REG - Sage Group PLC - Results for the six months to 31 March 2024
16/05/2024 07:00
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RNS Number : 6294O Sage Group PLC 16 May 2024
The Sage Group plc
Results for the six months to 31 March 2024 (unaudited)
16 May 2024
Strong performance driven by innovation
Steve Hare, Chief Executive Officer, commented:
"Sage performed well in the first half of the year, delivering broad-based
revenue growth and significant margin expansion. Demand for our solutions
remains robust, with small and mid-sized businesses continuing to trust Sage
to automate their accounting, HR and payroll workflows.
"We are resolutely focused on innovation, as both a source of near-term
competitive advantage and a foundation for our long-term success. We continue
to introduce new AI-powered products and services that deliver enhanced
productivity and insights, driving value for both existing and new customers.
"As we look forward, despite the ongoing macroeconomic uncertainty, I am
confident that Sage's proven strategy, underpinned by continued investment,
will enable us to deliver further efficient growth."
Underlying Financial APMs 1 (#_edn1) H1 24 H1 23 2 (#_edn2) Change Organic
Change
Annualised Recurring Revenue (ARR) £2,253m £2,034m +11% +11%
Underlying Total Revenue £1,152m £1,052m +10% +9%
Underlying Operating Profit £254m £215m +18% +18%
% Operating Profit Margin 22.0% 20.4% +1.6 ppts +1.6 ppts
EBITDA £299m £262m +14%
% EBITDA Margin 25.9% 24.9% +1.0 ppts
Underlying Basic EPS (p) 18.2p 14.8p +23%
Underlying Cash Conversion 127% 117% +10 ppts
Statutory Measures H1 24 H1 23 Change
Revenue £1,152m £1,087m +6%
Operating Profit £215m £157m +38%
% Operating Profit Margin 18.7% 14.4% +4.3 ppts
Basic EPS (p) 15.3p 9.8p +57%
Dividend Per Share (p) 6.95p 6.55p +6%
Please note that tables may not cast and change percentages
may not calculate precisely due to rounding.
Financial highlights
· Underlying total revenue increased by 10% to £1,152m, reflecting
continued robust demand for our solutions and services.
· Underlying operating profit increased by 18% to £254m, with margin
increasing by 160 basis points to 22.0% driven by operating efficiencies as we
scale the business.
· EBITDA increased by 14% to £299m, with margin increasing by 100
basis points to 25.9%.
· Statutory operating profit increased by 38% to £215m reflecting
growth in underlying operating profit together with lower restructuring and
M&A-related charges.
· Underlying basic EPS increased by 23% to 18.2p.
· Strong underlying cash conversion of 127%, reflecting continued
growth in subscription revenue and good working capital management.
· Robust balance sheet, with £1.1bn of cash and available liquidity,
and net debt to EBITDA of 1.4x.
· Interim dividend up 6% to 6.95p, in line with our progressive
policy.
Strategic and operational highlights
· Underlying annualised recurring revenue (ARR) up 11% to £2,253m,
reflecting growth across all regions balanced between new and existing
customers.
· Renewal rate by value of 102%, ahead of last year (H1 23: 101%),
reflecting increased sales to existing customers and continued good retention
rates.
· Sage Business Cloud revenue increased by 18% to £915m (H1 23:
£777m), including cloud native revenue growth of 25% to £353m (H1 23:
£283m).
· Subscription penetration increased to 81% (H1 23: 79%) driven by
growth in subscription revenue of 14% to £937m (H1 23: £826m).
· Strong strategic progress as we further expand our global cloud
solutions across the Group and deepen our vertical-specific capabilities,
complemented by the acquisition of Bridgetown Software.
· We continue to scale the Sage Network to power innovative features
and services, including the recent introduction of Sage Copilot, our
generative AI-powered digital assistant.
Outlook
Looking ahead, we expect organic total revenue growth for full year FY24 to be
broadly in line with the first half. We continue to expect operating margins
to trend upwards in FY24 and beyond, as we focus on efficiently 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 (SMBs) 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) 7341 479956 FGS Global: +44 (0) 20 7251 3801
James Sandford, Investor Relations Conor McClafferty
David Ginivan, Corporate PR Sophia Johnston
A presentation for investors and analysts will be held at 8.30am UK time. The
webcast can be accessed via sage.com/investors or directly via the following
link: https://edge.media-server.com/mmc/p/qbfs84ws
(https://edge.media-server.com/mmc/p/qbfs84ws) . To join the conference call,
please register via
https://register.vevent.com/register/BI638ccf3d921a442e9fb8c03003087535
(https://register.vevent.com/register/BI638ccf3d921a442e9fb8c03003087535)
Business Review
Sage delivered strong, broad-based revenue growth in the first half of FY24,
together with continued margin expansion, significant growth in earnings per
share, and robust cash flows. This performance was driven by continued
progress against our strategic priorities, our breadth and diversity, and the
resilience of our business model.
Overview of results
The Group increased underlying total revenue by 10% to £1,152m (H1 23:
£1,052m), with all our regional markets contributing to growth. In North
America, revenue grew by 13%, with a good performance from Sage Intacct
supported by Sage 50 cloud and Sage 200 cloud. In the UKIA 3 (#_edn3) region,
revenue increased by 8% driven by cloud solutions for small businesses
together with Sage Intacct. In Europe, revenue increased by 6%, with growth
across our accounting, HR and payroll solutions.
Throughout the Group, our principal focus is to grow Sage Business Cloud,
comprising our cloud native 4 (#_edn4) and cloud connected 5 (#_edn5)
solutions, by attracting new customers and delivering further value to
existing customers. Sage Business Cloud solutions enable customers to benefit
from a range of cloud services as part of the Sage Network, leading to deeper
customer relationships and higher lifetime values.
As a result, Sage Business Cloud total revenue increased by 18% to £915m (H1
23: £777m), driven by growth in cloud native revenue of 25% to £353m (H1 23:
£283m) primarily through new customer acquisition, and by growth in cloud
connected revenue from both existing and new customers.
Underlying recurring revenue increased by 11% to £1,112m (H1 23: £1,005m),
with software subscription revenue up by 14% to £937m (H1 23: £826m) leading
to subscription penetration of 81% (H1 23: 79%). As a result of the evolving
business mix, 97% of the Group's revenue is now recurring.
On an organic basis, total revenue grew by 9% to £1,152m (H1 23: £1,053m),
while recurring revenue increased by 11% to £1,112m (H1 23: £1,006m).
ARR growth
Sage's underlying ARR increased by 11% to £2,253m (H1 23: £2,034m),
reflecting strong growth balanced between new and existing customers. Organic
ARR also increased by 11% to £2,253m (H1 23: £2,036m).
Renewal rate by value of 102% (H1 23: 101%) is ahead of last year reflecting
good retention rates and strong sales to existing customers, including a good
performance in customer add-ons and targeted price rises. In total, Sage has
added £190m of ARR through new customer acquisition on an organic basis over
the last 12 months, up from £180m 6 (#_edn6) a year earlier.
Performance by region
North America H1 24 H1 23 Change Organic change
US £454m £400m 14% 13%
Canada £66m £60m 10% 10%
Underlying total revenue £520m £460m 13% 13%
In North America, underlying total revenue increased by 13% to £520m, with
broad-based growth across Sage's key accounting solutions, particularly among
mid-sized businesses. Recurring revenue grew by 14% to £506m (H1 23: £445m),
while subscription penetration increased to 80%, up from 77% in the prior
period.
In the US, total revenue increased by 14% to £454m, with growth moderating
slightly compared to the prior year. Sage Intacct, which now represents over
40% of US revenue, grew by 27% to £186m (H1 23: £147m). Growth was strong
across multiple verticals, particularly not-for-profit and construction &
real estate, with the latter benefitting from the recent launch of the Sage
Construction Management suite.
Revenue growth in the US was also driven by Sage 200 cloud, Sage 50 cloud and
Sage X3, reflecting good levels of upsell to existing customers and higher
pricing, together with growth from new customers.
In Canada, total revenue grew by 10% to £66m, driven mainly by Sage 50 cloud
which saw strong renewals and increased new customer acquisition, together
with growth in Sage 200 cloud. Sage Intacct also grew strongly off a small
base, as we continue to expand Sage Intacct's geographical reach beyond the
US.
UKIA H1 24 H1 23 Change Organic change
UK & Ireland £249m £233m 7% 7%
Africa & APAC £79m £71m 12% 12%
Underlying total revenue £328m £304m 8% 8%
In the UKIA region, underlying total revenue increased by 8% to £328m, with
continuing strength across the portfolio including accounting, HR and payroll
solutions. Recurring revenue also grew by 8% to £321m (H1 23: £296m),
while subscription penetration was 89%, in line with the prior period.
In the UK & Ireland, total revenue grew by 7% to £249m. Sage Intacct made
a significant contribution, benefitting from strong new customer wins,
particularly through the partner channel, and momentum continued to strengthen
throughout the first half.
Alongside Sage Intacct, Sage's cloud native solutions for small businesses,
including Sage Accounting, Sage Payroll and Sage HR delivered good levels of
growth, mainly through new customer acquisition. Revenue was also driven by
growth in accountancy practice management tools, supported by the continued
adoption of Sage for Accountants.
In addition, Sage 50 cloud and Sage 200 cloud continued to perform well, with
growth driven mainly by existing customers through good levels of upsell and
higher pricing.
In Africa and APAC, total revenue grew by 12% to £79m, with strong growth in
Sage Accounting, Sage Payroll and Sage HR driven by good levels of new
customer acquisition, while Sage Intacct also performed well, off a small
base. In addition, local products within the Sage 200 cloud and Sage 50 cloud
franchises continued to contribute to growth.
