REG - Sage Group PLC - Half-year Report <Origin Href="QuoteRef">SGE.L</Origin> - Part 2
03/05/2017 07:06
- Part 2: For the preceding part double click ID:nRSC9739Da
Annual recurring revenue Annual recurring revenue (ARR) is the value of all components of recurring revenue, annualised for the ensuing year.
Consolidated income statement
For the six months ended 31 March 2017
Note Six months ended Six months ended Six months ended Six months ended Six months ended Six months ended Year ended 30 September 2016
31 March 2017 31 March 2017 31 March 2017 31 March 2016 31 March 2016 31 March 2016 (Unaudited)StatutoryRestated
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) £m
Underlying Adjustments* Statutory Underlying as reportedRestated Adjustments*Restated StatutoryRestated
£m £m £m £m £m £m
Revenue 2 840 - 840 684 - 684 1,439
Cost of sales (54) - (54) (42) - (42) (91)
Gross profit 786 - 786 642 - 642 1,348
Selling and administrative expenses (575) (31) (606) (468) (37) (505) (1,081)
Operating profit 2 211 (31) 180 174 (37) 137 267
Share of loss of an associate (1) (1) (2) - - - (1)
Gain on remeasurement of existing investment in an associate - 13 13 - - - -
Finance income 1 1 2 1 2 3 5
Finance costs (12) (1) (13) (12) - (12) (29)
Profit before income tax 199 (19) 180 163 (35) 128 242
Income tax expense 4 (54) 10 (44) (42) 12 (30) (54)
Profit for the period - continuing operations 145 (9) 136 121 (23) 98 188
Profit on discontinued operations 11 11 (1) 10 9 (1) 8 20
Profit for the period 156 (10) 146 130 (24) 106 208
* Adjustments are detailed in note 3 to the accounts.
Earnings per share attributable to the owners of the parent (pence)
From continuing operations
Basic 6 13.46p 12.57p 11.27p 9.11p 17.43p
Diluted 6 13.40p 12.52p 11.20p 9.06p 17.33p
From continuing and discontinued operations
Basic 6 14.45p 13.54p 12.09p 9.88p 19.28p
Diluted 6 14.39p 13.48p 12.01p 9.82p 19.16p
Consolidated statement of comprehensive income
For the six months ended 31 March 2017
Six months ended Six months ended Year ended
31 March 2017 31 March 2016 30 September 2016
(Unaudited)£m (Unaudited)£m (Audited)£m
Profit for the period 146 106 208
Other comprehensive income/(expenses) for the period
Items that will not be reclassified to profit or loss
Actuarial loss on post-employment benefit obligations 1 - (2)
Deferred tax credit on actuarial loss on post-employment benefit obligations - - 1
1 - (1)
Items that may be reclassified to profit or loss
Deferred tax credit on foreign currency movements - - 2
Exchange differences on translating foreign operations 15 37 117
15 37 119
Other comprehensive income for the period, net of tax 16 37 118
Total comprehensive income for the period 162 143 326
The notes on pages 23 to 38 form an integral part of this condensed consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2017
Note 31 March 31 March 30 September 2016
2017 2016 (Audited)
(Unaudited) (Unaudited) £m
£m £m
Non-current assets
Goodwill 7 1,589 1,520 1,659
Other intangible assets 7 102 108 109
Property, plant and equipment 7 121 128 123
Investment in associate - - 9
Other financial assets 2 1 3
Deferred income tax assets 58 39 58
1,872 1,796 1,961
Current assets
Inventories 3 2 2
Trade and other receivables 445 375 420
Current income tax asset 5 - 8
Cash and cash equivalents (excluding bank overdrafts) 10 309 356 264
Assets classified as held for sale 11 265 - 1
1,027 733 695
Total assets 2,899 2,529 2,656
Current liabilities
Trade and other payables (322) (374) (350)
Current income tax liabilities (23) (25) (21)
Borrowings (5) (35) (43)
Provisions (34) (19) (38)
Deferred income (624) (523) (536)
Liabilities classified as held for sale 11 (51) - -
(1,059) (976) (988)
Non-current liabilities
Borrowings (642) (592) (535)
Post-employment benefits (24) (22) (25)
Deferred income tax liabilities (19) (7) (13)
Provisions (26) (11) (29)
Trade and other payables (5) - (8)
Deferred income (5) (3) (5)
(721) (635) (615)
Total liabilities (1,780) (1,611) (1,603)
Net assets 1,119 918 1,053
Equity attributable to owners of the parent
Ordinary shares 9 12 12 12
Share premium 9 545 543 544
Other reserves 202 104 187
Retained earnings 360 259 310
Total equity 1,119 918 1,053
Consolidated statement of changes in equity
For the six months ended 31 March 2017
Attributable to owners of the parent
Ordinary shares Share premium Other reserves Retained earnings Totalequity
£m £m £m £m £m
