finalised, resulting in an increase in the fair value
of identifiable net assets acquired of £33m, with a corresponding decrease in the amount of goodwill. The increase in net
assets acquired relates to the recognition of intangible assets of £37m, a deferred tax liability of £5m and a decrease in
the liability for deferred income of £1m. Goodwill reflects benefits from the assembled workforce and growth opportunities
through customer acquisition and cross-sell to the combined customer base. No goodwill is expected to be deductible for tax
purposes.
The outflow of cash and cash equivalents on the acquisition is as follows: £m
Cash consideration 89
Cash and cash equivalents acquired (10)
Net cash outflow 79
Costs totalling less than £1m 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.
Immediately prior to the acquisition, the Group had recognised prepaid licences of £1m for products purchased from the
acquired business by the Group prior to the acquisition. At the acquisition date, the Group recognised a loss equal to the
carrying amount of the prepaid licences. The loss is included in selling and administrative expenses in the consolidated
income statement as other M&A activity-related items.
Arrangements have been put in place for retention and performance-related payments to remunerate employees of the acquired
business for future services. The costs of these arrangements will be recognised over the retention and performance
periods. The amount recognised during the year is £2m.
In the period since the acquisition date, the acquired business has reported revenue of £7m and a loss of £5m. The revenue
of the Group for the year ended 30 September 2017 would have increased by £12m and the profit would have reduced by £7m if
the acquired business had been included in the Group for the whole of the year.
Startup Compass Inc.
On 3 April 2017, the Group acquired 100% of the equity capital of Startup Compass Inc. (Compass), the provider of a
highly-innovative analytics and benchmarking platform, for cash consideration of £5m, of which £4m has been paid and £1m is
deferred for up to two years. The value of net assets acquired was £5m, comprising intangible technology assets of £6m and
a deferred tax liability of £1m. No goodwill was recognised. When the Group reported its results for the six months ended
31 March 2017, provisional fair values were used in the disclosure of the transaction as an event after the balance sheet
date. The finalisation of the accounting has resulted in an increase in the fair value of identifiable net assets acquired
of £5m attributable to intangible assets and deferred tax liabilities (£6m and £1m respectively), with a corresponding
decrease in the amount of goodwill.
The intangible assets acquired as part of the above acquisitions is analysed as follows:
Brands£m Technology£m Customer relationships£m Total£m
Intacct Corporation 1 44 97 142
Sage People Limited (formerly Fairsail Limited) - 28 9 37
Startup Compass Inc. - 6 - 6
Total other intangible assets from the acquisition of subsidiaries 1 78 106 185
Costs relating to business combinations in the year
Costs directly relating to the completion of the business combinations in the year of £10m (2016: £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.
Disposals and discontinued operations
Discontinued operation: North American Payments business
On 1 August 2017, the Group completed the sale of the subsidiaries that formed its North American Payments business (Sage
Payment Solutions, or SPS) to GTCR, LLC (GTCR), a leading private equity firm, for total proceeds of £196m, generating a
gain on disposal of £25m. The assets and liabilities of SPS were presented as held for sale in the Group's interim
financial statements for the six months ended 31 March 2017, and the business has been presented as a discontinued
operation as it is considered to represent a separate major line of business for the Group given the nature of its business
and its contribution to the Group's revenues. Profit from discontinued operations for the period from 1 October 2016 to
disposal on 1 August 2017 and for the year ended 30 September 2016 is analysed as follows:
Underlying Adjustments Statutory Underlying as reported Adjustments Statutory
2017
2017
2017 2016
2016
2016
£m £m £m £m £m £m
Revenue 119 - 119 130 - 130
Cost of sales (11) - (11) (12) - (12)
Gross profit 108 - 108 118 - 118
Selling and administrative expenses (79) - (79) (84) - (84)
Operating profit 29 - 29 34 - 34
Finance income - - - - - -
Finance costs - - - (1) - (1)
Profit before income tax 29 - 29 33 - 33
Income tax expense (11) - (11) (13) - (13)
Profit after income tax 18 - 18 20 - 20
Gain on disposal of discontinued operations - 27 27 - - -
Tax on disposal - (2) (2) - - -
Profit on discontinued operations 18 25 43 20 - 20
Cash flow from discontinued operations is analysed as follows:
Cash flows from: 2017£m 2016£m
Operating activities 25 38
