REG - Sage Group PLC - Half-year Report <Origin Href="QuoteRef">SGE.L</Origin> - Part 2
05/05/2016 07:06
- Part 2: For the preceding part double click ID:nRSE3000Xa
passed to the customer at the point of delivery. It comprises revenue for software or upgrades sold on a perpetual license basis and software related services, including hardware sales, professional services and training.
Processing revenue Processing revenue is revenue earned from customers for the processing of payments or where Sage colleagues process our customers' payroll.
Consolidated income statement
For the six months ended 31 March 2016
Note Six months ended Six months ended Six months ended Six months ended Six months ended Six months ended Year ended 30 September 2015
31 March 2016 31 March 2016 31 March 2016 31 March 2015 31 March 2015 31 March 2015 (Audited)Statutory
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) £m
Underlying Adjustments* Statutory Underlying as reported(Restated) Adjustments* Statutory (Restated)
£m £m £m £m £m £m
Revenue 2 746.6 - 746.6 717.3 - 717.3 1,435.5
Cost of sales (47.6) - (47.6) (44.1) - (44.1) (86.7)
Gross profit 699.0 - 699.0 673.2 - 673.2 1,348.8
Selling and administrative expenses (509.7) (37.5) (547.2) (484.3) (10.2) (494.5) (1,051.6)
Operating profit 2 189.3 (37.5) 151.8 188.9 (10.2) 178.7 297.2
Finance income 1.0 1.4 2.4 1.0 1.0 2.0 2.2
Finance costs (12.1) - (12.1) (12.3) - (12.3) (23.6)
Finance costs - net (11.1) 1.4 (9.7) (11.3) 1.0 (10.3) (21.4)
Profit before income tax 178.2 (36.1) 142.1 177.6 (9.2) 168.4 275.8
Income tax expense 4 (48.2) 12.4 (35.8) (44.2) 0.6 (43.6) (81.5)
Profit for the period 130.0 (23.7) 106.3 133.4 (8.6) 124.8 194.3
* Adjustments are detailed in note 3 to the accounts.
Earnings per share attributable to the owners of the parent (pence)
Basic 6 12.09p 9.88p 12.45p 11.65p 18.11p
Diluted 6 12.01p 9.82p 12.42p 11.62p 18.00p
Consolidated statement of comprehensive income
For the six months ended 31 March 2016
Six months ended Six months ended Year ended
31 March 2016 31 March 2015 30 September 2015
(Unaudited) (Unaudited)(Restated) (Audited)
£m £m £m
Profit for the period 106.3 124.8 194.3
Other comprehensive income/(expenses) for the period:
Items that will not be reclassified to profit or loss:
Actuarial loss on post-employment benefit obligations (0.6) (0.7) (4.8)
Deferred tax credit on actuarial loss on post-employment benefit obligations 0.2 0.3 0.6
(0.4) (0.4) (4.2)
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign operations 37.1 4.7 (23.2)
37.1 4.7 (23.2)
Other comprehensive expense for the period, net of tax 36.7 4.3 (27.4)
Total comprehensive income for the period 143.0 129.1 166.9
The notes on pages 23 to 36 form an integral part of this condensed consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2016
Note 31 March 31 March 30 September 2015
2016 2015 (Audited)
(Unaudited) (Unaudited)(Restated) £m
£m £m
Non-current assets
Goodwill 7 1,520.1 1,540.7 1,446.0
Other intangible assets 7 108.1 120.6 105.5
Property, plant and equipment 7 127.4 126.0 122.7
Deferred income tax assets 38.8 34.7 34.2
Other financial assets 3 1.4 1.0 -
1,795.8 1,823.0 1,708.4
Current assets
Inventories 2.1 2.2 2.0
Trade and other receivables 374.7 345.1 320.9
Cash and cash equivalents (excluding bank overdrafts) 10 356.2 268.0 263.4
733.0 615.3 586.3
Total assets 2,528.8 2,438.3 2,294.7
Current liabilities
Trade and other payables (374.2) (313.0) (311.2)
Current income tax liabilities (24.7) (11.7) (31.4)
Borrowings (35.1) (34.5) (33.6)
Provisions (19.1) (11.0) (9.9)
Deferred income (522.7) (488.4) (436.5)
(975.8) (858.6) (822.6)
Non-current liabilities
Borrowings (592.0) (651.9) (571.4)
Post-employment benefits (21.8) (14.0) (18.7)
Deferred income tax liabilities (7.6) (34.4) (7.3)
Provisions (11.3) (10.9) (10.4)
Deferred income (2.8) (2.8) (2.2)
(635.5) (714.0) (610.0)