Europe H1 24 H1 23 Change Organic Change
France £154m £146m 5% 5%
Central Europe £74m £70m 6% 6%
Iberia £76m £72m 6% 6%
Underlying total revenue £304m £288m 6% 6%
Europe achieved underlying total revenue growth of 6% to £304m, reflecting a
strong performance particularly in Sage 200 cloud, Sage 50 cloud, HR and
payroll solutions. Recurring revenue grew by 8% to £285m (H1 23: £264m),
while subscription penetration grew to 75%, up from 69% in the prior period.
In France, total revenue grew by 5% to £154m driven by accounting solutions.
Sage 200 cloud was a significant contributor to growth, as was Sage X3 which
continued to benefit from strong demand. Solutions for accountants performed
well, driven by accelerated upsell of add-ons. Payroll solutions also
contributed to growth within the region.
Central Europe achieved a total revenue increase of 6% to £74m. Cloud HR and
payroll solutions, which represent around half of Central Europe's revenue,
grew particularly strongly, driven by upsell to existing customers together
with new customer wins. Growth in Central Europe was also driven by Sage 200
cloud, mainly through growth in sales to existing customers.
In Iberia, total revenue grew by 6% to £76m, reflecting strength across Sage
200 cloud and Sage 50 cloud, driven by renewals, higher pricing and new
customers. Growth was further driven by continued demand for HR and payroll
solutions for both small and mid-sized businesses. Iberia also achieved good
levels of growth from accountants, complemented by the recent launch of Sage
for Accountants in Spain.
Progress towards our strategic priorities
Sage focuses on five strategic priorities that help us create long-term value
for our stakeholders, as part of our strategic framework for growth. Our
progress towards these priorities is outlined below.
· Scale Sage Intacct: We continue to scale Sage Intacct by enhancing
its core functionality, deepening its vertical-specific capabilities (with
particular progress in non-profit, construction and healthcare) and expanding
its geographical reach. Having focused initially on establishing Sage Intacct
in our English-speaking markets, we launched the solution in France last year,
where traction is now starting to build, and have now also introduced it in
Germany. Reflecting this progress, Sage Intacct's ARR grew by around a quarter
in the US, and by two thirds outside the US, compared to the prior year.
· Expand medium beyond financials: We aim to deliver benefits for
mid-sized businesses beyond core accounting, including by increasingly
focusing our customer proposition on integrated solution suites rather than
discrete products. We recently launched Sage Construction Management in
North America, adding preconstruction and project management capabilities to
our popular construction suite, while Sage Distribution and Manufacturing
Operations (SDMO) continues to gain early traction across our markets.
· Build the small business engine: Our small business solutions
continue to drive growth in key markets. In the UK we have launched Sage for
Small Business, a fully integrated suite which brings together the
capabilities of Sage Accounting, Sage Payroll and Sage HR into a single
solution with simplified pricing. We continue to make progress with
accountants, with Sage for Accountants now adopted by over 12,000 practices in
the UK, up from 5,000 a year ago. We have also launched Sage for Accountants
in Canada, and refreshed our accountant proposition in France, Spain and South
Africa.
· Scale the network: The Sage Network is our platform of products and
services that connects business ecosystems and digitally transforms customer
workflows. We drive network participation by expanding connected services,
such as accounts payable automation, which continues to scale rapidly. In
April we introduced an early adopter programme for Sage Copilot, our
generative AI-powered digital assistant, which automates key tasks and
provides business insights through natural language interaction. Initially
launched to Sage Accounting customers in the UK, we intend to expand Sage
Copilot to customers of both cloud native and cloud connected solutions over
time.
· Learn and disrupt: We continue to invest in disruptive technologies
to drive innovation and enhance our products. During the first half, we
expanded our partnership with Amazon Web Services (AWS) to include developing
a domain-specific large language model (LLM) for accounting and compliance,
which will serve as a robust foundation for future generative AI-based
accounting applications. We will also make Sage Earth, our carbon accounting
solution, available through the AWS marketplace.
Sustainability and Society
Through our Sustainability and Society strategy, we aim to support sustainable
and inclusive economic growth so everyone can thrive. Sage has an ESG rating
of 'AAA' from MSCI and a Climate Change score of
'A-' from CDP.
Sage is committed to achieving net zero carbon emissions by 2040, and supports
SMBs in their own climate action initiatives. In November we published our net
zero transition plan including measures to achieve our SBTi-validated interim
target of halving emissions by 2030. We also aim to make technology more
inclusive and responsible, innovating to empower SMBs and using data to create
a positive social impact. Through Sage Foundation, colleagues, their families
and our partners dedicated more than 63,000 volunteering hours to their
communities during the first half.
Sage also fosters a high-performance culture among colleagues, based on
accountability and inclusivity. We seek to embed Diversity, Equity and
Inclusion (DEI) into everyday business processes and decisions, to drive
diversity of thought. Currently 39% of leadership teams meet our FY26 gender
diversity target 7 (#_edn7) , up from 34% at the end of FY23.
Financial Review
The financial review provides a summary of the Group's results on a statutory
and underlying basis, alongside its organic performance. Underlying measures
allow management and investors to understand the Group's financial performance
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 (#_edn8) .
Statutory and underlying financial results
Financial results Statutory Underlying
H1 24 H1 23 Change H1 24 H1 23 Change
North America £520m £483m +8% £520m £460m +13%
UKIA £328m £311m +5% £328m £304m +8%
Europe £304m £293m +4% £304m £288m +6%
Total revenue £1,152m £1,087m +6% £1,152m £1,052m +10%
Operating profit £215m £157m +38% £254m £215m +18%
% Operating profit margin 18.7% 14.4% +4.3 ppts 22.0% 20.4% +1.6 ppts
Profit before tax £203m £139m +47% £242m £198m +22%
Profit after tax £156m £100m +56% £186m £151m +23%
Basic EPS 15.3p 9.8p +57% 18.2p 14.8p +23%
The Group achieved statutory and underlying total revenue of £1,152m in H1
24. Statutory total revenue increased by 6% compared to the prior year,
reflecting underlying total revenue growth of 10%, partly offset by a
4-percentage point foreign exchange headwind, particularly in North America.
Statutory operating profit increased by 38% to £215m, reflecting an 18%
increase in underlying operating profit to £254m, together with a £31m
decrease in recurring and non-recurring items 9 (#_edn9) , mainly relating to
non-recurring property restructuring charges in the prior period and lower
M&A-related charges.
Statutory basic EPS increased by 57% to 15.3p, reflecting higher statutory
operating profit, lower statutory net finance costs and the post-tax impact of
recurring and non-recurring items. Underlying basic EPS increased by 23% to
18.2p, primarily reflecting higher underlying operating profit and lower
underlying net finance costs.
Revenue - underlying and organic reconciliation to statutory
Total revenue bridge H1 24 H1 23 Change
Statutory £1,152m £1,087m +6%
Recurring items - -
Impact of FX - (£35m)
Underlying £1,152m £1,052m +10%
Disposals - -
Acquisitions - £1m
Organic £1,152m £1,053m +9%
Statutory, underlying and organic total revenue was £1,152m in H1 24.
Underlying revenue in H1 23 of £1,052m reflects statutory revenue of £1,087m
retranslated at current year exchange rates, resulting in a foreign exchange
headwind of £35m. Organic revenue in H1 23 of £1,053m reflects underlying
revenue of £1,052m, adjusted for £1m of revenue from Corecon which was
acquired during FY23.
Operating profit
The Group increased underlying and organic operating profit by 18% to £254m
(H1 23: £215m). Underlying and organic operating margin increased by 160
basis points to 22.0% (H1 23: 20.4%), driven by operating efficiencies as we
scale the business.
Operating profit - underlying and organic reconciliation to statutory
Operating profit bridge H1 24 H1 23
Operating profit Operating margin Operating profit Operating margin
Statutory £215m 18.7% £157m 14.4%
Recurring items 10 (#_edn10) £43m - £50m -
Non-recurring items:
· Reversal of employee-related costs (£3m) - - -
· Reversal of restructuring costs (£1m) - - -
· Property restructuring - - £20m -
Impact of FX - - (£12m) -
Underlying £254m 22.0% £215m 20.4%
Disposals - - - -
Acquisitions - - - -
Organic £254m 22.0% £215m 20.4%
The Group achieved a statutory operating profit in H1 24 of £215m (H1 23:
£157m). Underlying operating profit of £254m in H1 24 reflects statutory
operating profit adjusted for recurring and non-recurring items.
Recurring items of £43m (H1 23: £50m) comprise £26m of amortisation of
acquisition-related intangibles (H1 23: £26m) and £17m of M&A related
charges (H1 23: £24m). Non-recurring items in H1 24 comprise a £3m reversal
of employee-related charges for French payroll taxes relating to previous
years and a £1m reversal of restructuring costs. Non-recurring items in H1 23
comprised property restructuring charges of £20m.
In addition, the retranslation of H1 23 operating profit at current year
exchange rates has resulted in an operating profit headwind of £12m. This has
led to a 40-basis point margin headwind from foreign exchange to 20.4% (H1 23
underlying as reported: 20.8%).
EBITDA
EBITDA was £299m (H1 23: £262m) representing a margin of 25.9%. The increase
in EBITDA reflects the growth in underlying operating profit, together with a
£3m reduction in underlying depreciation and amortisation to £24m (H1 23:
£27m) as a result of property restructuring.