At 1 October 2016 (Audited) 12 544 187 310 1,053
Profit for the period - - - 146 146
Other comprehensive income
Exchange differences on translating foreign operations - - 15 - 15
Actuarial loss on post-employment benefit obligations - - - 1 1
Deferred tax credit on actuarial loss on post-employment obligations - - - - -
Total comprehensive income - - 15 147 162
for the period ended 31 March 2017 (Unaudited)
Transactions with owners
Employee share option scheme:
- Proceeds from shares issued - 1 - - 1
- Value of employee services, net of deferred tax - - - 4 4
Purchase of treasury shares - - - - -
Dividends paid to owners of the parent - - - (101) (101)
Total transactions with owners - 1 - (97) (96)
for the period ended 31 March 2017 (Unaudited)
At 31 March 2017 (Unaudited) 12 545 202 360 1,119
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) 12 541 67 242 862
Profit for the period - - - 106 106
Other comprehensive income
Exchange differences on translating foreign operations - - 37 - 37
Total comprehensive income - - 37 106 143
for the period ended 31 March 2016 (Unaudited)
Transactions with owners
Employee share option scheme:
- Proceeds from shares issued - 2 - - 2
- Value of employee services, net of deferred tax - - - 6 6
Purchase of treasury shares - - - (2) (2)
Dividends paid to owners of the parent - - - (93) (93)
Total transactions with owners - 2 - (89) (87)
for the period ended 31 March 2016 (Unaudited)
At 31 March 2016 (Unaudited) 12 543 104 259 918
Consolidated statement of cash flows
For the six months ended 31 March 2017
Notes Six months ended Six months ended Year ended 30 September 2016
31 March 2017 31 March (Unaudited)Restated £m
(Unaudited) £m 2016
(Unaudited)Restated£m
Cash flows from operating activities
Cash generated from continuing operations 217 199 360
Interest paid (12) (10) (21)
Income tax paid (39) (48) (92)
Operating cash flows generated from discontinued operations 13 14 38
Net cash generated from operating activities 179 155 285
Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired 11 (79) (6) (6)
Purchases of intangible assets 7 (7) (3) (8)
Purchases of property, plant and equipment 7 (8) (13) (23)
Purchase of investment in an associate - - (10)
Proceeds from sale of property, plant and equipment - 1 -
Interest received 2 1 2
Investing cash flows generated from discontinued operations - - -
Net cash used in investing activities (92) (20) (45)
Cash flows from financing activities
Proceeds from issuance of ordinary shares 9 1 2 3
Purchase of treasury shares - (2) (2)
Finance lease principal payments - - (1)
Proceeds from borrowings 133 70 69
Repayments of borrowings (80) (79) (189)
Movements in cash held on behalf of customers 22 45 (4)
Borrowing costs (1) - (2)
Dividends paid to owners of the parent 5 (101) (93) (145)
Financing cash flows generated from discontinued operations 7 (1) (8)
Net cash used in financing activities (19) (58) (279)
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 10 68 77 (39)
(before exchange rate movement and reclassification as held for sale)
Effects of exchange rate movement 10 4 16 36
Reclassification as held for sale 10 (28) - -
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 44 93 (3)
Cash, cash equivalents and bank overdrafts at 1 October 10 260 263 263
Cash, cash equivalents and bank overdrafts at period end 10 304 356 260
Notes to the financial information
For the six months ended 31 March 2017
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 2 May 2017.
The financial information set out above does not constitute the Company's Statutory Accounts. Statutory Accounts for the
year ended 30 September 2016 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 2016.
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 2017 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 2016, which have been prepared in accordance with IFRSs as
adopted by the EU.
The prior periods consolidated income statement, consolidated statement of cash flows and their related notes have been
restated for the presentation of discontinued operations. For further information on discontinued operations see note 11.
In line with the requirements of IFRS 5 'Non-current assets held for sale and discontinued operations', the statement of
financial position has not been restated.
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 2016 as described in those annual financial statements.