Total liabilities (1,611.3) (1,572.6) (1,432.6)
Net assets 917.5 865.7 862.1
Equity attributable to owners of the parent
Ordinary shares 9 11.8 11.7 11.8
Share premium 9 542.6 538.0 541.2
Other reserves 104.0 94.8 66.9
Retained earnings 259.1 221.2 242.2
Total equity 917.5 865.7 862.1
Consolidated statement of changes in equity
For the six months ended 31 March 2016
Attributable to owners of the parent
Ordinary shares Share premium Other reserves Retained earnings Totalequity
£m £m £m £m £m
At 1 October 2015 (Audited) 11.8 541.2 66.9 242.2 862.1
Profit for the period - - - 106.3 106.3
Other comprehensive income/(expense):
Exchange differences on translating foreign operations - - 37.1 - 37.1
Actuarial loss on post-employment benefit obligations - - - (0.6) (0.6)
Deferred tax credit on actuarial loss on post-employment obligations - - - 0.2 0.2
Total comprehensive income - - 37.1 105.9 143.0
for the period ended 31 March 2016 (Unaudited)
Transactions with owners:
Employee share option scheme:
- Proceeds from shares issued - 1.4 - - 1.4
- Value of employee services, net of deferred tax - - - 6.4 6.4
Purchase of treasury shares - - - (2.4) (2.4)
Dividends paid to owners of the parent - - - (93.0) (93.0)
Total transactions with owners - 1.4 - (89.0) (87.6)
for the period ended 31 March 2016 (Unaudited)
At 31 March 2016 (Unaudited) 11.8 542.6 104.0 259.1 917.5
Attributable to owners of the parent (restated)
Ordinary shares Share premium Other reserves Retained earnings Totalequity
£m £m £m £m £m
At 1 October 2014 (Audited) 11.7 535.9 90.1 130.2 767.9
Profit for the period - - - 124.8 124.8
Other comprehensive income/(expense):
Exchange differences on translating foreign operations - - 4.7 - 4.7
Actuarial loss on post-employment benefit obligations - - - (0.7) (0.7)
Deferred tax credit on actuarial gain on post-employment obligations - - - 0.3 0.3
Total comprehensive income - - 4.7 124.4 129.1
for the period ended 31 March 2015 (unaudited)
Transactions with owners:
Employee share option scheme:
- Proceeds from shares issued - 2.1 - - 2.1
- Value of employee services, net of deferred tax - - - 4.8 4.8
Purchase of treasury shares - - - (12.5) (12.5)
Close period share buyback programme - - - 60.0 60.0
Dividends paid to owners of the parent - - - (85.7) (85.7)
Total transactions with owners - 2.1 - (33.4) (31.3)
for the period ended 31 March 2015 (Unaudited)
At 31 March 2015 (Unaudited) 11.7 538.0 94.8 221.2 865.7
Consolidated statement of cash flows
For the six months ended 31 March 2016
Notes Six months ended Six months ended Year ended 30 September 2015
31 March 2016 31 March (Audited)
(Unaudited) 2015 £m
£m (Unaudited)(Restated)
£m
Cash flows from operating activities
Cash generated from continuing operations 10 213.8 246.3 418.6
Interest paid (10.2) (11.2) (19.2)
Income tax paid (48.5) (60.1) (84.6)
Net cash generated from operating activities 155.1 175.0 314.8
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired 11 (6.3) (97.5) (47.3)
Purchases of intangible assets 7 (2.6) (3.1) (6.0)
Purchases of property, plant and equipment 7 (12.9) (8.9) (16.4)
Proceeds from sale of property, plant and equipment 1.0 0.8 2.1
Interest received 1.0 1.0 2.2
Net cash used in investing activities (19.8) (107.7) (65.4)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 9 1.4 2.1 5.4
Purchase of treasury shares (2.4) (15.5) (17.7)
Finance lease principal payments (0.3) (1.5) (1.4)
Proceeds from borrowings 70.1 456.4 481.2
Repayments of borrowings (78.2) (354.6) (474.5)
Movements in cash collected from customers 43.9 47.6 12.5
Borrowing costs - - (1.3)
Dividends paid to owners of the parent 5 (93.0) (85.7) (133.5)
Net cash generated from/(used in) financing activities (58.5) 48.8 (129.3)
Net increase in cash, cash equivalents and bank overdrafts 10 76.8 116.1 120.1
(before exchange rate movement)
Effects of exchange rate movement 10 16.0 8.2 (0.4)