H1 24 H1 23 Margin
Underlying operating profit £254m £215m 22.0%
Depreciation & amortisation £24m £27m
Share based payments £21m £20m
EBITDA £299m £262m 25.9%
Net finance cost
The statutory net finance cost for the period decreased to £12m (H1 23:
£18m), reflecting higher interest income on deposits, and is in line with the
underlying net finance cost of £12m (H1 23: £17m).
Taxation
The underlying tax expense for H1 24 was £56m (H1 23: £47m), resulting in an
underlying tax rate of 23% (H1 23: 24%). The H1 24 underlying tax rate has
decreased due to the benefit of higher tax incentive claims in the UK and US.
The statutory income tax expense for H1 24 was £47m (H1 23: £39m), resulting
in a statutory tax rate of 23% (H1 23: 28%). The difference between the
underlying and statutory rate in H1 23 primarily reflects non-deductible
M&A activity-related items.
Earnings per share
H1 24 H1 23 Change
Statutory basic EPS 15.3p 9.8p +57%
Recurring items 3.2p 4.5p
Non-recurring items (0.3)p 1.4p
Impact of foreign exchange - (0.9)p
Underlying basic EPS 18.2p 14.8p +23%
Underlying basic EPS increased by 23% to 18.2p. Statutory basic earnings per
share increased by 57%, reflecting the increase in underlying basic earnings
per share together with the change in post-tax impact of recurring and
non-recurring items, including property restructuring and higher
M&A-related charges in the prior period.
Cash flow
Sage remains highly cash generative with underlying cash flow from operations
of £322m (H1 23: £266m), representing underlying cash conversion of 127% (H1
23: 117%). This strong cash performance reflects further growth in
subscription revenue and continued good working capital management. Free cash
flow of £240m (H1 23: £194m) reflects strong underlying cash conversion.
Cash flow APMs H1 24 H1 23 (as reported)
Underlying operating profit £254m £227m
Depreciation, amortisation and non-cash items in profit £23m £27m
Share based payments £21m £20m
Net changes in working capital £35m £2m
Net capital expenditure (£11m) (£10m)
Underlying cash flow from operations £322m £266m
Underlying cash conversion % 127% 117%
Non-recurring cash items (£4m) (£8m)
Net interest paid (£31m) (£28m)
Income tax paid (£46m) (£35m)
Profit and loss foreign exchange movements (£1m) (£1m)
Free cash flow £240m £194m
Statutory reconciliation of cash flow from operations H1 24 H1 23 (as reported)
Statutory cash flow from operations £297m £251m
Recurring and non-recurring items £35m £24m
Net capital expenditure (£11m) (£10m)
Other adjustments including foreign exchange translations £1m £1m
Underlying cash flow from operations £322m £266m
Net debt and liquidity
Group net debt was £811m at 31 March 2024 (30 September 2023: £561m),
comprising cash and cash equivalents of £448m (30 September 2023: £696m) and
total debt of £1,259m (30 September 2023: £1,257m). The Group had £1,078m
of cash and available liquidity at 31 March 2024 (30 September 2023:
£1,326m).
The increase in net debt in the period is summarised in the table below.
H1 24 H1 23 (as reported)
Net debt at 1 October (£561m) (£733m)
Free cash flow £240m £194m
New leases less disposals (£17m) (£9m)
Acquisition of businesses - (£14m)
M&A and equity investments (£36m) (£16m)
Dividends paid (£129m) (£123m)
Share buyback (£306m) -
FX movement and other (£2m) £10m
Net debt at 31 March (£811m) (£691m)
The Group's debt is sourced from sterling and euro denominated bond notes,
together with a syndicated multi-currency Revolving Credit Facility (RCF).
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's euro denominated
bond notes comprise €500m of 5-year notes, with a coupon of 3.82%, issued in
February 2023 as part of the Group's Euro Medium Term Note (EMTN) programme.
The Group's RCF of £630m expires in December 2028, with an extension option
for a further year subject to specific provisions. At 31 March 2024, the RCF
was undrawn (H1 23: undrawn).
Sage has an investment grade issuer credit rating assigned by Standard and
Poor's of BBB+ (stable outlook).
Capital allocation
Sage's disciplined capital allocation policy is focused on accelerating
strategic execution through organic and inorganic investment, and delivering
shareholder returns. During the period, Sage completed the acquisition of
Bridgetown Software, the developer of BidMatrix, a cloud native bid analysis
tool for the construction industry, helping Sage to expand its customer
proposition beyond financials.
Sage has a progressive dividend policy, intending to grow the dividend over
time while considering the future capital requirements of the Group.
Reflecting the Group's strong business performance and cash generation during
the first half, we have increased the interim dividend by 6% to 6.95p per
share (H1 23: 6.55p).
The Group also considers returning surplus capital to shareholders. On 11
April 2024, Sage completed a share buyback programme, commenced on 22 November
2023, under which a total of 29.3m shares were purchased for an aggregate
consideration of £345m and subsequently cancelled.
H1 24 H1 23 (as reported)
Net debt £811m £691m
EBITDA (Last Twelve Months) £576m £520m
Net debt/EBITDA Ratio 1.4x 1.3x
The Group's EBITDA over the last 12 months was £576m, resulting in a net debt
to EBITDA leverage ratio of 1.4x, up from 1.3x in the prior year. Sage intends
to operate in a broad range of 1x to 2x net debt to EBITDA over the medium
term, with flexibility to move outside this range as business needs require.
Group return on capital employed (ROCE) for H1 24 was 23% (H1 23 as reported:
19%).
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 2024 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 page 18.
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 24 H1 23 Change
Euro (€) 1.16 1.14 +2%
US Dollar ($) 1.25 1.20 +5%
Canadian Dollar (C$) 1.70 1.62 +5%
South African Rand (ZAR) 23.60 21.13 +12%
Appendix 1 - Alternative Performance Measures
Alternative Performance Measures are used by the Group to understand and
manage performance. These are not defined under International Financial
Reporting Standards (IFRS) or UK-adopted International Accounting Standards
(UK-IFRS) and are not intended to be a substitute for any IFRS or UK-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 in management's Underlying measures allow management and investors to compare performance
judgement need to be disclosed separately by virtue of their size, nature or without the effects of foreign exchange movements or recurring or
frequency to aid understanding of the performance for the year or non-recurring items.
comparability between periods:
By including part-period contributions from acquisitions, discontinued
· Recurring items include purchase price adjustments including operations, disposals and assets held for sale of standalone businesses in the
amortisation of acquired intangible assets and adjustments made to reduce current and/or prior periods, the impact of M&A decisions on earnings per
deferred income arising on acquisitions, acquisition-related items and share growth can be evaluated.
unhedged FX on intercompany balances; and
· 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.
Underlying basic EPS is also adjusted for the tax impact of recurring and
non-recurring items.
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 capital expenditure (excluding business combinations cash conversion.
and similar 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 underlying depreciation, To calculate the Net Debt to EBITDA leverage ratio and to show profitability
amortisation and share based payments. before the impact of major non-cash charges.
Underlying depreciation and amortisation is the statutory equivalent measure,
adjusted for the amortisation of acquired intangibles. Underlying share based
payments is the statutory equivalent measure, adjusted for M&A-related
share based payment charges included within other M&A activity related
items.
Annualised recurring revenue Annualised recurring revenue ("ARR") is the normalised recurring revenue in ARR represents the annualised value of the recurring revenue base that is
the last month of the reporting period, adjusted consistently period to expected to be carried into future periods, and its growth is a
period, multiplied by twelve. Adjustments to normalise reported recurring forward‑looking indicator of reporting recurring revenue growth.
revenue involve adjusting for certain components (such as non‑refundable
contract sign‑up fees) to ensure the measure reflects that part of the
revenue base which (subject to ongoing use and renewal) can reasonably be
expected to repeat in future periods.
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 To measure the cash generated by the operating activities during the period
paid, derivative financial instruments and income tax paid, and adjusted for that is available to repay debt, undertake acquisitions or distribute to
non-recurring cash items (which excludes net proceeds on disposals of shareholders.
subsidiaries) and profit and loss foreign exchange movements.
% Subscription Penetration Underlying software subscription revenue as a percentage of underlying total To measure the progress of migrating our customer base from licence and
revenue. maintenance to a subscription relationship.
Return on Capital Employed (ROCE) ROCE is calculated as underlying Operating Profit, minus As an indicator of the current period financial return on the capital invested
in the Company. ROCE is used as an underpin in the FY21, FY22 and FY23 PSP
amortisation of acquired intangibles, the result being divided by capital awards.
employed, which is the average (of the opening and closing balance for the
period) total net assets excluding net debt, derivative financial instruments,
provisions for non-recurring costs, financial liability for purchase of own
shares and tax assets or liabilities.
Net debt Net debt is cash and cash equivalents less current and non-current borrowings. To calculate the Net Debt to EBITDA leverage ratio and an indicator of our
indebtedness.
