REG - Sage Group PLC - Results for the year ended 30 September 2022
16/11/2022 07:00
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RNS Number : 5296G Sage Group PLC 16 November 2022
The Sage Group plc
Results for the year ended 30 September 2022 (audited)
16 November 2022
Strong execution accelerates growth
· Significant strategic progress with accelerating revenue growth and
organic margin expansion
· Organic recurring revenue growth of 9%, underpinned by Sage
Business Cloud growth of 24%
· ARR growth of 12%, with increased momentum in all regions driven by
new and existing customers
· Organic operating margin increased to 19.9%, as we focus on
efficiently scaling the business
· Underlying basic EPS growth of 8%
· Continued strong cash performance, with cash conversion of 107%
Alternative Performance Measures (APMs) 1 (#_ftn1) FY22 FY21 2 (#_ftn2) Change
Organic Financial APMs
Organic Total Revenue £1,924m £1,809m +6%
Organic Recurring Revenue £1,824m £1,667m +9%
Organic Operating Profit £383m £353m +8%
% Organic Operating Profit Margin 19.9% 19.5% +0.4 ppts
Underlying Financial APMs
EBITDA £468m £454m +3%
% EBITDA Margin 24.0% 24.2% -0.2 ppts
Underlying Operating Profit £377m £368m +2%
% Underlying Operating Profit Margin 19.4% 19.6% -0.2 ppts
Underlying Basic EPS 25.74p 23.79p +8%
Underlying Cash Conversion 107% 126% -19 ppts
KPIs
Annualised Recurring Revenue (ARR) £2,027m £1,816m +12%
Renewal Rate by Value 101% 99% +2 ppts
% Subscription Penetration 75% 70% +5 ppts
% Sage Business Cloud Penetration 75% 67% +8 ppts
Statutory Measures FY22 FY21 Change
Revenue £1,947m £1,846m +5%
Operating Profit £367m £373m -2%
% Operating Profit Margin 18.9% 20.2% -1.3 ppts
Basic EPS (p) 25.47p 26.33p -3%
Dividend Per Share (p) 18.40p 17.68p +4%
Please note that tables may not cast and change percentages may not calculate
precisely due to rounding.
Commenting on the results, CEO Steve Hare said:
"Sage has had a strong year, making good progress as we deliver on our
strategic priorities. We significantly accelerated revenue across all key
products and regions, expanded our organic operating margin and delivered
strong cash flow. ARR growth of 12%, underpinned by increasing levels of new
customer acquisition, is particularly encouraging and positions us well for
the year ahead.
"Sage's purpose of knocking down barriers so everyone can thrive is more
important now than ever. Sage Business Cloud solutions enable small and
mid-sized businesses to streamline their processes and unlock productivity,
helping them to achieve more with less. While we are mindful of macroeconomic
uncertainties, I am confident that our resilient business model together with
our strategy for delivering efficient growth, centred on our expanding digital
network, will enable us to create further long-term value for all our
stakeholders."
Financial highlights
· Organic recurring revenue increased by 9% to £1,824m, underpinned
by Sage Business Cloud growth of 24% to £1,261m. Organic total revenue grew
by 6% to £1,924m.
· Organic operating profit grew by 8% to £383m, with margin
increasing to 19.9% (FY21: 19.5%) driven by operating efficiencies as we scale
the Group.
· EBITDA increased by 3% to £468m, with margin decreasing slightly
to 24.0% (FY21: 24.2%) mainly due to the impact of disposals.
· Statutory operating profit decreased by 2% to £367m due to the
change in recurring and non-recurring items(1), including higher net gains in
the prior year from disposals.
· Underlying basic EPS up by 8% reflecting higher underlying profit
and the recent £600m share buyback.
· Continued strong cash performance, with cash conversion of 107%
reflecting ongoing growth in subscription revenue.
· Robust balance sheet, with c. £1.3bn of cash and available
liquidity, and net debt to EBITDA of 1.6x.
· Final dividend up 4% to 12.1p, in line with our dividend policy,
taking the full year dividend to 18.4p.
Strategic and operational highlights
· Annualised recurring revenue (ARR) up 12% to £2,027m (FY21:
£1,816m), reflecting a strong performance across all regions, with growth
accelerating from both new and existing customers.