Net increase in cash, cash equivalents and bank overdrafts 92.8 124.3 119.7
Cash, cash equivalents and bank overdrafts at 1 October 10 263.4 143.7 143.7
Cash, cash equivalents and bank overdrafts at period end 10 356.2 268.0 263.4
Notes to the financial information
For the six months ended 31 March 2016
1 Group accounting policies
General information
The Sage Group plc ("the Company") and its subsidiaries (together "the Group") is a leading global supplier of business
management software to Small & Medium Businesses.
This condensed consolidated half-yearly financial report was approved for issue by the board of directors on 4 May 2016.
The financial information set out above does not constitute the Company's Statutory Accounts. Statutory Accounts for the
year ended 30 September 2015 have been delivered to the Registrar of Companies. The auditor's report was unqualified and
did not contain statements under section 498 (2), (3) or (4) of the Companies Act 2006.
Whilst the financial information included in this announcement has been computed in accordance with International Financial
Reporting Standards ("IFRSs") as adopted by the European Union ("EU"), this announcement does not in itself contain
sufficient information to comply with IFRSs. The financial information has been prepared on the basis of the accounting
policies and critical accounting estimates and judgements as set out in the Annual Report & Accounts for 2015.
This condensed consolidated half-yearly financial report has been reviewed, not audited.
The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is
North Park, Newcastle upon Tyne, NE13 9AA. The Company is listed on the London Stock Exchange.
Basis of preparation
The financial information for the six months ended 31 March 2016 has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim Financial Reporting" as adopted by the
European Union, ("EU"). The condensed consolidated half-yearly financial report should be read in conjunction with the
annual financial statements for the year ended 30 September 2015, which have been prepared in accordance with IFRSs as
adopted by the EU.
The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of this report. Accordingly, the consolidated financial information has
been prepared on a going concern basis.
Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30
September 2015 as described in those annual financial statements. During the financial year 30 September 2015 the Group
simplified the definition of revenue categories to enable stakeholders to clearly and transparently track performance. This
led to a change in revenue recognition policy to certain products.
The most significant change is to separately disclose the revenue from our payments and payroll processing businesses,
which is driven by the volume of transactions. In addition a small amount of revenue from software and software related
services ("SSRS") and associated discounts, was reclassified to recurring revenue, relating to products which are
time-limited and require an on-going active maintenance contract to function as designed. This has had an impact on the
phasing of revenue. Consequently the prior period comparative revenue split shown in the segmental note has been revised,
along with the associated impact on deferred revenue to align with the revenue recognition policy adopted in the year ended
30 September 2015.
The impact of reclassifying and rephasing of those products moved from SSRS to recurring revenue was to reduce revenue and
operating profit by £4.2m in the six months to 31 March 2015. The balance sheet impact of this change has been to increase
deferred revenue at 31 March 2015 by £26.6m representing the SSRS revenue being deferred with an associated deferred tax
asset of £8.8m. The foreign exchange retranslation impact of this deferral as at 31 March 2015 of £2.4m is taken to other
reserves.
