REG - Sage Group PLC - Results for the 6 months to 31 March 22 unaudited
13/05/2022 07:00
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RNS Number : 3554L Sage Group PLC 13 May 2022
The Sage Group plc
Results for the six months to 31 March 2022 (unaudited)
13 May 2022
Strong first half performance with accelerating growth
· Strong organic recurring revenue growth of 8%, driven by Sage
Business Cloud growth of 21%
· Increasing momentum with ARR growth of 10%, underpinned by cloud
native ARR growth of 43%
· Strategic investment continues to drive growth and new customer
acquisition
· Organic operating margin of 19.9%, in line with expectations
· Sustained strong cash generation, with underlying cash conversion
of 120%
· Full year outlook unchanged
Alternative Performance Measures (APMs) 1 (#_ftn1) H1 22 H1 21 2 (#_ftn2) Change
Organic Financial APMs
Organic Total Revenue £924m £877m +5%
Organic Recurring Revenue £866m £800m +8%
Organic Operating Profit £184m £177m +4%
% Organic Operating Profit Margin 19.9% 20.2% -0.3 ppts
Underlying Financial APMs
EBITDA £226m £229m -1%
% EBITDA Margin 24.1% 24.8% -0.7 ppts
Underlying Operating Profit £183m £188m -3%
% Underlying Operating Profit Margin 19.6% 20.4% -0.8 ppts
Underlying Basic EPS 12.62p 11.91p +6%
Underlying Cash Conversion 120% 133% -13 ppts
KPIs
Annualised Recurring Revenue (ARR) £1,784m £1,625m +10%
Renewal Rate by Value 100% 97% +3 ppts
% Subscription Penetration 74% 68% +6 ppts
% Sage Business Cloud Penetration 72% 65% +7 ppts
Statutory Measures H1 22 H1 21 Change
Revenue £934m £937m -
Operating Profit £204m £203m -
% Operating Profit Margin 21.8% 21.7% +0.1 ppts
Basic EPS (p) 14.84p 13.29p +12%
Dividend Per Share (p) 6.30p 6.05p +4%
Please note that tables may not cast and change percentages may not calculate
precisely due to rounding.
Commenting on the results, CEO Steve Hare said:
"We achieved a strong first half performance, in line with expectations,
demonstrating sustainable growth and building further momentum. Our strategic
investment in sales, marketing and innovation has continued to accelerate
revenues across Sage Business Cloud, underpinned by increasing levels of new
customer acquisition. Cloud native solutions, which now account for around a
quarter of Group ARR, have performed particularly well.
"While we are mindful of increased macroeconomic and geopolitical
uncertainties, our customers remain confident and resilient. Our aim is to
knock down barriers to their success, delivering solutions that make their
lives easier, and we continue to make good progress against our strategic
objectives. I am confident that our ambition to become the trusted network for
small and mid-sized businesses will drive the success of Sage, as we focus on
growing both revenue and earnings in absolute terms."
Financial highlights
· Organic recurring revenue increased by 8% to £866m, underpinned by
Sage Business Cloud growth of 21% to £572m. Organic total revenue grew by 5%
to £924m.
· Organic operating profit increased by 4% to £184m, representing a
margin of 19.9% (H1 21: 20.2%). Following a period of additional strategic
investment to accelerate growth, organic operating margin has trended upwards
from 18.4% in H2 21, in line with expectations.
· Statutory operating profit remained stable at £204m (H1 21:
£203m), including non-recurring net gains of £55m (H1 21: £37m) driven by
disposals.
· Strong underlying cash conversion of 120% (H1 21: 133%) reflects
growth in subscription revenue and continued good working capital management.
· Robust balance sheet, with c. £1.2bn of cash and available
liquidity, and net debt to EBITDA of 1.5x.
· Interim dividend up 4% to 6.3p, with a progressive policy going
forwards of growing the dividend over time.
Strategic and operational highlights
· Annualised recurring revenue (ARR) up 10% to £1,784m (H1 21:
£1,625m), reflecting a strong performance across all regions, with growth
balanced between new and existing customers.
· Sage added £150m of ARR through new customer acquisition since H1
21, up from £110m a year earlier.
· Cloud native ARR up 43% to £424m (H1 21: £296m), driven by new
customers and supported by migrations from cloud connected and desktop
products.
· Renewal rate by value of 100%, ahead of last year (H1 21: 97%),
reflecting improved renewal rates and strong sales to existing customers.
· Sage Business Cloud penetration of 72% (H1 21: 65%), enabling more
customers to connect to Sage's cloud services and ecosystem via the digital
network.
· Strong performance in key cloud native solutions (Sage Intacct,
Sage Accounting and Sage People), together with continued growth in the Sage
50 and Sage 200 franchises.
· Accelerated our strategy for growth by acquiring Brightpearl, a
cloud native retail operations management system.
· Disposed of Sage's business in Switzerland and its South African
payroll outsourcing business, increasing focus on core geographies and
completing the Group's disposal programme.
Outlook
Sage's outlook remains unchanged. We continue to expect organic recurring
revenue growth in the region of 8% to 9% in FY22, driven by strength in Sage
Business Cloud, and in cloud native revenues in particular. We also expect
other revenue (SSRS) to continue to decline, in line with our strategy.
Organic operating margin is expected to trend upwards in FY22 and beyond, as
we focus on scaling the Group.
About Sage
Sage exists to knock down barriers so everyone can thrive, starting with the
millions of Small and Mid‑Sized Businesses served by us, our partners and
accountants. Customers trust our finance, HR and payroll software to make work
and money flow. By digitising business processes and relationships with
customers, suppliers, employees, banks and governments, our digital network
connects SMBs, removing friction and delivering insights. Knocking down
barriers also means we use our time, technology and experience to tackle
digital inequality, economic inequality and the climate crisis.
Enquiries: Sage: +44 (0) 7721 121147 Finsbury Glover Hering: +44 (0) 20 7251 3801
James Sandford, Investor Relations Conor McClafferty
Becky Potgieter/Rachel Bibby, Corporate PR Sophia Johnston
A presentation for investors and analysts will be held at 8.30am UK time. The
webcast can be accessed live, and subsequently as a replay, via
www.sage.com/investors (http://www.sage.com/investors) . Participants may also
dial in by calling +44 (0) 20 7192 8338, using pin code 9998372.
Business Review
Sage delivered a strong first half, with organic revenue growth accelerating
and operating margin trending upwards, driven by continued strategic
execution.
Sage serves a diverse customer base of small and mid-sized businesses (SMBs)
around the world. Digitisation is driving the rapid adoption of new cloud
solutions, with SMBs investing in software to automate workflows, gain better
business insights and comply with regulatory obligations. Our unrivalled,
trusted portfolio of accounting, HR and payroll solutions positions us well to
support them.
Our purpose is to knock down barriers so everyone can thrive, recognising that
as we remove friction and make life easier for SMBs, they in turn have a
positive effect on the economies and communities in which they operate. We are
fully committed to supporting not only our customers but also society more
widely, investing in tackling digital inequality, economic inequality and the
climate crisis to deliver positive change.
Overview of results
The Group achieved organic recurring revenue growth of 8% to £866m,
underpinned by a 21% rise in Sage Business Cloud revenue to £572m, and
organic total revenue growth of 5% to £924m.
Our focus on growing cloud revenues has increased Sage Business Cloud
penetration to 72%, up 7 percentage points compared to H1 21. We have also
continued to grow software subscription revenues, leading to a rise in
subscription penetration of 6 percentage points to 74%. As a result of the
evolving business mix, 94% of the Group's organic total revenue is now
recurring, up from 91% in H1 21.
Portfolio View of Revenue
The portfolio view breaks down Sage's organic revenue by strategic product
portfolio. Our principal focus is to grow Sage Business Cloud, by attracting
new customers and migrating existing customers and products to cloud native
and cloud connected solutions. Sage Business Cloud customers can connect to a
range of cloud services as part of Sage's digital network, leading to deeper
customer relationships and higher lifetime values.
Organic Revenue by Portfolio 3 (#_ftn3) Recurring Total
H1 22 H1 21 Growth H1 22 H1 21 Growth
Cloud native 4 (#_ftn4) £187m £130m +44% £192m £137m +40%
Cloud connected 5 (#_ftn5) £385m £341m +13% £391m £348m +12%
Sage Business Cloud £572m £471m +21% £583m £485m +20%
Products with potential to migrate £225m £249m -10% £258m £294m -12%
Future Sage Business Cloud Opportunity 6 (#_ftn6) £797m £720m +11% £841m £779m +8%
Non-Sage Business Cloud 7 (#_ftn7) £69m £80m -14% £83m £98m -15%
Organic Total Revenue £866m £800m +8% £924m £877m +5%
Sage Business Cloud Penetration 72% 65%
Recurring revenue from cloud native solutions grew by 44% to £187m, driven by
Sage Intacct together with other solutions including Sage Accounting and Sage
People, primarily through new customer acquisition. Cloud native growth has
also been driven by migrations principally to Sage HR and to Sage Partner
Cloud.
Recurring revenue from cloud connected solutions increased by 13% to £385m,
reflecting continuing growth in the Sage 50 and Sage 200 franchises through
existing customers and new customers acquired in the period. Overall, the
Future Sage Business Cloud Opportunity, which represents products in or with a
clear pathway to Sage Business Cloud, has performed strongly with recurring
revenue growth of 11%.
The revenue decline in the Non-Sage Business Cloud portfolio is in line with
expectations and reflects the ongoing strategy to focus on solutions with a
clear pathway to Sage Business Cloud.
ARR growth
Sage's ARR increased by 10% to £1,784m (H1 21: £1,625m), accelerating in the
second quarter across all our regions, reflecting strong growth balanced
between new and existing customers. This was underpinned by cloud native ARR
growth of 43% to £424m (H1 21: £296m), reflecting a strong performance
particularly from Sage Intacct, Sage People, Sage Accounting and Sage HR.
Renewal rate by value of 100% (H1 21: 97%) is ahead of last year reflecting
improved renewal rates and strong sales to existing customers, including a
good performance in customer add-ons and targeted price rises.
In total, Sage has added £150m of ARR through new customer acquisition over
the last 12 months, up from £110m a year earlier.
Progress towards our strategic priorities
At our FY21 results we set out our strategic framework for growth, including
five priorities focused on initiatives to drive the long-term success of Sage.
Our progress towards these priorities is outlined below.
· Scale Sage Intacct: Growth in Sage Intacct has accelerated as we
have invested in enhancing the core product, developing its vertical and
geographic reach (including through the acquisition of Brightpearl and the
launch of Sage Intacct Manufacturing in France), and expanding distribution in
key markets across the Group. In the first half Sage Intacct added a record
number of new customers, and achieved higher renewal rates driven by good
sales growth from existing customers. This is reflected in strong ARR growth,
up by a third in the US and by more than 200% outside the US, on a
year-on-year basis.
· Expand medium beyond financials: We are developing solutions for
mid-sized businesses that deliver benefits to customers beyond core
accounting, expanding into adjacent areas in line with the enlarged remit of
today's CFO. In February we launched a service to automate manual accounts
payable processes, saving SMBs significant invoice processing costs and
reducing data entry error. Sage Intacct Planning continues to grow rapidly and
has now been launched in Canada, with other markets to follow.
· Build the small business engine: By investing in digital marketing
and the customer experience, Sage has increased its cloud native ARR from UK
small business solutions (including Sage Accounting and Sage HR) by more than
50% over the last year. Sage for Accountants, launched in November and
complemented by the recent acquisitions of GoProposal and Futrli, has
performed ahead of plan, attracting more than 1,000 accountancy practices to
date and serving as a key advocacy tool. We are now internationalising the UK
approach in other markets, initially South Africa and Canada.
· Scale the network: Scaling Sage's digital network creates a
virtuous circle, with more data enabling better services to deliver richer
experiences. We are expanding the network by increasing Sage Business Cloud
penetration, and have launched new cloud native solutions in International,
including Sage Accounting in Spain, Sage HR in Germany, and Sage Intacct
Manufacturing in France, further driving network participation.
· Learn and disrupt: Sage continues to invest in innovation,
accelerating momentum in AI and machine learning, and driving disruptive new
technologies. In February we released the first and only mid-market cloud
accounting solution to use AI to increase confidence in the accuracy of
general ledger transactions, through our outlier detection engine. We also
continue to work with partners, including Tide and Experian, to deliver
innovative services to small businesses and consumers.