Consolidated income statement
For the six months ended 31 March 2024
Six months Six months
ended ended
31 March 31 March
2024 2023
Note £m £m
Revenue 2 1,152 1,087
Cost of sales (82) (76)
Gross profit 1,070 1,011
Selling and administrative expenses (855) (854)
Operating profit 2 215 157
Finance income 10 4
Finance costs (22) (22)
Profit before income tax 203 139
Income tax expense 4 (47) (39)
Profit for the period 156 100
Profit attributable to:
Owners of the parent 156 100
Earnings per share attributable to the owners of the parent (pence)
Basic 6 15.31p 9.78p
Diluted 6 15.03p 9.66p
Consolidated statement of comprehensive income
For the six months ended 31 March 2024
Six months Six months
ended
ended
31 March
31 March
2024
2023
£m £m
Profit for the period 156 100
Items of other comprehensive income that may be reclassified to profit or
loss:
Exchange differences on translating foreign operations and net investment (29) (93)
hedges
Cash flow hedges (1) (1)
(30) (94)
Other comprehensive expense for the period, net of tax (30) (94)
Total comprehensive income for the period 126 6
The notes on pages 18 to 33 form an integral part of this condensed
consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2024
Note 31 March 31 March 30 September
2024
2023
2023
£m
£m
£m
Non-current assets
Goodwill 7 2,190 2,238 2,245
Other intangible assets 7 245 288 274
Property, plant and equipment 7 101 124 104
Equity investments 6 4 4
Trade and other receivables 136 125 138
Deferred income tax assets 73 35 56
Derivative financial instruments 13 2 1
2,764 2,816 2,822
Current assets
Trade and other receivables 391 367 376
Current income tax asset 37 37 42
Cash and cash equivalents (excluding bank overdrafts) 9 448 575 696
Assets classified as held for sale 11 7 - -
883 979 1,114
Total assets 3,647 3,795 3,936
Current liabilities
Trade and other payables (371) (302) (378)
Current income tax liabilities (26) (33) (25)
Borrowings 9 (15) (16) (14)
Provisions (15) (20) (23)
Deferred income (803) (770) (745)
(1,230) (1,141) (1,185)
Non-current liabilities
Borrowings 9 (1,244) (1,250) (1,243)
Post-employment benefits (20) (19) (19)
Deferred income tax liabilities (19) (14) (18)
Provisions (27) (24) (24)
Trade and other payables (6) (14) (13)
Deferred income (5) (7) (7)
Derivative financial instruments (8) (20) (20)
(1,329) (1,348) (1,344)
Total liabilities (2,559) (2,489) (2,529)
Net assets 1,088 1,306 1,407
Equity attributable to owners of the parent
Ordinary shares 8 11 12 12
Share premium 8 548 548 548
Other reserves 8 159 173 189
Retained earnings 370 573 658
Total equity 1,088 1,306 1,407
Consolidated statement of changes in equity
For the six months ended 31 March 2024
Attributable to owners of the parent
Ordinary Share Other reserves £m Retained Total
shares
premium
earnings
equity
£m
£m
£m
£m
At 1 October 2023 12 548 189 658 1,407
Profit for the period - - - 156 156
Other comprehensive expense, net of tax
Exchange differences on translating foreign operations and net investment - - (29) - (29)
hedges
Cash flow hedges - - (1) - (1)
Total comprehensive (expense)/income for the period - - (30) 156 126
ended 31 March 2024
Transactions with owners
Employee share option scheme - value of employee services including deferred - - - 33 33
tax
Proceeds from issuance of treasury shares - - - 2 2
Cancellation of ordinary shares (1) - - 1 -
Share buyback programme* - - - (351) (351)
Dividends paid to owners of the parent - - - (129) (129)
Total transactions with owners for the period ended 31 March 2024 (1) - - (444) (445)
At 31 March 2024 11 548 159 370 1,088
*See notes 8 and 13.
Attributable to owners of the parent
Ordinary Share Other reserves Retained Total
shares
premium
£m
earnings
equity
£m
£m
£m
£m
At 1 October 2022 12 548 267 570 1,397
Profit for the period - - - 100 100
Other comprehensive expense
Exchange differences on translating foreign operations and net investment - - (93) - (93)
hedges
Cash flow hedges - - (1) - (1)
Total comprehensive (expense)/income - - (94) 100 6
for the period ended 31 March 2023
Transactions with owners
Employee share option scheme - value of employee services including deferred - - - 25 25
tax
Proceeds from issuance of treasury shares - - - 2 2
Purchase of shares by Employee Benefit Trust - - - (1) (1)
Dividends paid to owners of the parent - - - (123) (123)
Total transactions with owners - - - (97) (97)
for the period ended 31 March 2023
At 31 March 2023 12 548 173 573 1,306
Consolidated statement of cash flows
For the six months ended 31 March 2024
Notes Six months Six months
ended
ended
31 March
31 March
2024
2023
£m
£m
Cash flows from operating activities
Cash generated from continuing operations 9 297 251
Interest paid (41) (30)
Income tax paid (46) (35)
Net cash generated from operating activities 210 186
Cash flows from investing activities
Purchase of equity investment (2) -
Acquisition of subsidiaries, net of cash acquired 11 - (14)
Purchases of intangible assets 7 (10) (8)
Purchases of property, plant and equipment 7 (4) (2)
Interest received 11 4
Net cash used in investing activities (5) (20)
Cash flows from financing activities
Proceeds from borrowings 9 - 440
Repayments of borrowings 9 - (353)
Capital element of lease payments (8) (10)
Borrowing costs (1) (2)
Share buyback programme 8 (306) -
Proceeds from issuance of treasury shares 2 2
Purchase of shares by Employee Benefit Trust 8 - (1)
Dividends paid to owners of the parent 5 (129) (123)
Net cash used in financing activities (442) (47)
Net (decrease)/increase in cash, cash equivalents and bank overdrafts (237) 119
(before exchange rate movement)
Effects of exchange rate movement 9 (11) (33)
Net (decrease)/increase in cash, cash equivalents and bank overdrafts (248) 86
Cash, cash equivalents and bank overdrafts at 1 October 9 696 489
Cash, cash equivalents and bank overdrafts at period end 9 448 575
Notes to the financial information
For the six months ended 31 March 2024
1. Group accounting policies
General information
The Sage Group plc ("the Company") and its subsidiaries (together "the Group")
is a leader in accounting, financial, HR and payroll technology for small and
mid-sized businesses.
This condensed consolidated half-yearly financial statement was approved for
issue by the board of directors on 15 May 2024.
The financial information set out above does not constitute the Company's
annual financial statements. Statutory Accounts for the year ended 30
September 2023 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
prepared in accordance with UK-adopted International Accounting Standards
("UK-IFRS") and International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board ("IASB"), this announcement
does not in itself contain sufficient information to comply with IFRS or
UK-IFRS. 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 2023.
This condensed consolidated half-yearly financial statement 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.
All figures presented are rounded to the nearest £m, unless otherwise stated.
Basis of preparation
The financial information for the six months ended 31 March 2024 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 IASB and as adopted for use in the UK.
This condensed consolidated half-yearly financial statement should be read in
conjunction with the annual financial statements for the year ended 30
September 2023, which have been prepared in accordance with UK-IFRS and IFRS
as issued by the IASB.
Going concern
As at 31 March 2024, the Group had a strong liquidity position with cash and
available liquidity of £1.1bn, supported by underlying cash conversion of
127% reflecting the robust subscription-based business model. The Group's
position is further supported by a well-diversified customer base amongst
small and mid-sized businesses with high quality recurring revenue and strong
retention rates.
In reaching its assessment on going concern, the Directors have reviewed
liquidity forecasts for the Group for the period to 30 September 2025 (the
going concern assessment period), which reflect the expected impact of
economic conditions on trading.
Scenario-specific stress testing has been performed, with the level of churn
assumptions increased by 75%, and a significant reduction in the level of new
customer acquisition and sales to existing customers. In these severe stress
scenarios, the Group continues to have sufficient resources to continue in
operational existence, without the need to drawdown the revolving credit
facility or seek additional financing. If more severe impacts occur,
controllable mitigating actions to protect liquidity, including the reduction
of discretionary spend, 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 and deterioration in new customer
acquisition which would be required to exhaust cash down to minimum working
capital requirements. The result of the reverse stress testing has highlighted
that such a scenario would only arise following a significant deterioration in
performance, well in excess of the assumptions considered in the stress
testing scenarios. The probability of these factors occurring is deemed to be
remote given the resilient nature of the subscription 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 operation throughout the going concern
assessment period. Accordingly, these condensed consolidated half-yearly
financial statements have been prepared on a going concern basis.
Accounting policies
The accounting policies adopted in the preparation of these condensed
consolidated half-yearly financial statements are consistent with those of the
annual financial statements for the year ended 30 September 2023 as described
in those annual financial statements.
Adoption of new and revised IFRSs
There are no accounting standards, amendments or interpretations effective for
the first time this financial period that have had a material impact on the
Group. No standards have been early adopted during the year.
The Directors also considered the impact on the Group of new and revised
accounting standards, interpretations, or amendments which have been issued
but were not effective for the Group for the period ended 31 March 2024.
On 9 April 2024, the International Accounting Standards Board ("IASB")
published a new standard IFRS 18 "Presentation and Disclosure in Financial
Statements", which will be effective for annual reporting periods beginning on
or after 1 January 2027. While IFRS 18 will not impact the recognition or
measurement of items in the financial statements, it will likely result in
changes to how Sage presents certain information. The Group is in the process
of assessing the impact that the application of this standard will have on the
Group's financial statements when first applied.
No other new or revised accounting standards, interpretations, or amendments
which have been issued but were not effective are expected to have a material
impact on the Group's financial statements when first applied.
Accounting estimates and judgements
The preparation of financial statements requires the use of accounting
estimates and judgements by management. It also requires management to
exercise its judgement in the process of applying the accounting policies. We
continually evaluate our estimates and judgements based on available
information.
Management has determined that there are no areas of estimation uncertainty
that could be significant under IAS 1, 'Presentation of Financial Statements',
being areas of estimation uncertainty with a significant risk of a material
change to the carrying value of assets and liabilities within the next
financial year.
Other key estimates are made when preparing the financial statements, which,
while not meeting the definition of a significant estimate under IAS 1,
involve the measurement of certain material assets or a higher degree of
complexity.