· £180m of ARR added through new customer acquisition, up from
£140m in FY21.
· Cloud native ARR up 38% to £530m (FY21: £384m) driven by new
customers and supported by migrations, with a particularly strong performance
from Sage Intacct.
· Renewal rate by value of 101%, ahead of last year (FY21: 99%),
reflecting good retention rates and strong sales to existing customers.
· Sage Business Cloud penetration of 75% (FY21: 67%), enabling more
customers to connect to Sage's cloud services and ecosystem via the Sage
digital network.
· Strong progress in strategic execution including several new
product launches across the Group; continued focus on innovation driving new
AI-based services including Accounts Payable automation.
· Refreshed brand landing well with stakeholders and helping to build
stronger customer connections.
· Accelerated growth strategy with key acquisitions including
Brightpearl, Futrli and Lockstep; disposal programme now complete following
the sale of Sage Switzerland and South African payroll outsourcing.
Outlook
Sage enters FY23 with strong momentum, having made good strategic progress to
accelerate growth. Looking ahead, we expect organic recurring revenue growth
to be ahead of last year driven by strength in Sage Business Cloud, and other
revenue (SSRS) to decline in line with our strategy. Operating margins are
expected to trend upwards in FY23 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) 7721 599502 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
live webcast can be accessed via sage.com/investors or directly via the
following link: https://edge.media-server.com/mmc/p/umpbfg5k
(https://edge.media-server.com/mmc/p/umpbfg5k) . To join the conference call,
please register via
https://register.vevent.com/register/BI0b234f8d6411450caeaea347d4931188
(https://register.vevent.com/register/BI0b234f8d6411450caeaea347d4931188) .
Business Review
Sage made significant progress in FY22, achieving a strong financial
performance and increasing momentum throughout the Group. We significantly
accelerated our revenue growth while expanding our organic operating margin
through efficiencies. Our progress reflects strong execution against our
strategic priorities, supported by continuing investment in sales, marketing
and innovation.
Sage serves a diverse customer base of small and mid-sized businesses around
the world. SMBs are rapidly adopting new cloud solutions in order to automate
workflows, gain better business insights and comply with regulatory
obligations. Our trusted portfolio of finance, HR and payroll solutions
positions us well to support them. Sage's purpose is to knock down barriers
so everyone can thrive, recognising that as we remove friction and make life
easier for SMBs, they in turn have a positive effect on the economies and
communities in which they operate.
Overview of results
The Group achieved organic recurring revenue growth of 9% to £1,824m,
underpinned by a 24% increase in Sage Business Cloud revenue to £1,261m, and
organic total revenue growth of 6% to £1,924m. Regionally, North America
increased recurring revenue by 14% to £779m, driven by Sage Intacct and cloud
connected solutions, while Northern Europe grew recurring revenue by 7% to
£419m, largely through a strong cloud native performance. In International,
recurring revenue increased by 6% to £626m, reflecting growth across the Sage
Business Cloud portfolio.
Our focus on growing cloud revenues has increased Sage Business Cloud
penetration to 75%, up 8 percentage points compared to FY21. We have also
continued to grow software subscription revenues, leading to a rise in
subscription penetration of 5 percentage points to 75%. As a result of the
evolving business mix, 95% of the Group's organic total revenue is now
recurring, up from 92% in FY21.
Portfolio View of Revenue
The portfolio view breaks down Sage's organic revenue by strategic product
portfolio. Our principal focus is to grow Sage Business Cloud, by attracting
new customers and migrating existing customers and products to cloud native
and cloud connected solutions. Sage Business Cloud customers can connect to a
range of cloud services as part of Sage's digital network, leading to deeper
customer relationships and higher lifetime values.