Refreshed brand
In order to better represent our evolved purpose, strategy and values, Sage
has refreshed its brand proposition, in keeping with the changing needs of
SMBs globally. The refreshed brand, launched externally at the end of April,
focuses on the simplicity and confidence that Sage delivers to customers,
highlighting how our easy-to-use solutions, backed by expert human advice and
insights, help them make better and faster decisions. Sage has also launched a
new marketing campaign alongside the brand, putting Sage customers and their
real-life stories at its heart.
Simplifying the business
In November, we completed the disposal of Sage's business in Switzerland, as
previously announced, and in April we disposed of Sage's South African payroll
outsourcing business. This completes the Group's disposal programme, resulting
in a simplified structure, with management and capital resources now focused
on fewer, larger geographies.
Colleagues
For colleagues, knocking down barriers means improving their experience at
Sage, creating opportunities, and enabling every colleague to do their very
best work. Key to this is our focus on development and training, and on
inclusion and wellbeing through our thriving colleague support networks and
our flexible working model.
In December, we published our three-year global diversity, equity, and
inclusion (DEI) strategy, to embed DEI through our everyday business processes
through awareness, training and transparency. We are committed to building an
inclusive workforce that fully represents the many different cultures,
backgrounds, and viewpoints of our customers, partners, and communities.
Sage continues to be recognised as a great place to work based on colleague
feedback, receiving awards in the first half from organisations including
Comparably for Best Global Culture, and Glassdoor as one of the UK's Best
Places to Work.
Society
Sage plays a key role in supporting SMBs which form the backbone of economies
around the world, helping bring prosperity to their owners, employees and
communities. Through our 'sustainability and society' strategy, Sage aims to
support sustainable and inclusive economic growth so everyone can thrive.
Our partnership with the Institute of Engineering and Technology to develop
STEM skills in young people in deprived communities is on target to support
over 5,000 pupils across the north east of England this year. In the US, our
grant partnership with The BOSS Network attracted over 12,500 applications,
with grants made to support 35 black women entrepreneurs in their first five
years of business. Our global partnership with Kiva has now supported over
4,000 loans to help individuals in underserved communities start and maintain
businesses.
Sage has pledged to help the planet by achieving net zero emissions by 2040,
and halving its emissions by 2030, across Scopes 1, 2 and 3. We expect to
submit our Science Based Targets for approval later this year, underpinning
our commitment on climate action and ensuring our plans are aligned with the
Paris Agreement.
Sage Foundation provides a way for colleagues and partners to give back to
their communities, co‑ordinating the contribution of over 64,000
volunteering hours towards charitable projects in the first half. Sage
Foundation has also led Sage's response to the humanitarian crisis in Ukraine
and surrounding countries, which has included significant donations from Sage,
our colleagues, partners and communities, to support local relief programmes.
Financial Review
The financial review provides a summary of Sage's results on a statutory and
underlying basis, as well as considering the organic performance of the
business. Underlying measures allow management and investors to understand the
financial performance of the Group adjusted for the impact of foreign exchange
movements and recurring and non-recurring items, while organic measures also
adjust for the impact of acquisitions and disposals 8 (#_ftn8) .
Organic Financial Results
In H1 22 Sage achieved organic recurring revenue growth of 8% to £866m and
organic total revenue growth of 5% to £924m. The increase in recurring
revenue was underpinned by a 21% rise in Sage Business Cloud revenue to
£572m, reflecting strength from new customer acquisition, increased sales to
existing customers and continued progress in migrating customers to cloud
solutions.
Other revenue (SSRS) declined by 24% to £58m, in line with our strategy to
transition away from licence sales and professional services implementations.
The Group's organic operating profit increased by 4% to £184m, representing
an organic operating margin of 19.9%. Following a period of additional
strategic investment during FY21 to accelerate growth, organic operating
margin has trended upwards from 18.4% in H2 21, driven by operating
efficiencies.
The Group also achieved underlying basic EPS of 12.62p, strong underlying cash
conversion of 120% and free cash flow of £167m.
Statutory and Underlying Financial Results
Financial Results Statutory Underlying
H1 22 H1 21 Change H1 22 H1 21 Change
North America £376m £340m +11% £377m £342m +10%
Northern Europe £212m £200m +6% £212m £200m +7%
International £346m £397m -13% £346m £380m -9%
Group Total Revenue £934m £937m 0% £935m £922m +1%
Operating Profit £204m £203m 0% £183m £188m -3%
% Operating Profit Margin 21.8% 21.7% +0.1 ppts 19.6% 20.4% -0.8 ppts
Profit Before Tax £189m £190m -1% £169m £175m -3%
Net Profit £152m £146m +4% £129m £130m -1%
Basic EPS 14.84p 13.29p +12% 12.62p 11.91p +6%
The Group achieved statutory total revenue of £934m, marginally below last
year, reflecting good levels of organic growth in all regions, offset by
disposals and foreign exchange headwinds (principally in relation to the Euro)
in the International region. Underlying total revenue, which normalises the
comparative period for foreign exchange movements, increased by 1%.
Statutory operating profit increased slightly to £204m, with recurring and
non-recurring items higher than the prior year, driven by profit on disposals.
Underlying operating profit, which excludes recurring and non‑recurring
items, decreased by 3% to £183m.
Statutory basic EPS increased by 12% to 14.84p, reflecting the post-tax impact
of recurring and non‑recurring items, and a reduction in the number of
shares outstanding following the execution of the Group's share buyback
programme. Underlying basic EPS increased by 6% to 12.62p.
Underlying & Organic Reconciliations to Statutory
H1 22 H1 21
Revenue Operating Operating Revenue Operating Operating
Profit Margin Profit Margin
Statutory £934m £204m 21.8% £937m £203m 21.7%
Recurring items 9 (#_ftn9) £1m £34m - - £25m -
Non-recurring items:
· Net gain on disposal of subsidiaries - (£49m) - - (£41m) -
· Employee restructuring costs - (£6m) - - (£5m) -
· Office relocation - - - - £9m -
Impact of FX 10 (#_ftn10) - - - (£15m) (£3m) -
Underlying £935m £183m 19.6% £922m £188m 20.4%
Disposals (£5m) - - (£43m) (£10m) -
Held for sale (£2m) (£1m) - (£2m) (£1m) -
Acquisitions (£4m) £2m - - - -
Organic £924m £184m 19.9% £877m £177m 20.2%
Revenue
The Group achieved statutory revenue of £934m and underlying revenue of
£935m in H1 22. The £1m difference reflects a fair value adjustment to
deferred income relating to the acquisition of Brightpearl. Underlying revenue
in H1 21 of £922m reflects statutory revenue of £937m retranslated at
current year exchange rates, resulting in an FX adjustment of £15m.
Organic revenue of £924m (H1 21: £877m) reflects underlying revenue adjusted
for £5m of revenue from Sage's business in Switzerland, which was sold during
the period, and £2m (H1 21: £2m) from the South African payroll outsourcing
business, which was held for sale at the end of the period and subsequently
sold in April 2022. A further adjustment of £4m reflects revenue from the
acquisition of Brightpearl. In H1 21, revenue from disposals included £43m of
revenue from Sage's businesses in Poland, Australia and Asia, and Switzerland.
Operating profit
The Group achieved a statutory operating profit in H1 22 of £204m (H1 21:
£203m). Underlying operating profit of £183m (H1 21: £188m) reflects
statutory operating profit adjusted for recurring and non-recurring items.
Recurring items of £34m (H1 21: £25m) comprise £18m of amortisation of
acquisition-related intangibles (H1 21: £16m) and £15m of M&A related
charges (H1 21: £9m), in addition to a £1m of deferred income adjustment
relating to the acquisition of Brightpearl.
Non-recurring items include a £49m net gain on disposal from the sale of
Sage's business in Switzerland (H1 21: £41m net gain from the disposal of the
Polish business), together with a £6m reversal of employee restructuring
costs, primarily relating to the business transformation announced in
September 2021, as some colleagues were redeployed into other roles across the
business.
Organic operating profit of £184m (H1 21: £177m) reflects underlying
operating profit adjusted for £1m of operating profit from the South African
payroll outsourcing business (H1 21: £1m) and £2m of operating losses from
Brightpearl. In H1 21, operating profit from disposals included £3m from
Sage's business in Switzerland and a further £7m from Sage's businesses in
Poland, Australia and Asia.
Organic Revenue Overview
Organic Revenue Mix H1 22 H1 21 Change
£m % of Total £m % of Total
Software Subscription Revenue £682m 74% £600m 68% +14%
Other Recurring Revenue £184m 20% £200m 23% -8%
Organic Recurring Revenue £866m 94% £800m 91% +8%
Other Revenue (SSRS) £58m 6% £77m 9% -24%
Organic Total Revenue £924m 100% £877m 100% +5%
Organic total revenue increased by 5% in H1 22 to £924m. Organic recurring
revenue grew by 8% to £866m, supported by a 14% increase in software
subscription revenue to £682m, reflecting the continued focus on attracting
new customers and migrating existing customers to subscription and Sage
Business Cloud. The decline in other recurring revenue of 8% to £184m
reflects customers migrating from maintenance and support to subscription
contracts. Other revenue (SSRS) declined by 24% to £58m, in line with our
strategy to transition away from licence sales and professional services
implementations.
North America
Organic Revenue by Category H1 22 H1 21 Change
Organic Total Revenue £375m £342m +9%
Organic Recurring Revenue £355m £318m +12%
% Sage Business Cloud Penetration 75% 73% +2 ppts
% Subscription Penetration 70% 65% +5 ppts
Organic Recurring Revenue H1 22 H1 21 Change
US £303m £269m +13%
Of which Sage Intacct £102m £78m +31%
Canada £52m £49m +7%
North America achieved organic recurring revenue growth of 12% to £355m and
organic total revenue growth of 9% to £375m. Sage Business Cloud penetration
is now 75%, up from 73% in the prior year, driven by growth in cloud native
and cloud connected solutions, while subscription penetration is 70%, up from
65% in the prior year.
Cloud native growth was driven mainly through Sage Intacct, which delivered
strong recurring revenue growth of 31% to £102m reflecting continued strong
progress through accelerating new customer acquisition and improved renewal
rates driven by strong sales growth from existing customers.
Recurring revenue in the US increased by 13% to £303m, driven by Sage Intacct
together with continued growth in medium cloud connected products across the
Sage 200 franchise. Total revenue for the US increased by 11% to £321m.
In Canada, recurring revenue increased by 7% to £52m and total revenue by 4%
to £54m, driven mainly by Sage 50 cloud and Sage 200 cloud solutions,
together with growth in Sage Intacct and Sage Accounting.
Northern Europe
Organic Revenue by Category H1 22 H1 21 Change
Organic Total Revenue £210m £200m +5%
Organic Recurring Revenue £206m £192m +7%
% Sage Business Cloud Penetration 89% 85% +4 ppts
% Subscription Penetration 91% 88% +3 ppts
Northern Europe (UK & Ireland) achieved organic recurring revenue growth
of 7% to £206m and organic total revenue growth of 5% to £210m. Sage
Business Cloud penetration is now 89%, up from 85% in the prior year, while
subscription penetration is 91%, up from 88% in the prior year.
Recurring revenue growth reflects accelerating growth in cloud native
solutions, supported by further growth in Sage 50 cloud connected.
Cloud native revenue growth in Northern Europe was driven by new customer
acquisition in Sage Accounting, Sage Intacct and Sage People, together with
migrations to Sage HR. Sage Intacct continues to grow rapidly in the UK, as we
accelerate investment across our sales channels.
International
Organic Revenue by Category H1 22 H1 21 Change
Organic Total Revenue £339m £335m +1%
Organic Recurring Revenue £305m £290m +5%
% Sage Business Cloud Penetration 56% 43% +13 ppts
% Subscription Penetration 67% 60% +7 ppts
Organic Recurring Revenue H1 22 H1 21 Change
Central and Southern Europe £240m £230m +4%
France £128m £124m +3%
Central Europe £52m £48m +8%
Iberia £60m £58m +3%
Africa & APAC £65m £60m +7%
The International region achieved organic recurring revenue growth of 5% to
£305m and organic total revenue growth of 1% to £339m. Sage Business Cloud
penetration increased significantly to 56%, up from 43% in the prior year,
while subscription penetration is 67%, up from 60% in the prior year.
In France, recurring revenue increased by 3% to £128m, with a strong
performance in cloud connected, supported by growth in cloud native solutions,
partly offset by a reduction in maintenance and support revenues. Total
revenue in France decreased by 1% to £136m.