Investing activities 158 -
Financing activities 4 (8)
187 30
The assets and liabilities sold, and the gain on disposal, is analysed as follows:
Underlying
2017
£m
Assets
Goodwill 189
Other intangible assets 1
Property, plant and equipment 1
Trade and other receivables 41
Cash and cash equivalents (excluding bank overdrafts) 23
Deferred tax assets 6
Total assets 261
Liabilities
Trade and other payables (66)
Finance costs (1)
Total liabilities (67)
Net Assets 194
Gain on disposal
Cash consideration received 181
Preferred equity consideration 15
Gross consideration 196
Transaction costs (7)
Net consideration 189
Net assets disposed (as above) (194)
Cumulative foreign exchange differences reclassified from other comprehensive income to the income statement 32
Gain on disposal of discontinued operations 27
Preferred equity consideration comprises a senior preferred equity instrument in GTCR-Ultra Holdings, LLC, SPS's indirect
parent entity that is majority-owned by GTCR. The instrument will be held by Sage until paid in full ($20m face value plus
any accrued interest thereon), or redeemed by GTCR either voluntarily in its discretion or mandatorily on a change of
control of GTCR-Ultra Holdings LLC. This is presented in the balance sheet as a fixed asset investment within non-current
assets.
Other disposal
On 6 April 2017, the Group sold its subsidiary Syska GmbH (Syska) for £2m. Net liabilities divested were £1m, resulting in
a gain on disposal of £3m. The assets and liabilities of Syska were presented as held for sale in the Group's interim
financial statements for the six months ended 31 March 2017. Prior to disposal, the business formed part of the Group's
Central and Southern Europe reporting segment. This business is not accounted for as a discontinued operation.
Assets and liabilities held for sale
The assets and liabilities held for sale relate to the Group's subsidiary Sage XRT Brasil Ltda. The sale is expected to be
finalised during the first part of the year ending 30 September 2018. The business forms part of the Group's International
reporting segment. Assets held for sale comprise trade and other receivables of £1m (2016: £1m) and liabilities held for
sale comprise trade and other payables of £1m (2016: £nil).
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 2017£m 2016£m
Salaries and short-term employee benefits 5 7
Post-employment benefits - 1
Share-based payments 3 3
8 11
The key management figures given above include directors. Key management personnel are deemed to be members of the
Executive Committee.
Managing Risk
Risk is inherent within our business activities, and we continue to prioritise and develop our risk management strategy and
capability in recognition of this. Timely identification of risks, combined with their appropriate management and
escalation, enables us to successfully run our business and deliver strategic change, while ensuring that the likelihood
and / or potential impact associated with such risks is understood and managed within our defined risk appetite.
The Board continues to monitor the risk environment, and reviews the appropriateness of the principal risks to the
business.
Currently there are ten principal risks which we monitor and report against. These risks are aligned to successful delivery
of our Strategy and mapped against the strategic pillars to which they relate. A range of measures are in place to manage
and mitigate these risks.
Other risks are analysed and mitigated via the normal embedded risk management process.
Licensing Model TransitionSage does not successfully manage its ongoing transition to subscription licensing against defined timelines and targets or appropriately adapt its customer approach. Sage is continuing its transition from a perpetual to a subscription based licensing model.In addition to providing additional value for customers, this transition assists with cash flow; offers a platform for cross selling; and lowers attrition rates, which in turn aids revenue forecasting.It also provides regular customer engagement and enhanced opportunities to develop these relationships.The speed of transition needs to be balanced against any reduction in short term revenues. · An approved licensing model transition strategy is in place· A series of approved subscription revenue targets are defined, which span multiple years and
Strategic alignment: support successful and balanced delivery of our strategy· Ongoing monitoring and review of the approved targets takes place at country, regional and group levels to
Customers for Life proactively manage the licence transition, and revenue targets· New products are being offered on a subscription only basis· Customer Business Centres (CBCs)
are operating in North America and Europe to integrate digital marketing, sales and service operations for customers using Software-as-a-Service (SaaS), and support
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