Significant judgements are those made by management in applying our accounting
policies that have a material impact on the amounts presented in the financial
statements.
Management's rationale in relation to these key accounting estimates and
significant judgements are regularly assessed and, where material in value or
in risk, are discussed with the Audit and Risk Committee. These areas are
discussed in further detail below:
Revenue recognition (judgement)
Over a third of the Company's revenue is generated from sales to business
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.
Sage also generates revenue through revenue-sharing and royalty arrangements
with third-party technology partners for the sale of their services to the end
customer. These arrangements also involve judgement to determine whether Sage
is acting as the principal or the agent in the provision of services to the
end customer, based on whether Sage has control of the service before
delivery. This assessment considers whether Sage bears the pricing, inventory
and performance risks associated with the transaction.
Goodwill impairment (estimate)
The estimates applied in calculating the value in use of the CGUs being tested
for impairment are a source of estimation uncertainty. The key estimates
considered in the calculation relate to the future performance expectations of
the business and include the average medium-term revenue growth rate, the
long-term growth rate of net operating cash flows and the discount rate.
Management has performed a review for indicators of impairment of goodwill as
at 31 March 2024. As a result of this review, no indicators of impairment have
been identified.
The carrying value of goodwill and the key estimates used in performing the
annual impairment assessment are disclosed in note 6.1 of the annual financial
statements for the year ended 30 September 2023.
Website
This condensed consolidated half-yearly financial report for the six months
ended 31 March 2024 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 ("ELT") 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 Monthly Execution &
Performance Reviews. The ELT 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.
With effect from 1 October 2023, the Group is organised into three key
operating segments:
· North America
· United Kingdom, Ireland, Africa and APAC (UKIA)
· Europe
For reporting under IFRS 8, each of the three operating segments above
represents a reportable segment.
Prior to this date, the Group was organised into seven operating segments:
North America, UK & Ireland, Central Europe (Germany, Austria and
Switzerland), France, Iberia (Spain and Portugal), Africa and the Middle East,
and Asia (including Australia).
The UKIA operating segment is the aggregation of the previously identified UK
& Ireland, Africa and the Middle East, and Asia (including Australia)
segments, while the Europe operating segment is the aggregation of the
previously identified Central Europe, France and Iberia operating segments.
There have been no changes to the North America operating segment.
Two of the reportable segments presented above, North America and Europe,
remain consistent with the reportable segments identified in the most recent
annual financial statements for the year ended 30 September 2023. However in
previous reporting periods, the UKIA reportable segment was disaggregated and
presented as two reportable segments, UK & Ireland and Africa & APAC.
Therefore, the financial data presented in the following tables for the
comparative period (six months ended 31 March 2023) has been restated to
aggregate the two historic reportable segments into the newly identified UKIA.
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
Six months ended 31 March 2024
Statutory, Underlying and Organic Change Change Change
£m
Statutory
Underlying
Organic
%
%
%
Recurring revenue by segment
North America 506 8% 14% 14%
UKIA 321 6% 8% 8%
Europe 285 6% 8% 8%
Recurring revenue 1,112 7% 11% 11%
Other revenue by segment
North America 14 (13%) (9%) (9%)
UKIA 7 (12%) (7%) (7%)
Europe 19 (22%) (20%) (20%)
Other revenue 40 (17%) (14%) (14%)
Total revenue by segment
North America 520 8% 13% 13%
UKIA 328 5% 8% 8%
Europe 304 4% 6% 6%
Total revenue 1,152 6% 10% 9%
Six months ended 31 March 2024
Statutory, Underlying and Organic Change Change Change
£m
Statutory
Underlying
Organic
%
%
%
Total recurring revenue by type
Software subscription revenue 937 10% 14% 13%
Other recurring revenue 175 (6%) (2%) (2%)
Recurring revenue 1,112 7% 11% 11%
Other revenue 40 (17%) (14%) (14%)
Total revenue 1,152 6% 10% 9%
Six months ended 31 March 2023 (Restated)
Statutory and Underlying as reported Impact of Underlying Organic Organic
£m
foreign
£m
adjustments*
£m
exchange
£m
£m
Recurring revenue by segment
North America 467 (22) 445 1 446
UKIA** 303 (7) 296 - 296
Europe 269 (5) 264 - 264
Recurring revenue 1,039 (34) 1,005 1 1,006
Other revenue by segment
North America 16 (1) 15 - 15
UKIA** 8 - 8 - 8
Europe 24 - 24 - 24
Other revenue 48 (1) 47 - 47
Total revenue by segment
North America 483 (23) 460 1 461
UKIA** 311 (7) 304 - 304
Europe 293 (5) 288 - 288
Total revenue 1,087 (35) 1,052 1 1,053
* Adjustments relate to the acquisitions of Corecon.
** Previously disaggregated into two reportable segments, i) UK & Ireland,
and ii) Africa & APAC.
Six months ended 31 March 2023
Statutory and Underlying as reported Impact of Underlying Organic Organic
£m
foreign
£m
adjustments*
£m
exchange
£m
£m
Total recurring revenue by type
Software subscription revenue 853 (27) 826 1 827
Other recurring revenue 186 (7) 179 - 179
Recurring revenue 1,039 (34) 1,005 1 1,006
Other revenue 48 (1) 47 - 47
Total revenue 1,087 (35) 1,052 1 1,053
* Adjustments relate to the acquisitions of Corecon.
Operating profit by segment
Six months ended 31 March 2024
Statutory Underlying Underlying and Organic Change Change
adjustments*
£m
Statutory
Underlying and Organic
£m
£m
%
%
Operating profit by segment
North America 86 20 106 97% 32%
UKIA 74 20 94 57% 35%
Europe 55 (1) 54 (16%) (17%)
Total operating profit 215 39 254 38% 18%
Six months ended 31 March 2023 (Restated)
Statutory £m Underlying adjustments* £m Underlying as reported Impact of foreign exchange Underlying and Organic
£m
£m
£m
Operating profit by segment
North America 43 42 85 (5) 80
UKIA** 48 26 74 (4) 70
Europe 66 2 68 (3) 65
Total operating profit 157 70 227 (12) 215
* Adjustments are detailed in note 3.
** Previously disaggregated into two reportable segments, i) UK & Ireland,
and ii) Africa & APAC.
Reconciliation of underlying operating profit to statutory operating profit
Six months ended Six months ended
31 March 2024
31 March 2023
£m
£m
North America 106 80
UKIA* 94 70
Europe 54 65
Underlying operating profit 254 215
Impact of movement in foreign currency exchange rates - 12
Underlying operating profit (as reported) 254 227
Recurring items (43) (50)
Non-recurring items 4 (20)
Statutory operating profit 215 157
* Previously disaggregated, for the six months ended 31 March 2023, into two
reportable segments, i) UK & Ireland, and ii) Africa & APAC.
3. Adjustments between underlying profit and statutory profit
Six months ended 31 March 2024 Six months ended 31 March 2023
Operating Profit Operating Profit
profit before tax profit before tax
£m
£m
£m
£m
Statutory measures 215 203 157 139
Recurring items
· Amortisation of acquired intangibles 26 26 26 26
· Other M&A activity-related items 17 17 24 24
· Foreign currency movements on intercompany balances - - - 1
Non-recurring items:
· Reversal of employee-related costs (3) (3) - -
· Reversal of restructuring costs (1) (1) - -
· Property restructuring costs - - 20 20
Underlying (as reported) measures 254 242 227 210
Recurring items
Recurring items impacting operating profit (selling and administrative costs)
are comprised of:
· Amortisation of acquired intangibles £26m (six months ended 31
March 2023: £26m) which have previously been recognised as part of business
combinations or similar transactions. These assets are predominantly customer
relationships and technology rights.
· Other M&A activity-related items £17m (six months ended 31
March 2023: £24m) which include advisory, legal, accounting, valuation and
other professional or consulting services which are related to M&A
activity, as well as acquisition-related remuneration and directly
attributable integration costs. £2m (six months ended 31 March 2023: £4m) of
these costs have been paid in the period, while the remainder are expected to
be paid in subsequent periods.
· In the prior period, further recurring items impacting profit
before tax (net finance costs) were comprised of foreign currency movements on
intercompany balances which occur due to retranslation of unhedged
intercompany balances other than those where settlement is not planned or
likely in the foreseeable future and resulted in a loss of £1m for the six
months ended 31 March 2023.
Non-recurring items
Non-recurring items impacting operating profit (selling and administrative
costs) are comprised of:
· Reversal of employee-related costs £3m (six months ended 31 March
2023: £nil) relate to unutilised employee-related provisions recognised in
the prior year for French payroll taxes.
· Reversal of restructuring costs £1m (six months ended 31 March
2023: £nil) primarily relates to unutilised provisions recognised in 2021.
· Property restructuring costs in the prior year related to the
reorganisation of a number of leased properties following a strategic review
of the Group's property portfolio. Costs of £20m consisted of impairment of
£13m of right of use assets and other related fixed assets that are no longer
in use as well as a provision for directly attributable future running costs
associated with the properties.
The tax impact of both recurring and non-recurring items is disclosed in note
6.
4. Income tax expense
The effective tax rate on statutory profit before tax was 23% (six months
ended 31 March 2023: 28%) whilst the effective tax rate on underlying profit
before tax for continuing operations was 23% (six months ended 31 March 2023:
24%). 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 2024.
The OECD's Pillar Two global tax reform will apply to the Group from the
financial year ended 30 September 2025. The group continues to assess the
Pillar Two framework and it is not expected to materially impact the Group's
effective tax rate in future periods.