During the year ended 30 September 2015, management also considered the accounting for its arrangements with Business
Partners who refer customers to the Group, such as Independent Sales Organisations ("ISOs") in the US Payments business,
and concluded that payments made to those business partners are better reflected as costs and not as deductions to revenue.
This has had the impact of increasing revenue and costs by £22.3m for the six month period ended 31 March 2015.
In addition to this change in the application of the revenue recognition policy, two other changes were made to the
presentation of items on the balance sheet at 30 September 2015. Firstly, the presentation of provisions was revised to
show them as a separate line item on the face of the balance sheet having previously been included within trade and other
payables. The impact of this change within current liabilities in the comparative period at 31 March 2015 is £11.0m and
between current and non-current liabilities is £10.9m. Secondly, the presentation of deferred consideration was changed to
include the balance within trade and other payables having previously been a separate line item on the balance sheet. The
impact of this change in the comparative period is £2.3m.
The impact of the change in the application of the revenue recognition policy in the March 2015 presentation has been
disclosed below, along with the impact of the change in the presentation of provisions and deferred consideration.
As previously reported Restatement adjustment As restated
£m £m £m
Revenue 699.2 18.1 717.3
Cost of sales (44.1) - (44.1)
Gross profit 655.1 18.1 673.2
Selling and administrative expenses (472.2) (22.3) (494.5)
Operating profit 182.9 (4.2) 178.7
Finance income 2.0 - 2.0
Finance costs (12.3) - (12.3)
Finance costs - net (10.3) - (10.3)
Profit before income tax 172.6 (4.2) 168.4
Income tax expense (44.9) 1.3 (43.6)
Profit for the period 127.7 (2.9) 124.8
As previously reported Restatement adjustment As restated
£m £m £m
Deferred income tax assets 25.9 8.8 34.7
Total non-current assets 1,814.2 8.8 1,823.0
Trade and other receivables 344.5 0.6 345.1
Total current assets 614.7 0.6 615.3
Total assets 2,428.9 9.4 2,438.3
Trade and other payables (332.0) 19.0 (313.0)
Provisions - (11.0) (11.0)
Deferred consideration (2.3) 2.3 -
Deferred income (461.8) (26.6) (488.4)
Total current liabilities (842.3) (16.3) (858.6)
Provisions - (10.9) (10.9)
Total non-current liabilities (703.1) (10.9) (714.0)
Total liabilities (1,545.4) (27.2) (1,572.6)
Net assets 883.5 (17.8) 865.7
Equity attributable to owners of the parent
Ordinary shares 11.7 - 11.7
Share premium 538.0 - 538.0
Other reserves 92.4 2.4 94.8
Retained earnings 241.4 (20.2) 221.2
Total equity 883.5 (17.8) 865.7
Adoption of new and revised IFRSs
The following new accounting standards may have a material impact on the Group. They are currently issued but not yet
endorsed by the EU and not effective for the Group for the six-month period ended 31 March 2016:
- IFRS 15 "Revenue from Contracts with Customers" - effective financial year commencing 1 October 2018
- IFRS 16 "Leases" - effective financial year commencing 1 October 2019
The Group in in the process of assessing the impact that the application of these standards will have on the Group's
financial statements.
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.
Revenue recognition
Approximately 30% of the company's revenue is generated from sales to partners rather than to end users. The key judgement
in accounting for the three principal ways in which our business partners are remunerated is determining whether the
business partner is a customer of the Group in respect of the initial product sale. The key criteria in this determination
is whether the business partner has paid for and taken on the risks and rewards of ownership of the software product from
Sage. An additional area of judgement is the recognition and deferral of revenue on bundled products, for example the sale
of a perpetual licence with an annual maintenance and support contract.
The full revenue recognition policy is disclosed in the 30 September 2015 financial statements.