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
effective for the Group for the six-month period ended 31 March 2017:
- IFRS 9 "Financial Instruments"
- IFRS 15 "Revenue from Contracts with Customers"
- IFRS 16 "Leases"
IFRS 16 has not yet been endorsed by the EU. The Group plans to adopt these standards in line with their effective dates,
which for IFRS 16 will be confirmed once the standard is endorsed by the EU. Currently, based on the expected timing of
that endorsement, IFRSs 9 and 15 will be adopted for the financial year commencing 1 October 2018, and IFRS 16 for the
financial year commencing 1 October 2019. The Group is continuing its assessment of the impact that the application of
these standards will have on the Group's financial statements but it remains too early to determine how significant any
effect on actual financial results and financial position might be.
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 2016 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 2016 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 2017 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 President 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.
With effect from 1 October 2016, the Group has been organised into seven key operating segments: Northern Europe, Central
Europe, Southern Europe, North America, Africa and the Middle East, Asia (including Australia) and Latin America. The
current structure reflects changes made to introduce a flatter, more focussed structure to allow businesses to get closer
to their customers. Prior to that date, the organisation structure reflected four operating segments (Europe, North
America, Brazil and Africa, Australia, Middle East and Asia) and three reportable segments. For reporting under IFRS 8 for
the six months ended 31 March 2017, the Group is divided into three reportable segments. These segments and their main
operating territories are as follows:
· Northern Europe (UK & Ireland)
· Central and Southern Europe (Germany, Switzerland, Poland, France, Spain and Portugal)
· North America (US and Canada)
The remaining operating segments of Africa and the Middle East, Asia 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 operating segments for Central Europe and Southern Europe have been aggregated into a single reportable segment. These
operating segments are considered to share similar economic characteristics because they have similar long term gross
margins, operate in similar markets principally within the EU and the majority of their businesses are in countries within
the euro area.
Segment information for the six months ended 31 March 2016 has been restated to reflect the above organisation structure
and discontinued operations as detailed in note 11.
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 months ended 31 March 2017 Six months ended 31 March 2017 Six months ended 31 March 2017 Change Change Change
Statutory and underlying £m Organic adjustments £m Organic £m Statutory Underlying Organic
% % %
Recurring revenue by segment
Northern Europe 143 - 143 13.3% 12.4% 12.0%
Central and Southern Europe 218 - 218 25.6% 8.3% 8.3%
North America 187 - 187 28.0% 7.3% 7.3%
International 100 (1) 99 51.7% 15.4% 15.6%
Recurring revenue 648 (1) 647 26.6% 9.9% 9.9%
Software and software related services ("SSRS") revenue by segment
Northern Europe 18 - 18 -18.3% -19.7% -19.7%
Central and Southern Europe 63 - 63 7.6% -7.2% -7.2%
North America 37 - 37 10.9% -6.9% -6.9%
International 30 (1) 29 28.8% 0.6% 0.4%
SSRS revenue 148 (1) 147 7.9% -7.4% -7.5%
Processing revenue by segment
Northern Europe 19 - 19 10.7% 9.2% 9.2%
Central and Southern Europe 1 - 1 69.8% 46.5% 46.5%
North America 17 - 17 23.7% 4.0% 4.0%
International 7 - 7 78.5% 36.0% 36.0%
Processing revenue 44 - 44 24.3% 11.1% 11.1%
Total revenue by segment
Northern Europe 180 - 180 8.8% 7.8% 7.5%
Central and Southern Europe 282 - 282 21.2% 4.5% 4.5%
North America 241 - 241 24.7% 4.6% 4.6%
International 137 (2) 135 47.1% 12.6% 12.8%
Total revenue 840 (2) 838 22.7% 6.5% 6.4%
Revenue by segment (Unaudited) (continued)
Six months ended 31 March 2016 Six months ended 31 March 2016 Six months ended 31 March 2016 Six months ended 31 March 2016 Six months ended 31 March 2016
Statutory and underlying as reported Impact of foreign exchange Underlying Organic adjustments Organic
£m £m £m £m £m
Recurring revenue by segment
Northern Europe 127 - 127 - 127
Central and Southern Europe 174 28 202 - 202
North America 146 28 174 - 174
International 66 21 87 (1) 86
Recurring revenue 513 77 590 (1) 589
Software and software related services ("SSRS") revenue by segment
Northern Europe 22 - 22 - 22
Central and Southern Europe 58 10 68 - 68
North America 34 6 40 - 40
International 23 7 30 (1) 29
SSRS revenue 137 23 160 (1) 159
Processing revenue by segment