Central Europe achieved recurring revenue growth of 8% to £52m while total
revenue increased by 4% to £66m. Growth in the region is driven by a
combination of cloud connected and local products.
In Iberia, recurring revenue increased by 3% to £60m, with success in
migrating customers to subscription and cloud connected solutions. Total
revenue was flat at £67m.
Africa & APAC delivered strong recurring revenue growth of 7% to £65m,
driven mainly by a good performance in cloud native solutions, particularly
Sage Accounting in Africa, and supported by growth in local products. Total
revenue in Africa & APAC increased by 6% to £70m compared with the prior
year.
Operating Profit
The Group increased organic operating profit by 4% to £184m (H1 21: £177m),
representing a margin of 19.9% (H1 21: 20.2%). Following a period of
additional strategic investment during FY21 to accelerate growth, organic
operating margin has trended upwards from 18.4% in H2 21, driven by operating
efficiencies. In addition, during the first half, the Group reassessed its bad
debt provision in connection with Covid-19, releasing the balance of the
provision which resulted in a £7m credit to operating profit.
Underlying operating profit was £183m (H1 21: £188m), representing a margin
of 19.6% (H1 21: 20.4%). The difference between organic and underlying
operating profit reflects the operating profit or loss from acquisitions and
disposals (as described on page 7).
EBITDA was £226m (H1 21: £229m) representing a margin of 24.1%. The slight
reduction in EBITDA principally reflects the impact of disposals on underlying
operating profit, partly offset by a £2m increase in underlying depreciation
and amortisation to £27m (H1 21: £25m).
H1 22 H1 21 H1 22 Margin
Organic Operating Profit £184m £177m 19.9%
Impact of disposals - £10m
Impact of held for sale £1m £1m
Impact of acquisitions (£2m) -
Underlying Operating Profit £183m £188m 19.6%
Depreciation & amortisation £27m £25m
Share based payments £16m £16m
EBITDA £226m £229m 24.1%
Net Finance Cost
The statutory net finance cost for the period increased to £15m (H1 21:
£13m), primarily reflecting the impact of interest on new debt issuances and
is broadly in line with the underlying net finance cost of £14m (H1 21:
£13m).
Taxation
The underlying tax expense for H1 22 was £40m (H1 21: £45m), resulting in an
underlying tax rate of 24% (H1 21: 25%). The statutory income tax expense for
H1 22 was £37m (H1 21: £44m), resulting in a statutory tax rate of 20% (H1
21: 23%).
The difference between the underlying and statutory rate in H1 22 primarily
reflects a non-taxable accounting net gain on disposals. The H1 22 underlying
tax rate has decreased due to a reduction in the French corporation tax rate
together with certain non-recurring adjustments.
Earnings per Share
H1 22 H1 21 Change
Statutory Basic EPS 14.84p 13.29p +12%
Recurring items 2.97p 2.05p
Non-recurring items (5.19)p (3.20)p
Impact of foreign exchange - (0.23p)
Underlying Basic EPS 12.62p 11.91p +6%
Underlying basic earnings per share of 12.62p was 6% higher than the prior
period, primarily reflecting a reduction in the number of outstanding shares
due to the share buyback programme.
Statutory basic earnings per share increased by 12%, reflecting the increase
in underlying basic earnings per share and the post-tax impact of recurring
and non-recurring items.
Cash Flow
The Group remains highly cash generative with underlying cash flow from
operations of £220m (H1 21: £255m), representing an underlying cash
conversion of 120% (H1 21: 133%). Importantly, the Group has delivered cash
conversion in excess of 100% for more than three years. This strong cash
conversion reflects growth in subscription revenue and continued good working
capital management. Free cash flow was £167m (H1 21: £190m), largely
reflecting strong underlying cash conversion and a reduction in income tax
paid.
Cash Flow APMs H1 22 H1 21 (as reported)
Underlying operating profit £183m £191m
Depreciation, amortisation and non-cash items in profit £26m £22m
Share based payments £16m £16m
Net changes in working capital £3m £58m
Net capital expenditure (£8m) (£32m)
Underlying Cash Flow from Operations £220m £255m
Underlying cash conversion % 120% 133%
Non-recurring cash items (£12m) (£6m)
Net interest paid (£14m) (£11m)
Income tax paid (£27m) (£46m)
Profit and loss foreign exchange movements - (£2m)
Free Cash Flow £167m £190m
Statutory Reconciliation of Cash Flow from Operations H1 22 H1 21 (as reported)
Statutory Cash Flow from Operations £193m £266m
Recurring and non-recurring items £36m £22m
Net capital expenditure (£8m) (£32m)
Other adjustment including foreign exchange translations (£1m) (£1m)
Underlying Cash Flow from Operations £220m £255m
Net debt and liquidity
Group net debt was £650m at 31 March 2022 (30 September 2021: £247m),
comprising cash and cash equivalents of £515m (30 September 2021: £567m) and
total debt of £1,165m (30 September 2021: £814m). The Group had £1,197m of
cash and available liquidity at 31 March 2022 (30 September 2021: £1,236m).
The increase in net debt in the period is summarised in the table below.
H1 22 H1 21 (as reported)
Net debt at 1 October (£247m) (£151m)
Free cash flow £167m £190m
New leases (£4m) (£4m)
Net proceeds from disposal of subsidiaries £38m £61m
Net cash for acquisition of subsidiaries (£223m) -
M&A and equity investments (£14m) (£32m)
Dividends paid (£119m) (£124m)
Share buyback (£249m) (£47m)
FX movement and other £1m £11m
Net debt at 31 March (£650m) (£96m)
The Group's debt is sourced from a syndicated multi-currency Revolving Credit
Facility (RCF), US private placement (USPP) loan notes, and sterling
denominated bond notes. The Group's RCF expires in February 2025 with
facility levels of £682m (split between US$719m and £135m tranches). At 31
March 2022, the RCF was undrawn (H1 21: undrawn).
The Group's USPP loan notes at 31 March 2022 totalled £330m (US$400m and EUR
30m) (H1 21: £362m - US$400m and EUR 85m). The USPP loan notes have a range
of maturities between January 2023 and May 2025.
The Group's sterling denominated bond notes comprise a £400m 12-year bond,
issued in February 2022, with a coupon of 2.875%, and a £350m 10-year bond,
with a coupon of 1.625%, issued in February 2021.
Sage has an investment grade issuer credit rating assigned by Standard and
Poor's of BBB+ (stable outlook). Maturities within the next 18 months comprise
EUR 30m (£25m) and US$150m (£114m) of the Group's USPP loan notes in January
2023 and May 2023, respectively.
Capital allocation
Sage maintains a disciplined approach to capital allocation. The Group's focus
is to accelerate strategic execution through organic and inorganic investment,
including through acquisitions of complementary technology and partnerships to
enhance Sage Business Cloud and further develop Sage's digital network. During
the period, Sage acquired Brightpearl, helping to accelerate the Group's
strategy for growth, and completed the disposal of its Swiss business. The
South African payroll outsourcing business was sold in April, following the
period end.
Reflecting the Group's continuing strong business performance and cash
generation during the first half, we have increased the interim dividend by 4%
to 6.3p. Going forwards, Sage will adopt a progressive dividend policy,
intending to grow the dividend over time while considering the future capital
requirements of the Group.
The Group also considers returning surplus capital to shareholders. On 24
January 2022, Sage completed a £300m share buyback programme that commenced
on 6 September 2021. A total of 39.8m shares were purchased under this
programme and are held as treasury shares. Including a previous £300m share
buyback programme undertaken during FY21, this brings the total capital
returned to shareholders since March 2021 to £600m. As a result, the weighted
average number of shares in issue during the first half declined by 7%
compared to the same period last year.
H1 22 H1 21 (as reported)
Net debt £650m £96m
EBITDA (Last Twelve Months) £439m £474m
Net debt/EBITDA Ratio 1.5x 0.2x
The Group's EBITDA over the last 12 months was £439m, resulting in a net debt
to EBITDA leverage ratio of 1.5x, up from 0.2x in the prior year principally
due to the impact of the share buyback and acquisitions on net debt. Group
return on capital employed (ROCE) for H1 22 was 18.6% (H1 21 as reported:
20.3%).
Sage intends to operate in a broad range of 1-2x net debt to EBITDA over the
medium term, with flexibility to move outside this range as business needs
require.
Going concern
The Directors have robustly tested the going concern assumption in preparing
these financial statements, taking into account the Group's strong liquidity
position at 31 March 2022 and a number of downside sensitivities, and remain
satisfied that the going concern basis of preparation is appropriate. Further
information is provided in note 1 of the financial statements on pages 20 and
21.
Foreign exchange
The Group does not hedge foreign currency profit and loss translation
exposures and the statutory results are therefore impacted by movements in
exchange rates. The average rates used to translate the consolidated income
statement and to normalise prior year underlying and organic figures are as
follows:
AVERAGE EXCHANGE RATES (EQUAL TO GBP) H1 22 H1 21 Change
Euro (€) 1.19 1.13 5%
US Dollar ($) 1.34 1.35 0%
Canadian Dollar (C$) 1.70 1.73 -2%
South African Rand (ZAR) 20.62 20.62 0%
Australian Dollar (A$) 1.85 1.80 3%
Appendix 1 - Alternative Performance Measures
Alternative Performance Measures are used by the Group to understand and
manage performance. These are not defined under IFRS and are not intended to
be a substitute for any IFRS measures of performance but have been included as
management considers them to be important measures, alongside the comparable
GAAP financial measures, in assessing underlying performance. Wherever
appropriate and practical, we provide reconciliations to relevant GAAP
measures. The table below sets out the basis of calculation of the Alternative
Performance Measures and the rationale for their use.
MEASURE DESCRIPTION RATIONALE
Underlying (revenue and profit) measures Underlying measures are adjusted to exclude items which would distort the Underlying measures allow management and investors to compare performance
understanding of the performance for the year or comparability between without the potentially distorting effects of foreign exchange movements,
periods: one‑off or non-operational items.
· Recurring items include purchase price adjustments including By including part-period contributions from acquisitions, discontinued
amortisation of acquired intangible assets and adjustments made to reduce operations, disposals and assets held for sale of standalone businesses in the
deferred income arising on acquisitions, acquisition-related items, unhedged current and/or prior periods, the impact of M&A decisions on earnings per
FX on intercompany balances and fair value adjustments; and share growth can be evaluated.
· Non-recurring items that management judge to be one-off or
non-operational such as gains and losses on the disposal of assets, impairment
charges and reversals, and restructuring related costs.
Recurring items are adjusted each period irrespective of materiality to ensure
consistent treatment.
All prior period underlying measures (revenue and profit) are retranslated at
the current year exchange rates to neutralise the effect of currency
fluctuations.
Organic (revenue and profit) measures In addition to the adjustments made for Underlying measures, Organic measures: Organic measures allow management and investors to understand the
like‑for‑like revenue and current period margin performance of the
· Exclude the contribution from discontinued operations, disposals and continuing business.
assets held for sale of standalone businesses in the current and prior period;
and
· Exclude the contribution from acquired businesses until the year
following the year of acquisition; and
· Adjust the comparative period to present prior period acquired
businesses as if they had been part of the Group throughout the prior period.
Acquisitions and disposals where the revenue and contribution impact would be
immaterial are not adjusted.
Underlying Cash Flow from Operations Underlying Cash Flow from Operations is Underlying Operating Profit adjusted To show the cash flow generated by the operations and calculate underlying
for non-cash items, net capex (excluding business combinations and similar cash conversion.
items) and changes in working capital.
Underlying Cash Conversion Underlying Cash Flow from Operations divided by Underlying (as reported) Cash conversion informs management and investors about the cash operating
Operating Profit. cycle of the business and how efficiently operating profit is converted into
cash.
EBITDA EBITDA is Underlying Operating Profit excluding depreciation, amortisation and To calculate the Net Debt to EBITDA leverage ratio and to show profitability
share based payments. before the impact of major non-cash charges.
Annualised recurring revenue Annualised recurring revenue ("ARR") is the normalised organic recurring ARR represents the annualised value of the recurring revenue base that is
revenue in the last month of the reporting period, adjusted consistently expected to be carried into future periods, and its growth is a
period to period, multiplied by twelve. Adjustments to normalise reported forward‑looking indicator of reporting recurring revenue growth.
recurring revenue include those components that management has assessed should
be excluded in order to ensure the measure reflects that part of the
contracted revenue base which (subject to ongoing use and renewal) can
reasonably be expected to repeat in future periods (such as non‑refundable
contract sign‑up fees).