5. Dividends
Six months ended Six months ended Year
31 March 2024
ended
£m 31 March
30 September
2023
2023
£m
£m
Final dividend paid for the year ended 30 September 2022 of 12.10p per share - 123 123
Interim dividend paid for the year ended 30 September 2023 of 6.55p per share - - 67
Final dividend paid for the year ended 30 September 2023 of 12.75p per share 129 - -
129 123 190
The interim dividend of 6.95p per share will be paid on 28 June 2024 to
shareholders on the register at the close of business on 31 May 2024. The
Company's distributable reserves are sufficient to support the payment of this
dividend. This condensed consolidated half-yearly financial statement does not
reflect this proposed dividend payable.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
attributable to owners of the parent by the weighted average number of
ordinary shares in issue during the period, excluding those held as treasury
shares and held by the Employee Benefit Trust, which are treated as cancelled,
until reissued.
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, exercisable at the end of the period. The Group has one class of
dilutive potential ordinary shares, which 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, where the vesting criteria
are achieved at period end.
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
2023
2024
2023
2023
2024
Earnings attributable to owners of the parent
Profit for the period 186 160 151 156 100
Number of shares (millions)
Weighted average number of shares for basic earnings per share 1,016 1,018 1,018 1,016 1,018
Dilutive effects of shares 19 12 12 19 12
Weighted average number of shares for diluted earnings per share 1,035 1,030 1,030 1,035 1,030
Earnings per share attributable to owners of the parent (pence)
Basic earnings per share 18.22 15.68 14.79 15.31 9.78
Diluted earnings per share 17.89 15.49 14.61 15.03 9.66
Reconciliation of earnings Six months ended Six months ended
31 March
31 March
2024
2023
£m
£m
Statutory profit for the period attributable to owners of the parent 156 100
Adjustments:
· Recurring items 43 51
· Non-recurring items (4) 20
Taxation on adjustments between statutory and underlying profit before tax (9) (11)
Underlying profit for the period attributable to owners of the parent (as 186 160
reported)
Impact of movement in foreign currency exchange rates - (9)
Underlying profit for the period (after exchange movement) attributable to 186 151
owners of the parent
7. Non-current assets
Goodwill Other Property, Total
intangible
plant and equipment
£m
assets
£m £m
£m
Opening net book amount at 1 October 2023 2,245 274 104 2,623
Additions - 9 21 30
Transfer to held for sale* - - (7) (7)
Depreciation, amortisation and other movements - (35) (15) (50)
Exchange movement (55) (3) (2) (60)
Closing net book amount at 31 March 2024 2,190 245 101 2,536
* See note 11
Goodwill Other Property, Total
£m
intangible
plant and
£m
assets
equipment
£m
£m
Opening net book amount at 1 October 2022 2,391 320 152 2,863
Additions - 8 12 20
Acquisition of subsidiary 8 4 - 12
Impairment - - (13) (13)
Depreciation, amortisation and other movements - (33) (22) (55)
Exchange movement (161) (11) (5) (177)
Closing net book amount at 31 March 2023 2,238 288 124 2,650
8. Equity
Ordinary shares and share premium
Number of Ordinary Share premium Total
shares
Shares
£m
£m
£m
At 31 March 2023 and 1 October 2023 1,100,789,295 12 548 560
Cancellation of shares (25,920,557) (1) - (1)
At 31 March 2024 1,074,868,738 11 548 559
As at 31 March 2024:
· The Group held 68,732,947 treasury shares (30 September 2023:
73,906,470). During the period the Group transferred 5,173,523 treasury shares
to employees in order to satisfy vested awards (six months ended 31 March
2023: 4,691,316).
· The Employee Benefit Trust held 4,286,835 ordinary shares in the
Company (30 September 2023: 4,419,478 ordinary shares). During the period, the
Employee Benefit Trust satisfied the vesting of certain share awards utilising
132,643 ordinary shares (six months ended 31 March 2023: 191,397).
The Employee Benefit Trust did not receive additional funds for the purchase
of shares in the market (six months ended 31 March 2023: £nil).
On 22 November 2023, the Group entered into a non-discretionary share buyback
programme ending no later than 23 April 2024, to purchase up to £350m of its
own shares. The programme completed in April 2024, for a total consideration
of £345m, plus expected associated taxes, corresponding to the £351m
recognised through retained earnings at the balance sheet date (see note 13).
During the six months ended 31 March 2024, the Group purchased a total of
26,334,398 ordinary shares, of which 25,920,557 were cancelled as at 31 March
2024. The total consideration for those shares purchased in the current period
amounted to £309m, of which £304m had been paid as at 31 March 2024. Of the
expected associated taxes plus fees, £2m had been paid as at 31 March 2024.
Other Reserves
All components of other reserves are presented on a consolidated basis on the
face of the consolidated statement of changes in equity.
Translation reserve Hedging Reserve Merger Reserve Total
£m £m £m £m
At 1 October 2023 124 4 61 189
Exchange differences on translating foreign operations and net investment (29) - - (29)
hedges
Cash flow hedges - (1) - (1)
At 31 March 2024 95 3 61 159
Translation reserve Hedging reserve Merger Reserve Total
£m £m £m £m
At 1 October 2022 206 - 61 267
Exchange differences on translating foreign operations and net investment (93) -
hedges
- (93)
Cash flow hedges - (1) - (1)
At 31 March 2023 113 (1) 61 173
9. Cash flow and net debt
Six months ended Six months ended
31 March
31 March
2024
2023
£m
£m
Statutory operating profit 215 157
Recurring and non-recurring items 39 70
Underlying operating profit (as reported) 254 227
Depreciation, amortisation and other non-cash items 23 27
Share-based payments 21 20
Net changes in working capital 35 2
Net capital expenditure (11) (10)
Underlying cash flow from operations 322 266
Net interest paid (31) (28)
Income tax paid (46) (35)
Non-recurring items (4) (8)
Exchange movement (1) (1)
Free cash flow 240 194
Net debt at 1 October (561) (733)
Acquisition of subsidiaries or similar transactions, net of cash acquired and - (14)
lease liabilities recognised
Acquisitions and disposals related items (34) (16)
Purchase of equity investment (2) -
Dividends paid to owners of the parent (129) (123)
Proceeds from issuance of treasury shares 2 2
New leases (17) (9)
Share buyback programme (306) -
Purchase of shares by Employee Benefit Trust - (1)
Exchange movement (3) 9
Other (1) -
Net debt at 31 March 2024 (811) (691)
Six months ended Six months ended
31 March
31 March
2024
2023
£m
£m
Underlying cash flow from operations 322 266
Net capital expenditure 11 10
Recurring and non-recurring cash items (35) (24)
Other adjustments including foreign exchange translations (1) (1)
Statutory cash flow from operations 297 251
At Cash flow Non-cash movements Exchange movement At
1 October 2023
£m
£m
£m
31 March 2024
Analysis of change in net debt
£m
£m
Cash, cash equivalents and bank overdrafts 696 (237) - (11) 448
Liabilities arising from financing activities
Loans due after more than one year (1,171) - (1) 6 (1,166)
Lease liabilities due within one year (14) 8 (9) - (15)
Lease liabilities after more than one year (72) - (8) 2 (78)
(1,257) 8 (18) 8 (1,259)
Total (561) (229) (18) (3) (811)
The Group's debt is sourced from sterling and euro denominated bond notes,
with a syndicated Revolving Credit Facility (RCF) of £630m also available.
Interest coupon* 2024 2023
£m £m
Bonds
· GBP 350m bond notes 1.63% 350 350
· GBP 400m bond notes 2.88% 400 400
· EUR 500m bond notes 3.82% 427 433
· Unamortised issue and discount costs N/A (9) (10)
Unamortised RCF loan costs N/A (2) (2)
Total 1,166 1,171
* This does not include the impact of cross currency interest rate swaps
entered into in relation to the GBP 350m bond notes and EUR 500m bond notes.
In November 2023, a one-year extension was agreed to the Group's RCF,
resulting in a new maturity in December 2028. An extension option for a
further year remains available subject to specific provisions. At 31 March
2024, £nil of the RCF was drawn down (30 September 2023: £nil).
10. Financial instruments
The carrying amounts of the following financial assets and liabilities
approximate to their fair values: trade and other payables excluding tax and
social security, trade and other receivables excluding prepayments and accrued
income, lease liabilities, and short-term bank deposits, and cash at bank and
in hand.
The fair value of the sterling and euro denominated bond notes are 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 the cross-currency interest rate swaps held by the Group is
determined using a discounted cash flow valuation technique at market rates
and therefore can be considered as a level 2 fair value as defined within IFRS
13.
The fair value of the swaps held by the Group as at 31 March 2024 was a £5m
net asset, comprised of £13m assets offset by £8m liabilities (30 September
2023: a £19m net liability, comprised of £1m assets offset by £20m
liabilities).
The Group does not hold any financial liabilities whose fair value would be
considered as a level 3 fair value as defined within IFRS 13.
The respective book and fair values of bond notes and loan notes are included
in the table below.
At 31 March 2024 At 31 March 2023 At 30 September 2023
Book Value Fair Value Book Value Fair Value Book Value Fair Value
£m
£m
£m
£m
£m
£m
Long term-borrowings (excluding lease liabilities) (1,166) (1,056) (1,177) (1,033) (1,171) (1,014)
11. Acquisitions and disposals
Disposals and discontinued operations
Discontinued operations and assets and liabilities held for sale
The Group had no discontinued operations during the six-month periods ended 31
March 2024 (31 March 2023: none).