Northern Europe 17 - 17 - 17
Central and Southern Europe 1 - 1 - 1
North America 12 4 16 - 16
International 4 1 5 - 5
Processing revenue 34 5 39 - 39
Total revenue by segment
Northern Europe 166 - 166 - 166
Central and Southern Europe 233 38 271 - 271
North America 192 38 230 - 230
International 93 29 122 (2) 120
Total revenue 684 105 789 (2) 787
Operating profit by segment (Unaudited)
Six months ended 31 March 2017 Change
Statutory £m Underlying adjustments £m Underlying Organic adjustments £m Organic£m Statutory Underlying Organic %
£m % %
Operating profit by segment
Northern Europe 68 4 72 - 72 34% 19% 19%
Central and Southern Europe 67 8 75 - 75 86% 24% 24%
North America 37 8 45 - 45 -3% -25% -25%
International 8 11 19 - 19 -35% -9% -9%
Total operating profit 180 31 211 - 211 31% 5% 5%
Six months ended 31 March 2016
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
Northern Europe 51 8 59 1 60 - 60
Central and Southern Europe 36 14 50 10 60 - 60
North America 37 12 49 11 60 - 60
International 13 3 16 5 21 - 21
Total operating profit 137 37 174 27 201 - 201
Reconciliation of underlying operating profit to statutory operating profit
Six months ended Six months ended
31 March 2017 31 March 2016
(Unaudited) (Unaudited)£m
£m
North Europe 72 60
Central and Southern Europe 75 60
North America 45 60
Total reportable segments 192 180
International 19 21
Underlying operating profit 211 201
Impact of movement in foreign currency exchange rates - (27)
Underlying operating profit (as reported) 211 174
Amortisation of acquired intangible assets (9) (8)
Other M&A activity-related items (3) -
Non-recurring items (19) (29)
Statutory operating profit 180 137
3 Adjustments between underlying profit and statutory profit (Unaudited)
Six months ended Six months ended Six months ended Six months ended Six months ended Six months ended
31 March 2017 31 March 2017 31 March 2017 31 March 2016 31 March 2016 31 March 2016
Recurring Non- Total Recurring Non- Total
£m recurring £m £m recurring £m
£m £m
M&A activity-related items
Amortisation of acquired intangibles (9) - (9) (8) - (8)
Other M&A activity-related items (3) - (3) - - -
Other items
Business transformation - (19) (19) - (31) (31)
Recovery of litigation costs - - - - 2 2
Total adjustments made to operating profit (12) (19) (31) (8) (29) (37)
Fair value adjustments - - - 2 - 2
Amortisation of acquired intangibles (1) - (1) - - -
Gain on remeasurement of existing investment in an associate - 13 13 - - -
Total adjustments made to profit before income tax (13) (6) (19) (6) (29) (35)
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 for M&A activity related items comprises the cost of carrying out M&A activities including business
combinations in the period.
The fair value adjustment comprises a charge of £1m (H1 16: gain of £2m) in relation to an embedded derivative asset which
relates to contractual terms agreed as part of the US private placement debt offset by a £1m credit (H1 16: nil) relating
to a fair value adjustment of a financial asset.
Non-recurring items
Charges of £19m (H1 16: £31m) have been incurred as a result of the implementation of the business transformation strategy.
This is comprised of people reorganisation charges of £9m (H1 16: £16m), net property exit costs of £3m (H1 16: £11m) and
other directly attributable costs, mainly relating to consultancy and contractors of £7m (H1 16: £4m). These charges are
one-off in nature and directly linked to the business transformation that is under way.
In H1 16 there was income that arose from recovery of costs relating to the Archer Capital litigation case following its
conclusion in 2015.
Total cash paid in relation to the business transformation strategy totalled £23m (H1 16: £12m) in the period.
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% (six months ended 31 March 2016: 23%) whilst the effective
tax rate on underlying profit before tax for continuing operations was 27% (six months ended 31 March 2016: 26%). The
effective income tax rate represents the best estimate of the average annual effective income tax rate expected for the
full year, applied to the profit before income tax for the six months ended 31 March 2017.
5 Dividends
Six months ended Six months ended 31 March 2016 Year
31 March 2017 (Unaudited)£m ended 30 September
(Unaudited)£m 2016 (Audited)£m
Finaldividend paid for the year ended 30 September 2015 of 8.65p per share - 93 93
Interim dividend paid for the year ended 30 September 2016 of 4.80p per share - - 52
Final dividend paid for the year ended 30 September 2016 of 9.35p per share 101 - -
101 93 145
The interim dividend of 5.22p per share will be paid on 2 June 2017 to shareholders on the register at the close of
business on 12 May 2017.
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.
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