Goodwill impairment
The judgements in relation to goodwill impairment testing relate to two key areas. The first is the ongoing appropriateness
of the cash-generating units ("CGUs") for the purpose of impairment testing. The second relates to the assumptions applied
in calculating the value in use of the CGUs being tested for impairment.
The carrying value of goodwill and the key assumptions used in performing the annual impairment assessment are disclosed in
the 30 September 2015 financial statements.
Tax provisions
The Group recognises certain provisions and accruals in respect of tax which involve a degree of estimation and uncertainty
where the tax treatment cannot be finally determined until a resolution has been reached by the relevant tax authority.
When making this assessment, we utilise our specialist in-house tax knowledge and experience of similar situations
elsewhere to confirm these provisions. These judgements also take into consideration specialist tax advice provided by
third party advisors on specific items.
Website
This condensed consolidated half-yearly financial report for the six month ended 31 March 2016 can also be found on our
website: www.sage.com/investors/investor-downloads
2 Segment information
In accordance with IFRS 8, "Operating Segments", information for the Group's operating segments has been derived using the
information used by the chief operating decision maker. The Group's Executive Committee has been identified as the chief
operating decision maker in accordance with their designated responsibility for the allocation of resources to operating
segments and assessing their performance, through the Quarterly Business Reviews chaired by the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO). The Executive Committee use organic and underlying data to monitor business
performance. Operating segments are reported in a manner which is consistent with the operating segments produced for
internal management reporting.
In May 2015, following the departure of the CEO of Sage Americas there was a change in the reporting segments with the
Brazilian business being moved out of the Americas segment. For reporting purposes Brazil was combined with AAMEA, to form
the new International segment and the Americas segment was renamed to North America. The 2015 comparatives have been
updated to align with the new segmental reporting.
The Group is organised into four operating segments, with Brazil being aggregated with AAMEA with which there are similar
economic characteristics to form the International reporting segment. The UK is the home country of the parent. The
reporting segments and their main operating territories are as follows:
- Europe (France, UK & Ireland including Sagepay, Spain, Germany, Switzerland, Poland and Portugal)
- North America (US and Canada)
- International (Brazil, Africa, Australia, Middle East and Asia)
The Africa operations are principally based in South Africa; the Middle East and Asia operations are principally based in
Singapore, Malaysia and UAE.
The revenue analysis in the table below is based on the location of the customer, which is not materially different from
the location where the order is received and where the assets are located.
Revenue by segment (Unaudited)
Six Six Six months ended Change Change Change
months months ended 31 March 2016
ended 31 March 2016
31 March 2016
Statutory and underlying £m Organic adjustments £m Organic £m Statutory Underlying Organic
% % %
Recurring revenue by segment
Europe 300.5 - 300.5 7.7% 8.8% 8.8%
North America 146.2 - 146.2 12.1% 9.4% 9.4%
International 65.8 - 65.8 -3.2% 17.1% 17.1%
Recurring revenue 512.5 - 512.5 7.4% 10.0% 10.0%
Software and software related services ("SSRS") revenue by segment
Europe 80.2 - 80.2 -2.2% -0.9% -0.9%
North America 33.5 - 33.5 -6.2% -8.5% -8.5%