Organic Revenue by Portfolio 3 (#_ftn3) Recurring Total
FY22 FY21 Growth FY22 FY21 Growth
Cloud native 4 (#_ftn4) £419m £297m +41% £430m £311m +38%
Cloud connected 5 (#_ftn5) £842m £722m +17% £852m £734m +16%
Sage Business Cloud £1,261m £1,019m +24% £1,282m £1,045m +23%
Products with potential to migrate £422m £495m -15% £477m £580m -18%
Future Sage Business Cloud Opportunity 6 (#_ftn6) £1,683m £1,514m +11% £1,759m £1,625m +8%
Non-Sage Business Cloud 7 (#_ftn7) £141m £153m -8% £165m £184m -10%
Organic Total Revenue £1,824m £1,667m +9% £1,924m £1,809m +6%
Sage Business Cloud Penetration 75% 67%
Recurring revenue from cloud native solutions grew by 41% to £419m, driven by
Sage Intacct together with other solutions including Sage Accounting and Sage
People, primarily through new customer acquisition. Cloud native growth has
also been driven by migrations principally to Sage HR and to Sage Partner
Cloud.
Recurring revenue from cloud connected solutions increased by 17% to £842m,
reflecting continuing growth in the Sage 50 and Sage 200 franchises driven by
existing and new customers, together with faster migration of products to Sage
Business Cloud through the integration of cloud functionality. Overall, the
Future Sage Business Cloud Opportunity, which represents products in or with a
clear pathway to Sage Business Cloud, has performed strongly with recurring
revenue growth of 11%.
The revenue decline in the Non-Sage Business Cloud portfolio is in line with
expectations and reflects the ongoing strategy to focus on solutions with a
clear pathway to Sage Business Cloud.
ARR growth
Sage's ARR accelerated across all regions, increasing by 12% to £2,027m
(FY21: £1,816m) and reflecting strong growth balanced between new and
existing customers. This was underpinned by cloud native ARR growth of 38% to
£530m (FY21: £384m), reflecting a strong performance particularly from Sage
Intacct, Sage People, Sage Accounting and Sage HR. In absolute terms cloud
native ARR grew by £146m, up from £107m 8 (#_ftn8) in the prior year.
Renewal rate by value of 101% (FY21: 99%) is ahead of last year reflecting
good retention rates, a strong performance in customer add-ons and targeted
price rises.
In total, Sage added £180m of ARR through new customer acquisition during the
year (FY21: £140m(8)).
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 have accelerated growth in Sage Intacct by
investing in sales and distribution while further enriching the solution with
new functionality and services. Sage Intacct's vertical reach was enhanced
through the acquisition of Brightpearl in retail, new features in construction
and real estate, and the release of Sage Intacct Manufacturing in France, the
UK, and now also the US. As a result, Sage Intacct's ARR grew by a third in
the US and by 150% outside the US in FY22, driven by a record number of new
customer wins, a higher renewal rate and expanded average contract value.
· Expand medium beyond financials: We are developing solutions for
mid-sized businesses that deliver benefits beyond core accounting. During the
year we launched an AI-driven service to automate manual accounts payable
processes for Sage Intacct customers in the US, significantly reducing invoice
processing costs and data entry error. We also launched Sage People Payroll,
bringing integrated payroll functionality to Sage People in the US and the UK.
Sage Intacct Planning has continued to grow rapidly, surpassing 1,000
customers in the US and Canada.
· Build the small business engine: Sage continues to achieve strong
growth from UK small business solutions (including Sage Accounting and Sage
HR), through both direct sales and accountants. Sage for Accountants,
complemented by the recent acquisitions of GoProposal (client management) and
Futrli (cashflow forecasting), is performing well, attracting over 2,000
accountancy practices since launch last November. In August Sage was
recognised on HMRC's official list of software compatible with Making Tax
Digital for Income Tax Self-Assessment (MTD for ITSA). Further progress was
made in internationalising the UK small business approach, including in South
Africa and Canada.
· Scale the network: Scaling Sage's digital network creates a
virtuous circle, with more data enabling better services to deliver richer
experiences. We are expanding Sage Business Cloud availability, particularly
in International, with recent product launches including Sage Active in
France, Sage Accounting in Spain, and Sage HR in Germany. We will soon launch
Sage Intacct in France, bringing the solution to non-English speaking markets
for the first time. During the year we created a new Digital Network business
unit, led by Aaron Harris, Chief Technology Officer, to implement our network
strategy. This strategy has been accelerated by the recent acquisition of
Lockstep, bringing accounts receivable automation capabilities and other
innovative features to the Sage digital network.