Assets held for sale at 31 March 2024 included the Group's Beaverton property
site, part of the North America operating segment, which was reclassified to
assets held for sale at 31 March 2024. Subsequently the sale of the property
was completed in April 2024. On classification as held for sale, no adjustment
was required to the carrying value of the Beaverton property site of £7m.
There were no assets held for sale at 31 March 2023.
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
2024
2023
£m
£m
Salaries and short-term employee benefits 6 5
Share-based payments 4 3
10 8
Key management personnel are deemed to be members of the Executive Leadership
Team, as defined in the Group's Annual Report and Accounts 2023 and the
Non-executive Directors. Since the signing of the Group's Annual Report and
Accounts 2023, the following changes to the Executive Leadership Team have
taken place:
· Eduardo Rosini, in his role as Chief Growth Officer, has been
appointed to the Executive Leadership Team, with effect from 1 March 2024;
· Derk Bleeker remains on the Executive Leadership Team, in a new
role as Chief Commercial Officer, with effect from 1 March 2024; and
· Aziz Benmalek has left his role as President - North America, with
effect from 1 March 2024.
There have been no other changes to the composition of the Executive
Leadership Team.
13. Events after the balance sheet date
On 11 April 2024, Sage confirmed that the previously announced share buyback
programme had been completed. A total number of 29,289,778 ordinary shares in
Sage were repurchased as part of the programme and Sage will cancel all of the
purchased shares. The aggregate amount of the consideration paid by Sage was
£345m (excluding expected associated taxes) and the average price paid per
ordinary share was £11.79.
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
building sustainable growth.
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
the Annual Report and Accounts 2023.
KEY
Scale Sage Intacct Expand medium beyond financials Build the small business engine Scale the network Learn and disrupt
PRINCIPAL RISK RISK CONTEXT MANAGEMENT AND MITIGATION
Understanding Customer Needs Risk Trend: Stable Risk Environment
If Sage fails to anticipate, understand, and deliver against the capabilities Understanding of how to attract new customers while retaining existing · Brand-health surveys to provide an understanding of customer
and experiences of current and future customer needs, then customers will find customers is essential to building sustainable growth. This requires a deep perception of the Sage brand and its products, used to inform and enhance our
alternative solution providers. and continuous flow of insights supported by processes and systems. market offerings.
Strategic alignment: · A Market and Competitive Intelligence team to provide insights
that Sage uses to win in the market.
By understanding the needs of our customers, Sage will differentiate itself
from competitors, build compelling value propositions and offers, use key · Proactive analysis of customer activity and churn data, to
drivers to identify opportunities, influence product and process roadmaps, improve customer experience.
decrease churn and support more effective revenue generation.
· Customer Segmentation Framework and the customer market analysis
by region to help inform product roadmaps.
· Customer Advisory Boards, Customer Design Sessions and
closed-loop feedback to constantly gather information on customer needs.
Execution of Product Strategy Risk Trend Improving Risk Environment
If we fail to offer the capabilities and experiences outlined in our product We need to execute rapidly, a prioritised product strategy that continues to · A robust product organisation supported by a governance model to
strategy, we will not meet the needs of our customers or commercial goals. simplify our product portfolio and focuses on our drive to create the Sage enable the way we build products.
Network that will benefit our customers.
Strategic alignment:
· Migration framework in key countries to support our customers as
they move to the cloud.
· Continued expansion of Sage Intacct outside of North America and
for additional product verticals.
· Introduction of Sage Copilot AI assistant.
· Enhancing accessibility of Sage cloud products to WCAG 2.1 AA
standard by the end of 2025.
· A strong focus on accountants through a tailored Sage for
Accountants proposition.
· A partnership with Amazon Web Services (AWS) to develop
domain-specific accounting Large Language Model (LLM).
· Acquisition of Bridgetown Software to strengthen Sage's
Construction and Real Estate portfolio.
Developing and Exploiting New Business Models Risk Trend: Stable Risk Environment
Sage is unable to develop, commercialise and scale new business models to We must be able to rapidly deploy new innovations to our customers and · A Business Unit solely focused on scaling the Sage Network.
diversify from traditional Software as a Service (SaaS), especially partners by introducing technologies, services, or new ways of working.
consumption-based services and those which leverage data.
· Continued digitalisation and automation of Sage products through
Innovation requires us to address how we change and transform our people, Sage Network and AI services.
Strategic alignment: processes and technology, and how we differentiate our products and increase
customer efficiencies. · Enhanced, consistent digital experience for all Sage Business
Cloud users through the Sage Design System.
· Venture Studios Team asked to search for new business models that
may align with the Sage vision.
Route to Market Risk Trend: Stable Risk Environment
If we fail to deliver a globally consistent blend of route to market channels We have a blend of channels to communicate with our current and potential · Chief Growth Officer and Chief Commercial Officer appointments to
in each market, Sage will miss the opportunity to efficiently deliver the customers and ensure our customers receive the right information, on the right demonstrate Sage's commitment to serve SMBs on a global and consistent basis.
right capabilities and experiences to our current and future customers. products and services, at the right time. Our sales channels include selling
directly to customers through digital and telephone channels, via our · Market data and intelligence supports decision- making regarding
Strategic alignment: accountant network, and through partners. the best routes to market.
· Specified colleagues are in place to support partners, and to
help manage the growth of targeted channels.
We use these channels to maximise our marketing and customer engagement
activities. This can shorten our sales cycle and ensure we improve customer · Sale processes are targeted and configured by region for key
retention. customer segments and verticals.
· A specific Onboarding Squad enhances user journeys to enable
customer conversion.
· Acceleration of new partnerships to support the Sage Network.
· Centre of Excellence to support our indirect sales and
third-party approach.
· Expansion of relationship with AWS to elevate sustainability for
SMBs through the introduction of Sage Earth to the AWS marketplace.
Customer Experience Risk Trend: Stable Risk Environment
If we fail to provide ongoing value to our customers by focusing on their We must maintain a sharp focus on the relationship we have with our customers, · Customer-journey mapping to ensure appropriate strategy alignment
needs over the lifetime of their customer journey, we will not be able to constantly offering the products, and alignment to Target Operating Model.
achieve sustainable growth through renewal.
services, and experiences they need for success. If we do not, they are likely · Expanded adoption of micromoments, which are customer experiences
Strategic alignment: to find another provider who does. broken down into moments that matter most to our customers. We use
micromoments to prioritise improvements.
Conversely, if we meet or exceed their expectations, customers will stay with
Sage, increasing their lifetime value, and becoming our greatest marketing · 'Customer for life' roadmaps, detailing how products fit
advocates. together, any interdependencies, and migration pathways for current and
potential customers.
· Continuous Net Promoter Score (NPS) surveying allows us to
While Sage is known for its high-quality customer support, this area requires identify customer challenges rapidly, and respond in a timely manner to
constant, proactive focus. By helping customers recognise and fully realise emerging trends.
the value of Sage's products, we can help increase the value of these
relationships over time and reduce the likelihood of customer loss. By · Sage Membership offered to all customers, providing customers
aligning our people, processes, and technology with this focus in mind, all with access to curated resources, tools, and a connected community of business
Sage colleagues can help our customers to be successful and, in turn, improve leaders.
financial performance.
Third Party Reliance Risk Trend: Stable Risk Environment
If we do not make our partners an integral and aligned part of Sage's Sage relies on third-party providers to support the delivery of our products · Centre of Excellence for our indirect sales and third-party
go-to-market strategy, we will fail to deliver the right capabilities and to our customers through the provision of cloud-native products. partners.
experiences to our customers.
· Specified colleagues in place to support partners, and to help
Strategic alignment:
manage the growth of targeted channels.
Sage also has an extensive network of sales partners critical to our success
in the market, and suppliers it relies on. · Managed growth of the API estate, including enhanced product
development that enables access by third-party API developers and optimisation
of API integrations to improve efficiency.
Any interruption in these services or relationships could have a profound · Enhanced third-party management framework, to support global
impact on Sage's reputation in the market and could result in significant alignment, execution and oversight of third-party activities.
financial liabilities and losses.
· A specialised Procurement function supporting the business with
the selection of strategic third-party suppliers and negotiation of contracts
and the implementation of a Sustainable Supply Chain Strategy.
People and Performance Risk Trend: Stable Risk Environment
If we fail to ensure we have engaged colleagues with As we evolve our priorities, the capacity, knowledge and leadership skills we · Extensive focus on hiring channels to ensure we are attractive in
need will continue to change. Sage will not only need to attract the right the market through our enhanced employee value proposition and enhanced
the critical skills, capabilities, and capacity we need to deliver on our talent to navigate change, but will also need to provide an environment where presence through social media such as Glassdoor, Comparably, Twitter,
strategy, we will not be successful. colleagues can develop to meet these new expectations. LinkedIn, and Facebook.
Strategic alignment: · Reward mechanisms designed to incentivise and encourage the right
behaviour, with a focus on ensuring fair and equitable pay in all markets.
By empowering colleagues and leaders to make decisions, be innovative, and be
bold in meeting our commitments, Sage will be able to create an attractive · A series of Learning Academies and talent programmes to support
working environment. By addressing what causes colleague voluntary attrition, the development of internal talent including sponsorship programmes, new
and embracing the values of successful technology companies, Sage can increase director, graduate and apprentice programmes.
colleague engagement and
· An OKR (Objectives and Key Results) framework to define
create an aligned high-performing team. measurable goals and track outcomes of colleague success.
· Talent Market Place solution to support identification of
capabilities and gaps; talent pipelines; development and career pathways;
mentoring.
· Strategic Workforce Planning Framework across the business.