Renewal Rate by Value The ARR from renewals, migrations, upsell and cross-sell of active customers As an indicator of our ability to retain and generate additional revenue from
at the start of the year, divided by the opening ARR for the year. our existing customer base through up and cross sell.
Free Cash Flow Free Cash Flow is Underlying Cash Flow from Operations minus net interest paid To measure the cash generated by the operating activities during the period
and income tax paid and adjusted for non-recurring cash items (which excludes that is available to repay debt, undertake acquisitions or distribute to
net proceeds on disposals of subsidiaries) and profit and loss foreign shareholders.
exchange movements.
% Subscription Penetration Organic software subscription revenue as a percentage of organic total To measure the progress of migrating our customer base from licence and
revenue. maintenance to a subscription relationship.
% Sage Business Cloud Penetration Organic recurring revenue from the Sage Business Cloud (native and connected To measure the progress in the migration of our revenue base to the Sage
cloud) as a percentage of the organic recurring revenue of the Future Sage Business Cloud by connecting our solutions to the cloud and/or migrating our
Business Cloud Opportunity. customers to cloud connected and cloud native solutions.
Return on Capital Employed (ROCE) ROCE is calculated as: As an indicator of the current period financial return on the capital invested
in the Company.
- Underlying Operating Profit; minus
ROCE is used as an underpin in the FY20, FY21 and FY22 PSP awards.
- Amortisation of acquired intangibles; the result being divided by
The average (of the opening and closing balance for the period) total net
assets excluding net debt, provisions for non-recurring costs, financial
liability for purchase of own shares and tax assets or liabilities (i.e.
capital employed).
Consolidated income statement
For the six months ended 31 March 2022
Six months Six months Six months Six months Six months Six months Year ended
ended
ended
ended
ended
ended
ended
30
31 March
31 March
31 March
31 March
31 March
31 March
September
2022
2022
2022
2021
2021
2021
2021
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Audited)
Underlying
Adjustments*
Statutory
Underlying as reported
Adjustments*
Statutory
Statutory
Note £m £m £m £m £m £m £m
Revenue 2 935 (1) 934 937 - 937 1,846
Cost of sales (68) - (68) (72) - (72) (131)
Gross profit 867 (1) 866 865 - 865 1,715
Selling and (684) 22 (662) (674) 12 (662) (1,342)
administrative expenses
Operating profit 2 183 21 204 191 12 203 373
Finance income - - - 1 - 1 1
Finance costs (14) (1) (15) (14) - (14) (27)
Profit before income tax 169 20 189 178 12 190 347
Income tax expense 4 (40) 3 (37) (45) 1 (44) (62)
Profit for the period 129 23 152 133 13 146 285
* Adjustments are detailed in note 3.
Earnings per share attributable to
the owners of the parent (pence)
Basic 6 12.62p 14.84p 12.14p 13.29p 26.33p
Diluted 6 12.49p 14.68p 12.05p 13.19p 26.08p
Consolidated statement of comprehensive income
For the six months ended 31 March 2022
Six months Six months Year
ended
ended
ended
31 March
31 March
30 September
2022
2021
2021
(Unaudited)
(Unaudited)
(Audited)
£m
£m
£m
Profit for the period 152 146 285
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
Fair value gain on reassessment of equity investment (see note 11) 30 - -
Actuarial gain on post-employment benefit obligations - - 2
30 - 2
Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations 24 (86) (60)
Exchange differences recycled through income statement on sale of foreign (13) (1) (21)
operations
11 (87) (81)
Other comprehensive income/(expense) for the period, net of tax 41 (87) (79)
Total comprehensive income for the period 193 59 206
The notes on pages 20 to 38 form an integral part of this condensed
consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2022
Note 31 March 31 March 30 September
2022
2021
2021
(Unaudited)
(Unaudited)
(Audited)
£m
£m
£m
Non-current assets
Goodwill 7 2,082 1,843 1,877
Other intangible assets 7 281 188 190
Property, plant and equipment 7 155 165 164
Equity investments 4 19 21
Other financial assets - 1 -
Trade and other receivables 116 101 113
Deferred income tax assets 34 36 40
2,672 2,353 2,405
Current assets
Trade and other receivables 329 290 295
Current income tax asset 28 13 37
Cash and cash equivalents (excluding bank overdrafts) 10 515 693 553
Assets classified as held for sale 11 2 95 39
874 1,091 924
Total assets 3,546 3,444 3,329
Current liabilities
Trade and other payables* (311) (529) (592)
Current income tax liabilities (23) (24) (31)
Borrowings 10 (42) (65) (65)
Provisions (44) (14) (68)
Deferred income (705) (638) (611)
Liabilities classified as held for sale 11 - (52) (13)
(1,125) (1,322) (1,380)
Non-current liabilities
Borrowings 10 (1,123) (742) (749)
Post-employment benefits (23) (23) (22)
Deferred income tax liabilities (24) (10) (5)
Provisions (36) (29) (49)
Trade and other payables (2) (3) (3)
Deferred income (9) (11) (10)
(1,217) (818) (838)
Total liabilities (2,342) (2,140) (2,218)
Net assets 1,204 1,304 1,111
Equity attributable to owners of the parent
Ordinary shares 9 12 12 12
Share premium 9 548 548 548
Translation reserve 53 36 42
Merger reserves 61 61 61
Retained earnings 530 647 448
Total equity 1,204 1,304 1,111
*Includes £nil at 31 March 2022 (£253m at 31 March 2021 and £249m at 30
September 2021) in relation to the Group's commitment for the purchase of its
own shares. See note 9.
Consolidated statement of changes in equity
For the six months ended 31 March 2022
Attributable to owners of the parent
Ordinary Share Translation Merger Retained Total
shares
premium
reserve
reserves
earnings
equity
£m
£m
£m
£m
£m
£m
At 1 October 2021 12 548 42 61 448 1,111
Profit for the period - - - - 152 152
Other comprehensive income/(expense)
Exchange differences on translating foreign operations - - 24 - - 24
Exchange differences recycled through income statement on sale of foreign - - (13) - - (13)
operations (see note 11)
Fair value gain on reassessment of equity investment (see note 11) - - - - 30 30
Total comprehensive income - - 11 - 182 193
for the period ended 31 March 2022 (Unaudited)
Transactions with owners
Employee share option scheme - Value of employee services, net of deferred tax - - - - 16 16
Proceeds from issuance of treasury shares - - - - 3 3
Dividends paid to owners of the parent - - - - (119) (119)
Total transactions with owners - - - - (100) (100)
for the period ended 31 March 2022 (Unaudited)
At 31 March 2022 (Unaudited) 12 548 53 61 530 1,204
Attributable to owners of the parent
Ordinary Share Translation Merger Retained Total
shares
premium
reserve
reserve
earnings
equity
£m
£m
£m
£m
£m
£m
At 1 October 2020 12 548 123 61 908 1,652
Profit for the period - - - - 146 146
Other comprehensive expenses
Exchange differences on translating foreign operations - - (86) - - (86)
Exchange differences recycled through income statement on sale of foreign - - (1) - - (1)
operations
Total comprehensive income - - (87) - 146 59
for the period ended 31 March 2021 (Unaudited)
Transactions with owners
Employee share option scheme - Value of employee services, net of deferred tax - - - - 15 15
Proceeds from issuance of treasury shares - - - - 2 2
Share buyback programme* - - - - (300) (300)
Dividends paid to owners of the parent - - - - (124) (124)
Total transactions with owners - - - - (407) (407)
for the period ended 31 March 2021 (Unaudited)
At 31 March 2021 (Unaudited) 12 548 36 61 647 1,304
*The repurchase of shares recognised through retained earnings is the maximum
consideration that The Sage Group plc is contractually bound under the share
buyback programme including costs of purchase. See note 9.
Consolidated statement of cash flows
For the six months ended 31 March 2022
Notes Six months Six months Year
ended
ended
ended 30
31 March
31 March
September
2022
2021
2021
(Unaudited)
(Unaudited) (Audited)
£m
£m
£m
Cash flows from operating activities
Cash generated from continuing operations 193 266 476
Interest paid (14) (11) (19)
Income tax paid (27) (46) (81)
Net cash generated from operating activities 152 209 376
Cash flows from investing activities
Proceeds on settlement of non-current asset - 3 3
Disposal of subsidiaries, net of cash disposed 11 37 60 135
Acquisition of subsidiaries, net of cash acquired 11 (210) - -
Purchases of equity investments - (19) (21)
Purchases of intangible assets 7 (17) (8) (17)
Purchases of property, plant and equipment 7 (4) (24) (39)
Proceeds from disposals of property, plant and equipment 11 10 - -
Interest received - - 1
Net cash (used in)/generated from investing activities (184) 12 62
Cash flows from financing activities
Proceeds from issuance of treasury shares 9 3 2 8
Proceeds from borrowings 10 516 344 344
Repayments of borrowings 10 (166) (481) (481)
Capital element of lease payments (9) (13) (22)
Borrowing costs - - (1)
Share buyback programme 9 (249) (47) (353)
Dividends paid to owners of the parent 5 (119) (124) (189)
Net cash used in financing activities (24) (319) (694)
Net decrease in cash, cash equivalents and bank overdrafts (56) (98) (256)
(before exchange rate movement)
Effects of exchange rate movement 10 4 (32) (25)
Net decrease in cash, cash equivalents and bank overdrafts (52) (130) (281)
Cash, cash equivalents and bank overdrafts at 1 October 10 567 848 848
Cash, cash equivalents and bank overdrafts at period end 10 515 718 567
Notes to the financial information
For the six months ended 31 March 2022
1. Group accounting policies
General information
The Sage Group plc ("the Company") and its subsidiaries (together "the Group")
is a leading global supplier of finance, HR and payroll software to small and
mid-sized businesses.
This condensed consolidated half-yearly financial report was approved for
issue by the board of directors on 12 May 2022.
The financial information set out above does not constitute the Company's
Statutory Accounts. Statutory Accounts for the year ended 30 September 2021
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
("IFRS") as adopted by the UK and IFRS as issued by the International
Accounting Standards Board ("IASB"), 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 and
Accounts for 2021.
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 C23 - 5 & 6 Cobalt Park Way,
Cobalt Park, Newcastle upon Tyne, NE28 9EJ. The Company is listed on the
London Stock Exchange.
Basis of preparation
The financial information for the six months ended 31 March 2022 has been
prepared in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and with IAS 34, "Interim Financial Reporting" as
issued by the International Accounting Standards Board ("IASB") and as adopted
for use in the UK.
The condensed consolidated half-yearly financial report should be read in
conjunction with the annual financial statements for the year ended 30
September 2021, which have been prepared in accordance with IFRS as adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union
and IFRS as issued by the IASB.
On 31 December 2020, as a result of the UK's withdrawal from the European
Union, IFRS as adopted by the European Union at that date was brought into UK
law and became UK-adopted International Accounting Standards, with future
changes being subject to endorsement by the UK Endorsement board. With effect
from 1 October 2021 the Group's statutory consolidated financial statements
were transitioned to UK-adopted International Accounting Standards
("UK-adopted IFRS"). There were no impact or changes in accounting policies
from the transition. This change constitutes a change in accounting framework.
UK-adopted IFRS differ in certain respects from IFRS as issued by the IASB.
The differences have no impact on the Group's condensed consolidated financial
statements for the periods presented.
As at 31 March 2022, the Group had a strong liquidity position with cash and
available liquidity of £1.2bn, supported by strong underlying cash conversion
of 120% reflecting the strength of the subscription-based business model. The
Group's position is further supported by a well-diversified customer base
amongst small and medium sized businesses with high quality recurring revenue
and strong retention rate.
In reaching its assessment on going concern, the Directors have reviewed
liquidity and covenant forecasts for the Group for the period to 30 September
2023. Stress testing has been performed with the impact of increases in churn
and reduced levels of new customer acquisitions and sales to existing
customers being considered. In these stress scenarios, the Group continues to
have sufficient resources to continue in operational existence. In the event
that more severe impacts occur, further mitigating actions are available to
the Group should they be required.
The Directors also reviewed the results of reverse stress testing to provide
an illustration of the level of churn which would be required to trigger a
breach in the Group's covenants or exhaust cash down to minimum working
capital requirements. The probability of these factors occurring is deemed to
be remote given the resilient nature of the subscription-based business model,
robust balance sheet and continued strong cash conversion.
After making enquiries, the Directors have a reasonable expectation that Sage
has adequate resources to continue in operational existence for at least 12
months from the date of signing this condensed consolidated half-yearly
financial 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 2021 as described in
those annual financial statements.