· Learn and disrupt: We continue to invest in innovation, driving
disruptive new technologies and accelerating AI and machine learning. Our
outlier detection engine has so far attracted over 1,000 customers, helping to
increase the accuracy of general ledger transactions. During the year we
entered into an expanded partnership with Microsoft, integrating Teams with
Sage Intacct and Sage People to simplify approval and collaboration workflows,
and making Sage Intacct and Sage Active available on Microsoft Azure as part
of our multi-cloud access strategy. We have also entered into partnerships
with Experian and Tide to deliver innovative services to small businesses and
consumers.
Refreshed brand
During the year we refreshed our brand proposition to emphasise the simplicity
and confidence we deliver to customers, with our easy-to-use solutions backed
by expert human advice helping them to make better and faster decisions. To
support the roll-out and drive brand awareness we have partnered with major
sporting competitions including The Hundred cricket, Major League Baseball and
the Six Nations Rugby to deliver data-led insights to viewers and fans.
Recognising the success of the brand refresh, Sage was shortlisted for the
Marketing Week Awards Brand of the Year 2022.
Colleagues
Sage is committed to creating an innovative, equitable and inclusive culture,
knocking down barriers so colleagues feel valued and empowered to thrive. We
continue to invest in training, running development programmes for colleagues
and providing senior sponsorship and mentoring schemes.
Putting colleague wellbeing first helps us attract talent and drives
sustainable high performance. Our comprehensive approach to wellbeing covers
four key pillars including healthy mind, healthy body, healthy finances and
healthy communities. Resources available include a global wellbeing hub,
healthy mind coaches, free access to the Headspace app, colleague support
networks and assistance programmes. Our Flexible Human Work initiative,
co-designed with colleagues, gives teams a clear framework for flexible
working and encourages an experimental, collaborative mindset.
Participation in Sage's diversity, equity, and inclusion (DEI) initiatives
increased significantly during the year, as we seek to embed DEI through our
everyday business processes. During the year Sage has continued to be
recognised as a great place to work based on colleague feedback, receiving
awards from organisations including Comparably in the US, Glassdoor in the UK
and Kununu in Germany. Our Glassdoor score of 4.2 has improved over the year
and is in line with target.
Society
Sage supports SMBs which form the foundation of economic prosperity around the
world, and through our Sustainability and Society strategy, Sage aims to
support sustainable and inclusive economic growth so everyone can thrive. The
Sage Foundation plays an important role in this strategy, mobilising Sage
colleagues, their families and partners to donate 150,000 volunteer hours and
raise almost £1 million in FY22 to support charitable and environmental
causes.
To help tackle the climate crisis, Sage is targeting net zero carbon emissions
by 2040, with a 50% reduction by 2030. During the year, the Group submitted
its science-based target for validation, made progress towards its Scope 1 and
2 emissions reduction, and engaged with suppliers to reduce Scope 3 emissions.
We also recently acquired Spherics, an innovative carbon accounting solution,
enabling us to support our customers in their net zero journeys.
To help tackle economic inequality, during FY22 we have supported over 13,000
entrepreneurs in underserved communities with loan funds and grants through
our partnerships with Kiva and The Boss Network. In addition, to address
digital inequality, we have helped develop STEM skills in almost 5,000 young
people in deprived communities across northeast England, through our
partnership with the Institute of Engineering and Technology.
In May, MSCI upgraded Sage's ESG rating to 'AAA', indicating we are a leader
in the software and services industry in managing the most significant ESG
risks and opportunities.
Financial Review
The financial review provides a summary of Sage's results on a statutory and
underlying basis, as well as considering the organic performance of the
business. Underlying measures allow management and investors to understand the
financial performance of the Group adjusted for the impact of foreign exchange
movements and recurring and non-recurring items, while organic measures also
adjust for the impact of acquisitions and disposals 9 (#_ftn9) .
Future reporting changes
In FY23 Sage intends to evolve its reporting by giving greater emphasis to
underlying measures. Accordingly, financial metrics and analysis will be
provided primarily on an underlying basis, alongside organic growth rates, to
enable a clearer understanding of both the organic and inorganic performance
of the Group.
Sage also intends to change the presentation of its regional reporting, to
reflect recent changes to the way in which the Group manages its operations.