Culture Risk Trend: Improving Risk Environment
If we do not define, shape and proactively manage our culture in line with our The development of a shared behavioural competency that encourages colleagues · Integration of Values and Behaviours into all colleague
Value and Behaviours, we will find it difficult to achieve our strategic to always do the right thing, put customers at the heart of business, and priorities including talent attraction, selection, and onboarding as well as
priorities and purpose; we will risk disengaging colleagues, increasing improve innovation, is critical in Sage's success. Devolution of OKRs.
attrition and affecting our ability to attract and retain diverse talent. decision-making, and the acceptance of accountability for those decisions,
will need to go hand in hand as the organisation develops and sustains its · A DEI strategy focused on building diverse teams, an equitable
Strategic alignment: shared Values and Behaviours, and fosters a culture that provides customers culture, and fostering inclusive leadership. This is supported by measurable
with a rich digital environment. plans and metrics to track progress, ensuring Sage meets its commitments,
including no tolerance of discrimination, equal chances for everyone, an
inclusive culture, removing barriers, and DEI education.
Sage will also need to create a culture of empowered leaders that supports the · Code of Conduct training for all colleagues (including
development of ideas, and that provides colleagues with a safe environment Anti-Bribery and Corruption requirements) delivered as snippets, allowing Sage
allowing for honest disclosures and discussions. Such a trusting and empowered to signpost relevant training at colleagues' point of need.
environment can help sustain innovation, enhance customer success, and
encourage the engagement that results in increased market share. · Core eLearning modules rolled out across Sage, with regular
refresher training.
· Whistleblowing and incident-reporting mechanisms in place to
allow issues to be formally reported and investigated.
Cyber Security and Data Privacy Risk Trend: Improving Risk Environment
If we fail to collect, process and store data responsibly, and ensure an Information is the life blood of a digital company - protecting the · Multi-year cyber security programmes in IT and products to ensure
appropriate standard of cyber security across the business, we will not meet confidentiality, integrity and accessibility of this data is critical for a Sage is continuously improving, and reduce cyber risk across technology,
our regulatory obligations and will lose the trust of our stakeholders. data-driven business, and failure to do so can have significant financial and business processes and culture.
regulatory consequences in the General Data Protection Regulation (GDPR) era.
Strategic alignment: In addition, we also need to use our data efficiently and effectively to · Accountability within both IT and Product for all internal and
improve business performance. external data being processed by Sage. The Chief Information Security Officer
oversees information security, with a network of Information Security Officers
that directly support the business.
· Launch of the Trust and Security Hub and publication of Cyber
Security for SMBs report to support our customers.
· The Chief Data Protection Officer oversees information
protection.
· Formal certification schemes maintained across the business, and
include internal and external validation of compliance.
· All colleagues are required to undertake awareness training for
cyber security, information management and data protection, with a focus on
the GDPR requirements.
· A Cyber Security Risk Management Methodology is deployed to
provide objective risk information on our assets and systems.
Data Strategy Risk Trend: Improving Risk Environment
If we fail to recognise the value of our data assets, create effective data Data is central to the Sage strategy to deliver sustainable growth by · A strategy across customer, product, and enterprise data to
foundations, and capitalise on their use, we will not be able to realise their expanding the Sage Network. The strategy is underpinned by our ability to support the delivery of customer value and solve customer problems, including
full potential to secure strategically aligned outcomes. innovate and develop solutions to enhance customer propositions, improve the use of enhanced AI/ML capabilities.
insight and decision-making and create new business models and ecosystems.
Strategic alignment:
· A defined set of Data and AI Ethics Principles to ensure we use
customer data responsibly to achieve our strategy.
Successful ability to use data will accelerate our growth and will be a key · A Data and AI Ethics Council, which includes members from the
driver in helping customers transform how they run and build their businesses. Executive Leadership Team and will govern activities relating to Data and AI
Ethics.
· Plan to increase participation in the Sage Network, which will
contribute to more data to support the delivery of real customer value and
solve real customer problems.
· Governance policies, processes and tooling to enhance and manage
the quality and trust in our data.
· The implementation of data architecture and associated data
models that facilitate data sharing and utilisation.
· A data asset register, and associated use case catalogue, to
enable effective prioritisation and value creation.
Readiness to Scale Risk Trend: Improving Risk Environment
As Sage's ambition grows, if it fails to ensure its cloud products can build As Sage continues to build sustainable growth, we continue to focus on scaling · Migration of products to public cloud offerings to improve
and operate at an industrial, global scale it will erode its competitive our current and future platform-services environment in a rigorous, agile, and scalability, resilience and security.
advantage. speedy manner to ensure we provide a consistent and healthy cloud platform and
associated network. · Accountability across product owners, underpinned by ongoing risk
The hosting of products must achieve economies of scale, aligned to ambition,
assessments and continuous improvement projects.
in parallel with the ability to accelerate to market with quality. Both must
be achieved with reduced environmental impact and no customer impact.
· Formal onboarding process through ongoing portfolio management
Sage must provide the right infrastructure and operations for all customer
If not addressed, Sage's cloud products would be less resilient and less able products, a hosting platform together with the governance to ensure optimal · Incident and problem management change processes adhered to for
to respond to its customer expectations. service availability, performance, security protection, and restoration (if all products and services.
required).
Strategic alignment:
· Service-level objectives including uptime, responsiveness, and
mean time to repair.
· Defined real-time demand-management processes and controls, and
also disaster-recovery capability and operational-resilience models.
· A governance framework to optimise operational cost base in line
with key metrics.
· All new acquisitions are required to adopt Sage cloud operation
standards.
Environmental, Social and Governance Risk Trend: Improving Risk Environment
If Sage fails to fully, and continually, respond to the range of opportunities We invest in education, technology, · Sage's Sustainability and Society strategy, informed by a
and risks associated with ESG it will erode its reputation and competitive
rigorous materiality assessment, focusing on 3 pillars: Protect the Planet,
advantage. and the environment to give individuals, SMBs, and our planet the opportunity Tech for Good, Human by Design.
to thrive.
· Ensuring adequate executive oversight through the Sustainability
and Society Committee.
Sage would also be less resilient and able to respond to its internal and
external expectations and damage stakeholder trust. Sage may also incur higher Internally, it is essential that Sage understands the potential impact of · Enabling accountability through integration on ESG measures
cost of capital and lose credibility unless it can demonstrate strong ESG climate change to its strategy and operations and considers appropriate within long-term incentive plans.
credentials to the market. mitigations.
· A strict portfolio governance approach to working
cross-functionally to meet sustainability commitments.
Strategic alignment: Societal and Governance-related issues are integral to Sage's purpose and · An integrated framework for the management of ESG-related risk
values and to the achievement of and, in particular, physical and transitional climate risks, as detailed by
TCFD.
Sage's strategy.
· All colleagues are encouraged to take up to 5 paid Sage
Foundation days each year, to support charities and provide philanthropic
support to the community.
You can read more about the work we are doing on ESG in the Sustainability and
Society Report 2023.
Statement of Directors' Responsibilities
The condensed consolidated half-yearly financial report for the six months
ended 31 March 2024 includes the following responsibility statement.
Each of the Directors confirms that, to the best of their knowledge:
· the Group condensed consolidated half-yearly 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 Half-Yearly Management Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rules 4.2.7R
and 4.2.8R, namely:
o an indication of important events that have occurred during the six months
ended 31 March 2024 and their impact on the condensed consolidated half-yearly
financial report, and a description of the principal risks and uncertainties
that the Group faces for the remaining six months of the current financial
year; and
o any related party transactions in the six months ended 31 March 2024 that
have materially affected the financial position or performance of the Group
during that period and any changes in the related party transactions described
in the last Annual Report that could have a material effect on the financial
position or performance of the Group in the six months ended 31 March 2024.
The Directors of The Sage Group plc are consistent with those listed in the
Group's Annual Report and Accounts 2023, except for the following changes:
· Drummond Hall, has retired as a Non-executive Director and from his
role as Senior Independent Director with effect from 31 December 2023; and
· Annette Court, has been appointed as Senior Independent Director
with effect from 1 January 2024.
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
15 May 2024
Independent review report to The Sage Group plc
Conclusion
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 2024 which comprises the 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 2024 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) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. 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 are
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".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
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, including our Conclusions
Relating to Going Concern, are 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) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. 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
15 May 2024
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 (#_ednref1) See Appendix 1 for full definitions and guidance on the usage
of the Alternative Performance Measures.
2 (#_ednref2) To aid comparability, underlying and organic measures for the
prior period have been retranslated at current period exchange rates and
exclude recurring and non-recurring items, while organic measures also adjust
for the impact of acquisitions and disposals. A reconciliation of underlying
and organic measures to statutory measures is set out on pages 6 and 7.
Underlying and organic measures are defined in Appendix 1.
All references to revenue, profit and margin are on an underlying basis unless
otherwise stated.
3 (#_ednref3) United Kingdom, Ireland, Africa and APAC.
4 (#_ednref4) Cloud native solutions run in a cloud environment enabling
access to up-to-date functionality at any time, from any location, via the
internet.
5 (#_ednref5) Cloud connected solutions are deployed on premise with
significant functionality delivered through the cloud.
6 (#_ednref6) Retranslated at current year exchange rates.
7 (#_ednref7) Global gender diversity target of no more than 60% of any one
gender, in any leadership team, anywhere in Sage, by FY26.
8 (#_ednref8) Underlying and organic revenue and profit measures are defined
in Appendix 1.
9 (#_ednref9) Recurring and non-recurring items are defined in Appendix 1,
and detailed on page 7 and in note 3 of the financial statements.
10 (#_ednref10) Recurring and non-recurring items are defined in Appendix 1
and detailed in note 3 of the financial statements.
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