International 23.3 - 23.3 -30.2% -18.5% -18.5%
SSRS revenue 137.0 - 137.0 -9.3% -6.3% -6.3%
Processing revenue by segment
Europe 17.4 - 17.4 8.1% 8.5% 8.5%
North America 75.9 - 75.9 10.8% 6.0% 6.0%
International 3.8 - 3.8 -9.5% 12.2% 12.2%
Processing revenue 97.1 - 97.1 9.3% 6.6% 6.6%
Total revenue by segment
Europe 398.1 - 398.1 5.6% 6.7% 6.7%
North America 255.6 - 255.6 9.0% 5.7% 5.7%
International 92.9 - 92.9 -12.0% 5.4% 5.4%
Total revenue 746.6 - 746.6 4.1% 6.2% 6.2%
Six months ended 31 March 2015 (Restated) Six months ended 31 March 2015 (Restated) Six months ended 31 March 2015 (Restated) Six months ended 31 March 2015 (Restated) Six months ended 31 March 2015 (Restated)
Statutory and underlying as reported Impact of foreign exchange Underlying Organic adjustments Organic
£m £m £m £m £m
Recurring revenue by segment
Europe 279.0 (2.8) 276.2 - 276.2
North America 130.4 3.2 133.6 - 133.6
International 68.0 (11.8) 56.2 - 56.2
Recurring revenue 477.4 (11.4) 466.0 - 466.0
Software and software related services ("SSRS") revenue by segment
Europe 82.0 (1.1) 80.9 - 80.9
North America 35.7 0.9 36.6 - 36.6
International 33.4 (4.7) 28.7 - 28.7
SSRS revenue 151.1 (4.9) 146.2 - 146.2
Processing revenue by segment
Europe 16.1 (0.1) 16.0 - 16.0
North America 68.5 3.2 71.7 - 71.7
International 4.2 (0.8) 3.4 - 3.4
Processing revenue 88.8 2.3 91.1 - 91.1
Total revenue by segment
Europe 377.1 (4.0) 373.1 - 373.1
North America 234.6 7.3 241.9 - 241.9
International 105.6 (17.3) 88.3 - 88.3
Total revenue 717.3 (14.0) 703.3 - 703.3
The 2015 comparatives have been restated in line with the changes in accounting policy (see note 1).
Operating profit by segment
Six months ended 31 March 2016 Change
Statutory £m Underlying adjustments £m Underlying Organic adjustments £m Organic £m Statutory Underlying Organic %
£m % %
Operating profit by segment
Europe 88.5 22.6 111.1 - 111.1 -13% 7% 7%
North America 50.2 12.2 62.4 - 62.4 -7% 4% 4%
International 13.1 2.7 15.8 - 15.8 -44% -28% -28%
Total operating profit 151.8 37.5 189.3 - 189.3 -15% 2% 2%
Six months ended 31 March 2015 (restated)
Statutory £m Underlying adjustments £m Underlying as reported Impact of foreign exchange Underlying Organic adjustments Organic
£m £m £m £m £m
Operating profit by segment
Europe 101.7 3.1 104.8 (0.9) 103.9 - 103.9
North America 53.7 4.3 58.0 2.2 60.2 - 60.2
International 23.3 2.8 26.1 (4.3) 21.8 - 21.8
Total operating profit 178.7 10.2 188.9 (3.0) 185.9 - 185.9
Reconciliation of underlying operating profit to statutory operating profit
Six months ended Six months ended
31 March 2016 31 March 2015
(Unaudited) (Unaudited)(Restated)
£m £m
Underlying operating profit 189.3 185.9
Impact of movement in foreign currency exchange rates - 3.0
Underlying operating profit (as reported) 189.3 188.9
Amortisation of acquired intangible assets (8.4) (9.5)
Other acquisition-related items (0.1) (0.7)
Non-recurring items (29.0) -
Statutory operating profit 151.8 178.7
3 Adjustments between underlying profit and statutory profit
Six months ended Six months ended Six months ended Six months ended Six months ended Six months ended
31 March 2016 31 March 2016 31 March 2016 31 March 2015 31 March 2015 31 March 2015
Recurring Non-
Total
Recurring Non-
Total
£m recurring £m £m recurring £m
£m £m
Acquisition related items
Amortisation of acquired intangibles (8.4) - (8.4) (9.5) - (9.5)
Other acquisition related items (0.1) - (0.1) (0.7) - (0.7)
Other items
Business transformation - (31.2) (31.2) - - -
Recovery of litigation costs - 2.2 2.2 - - -
Total adjustments made to operating profit (8.5) (29.0) (37.5) (10.2) - (10.2)
Fair value adjustments to debt related financial instruments - 1.4 1.4 - 1.0 1.0
Total adjustments made to profit before income tax (8.5) (27.6) (36.1) (10.2) 1.0
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