Adoption of new and revised IFRSs
There are no new accounting standards which are currently issued but not yet
effective which the management expects would have a material impact on the
Group.
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
Over a third of the Company's revenue is generated from sales to partners
rather than end users. The key judgement is determining whether the business
partner is a customer of the Group. The key criteria in this determination is
whether the business partner has taken control of the product. Considering the
nature of Sage's' subscription products and support services, this is usually
assessed based on whether the business partner has responsibility for payment,
has discretion to set prices, and takes on the risks and rewards of the
product from Sage.
Where the business partner is a customer of Sage, discounts are recognised as
a deduction from revenue.
Where the business partner is not a customer of Sage and their part in the
sale has simply been in the form of a referral, they are remunerated in the
form of a commission payment. These payments are treated as contract
acquisition costs.
An additional area of judgement is the recognition and deferral of revenue on
on‑premise subscription offerings, for example the sale of a term licence
with an annual maintenance and support contract as part of a subscription
contract. In such instances, the transaction price is allocated between the
constituent performance obligations on the basis of standalone selling prices
(SSPs). Judgement is required when estimating SSPs. The Group has established
a hierarchy to identify the SSPs that are used to allocate the transaction
price of a customer contract to the performance obligations in the contract.
Where SSPs for on‑premise offerings are observable and consistent across the
customer base, SSP estimates are derived from pricing history. Where there are
no directly observable estimates available, comparable products are utilised
as a basis of assessment or the residual approach is used. Under the residual
approach, the SSP for the offering is estimated to be the total transaction
price less the sum of the observable SSPs of other goods or services in the
contract. The Group uses this technique in particular for estimating the term
licence SSP sold as part of its on‑premise subscription offerings as Sage
has previously not sold term licences on a stand-alone basis (i.e. the selling
price is uncertain).
Goodwill impairment
A key judgement is the ongoing appropriateness of the cash-generating units
("CGUs") for the purpose of impairment testing. CGUs are assessed in the
context of the Group's evolving business model, the Sage strategy and the
shift to global product development. Management continues to assess
performance and allocate resources at a regional level, and so it is
appropriate to monitor goodwill at a regional level and CGUs to be based on
geographical area of operation.
Management has performed a review for indicators of impairment of goodwill as
at 31 March 2022. As a result of this review, no indicators of impairment have
been identified.
The carrying value of goodwill and the key assumptions used in performing the
annual impairment assessment are disclosed in the 30 September 2021 financial
statements.
Business combinations
When the Group completes a business combination, the consideration transferred
for the acquisition and the identifiable assets and liabilities are recognised
at their fair values. The amounts by which the consideration exceeds the net
assets acquired is recognised as goodwill. The application of accounting
policies to business combinations involves judgement and the use of estimates.
During the period, the Group acquired the remaining 83% of shares in
Brightpearl which constituted a significant business combination. The key
areas of judgment include the identification and subsequent measurement of
acquired intangible assets. The total fair value of intangible assets
(excluding goodwill) acquired was £110m.
The Group engaged an external expert to support the identification and
measurement exercise. The intangible assets acquired that qualified for
recognition separately from goodwill were technology and customer
relationships. The fair value of the acquired technology was determined using
the relief from royalty method and the customer relationship was determined
using a discounted cashflow approach. These valuation techniques incorporate
several key assumptions including revenue forecasts and the application of an
appropriate discount rate to state future cash flows at their present value.
The relief from royalty method also requires the use of an appropriate royalty
rate which was determined with reference to licensing arrangements for similar
technologies. Full analysis of the consideration transferred, assets and
liabilities acquired, and goodwill recognised in business combinations are set
out in note 11.
Judgement was also required in allocating the acquired goodwill to CGUs. Based
on the strategic intent and rationale for the acquisition, and the way in
which Management intend to monitor the performance of the business going
forwards, goodwill has been allocated to the Group's UK & Ireland and
North America CGUs.
Amounts recognised for Brightpearl at 31 March 2022 are provisional due to the
proximity of the acquisition date to the date of the approval of the condensed
consolidated half-yearly financial report, and will be finalised during the
coming year.
Website
This condensed consolidated half-yearly financial report for the six months
ended 31 March 2022 can also be found on our website:
www.sage.com/investors/financial-information/results
(http://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 Leadership Team (previously
known as the 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 Management Performance Reviews. The Executive Leadership Team uses
organic and underlying data to monitor business performance. Operating
segments are reported in a manner which is consistent with the operating
segments produced for internal management reporting.
The Group is organised into seven key operating segments: North America,
Northern Europe (UK and Ireland), Central Europe (Germany, Austria and
Switzerland), France, Iberia (Spain and Portugal), Africa and the Middle East,
and Asia (including Australia). For reporting under IFRS 8, the Group is
divided into three reportable segments. These segments are as follows:
· North America
· Northern Europe
· International - Central and Southern Europe (Central Europe, France
and Iberia)
The remaining operating segments of Africa and the Middle East, and Asia
(including Australia) do not meet the quantitative thresholds for presentation
as separate reportable segments under IFRS 8, and so are presented together
and described as International - Africa & APAC. They include the Group's
operations in South Africa, the Middle East, Australia, Singapore and
Malaysia.
The reportable segments reflect the aggregation of the operating segments for
Central Europe, France and Iberia. The aggregated operating segments are
considered to share similar economic characteristics because they have similar
long-term gross margins and operate in similar markets. Central Europe, France
and Iberia operate principally within the EU and the majority of their
businesses are in countries within the Euro area.
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 2022
Statutory Underlying Underlying Organic adjustments** Organic Change Change Change
£m
adjustments*
£m
£m
£m
Statutory
Underlying
Organic
£m
%
%
%
Recurring revenue by segment
North America 356 1 357 (2) 355 13% 13% 12%
Northern Europe 208 - 208 (2) 206 8% 8% 7%
International - Central and Southern Europe 244 - 244 (4) 240 (7%) (2%) 4%
International - Africa & APAC 65 - 65 - 65 (19%) (18%) 7%
Recurring revenue 873 1 874 (8) 866 3% 4% 8%
Other revenue by segment
North America 20 - 20 - 20 (22%) (22%) (22%)
Northern Europe 4 - 4 - 4 (42%) (42%) (42%)
International - Central and Southern Europe 30 - 30 (1) 29 (31%) (27%) (25%)
International - Africa & APAC 7 - 7 (2) 5 (39%) (38%) (11%)
Other revenue 61 - 61 (3) 58 (30%) (29%) (24%)
Total revenue by segment
North America 376 1 377 (2) 375 11% 10% 9%
Northern Europe 212 - 212 (2) 210 6% 7% 5%
International - Central and Southern Europe 274 - 274 (5) 269 (10%) (5%) 0%
International - Africa & APAC 72 - 72 (2) 70 (22%) (21%) 6%
Total revenue 934 1 935 (11) 924 0% 1% 5%
* Adjustments are detailed in note 3.
** Adjustments relate to the disposal of the Group's Swiss business and assets
held for sale in the current period, as well as the acquisition of Brightpearl
(note 11).
Revenue by segment (Unaudited)
Six months ended 31 March 2021
Statutory and Impact of Underlying Organic Organic
Underlying as
foreign
£m
adjustments
£m
reported
exchange
£m
£m
£m
Recurring revenue by segment
North America 316 2 318 - 318
Northern Europe 192 - 192 - 192
International - Central and Southern Europe 262 (13) 249 (19) 230
International - Africa & APAC 80 (1) 79 (19) 60
Recurring revenue 850 (12) 838 (38) 800
Other revenue by segment
North America 24 - 24 - 24
Northern Europe 8 - 8 - 8
International - Central and Southern Europe 43 (3) 40 (1) 39
International - Africa & APAC 12 - 12 (6) 6
Other revenue 87 (3) 84 (7) 77
Total revenue by segment
North America 340 2 342 - 342
Northern Europe 200 - 200 - 200
International - Central and Southern Europe 305 (16) 289 (20) 269
International - Africa & APAC 92 (1) 91 (25) 66
Total revenue 937 (15) 922 (45) 877
* Adjustments relate to the disposal of the Group's Swiss business in the
current period and the payroll outsourcing business in South Africa classified
as held for sale at 31 March 2022 (note 11), as well as the disposal of the
Group's Polish business and Australia and Asia Pacific business (excluding
global products) ("Asia Pacific") in the prior financial year.
Operating profit by segment (Unaudited)
Six months ended 31 March 2022
Statutory Underlying Underlying Organic Organic Change Change Change
£m
adjustments
£m
adjustments £m
£m
Statutory
Underlying
Organic
£m
%
%
%
Operating profit by segment
North America 59 14 73 - 73 7% 10% 10%
Northern Europe 34 17 51 2 53 (21%) (15%) (12%)
International - Central and Southern Europe 97 (51) 46 - 46 8% 4% 21%
International - Africa & APAC 14 (1) 13 (1) 12 (9%) (25%) (5%)
Total operating profit 204 (21) 183 1 184 0% (3%) 4%
Six months ended 31 March 2021
Statutory £m Underlying adjustments £m Underlying as reported Impact of foreign exchange Underlying £m Organic adjustments Organic
£m
£m
£m
£m
Operating profit by segment
North America 55 11 66 - 66 - 66
Northern Europe 42 19 61 (1) 60 - 60
International - Central and Southern Europe 90 (43) 47 (2) 45 (7) 38
International - Africa & APAC 16 1 17 - 17 (4) 13
Total operating profit 203 (12) 191 (3) 188 (11) 177
Reconciliation of underlying operating profit to statutory operating profit
Six months ended Six months ended
31 March 2022
31 March 2021
(Unaudited)
(Unaudited)
£m
£m
North America 73 66
Northern Europe 51 60
International - Central and Southern Europe 46 45
Total reportable segments 170 171
International - Africa & APAC 13 17
Underlying operating profit 183 188
Impact of movement in foreign currency exchange rates - 3
Underlying operating profit (as reported) 183 191
Amortisation of acquired intangible assets (18) (16)
Adjustment to acquired deferred income (1) -
Other M&A activity-related items (15) (9)
Non-recurring items 55 37
Statutory operating profit 204 203
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 2022
31 March 2022
31 March 2022
31 March 2021
31 March
31 March
Non-
2021
2021
Recurring
recurring
Total
Recurring
Non-
£m
£m
£m
£m
recurring
Total
£m
£m
M&A activity-related items
Amortisation of acquired intangibles 18 - 18 16 - 16
Gain on disposal of subsidiaries - (49) (49) - (41) (41)
Adjustment to acquired deferred income 1 - 1 - - -
Other M&A activity-related items 15 - 15 9 - 9
Other items
Reversal of restructuring costs - (6) (6) - (5) (5)
Office relocation - - - - 9 9
Total adjustments made to operating profit 34 (55) (21) 25 (37) (12)
Foreign currency movements on intercompany balances 1 - 1 - - -
Total adjustments made to profit before income tax 35 (55) (20) 25 (37) (12)
Recurring items
Acquired intangibles are assets which have previously been recognised as part
of business combinations or similar transactions. These assets are
predominantly brands, customer relationships and technology rights.
The adjustment to acquired deferred income represents the additional revenue
that would have been recorded in the period had deferred income not been
reduced as part of the purchase price allocation adjustment made for business
combinations.
Other M&A activity-related items relate to advisory, legal, accounting,
valuation and other professional or consulting services which are related to
M&A activity as well as acquisition-related remuneration, directly
attributable integration costs and any required provision for future selling
costs for assets held for sale.
Foreign currency movements on intercompany balances of £1m (six months ended
31 March 2021: £nil) occur due to retranslation of unhedged intercompany
balances other than those where settlement is not planned or likely in the
foreseeable future.
Non-recurring items
Net credit in respect of non-recurring items amounted to £55m (six months
ended 31 March 2021: credit of £37m).
The gain on disposal of subsidiaries of £49m relates to the disposal of the
Group's Swiss business. Further details can be found in note 11. In the prior
period, the £41m net gain on disposal of subsidiaries related to the disposal
of the Group's Polish business.
Reversal of restructuring costs of £6m primarily relates to unutilised
provisions recognised in the prior financial year following the implementation
of a business transformation plan to rebalance investment towards the Group's
strategic priorities and simplify the business. The reversal is a result of
fewer colleagues leaving the business as they were redeployed into other
roles. In the prior period, the £5m reversal of restructuring costs related
to unutilised Professional Service provisions created in the financial year
FY20.
In the prior period, office relocation costs of £9m relate to the incremental
depreciation charge resulting from accelerated depreciation on the UK North
Park office in advance of the relocation to Cobalt Business Park.