From FY23, we will report performance across the following regions: North
America, comprising the US, Sage Intacct and Canada; UKIA 10 (#_ftn10) ,
comprising Northern Europe and Africa & APAC; and Europe, comprising
France, Central Europe and Iberia.
These changes will not impact Sage's primary financial statements or notes to
the accounts.
Organic Financial Results
In FY22 Sage achieved organic recurring revenue growth of 9% to £1,824m and
organic total revenue growth of 6% to £1,924m. The increase in recurring
revenue was underpinned by a 24% rise in Sage Business Cloud revenue to
£1,261m, reflecting strength from new customer acquisition, increased sales
to existing customers and continued progress in migrating customers and
products to cloud solutions.
Other revenue (SSRS) declined by 30% to £100m, in line with our strategy to
transition away from licence sales and professional services implementations.
The Group's organic operating profit increased by 8% to £383m, representing
an organic operating margin of 19.9%. Organic operating margin has trended
upwards from 19.5% in FY21, driven by operating efficiencies, as we focus on
scaling the Group.
Statutory and Underlying Financial Results
Financial Results Statutory Underlying
FY22 FY21 Change FY22 FY21 Change
North America £818m £687m +19% £819m £734m +12%
Northern Europe £433m £402m +8% £434m £401m +8%
International £696m £757m -8% £696m £743m -6%
Group Total Revenue £1,947m £1,846m +5% £1,949m £1,878m +4%
Operating Profit £367m £373m -2% £377m £368m +2%
% Operating Profit Margin 18.9% 20.2% -1.3 ppts 19.4% 19.6% -0.2 ppts
Profit Before Tax £337m £347m -3% £346m £343m +1%
Net Profit £260m £285m -9% £263m £257m +2%
Basic EPS 25.47p 26.33p -3% 25.74p 23.79p +8%
The Group achieved statutory total revenue of £1,947m, a 5% increase on the
prior year, reflecting good levels of organic growth in all regions partly
offset by disposals, together with a £47m foreign exchange tailwind
principally relating to the US Dollar in North America, and a £15m foreign
exchange headwind principally relating to the Euro in the International
region. Underlying total revenue, which normalises the comparative period for
foreign exchange movements, increased by 4%.
Statutory operating profit decreased by 2% to £367m, driven mainly by the
change in recurring and non-recurring items (see page 7). Underlying operating
profit, which excludes recurring and non-recurring items, increased by 2% to
£377m.
Statutory basic EPS decreased by 3% to 25.47p, reflecting a higher statutory
income tax expense and the post-tax impact of recurring items, offset by a
reduction in the number of shares outstanding following the Group's share
buyback programme. Underlying basic EPS increased by 8% to 25.74p.
Underlying & Organic Reconciliations to Statutory
FY22 FY21
Revenue Operating Operating Revenue Operating Operating
Profit Margin Profit Margin
Statutory £1,947m £367m 18.9% £1,846m £373m 20.2%
Recurring items 11 (#_ftn11) £2m £83m - - £40m -
Non-recurring items:
· Gain on disposal of subsidiaries - (£53m) - - (£126m) -
· (Reversal of) / restructuring costs - (£20m) - - £62m -
· Office relocation - - - - £9m -
Impact of FX 12 (#_ftn12) - - - £32m £10m -
Underlying £1,949m £377m 19.4% £1,878m £368m 19.6%
Disposals (£7m) (£1m) - (£69m) (£15m) -
Acquisitions (£18m) £7m - - - -
Organic £1,924m £383m 19.9% £1,809m £353m 19.5%
Revenue
Statutory revenue of £1,947m in FY22 was slightly below underlying revenue of
£1,949m, due to a fair value adjustment to deferred income relating to the
acquisition of Brightpearl. Underlying revenue in FY21 of £1,878m reflects
statutory revenue of £1,846m retranslated at current year exchange rates,
resulting in an FX tailwind of £32m.
Organic revenue of £1,924m (FY21: £1,809m) reflects underlying revenue
adjusted for £7m of revenue from businesses sold during the period, including
Sage Switzerland and the South African payroll outsourcing business, and £18m
of revenue from businesses acquired during the period, primarily Brightpearl.
In FY21, revenue from disposals included £69m of revenue from Sage's
businesses in Poland, Australia and Asia, Switzerland, and the South African
payroll outsourcing business.