4. Income tax expense
The effective tax rate on statutory profit before tax was 20% (six months
ended 31 March 2021: 23%) whilst the effective tax rate on underlying profit
before tax for continuing operations was 24% (six months ended 31 March 2021:
25%). The effective income tax rate represents the best estimate of the
Group's average effective income tax rate expected for the full year, applied
to the profit before income tax for the six months ended 31 March 2022.
The difference between the underlying and statutory rate for the six months
ended 31 March 2022 primarily reflects a non-taxable accounting net gain on
disposals. See note 3.
5. Dividends
Six months ended Six months ended Year
31 March 2022
ended
(Unaudited) 31 March
30 September
2021
2021
£m
(Unaudited)
(Audited)
£m £m
Final dividend paid for the year ended 30 September 2020 of 11.32p per share - 124 124
Interim dividend paid for the year ended 30 September 2021 of 6.05p per share - - 65
Final dividend paid for the year ended 30 September 2021 of 11.63p per share 119 - -
119 124 189
The interim dividend of 6.3p per share will be paid on 17 June 2022 to
shareholders on the register at the close of business on 27 May 2022. The
Company's distributable reserves are sufficient to support the payment of this
dividend.
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 potentially dilutive ordinary
shares. The Group has one class of dilutive potential ordinary shares. They
are share options granted to employees where the exercise price is less than
the average market price of the Company's ordinary shares during the period.
Underlying Underlying Underlying Statutory Statutory
Six months ended
as reported Six months ended
Six months ended
Six months ended
Six months ended 31 March
31 March
31 March
31 March
31 March
2021
2022
2021
2021
2022
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Earnings attributable to owners of the parent
Profit for the period 129 133 130 152 146
Number of shares (millions)
Weighted average number of shares 1,023 1,094 1,094 1,023 1,094
Dilutive effects of shares 10 8 8 10 8
1,033 1,102 1,102 1,033 1,102
Earnings per share attributable to owners of the parent (pence)
Basic earnings per share 12.62 12.14 11.91 14.84 13.29
Diluted earnings per share 12.49 12.05 11.82 14.68 13.19
Reconciliation of earnings Six months ended Six months ended
31 March
31 March
2022
2021
(Unaudited)
(Unaudited)
£m £m
Underlying earnings attributable to owners of the parent 129 130
Impact of movement in foreign currency exchange rates - 3
Underlying earnings attributable to owners of the parent (as reported) 129 133
Office relocation - (9)
Reversal of restructuring costs 6 5
Amortisation of acquired intangible assets (18) (16)
Adjustment to acquired deferred income (1) -
Foreign currency movements on intercompany balances (1) -
Other M&A related items (15) (9)
Gain on disposal of subsidiaries 49 41
Taxation on adjustments 3 1
Net adjustments 23 13
Earnings - statutory profit for period attributable to owners of the parent 152 146
7. Non-current assets
Goodwill Other Property, Total
(Unaudited)
intangible
plant and equipment
(Unaudited)
£m
assets
(Unaudited) £m
(Unaudited) £m
£m
Opening net book amount at 1 October 2021 1,877 190 164 2,231
Additions - 4 8 12
Acquisition of subsidiary* 176 110 2 288
Depreciation, amortisation and other movements - (24) (21) (45)
Exchange movement 29 1 2 32
Closing net book amount at 31 March 2022 2,082 281 155 2,518
*Assets acquired as part of the acquisition of Brightpearl. See note 11.
Goodwill Other Property, Total
(Unaudited)
intangible
plant and
(Unaudited)
£m
assets
equipment £m
(Unaudited)
(Unaudited)
£m £m
Opening net book amount at 1 October 2020 1,962 212 173 2,347
Additions - 8 25 33
Disposal of subsidiary* (9) - - (9)
Transfer to held for sale** (4) - - (4)
Depreciation, amortisation and other movements - (22) (27) (49)
Exchange movement (106) (10) (6) (122)
Closing net book amount at 31 March 2021 1,843 188 165 2,196
*Finalisation of the sale of the Group's Polish business during the six months
ended 31 March 2021.
**Reassessment of goodwill allocated to held for sale during the six months
ended 31 March 2021.
Goodwill is not subject to amortisation but is tested for impairment annually
and whenever there is any indication of impairment. At 31 March 2022, there
were no indicators of impairment to goodwill.
Details of the 2021 goodwill impairment review are provided in the 2021
consolidated financial statements.
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,
sterling denominated bond notes and bank loans.
The fair value of the sterling denominated bond notes is determined by
reference to quoted market prices and therefore can be considered as a level 1
fair value as defined within IFRS 13.
The fair value of US senior loan notes 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.
The fair value of bank loans is determined using a discounted cash flow
valuation technique calculated at prevailing interest rates, and therefore can
be considered as a level 3 fair value as defined within IFRS 13.
The respective book and fair values of bank loans, bond notes and loan notes
are included in the table below.
At 31 March 2022 At 30 September 2021 At 31 March 2021
Book Value Fair Value Book Value Fair Value Book Value Fair Value
(Unaudited)
(Unaudited) (Audited) (Audited) (Unaudited) (Unaudited)
£m
£m £m £m £m £m
Long term-borrowings (excluding lease liabilities) (1,045) (1,006) (667) (682) (659) (674)
Short term-borrowings (excluding lease liabilities) (25) (26) (47) (48) (47) (48)
9. Ordinary shares and share premium
Number of Ordinary Share premium Total
shares
Shares
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
£m
£m
£m
At 31 March 2022 1,100,789,295 12 548 560
At 1 October 2020, 31 March 2021 and 1 October 2021 1,120,789,295 12 548 560
In the current period, the Group transferred 4,897,923 (six months ended 31
March 2021: 3,776,601) of treasury shares to employees in order to satisfy
vested awards.
During the period, the Group bought back a total of 27,979,129 Ordinary
shares, held as treasury shares, as part of the non-discretionary share
buyback programme entered into on 6 September 2021. In September 2021,
11,868,392 Ordinary shares were purchased under this share buyback programme.
Total consideration for this share buyback programme was £300m, of which
£249m was paid in the six months ended 31 March 2022.
In the six months ended 31 March 2021, the Group repurchased 8,750,986
Ordinary shares, held as treasury shares as part of the non-discretionary
share buyback programme entered into on 4 March 2021. The total
consideration for those shares purchased in the prior period amounted to
£52m, of which £47m had been paid as at 31 March 2021.
At 31 March 2022 the Group held 82,667,429 (31 March 2021: 32,818,496)
treasury shares. In the current period, the Group cancelled 20,000,000
treasury shares which reduced the number of Ordinary shares to 1,100,789,295
at 31 March 2022.
10. Cash flow and net debt
Six months ended Six months ended
31 March
31 March
2022
2021
(Unaudited)
(Unaudited)
£m
£m
Statutory operating profit 204 203
Recurring and non-recurring items (21) (12)
Underlying operating profit (as reported) 183 191
Depreciation/amortisation/impairment/profit on disposal of non-current 26 22
assets/non-cash items
Share-based payments 16 16
Net changes in working capital 3 58
Net capital expenditure (8) (32)
Underlying cash flow from operations 220 255
Net interest paid (14) (11)
Income tax paid (27) (46)
Non-recurring items (12) (6)
Exchange movement - (2)
Free cash flow 167 190
Net debt at 1 October (247) (151)
Disposal of subsidiaries or similar transactions, net of cash and lease 38 61
liabilities disposed
Acquisition of subsidiaries or similar transactions, net of cash acquired. and (223) -
lease liabilities recognised*
Acquisitions and disposals related items (14) (16)
Purchases of equity investments - (19)
Proceeds on settlement of non-current asset - 3
Dividends paid to owners of the parent (119) (124)
Proceeds from issuance of treasury shares 3 2
New leases (4) (4)
Share buyback programme (249) (47)
Exchange movement (3) 10
Other 1 (1)
Net debt at 31 March (650) (96)
*Includes £13m scheduled cash payment in relation to the prior year
acquisition of GoProposal Ltd, for which the consideration was recorded as a
liability as at 30 September 2021.
Six months ended Six months ended
31 March
31 March
2022
2021
(Unaudited)
(Unaudited)
£m
£m
Underlying cash flow from operations 220 255
Net capital expenditure 8 32
Recurring and non-recurring cash items (36) (22)
Other adjustments including foreign exchange translations 1 1
Statutory cash flow from operations 193 266
At Cash flow Acquisition of subsidiary Disposal of subsidiary Non-cash movement Exchange movement At
1 October 2021
£m
£m
£m
£m
£m
31 March 2022
Analysis of change in net debt (inclusive of leases)
£m
(Unaudited)
£m
Cash and cash equivalents 553 (53) 11 - - 4 515
Cash amounts included in held for sale 14 - - (14) - - -
Cash, cash equivalents and bank overdrafts including cash as held for sale 567 (53) 11 (14) - 4 515
Liabilities arising from financing activities
Loans due within one year (47) 46 - - (25) 1 (25)
Loans due after more than one year (667) (396) - - 25 (7) (1,045)
Lease liabilities due within one year (18) 9 - - (8) - (17)
Lease liabilities after more than one year (82) - - - 4 - (78)
Lease liabilities included in held for sale - - - 1 - (1) -
(814) (341) - 1 (4) (7) (1,165)
Total (247) (394) 11 (13) (4) (3) (650)
The Group's debt is sourced from a syndicated multi-currency Revolving Credit
Facility ("RCF"), US private placements ("USPP"), and sterling denominated
bond notes ("bond notes").
The Group's RCF expires in February 2025 with facility levels of £682m
(US$719m and £135m tranches). At 31 March 2022, £nil (31 March 2021: £nil)
of the multi-currency revolving debt facility was drawn. During the period,
£120m was drawn down from the GBP tranche of the RCF, and subsequently
repaid.
Total USPP loan notes at 31 March 2022 were £330m (US$400m and EUR€30m) (31
March 2021: £362m, US$400m and EUR€85m).
In February 2022, the Group issued bond notes for a nominal amount of £400m
with an expiry date of February 2034. Net cash proceeds from the issuance were
£396m.
During the prior period, the Group issued bond notes for a nominal amount of
£350m with an expiry date of February 2031. Net cash proceeds from the
issuance were £344m.
11. Acquisitions and disposals
Acquisitions made during the period
On 17 January 2022, the Group obtained control of Brightpearl Limited
("Brightpearl") by acquiring the remaining share capital for cash
consideration of £221m, bringing the Group's ownership interest to 100%. In
January 2021, the Group had acquired a 17% minority interest in Brightpearl
for £17m.
Brightpearl was acquired to deliver retail operations management capabilities
and provides a cloud native multichannel retail management system for the
retail and ecommerce vertical, helping to accelerate the Group's strategy for
growth.
Summary of acquisition Total
(Unaudited)
£m
Cash consideration 221
Fair value of previously held minority interest 47
Acquisition-date fair value of consideration 268
Provisional fair value of identifiable net assets (92)
Goodwill 176
The fair value of the previously held minority interest has been included in
the determination of goodwill, with the gain on revaluation of £30m
recognised in other comprehensive income in line with Sage's accounting
policy.
Provisional fair value of identifiable net assets acquired Total
(Unaudited)
£m
Intangible assets 110
Deferred income (4)
Deferred tax liability (20)
Other net assets 6
Provisional fair value of identifiable net assets acquired 92
Goodwill 176
Total consideration 268
In line with IFRS 3, the initial accounting for the acquisition of Brightpearl
is provisional. Adjustments to provisional amounts (notably fair value
adjustments) will be made within the permitted measurement period where they
reflect new information obtained about facts and circumstances that were in
existence at the acquisition date. It is expected that the acquisition
accounting will be finalised by 30 September 2022.
A summary of acquired intangible assets is set out below:
Acquired intangible assets Valuation Useful economic life
(Unaudited)
(years)
£m
Customer relationships 35 9 to 15
Technology 75 8
Acquired intangible assets 110
Acquired goodwill of £176m comprises the fair value of the acquired control
premium, workforce in place and the expected synergies. The goodwill has been
allocated to the Group's geographic CGUs where the underlying benefit arising
from the acquisition is expected to be realised. This is predominantly within
the UK & Ireland and North America regions. No goodwill is expected to be
deductible for tax purposes.
The outflow of cash and cash equivalents on the acquisition is as follows:
Total
(Unaudited)
£m
Cash consideration (221)
Cash and cash equivalent acquired 11
Net cash outflow (210)
Costs of £5m relating to the acquisition have been included in selling and
administrative expenses classified as other M&A activity-related items
within recurring adjustments between underlying and statutory results. These
costs relate to advisory, legal and other professional services. See note 3.
Arrangements have been put in place for retention payments to remunerate
employees of Brightpearl for future services. The costs of these
arrangements will be recognised in future periods over the retention period.
The amount recognised to date of £3m is included in selling and
administrative expenses in the consolidated income statement as other M&A
activity-related items.
The consolidated income statement includes revenue of £4m and loss after tax
of £5m reported by Brightpearl for the period since the acquisition date. The
loss after tax includes £3m of acquisition related costs.
The revenue of the Group would have increased by £8m and profit after tax
would have decreased by £16m if Brightpearl had been acquired at the start of
the financial year and included in the Group for the six months ended 31 March
2022. The loss after tax includes £10m of acquisition related costs.
Disposals and discontinued operations
Disposals made during the period
On 30 November 2021, the Group completed the sale of its Swiss business for
gross consideration of £54m. The business was held for sale at 31 March 2021
and 30 September 2021. The gain on disposal is calculated as follows:
Total
(Unaudited)
£m
Cash consideration 54
Gross consideration 54
Transaction costs (3)
Net consideration 51
Net assets disposed (15)
Cumulative foreign exchange differences reclassified from other comprehensive 13
income to the income statement
Gain on disposal 49
Net assets disposed comprise:
Total
(Unaudited)
£m
Goodwill 10
Property, plant and equipment 2
Customer acquisition costs 1
Trade and other receivables 1
Cash and cash equivalents 14
Total assets 28
Trade and other payables (3)
Current income tax liabilities (1)
Borrowings (1)
Post-employment benefits (2)
Deferred income (6)
Total liabilities (13)
Net assets 15
The gain on disposal of £49m is reported within continuing operations, as a
non-recurring adjustment between underlying and statutory results.
Prior to the disposal, the Swiss business formed part of the Group's
International - Central and Southern Europe reporting segment.
The net inflow of cash and cash equivalents on the disposal is calculated as
follows:
Total
(Unaudited)
£m
Cash consideration 54
Transaction costs (3)
Net consideration received 51
Cash disposed (14)
Inflow of cash and cash equivalents on disposal 37
During the six-month period ended 31 March 2021, the Group completed the sale
of its Polish business. Net assets divested were £19m, and the transactions
resulted in a net gain on disposal of £41m.
Discontinued operations and assets and liabilities held for sale
The Group had no discontinued operations during the six-month periods ended 31
March 2022 or 31 March 2021.
Assets held for sale at 31 March 2022 of £2m include one disposal group
comprising the Group's payroll outsourcing business in South Africa, with a
net book value of £2m. This business was subsequently sold on 4 April 2022.
Assets and liabilities held for sale at 30 September 2021 included the
disposal group identified above, as well as the disposal group comprising the
Group's businesses in Switzerland and the Group's North Park property in the
UK. The Swiss business disposal group has been sold during the current period
as discussed above. The sale of the Group's North park property completed in
October 2021. No gain was recognised on disposal as the assets were sold for
their residual value.
Assets and liabilities held for sale at 31 March 2021 included the two
disposal groups identified above, as well as the Group's Australia and Asia
Pacific business (excluding global products) ("Asia Pacific") which was
subsequently sold in the previous year.
12. Related party transactions
The Group's related parties are its subsidiary undertakings and its key
management personnel, which comprises the Group's Executive Leadership Team
members and the Non-executive Directors. Transactions and outstanding balances
between the parent and its subsidiaries within the Group, and between those
subsidiaries, have been eliminated on consolidation and are not disclosed in
this note.
Key management compensation Six months ended Six months ended
31 March
31 March
2022
2021
(Unaudited)
(Unaudited)
£m £m
Salaries and short-term employee benefits 5 4
Post-employment benefits - -
Share-based payments 2 1
7 5
Key management personnel are deemed to be members of the Executive Leadership
Team (previously known as the Executive Committee), as defined in the Group's
Annual Report and Accounts 2021 and the Non-executive Directors. Since the
signing of the Group's Annual Report and Accounts 2021, the following changes
to the Executive Leadership Team have taken place:
· Walid Abu-Hadba, in his role as Chief Product Officer, has been
appointed to the Executive Leadership Team, with effect from 1 January 2022;
· Aziz Benmalek, in his role as Interim President - North America,
has been appointed to the Executive Leadership Team with effect from 1 March
2022;
· Amy Lawson, in her role as Chief Corporate Affairs Officer, has
been appointed to the Executive Leadership Team, with effect from 1 March
2022;
· Derk Bleeker remains on the Executive Leadership Team, in a new
role as President - Europe Middle East Africa (EMEA), with effect from 1 March
2022;
· Lee Perkins has left his role as Chief Operating Officer, with
effect from 31 March 2022; and
· Sue Goble has retired from her role as Chief Customer Success
officer, with effect from 31 March 2022.
There have been no other changes to the composition of the Executive
Leadership Team.
13. Events after the balance sheet date
On 12 May 2022, the Group acquired a 100% controlling interest in Futrli
Limited ("Futrli"). Total cash consideration for the acquisition is £20m,
comprising both upfront and deferred consideration. Because the acquisition
occurred subsequent to 31 March 2022, the results of Futrli are not included
in our financial statements for the six months ended 31 March 2022. Due to the
timing of the acquisition, the acquisition accounting has not yet been
completed.
Managing Risk
Through our risk process, Sage is able to effectively manage our strategic,
operational, commercial, compliance, change and emerging risks. This helps us
to deliver our strategic objectives and goals through risk informed decisions.
The Board's role is to maintain oversight of the key principal and business
risks, together with ensuring that the appropriate committees are managing the
risks effectively. Additionally, the Board reviews the effectiveness of our
risk management approach and challenges our leaders to articulate their risk
management strategies.
Sage continually assesses its principal risks to ensure alignment to our
strategy and consideration of where Sage is currently on its journey to
transforming into a digital business.
By monitoring risk and performance indicators related to this strategy,
principal risk owners focus on those metrics that signal current performance,
as well as any emerging risks and issues. The principal risks reflect our five
strategic priorities. The management and mitigation actions described below
reflect the principal risks and build on those actions previously reported in
our FY21 Annual Report.
PRINCIPAL RISK RISK CONTEXT MANAGEMENT AND MITIGATION
Understanding Customer Needs Improving Risk Environment
If we fail to anticipate, understand and deliver against the capabilities and As Sage continues to transform its business and brand, understanding of how to · Brand health surveys to provide an understanding of customer
experiences our current and future customers need in a timely manner, they attract customers whilst retaining its existing customers and migrating those perception of the Sage brand and its products, used to inform and enhance our
will find alternative solution providers. who are ready to move to the cloud is essential. This requires a deep and market offerings.
continuous flow of insights supported by processes and systems.
Strategic alignment:
· A Market and Competitive Intelligence team to provide insights
By understanding the needs of our customers, Sage will differentiate itself that Sage uses to win in the market.
Expand medium beyond financials. from competitors, build compelling value propositions and offers, leverage key
drivers to identify opportunities, influence product and process roadmaps, · Utilisation of customer activity and churn data, to understand
Build the small business engine. decrease churn and drive more effective revenue generation. their appetite for products and features.
Learn and disrupt. · Master repository of customer MI by region and by product which
supports the identification of trends such as time in product, seasonal trends
and usage.
· Customer Advisory Boards, Customer Design Sessions and NPS
detractor call-back channels are used to constantly gather information on
customer needs.
Execution of Product Strategy Improving Risk Environment
If we fail to deliver the capabilities and experiences outlined in our product We need to execute, in a sound and methodical manner at pace, a prioritised · Refined product strategy in line with our FY22 strategic
strategy in a timely manner, we will not meet the needs of our customers or product strategy that continues to simplify our product portfolio, focuses on objectives and ambitions, based on our market understanding and customer
our commercial goals. strategic cloud‑native offerings, and builds innovative and differentiated expectations.
capabilities and solutions.
Strategic alignment: · New product organisation and governance model to improve the way
we build and launch products.
Scaling Sage Intacct.
· A migration framework in key countries to support our customers
Build the small business engine. in their journey to the cloud.
Scale the network. · Sage Intacct is now available in the UK, Australia and South
Africa as part of our internationalisation programme.
Learn and disrupt.
· Improved proposition for Accountants, including the acquisition
Expand medium beyond financials. of GoProposal.
· Improved proposition for the retail and wholesale sector, through
the acquisition of Brightpearl.
· Enhanced governance and planning framework aligned to market
objectives.
· Strengthened product design governance to ensure product
development is always driven by our understanding of our ability to penetrate
key markets.
Innovation Stable Risk Environment
If we fail to identify and leverage disruptive technologies and invest in We must be able to rapidly deploy new innovations to our customers and · Continued focus on Artificial Intelligence (AI)/ Machine Learning
modern development practices and tools in a timely manner, we will not meet partners by introducing technologies, services, or new ways of working. development, coupled with a drive to improve how to exploit data to provide
the needs of our customers or our commercial goals.
better management insight to our customers.
Innovation requires us to address how we drive change and transformation
Strategic alignment: across our people, processes and technology, and how we differentiate our · Leveraging Sage ID and the Sage Business Cloud to deliver a
products and drive customer efficiencies. unified and highly personalised experience for each customer across the
Learn and disrupt. entirety of the customer experience and Sage Digital Network.
· Enhanced, consistent digital experience for all Sage Business
Cloud users through the Sage Design System.
· Objectives integrated into the planning of each segment and
region to drive AI Transformation, Sage Business Cloud adoption and innovation
of product features based on identified needs of customers.
· Strategic acquisition and collaboration with partners to
complement and enable accelerated innovation.
· Focused colleague engagement to accelerate innovation across the
organisation through a Continuous Innovation Community.
Route to Market Stable Risk Environment
If we fail to deliver a bespoke blend of route to market channels in each We have a blend of channels to communicate with our current and potential · Market data and intelligence is used to support decision
country, based upon common components, we will not be able to efficiently customers and ensure our customers receive the right information on the right regarding the best routes to market.
deliver the right capabilities and experiences to our current and future products and services at the right time. Our sales channels include selling
customers. directly to customers through digital and telephony channels, via our · Dedicated colleagues are in place to support partners, and to
accountant network and through partners, valued added resellers (VARs) and help manage the growth of targeted channels.
Strategic alignment: Independent Software Vendors (ISVs).
· Sale processes are targeted and configured by region for key
Scale Sage Intacct. We use these channels to maximise our marketing and customer engagement customer segments and verticals.
activities. This can shorten our sales cycle and ensure that customer
Build the small business network. retention is improved. · Sage.com has been enhanced to provide clearer user journeys to
enable customer conversion.
Scale the network.
· Onboarding of new partners to support acceleration in Cloud
Native product utilisation.
· New routes to market are being opened through partnerships with
payment and banking technology providers.
· Centre of Excellence created to support our Indirect Sales and
Third‑Party approach.
Customer Success Stable Risk Environment
If we fail to effectively identify and deliver ongoing value to our customers We must maintain a sharp focus on the relationships we have with our · Battlecards for key products in all countries, setting out the
by focusing on their needs over the lifetime of their customer journey, we customers, constantly focusing on delivering the products, services and strengths and weaknesses of competitors and their products.
will not be able to achieve sustainable growth through renewal. experiences our customers need to be successful. If we do not do this, they
will likely find another provider who does give them these things. Conversely, · A data-driven Customer Success Framework to enhance the customer
Strategic alignment: if we do these things well these customers will stay with Sage, increasing experience and ensure that Sage is better positioned to meet the current and
their lifetime value, becoming our greatest marketing advocates. future needs of the customer.
Scale Sage Intacct.
Whilst Sage is known for its quality customer support, this area requires · Customer Journey mapping and mapping of the five core customer
Expand medium beyond financials. constant, proactive focus. By helping customers to recognise and fully realise processes to ensure appropriate strategy alignment and alignment to target
the value of Sage's products we can help increase the value of these operating model.
Build the small business engine. relationships over time and reduce the likelihood of customer loss. By
aligning our people, processes and technology with this focus in mind, all · 'Customer for life' roadmaps, detailing how products fit
Learn and disrupt. Sage colleagues can help support our customers to be successful and in turn together, any interdependencies, and migration pathways for current and
drive increased financial performance. potential customers.
· Continuous Net Promoter Score (NPS) surveying allows Sage to
identify customer challenges rapidly and respond in a timely manner to
emerging trends.
· A specialised Procurement function supports the business with the
selection of strategic third-party suppliers and negotiation of contracts.
Third Party Reliance Stable Risk Environment
If we do not embed our partners as an integral and aligned part of Sage's Sage places reliance on third-party providers to support the delivery of our · Centre of Excellence for our Indirect Sales and Third-Party
go-to-market strategy in a timely manner, we will fail to deliver the right products to our customers through the provision of cloud native products. Partners.
capabilities and experiences to our customers.
Sage also has an extensive network of sales partners critical to our success · Dedicated colleagues in place to support partners, and to help
Strategic alignment: in the market, and suppliers upon whom it places reliance. manage the growth of targeted channels.
Scale Sage Intacct. Any interruption in these services or relationships could have a profound · Standardised implementation plans for Sage products that
impact on Sage's reputation in the market and could result in significant facilitate efficient partner implementation.
Build the small business engine. financial liabilities and losses.
· Managed growth of the API estate, including enhanced product
Scale the network. development that enables access by third-party API developers.
· Enhanced third-party management framework, to support closer
alignment and oversight of third-party activities.
People and Performance Stable Risk Environment
If we fail to ensure we have engaged colleagues with the critical skills, As we evolve our priorities, the capacity, knowledge and leadership skills we · Extensive focus on hiring channels to ensure we are attractive in
capabilities and capacity we need to deliver on our strategy, we will not be need will continue to change. Sage will not only need to attract the talent the market through our enhanced employee value proposition, enhanced presence
successful. and experience we will need to help navigate this change, we will also need to through social media such as Glassdoor, Comparably, Twitter, LinkedIn, and
provide an environment where colleagues can develop to meet these new Facebook.
Strategic alignment: expectations, an environment where everyone can perform at their very best.
· Hiring practices focused on the skills we need in balance with
Scale Sage Intacct. By empowering colleagues and leaders to make decisions, be innovative, and be organisational costs, supported by a methodology for upskilling and building
bold in delivering on our commitments, Sage will be able to create an capability in the long term from within the organisation.
Expand medium beyond financials. attractive working environment.
· Reward mechanisms designed to incentivise and drive the right
Build the small business engine. By addressing drivers of colleague voluntary attrition, and embracing the behaviour with a focus on ensuring fair and equitable pay in all markets.
values of successful technology companies, Sage can increase colleague
Scale the network. engagement and create an aligned high performing team. · Focused development of our leaders to ensure they create the
environment which enables colleagues to thrive and perform at their very best.
Learn and disrupt.
· Placing colleagues (and customers) at the heart of our response
to the Covid-19 pandemic, including the availability of 'Headspace', our
'Always Listening' portal and 'Your Voice' Hub.
Culture Improving Risk Environment
If we do not fully empower our colleagues and enable them to take The development of a shared behavioural competency that encourages colleagues · Integration of Values and Behaviours into all colleague
accountability in line with our shared Values and Behaviours, we will be to always do the right thing, put customers at the heart of business and drive priorities including talent attraction, selection, onboarding as well as
challenged to maintain a culture that meets Sage's business ambitions. innovation is critical in Sage's success. performance management.
Strategic alignment: Devolution of decision making, and the acceptance of accountability for these · All colleagues are actively encouraged to take up to five paid
decisions, will need to go hand in hand as the organisation develops and Sage Foundation days each year, to support charities and provide philanthropic
Scale Sage Intacct. sustains its shared Values and Behaviours, and fosters a culture that provides support to the community.
customers a rich digital environment.
Expand medium beyond financials.
· Six commitments to diversity, equity and inclusion (DEI)
Sage will also need to create a culture of empowered leaders that supports the including zero tolerance to discrimination, equal chance to everyone,
Build the small business engine. development of ideas, and that provides colleagues with a safe environment inclusive culture, removing barriers, DEI education, and a DEI strategy to
that allows for honest disclosures and discussions. Such a trusting and ensure we deliver on our commitments.
Scale the network. empowered environment can help sustain innovation, enhance customer success
and drive the engagement that results in increased market share. · A three-year DEI strategy focuses on building diverse teams, an
Learn and disrupt. equitable culture, and fostering inclusive leadership. This strategy is
supported by measurable plans and metrics to track progress.
· Code of Conduct communicated to all colleagues, and subject to
certification every two years.
· Core eLearning modules rolled out across Sage, with annual
refresher training.
· Whistleblowing and Incident Reporting mechanisms in place to
allow issues to be formally reported and investigated
Cyber Security and Data Privacy Improving Risk Environment
If we fail to responsibly collect, process and store data, together with Information is the life blood of a digital business - protecting the · Multi-year cyber security programmes in IT and products to ensure
ensuring an appropriate standard of cyber security across the business, we confidentiality, integrity and accessibility of this data is table stakes for Sage is driving continuous improvement and cyber risk reduction across
will not meet our regulatory obligations, and will lose the trust of our a data-‑riven business, and failure to do so can have significant financial technology, business processes and culture.
stakeholders. and regulatory consequences in the General Data Protection Regulation (GDPR)
era. In addition, we also need to use our data efficiently and effectively to · Accountability within both IT and Product for all internal and
Strategic alignment: drive improved business performance. external data being processed by Sage. The Chief Information Security Officer
oversees information security, with a network of Information Security Officers
Scale Sage Intacct. that directly support the business.
Build the small business engine. · The Chief Data Protection Officer oversees information
protection.
Scale the network.
· Formal certification schemes maintained, across the business, and
include internal and external validation of compliance.
· All colleagues are required to undertake awareness training for
information management and data protection, with a focus on the GDPR
requirements.
· An Information Security Risk Management Methodology is deployed
to provide objective risk information on our assets and systems.
Data Strategy Stable Risk Environment
If we fail to identify, maximise and utilise the value of our data and Data is central to the Sage strategy to deliver our ambition of a digital · Data strategy across customer, product, and enterprise data to
customer data in a timely manner in accordance with our data principles, we network. The strategy is underpinned by our ability to innovate and develop support the delivery of customer value and solve customer problems, including
will not be able to realise the full potential of our assets. solutions to enhance customer propositions, improve insight and decision the use of enhanced Artificial Intelligence / Machine Learning capabilities.
making and create new business models and ecosystems. Successful ability to
use data will accelerate our growth and will be a key driver in helping · Global data function created to drive focus and alignment across
customers transform how they run and build their businesses. the organisation.
Strategic alignment:
· Focus on developing Sage ID and Service Fabric to enable better
Scale Sage Intacct. data accuracy and insight.
Build the small business engine. · Plan to increase digital network participation, which will
contribute to more data to support the delivery of real customer value and
Scale the network. solve real customer problems.
Learn and disrupt. · Customer consent service deployed to manage compliant usage of
data assets.
· Governance policies, processes and tooling to enhance and manage
the quality and consistency of our data.
Live Services Management Stable Risk Environment
If we fail to maintain a reliable, scalable and secure live services As Sage transitions to a digital company, we continue to focus on scaling our · Accountability across product owners, underpinned by ongoing risk
environments, we will be unable to deliver the consistent cloud experience current and future platform services environment in a robust, agile, and assessments and continuous improvement projects.
expected by our customers. speedy manner to ensure the delivery of a consistent and robust cloud platform
and associated digital network. · Formal onboarding process including ongoing management in
Strategic alignment:
Portfolio Management processes.
Sage must provide the right infrastructure and operations for all of our
Scale Sage Intacct. customer products, a hosting platform together with the governance to ensure · Incident and problem management change processes adhered to for
optimal service availability, performance, security protection and restoration all products and services.
Build the small business engine. (if required).
· Service level objectives including uptime, responsiveness, and
Scale the network. mean time to repair objectives.
· An established forum for continuous assessment and refinement.
· Defined Real Time Demand Management processes and controls and a
Disaster Recovery Capability and operational resilience models.
· A governance framework to optimise operational cost base in line
with key metrics.
Environmental, Social and Governance Stable Risk Environment
If we fail to fully and continually respond to the range of environmental, We are committed to investing in education, technology, and the environment to · Sage's Sustainability and Society Strategy was launched in 2021,
social and governance related opportunities and risks we may fail to deliver give individuals, small and medium businesses (SMBs), and our planet the focusing on three pillars: Tech for Good, Fuel for Business, Protect the
positive change to social and environmental issues and damage the confidence opportunity to thrive. Our goal is to use our technology, time and experience Planet.
of our stakeholders. to back a generation of diverse, sustainable businesses.
· Underpinning the strategy is a robust cross-functional governance
Strategic alignment: The potential benefits of investing in our ESG strategy include: framework.
Build the small business engine. · Increased customer engagement. · Tracking tools in place to enable horizon scanning and to track
the Sustainability and Society Strategy's impact.
Learn and disrupt. · Better use of resources, for example lower energy and water
consumption and associated costs. · The Sage Foundation, established in 2015, remains focused on the
areas of education, employment, and entrepreneurship via the contribution of
· Enhanced stakeholder trust. time, investment, and capability.
· Improved ability to attract and retain talent, enabling · Multiple projects designed to respond to specific ESG risks, for
colleagues to perform at their best. example, a project focused on TCFD readiness including risk and opportunities
mapping and climate scenario analysis.
· Stronger community relations.
· Further detail on the mitigation of this risk is described in our
separate Sustainability and Society Report, available at:
www.sage.com/en-gb/company/sustainability-and-society
(http://www.sage.com/en-gb/company/sustainability-and-society) .
Statement of Directors' Responsibilities
The condensed consolidated half-yearly financial report for the six months
ended 31 March 2022 includes the following responsibility statement.
Each of the Directors confirms that, to the best of their knowledge:
· the Group consolidated condensed financial statements, which have
been prepared in accordance with IAS34, "Interim Financial Reporting" as
adopted by the UK and as issued by the IASB, give a true and fair view of the
assets, liabilities, financial position and profit of the Group; and
· the Directors' report includes a fair review of the development and
performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it faces.
The Directors also confirm that the Interim Management Report herein includes
a fair review of information required by 4.2.8R of the DTR (Disclosure and
Transparency Rules).
The Directors of The Sage Group plc are consistent with those listed in the
Group's 2021 Annual Report and Accounts. A list of current directors is
maintained on the Group's website: www.sage.com (http://www.sage.com) .
On behalf of the Board
J Howell
Chief Financial Officer
12 May 2022
Independent review report to The Sage Group plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
March 2022 which comprises Consolidated income statement, Consolidated
statement of comprehensive income, Consolidated balance sheet, Consolidated
statement of changes in equity, Consolidated statement of cash flows and the
related explanatory notes 1 to 13. We have read the other information
contained in the half yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2022 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion is based on procedures that are
less extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK and
Ireland) "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity" issued by the Auditing Practices Board. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our work, for this report, or for the conclusions
we have formed.
Ernst & Young LLP
London
12 May 2022
Notes: 1 The maintenance and integrity of the Sage Group plc web site is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept
no responsibility for any changes that may have occurred to the financial
information since it was initially presented on the web site. 2
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
1 (#_ftnref1) Please see Appendix 1 for guidance on the usage and
definitions of the Alternative Performance Measures.
2 (#_ftnref2) Organic revenue and operating profit for H1 21 have been
restated to aid comparability with H1 22. The definition of organic measures
can be found in Appendix 1 with a full reconciliation of organic, underlying
and statutory measures on page 7. Unless otherwise specified, all references
to revenue, profit and margins are on an organic basis.
3 (#_ftnref3) The revenue portfolio breakdown is provided as supplementary
information to illustrate the differences in the evolution and composition of
key parts of our product portfolio. These portfolios do not represent
Operating Segments as defined under IFRS 8.
4 (#_ftnref4) Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that product runs in
a cloud-based environment enabling customers to access full, updated
functionality at any time, from any location, over the Internet.
5 (#_ftnref5) Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that product is
normally deployed on-premise, and for which a substantial part of the value
proposition is linked to functionality delivered in or through the cloud.
6 (#_ftnref6) Revenue from customers using products that are part of, or
that management believe have a clear pathway to, Sage Business Cloud.
7 (#_ftnref7) Revenue from customers using products for which management
does not currently envisage a path to Sage Business Cloud, either because the
product addresses a segment outside Sage's core focus, or due to the
complexity and expense involved in a migration.
8 (#_ftnref8) Underlying and organic revenue and profit measures are defined
in Appendix 1.
9 (#_ftnref9) Recurring and non-recurring items are detailed in the
paragraph below and in note 3 of the financial statements.
10 (#_ftnref10) Impact of retranslating H1 21 results at H1 22 average
rates.
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