Operating profit
The Group achieved a statutory operating profit in FY22 of £367m (FY21:
£373m). Underlying operating profit of £377m (FY21: £368m) reflects
statutory operating profit adjusted for recurring and non-recurring items.
Recurring items of £83m (FY21: £40m) comprise £42m of amortisation of
acquisition-related intangibles (FY21: £31m) and £39m of M&A related
charges (FY21: £9m), in addition to a £2m deferred income adjustment
relating to the acquisition of Brightpearl.
Non-recurring items include a £53m gain on disposal, principally from the
sale of Sage's business in Switzerland (FY21: £126m gain from the disposal of
Sage's businesses in Poland, Australia and Asia), together with a £20m
reversal of employee restructuring costs, primarily relating to the business
transformation announced in September 2021, as some colleagues were redeployed
or left the business.
Organic operating profit of £383m (FY21: £353m) reflects underlying
operating profit adjusted for £1m of operating profit from Sage's business in
Switzerland and the South African payroll outsourcing business, and £7m of
operating losses from businesses acquired during the year. In FY21, operating
profit from disposals included £15m from Sage's businesses in Poland,
Australia and Asia, Switzerland, and the South African payroll outsourcing
business.
Organic Revenue Overview
Organic Revenue Mix FY22 FY21 Change
£m % of Total £m % of Total
Software Subscription Revenue £1,445m 75% £1,263m 70% +14%
Other Recurring Revenue £379m 20% £404m 22% -6%
Organic Recurring Revenue £1,824m 95% £1,667m 92% +9%
Other Revenue (SSRS) £100m 5% £142m 8% -30%
Organic Total Revenue £1,924m 100% £1,809m 100% +6%
Organic total revenue increased by 6% in FY22 to £1,924m. Organic recurring
revenue grew by 9% to £1,824m, supported by a 14% increase in software
subscription revenue to £1,445m, reflecting the continued focus on attracting
new customers and migrating existing customers to subscription and Sage
Business Cloud. The decline in other recurring revenue of 6% to £379m
reflects customers migrating from maintenance and support to subscription
contracts. Other revenue (SSRS) declined by 30% to £100m, in line with our
strategy to transition away from licence sales and professional services
implementations.
North America
Organic Revenue by Category FY22 FY21 Change
Organic Total Revenue £810m £734m +10%
Organic Recurring Revenue £779m £685m +14%
% Sage Business Cloud Penetration 79% 73% +6 ppts
% Subscription Penetration 73% 66% +7 ppts
Organic Recurring Revenue FY22 FY21 Change
US £666m £581m +15%
Of which Sage Intacct £231m £176m +31%
Canada £113m £104m +9%
North America achieved organic recurring revenue growth of 14% to £779m and
organic total revenue growth of 10% to £810m. Sage Business Cloud penetration
is now 79%, up from 73% in the prior year, driven by growth in cloud native
and cloud connected solutions, while subscription penetration is 73%, up from
66% in the prior year.
Cloud native growth was driven primarily through Sage Intacct, which delivered
strong recurring revenue growth of 31% to £231m reflecting continued good
levels of new customer acquisition and supported by strong sales to existing
customers through increased cross-sell and up-sell.
Recurring revenue in the US increased by 15% to £666m, driven by Sage Intacct
alongside cloud connected growth across the Sage 200 and Sage 50 franchises.
Total revenue for the US increased by 11% to £695m.
In Canada, recurring revenue increased by 9% to £113m and total revenue by 6%
to £115m, driven mainly by Sage 50 cloud and Sage 200 cloud solutions,
together with growth in Sage Intacct and Sage Accounting.
Northern Europe
Organic Revenue by Category FY22 FY21 Change
Organic Total Revenue £425m £401m +6%
Organic Recurring Revenue £419m £390m +7%
% Sage Business Cloud Penetration 90% 86% +4 ppts
% Subscription Penetration 93% 90% +3 ppts
Northern Europe (UK & Ireland) achieved organic recurring revenue growth
of 7% to £419m and organic total revenue growth of 6% to £425m. Sage
Business Cloud penetration is now 90%, up from 86% in the prior year, while
subscription penetration is 93%, up from 90% in the prior year.
Recurring revenue growth primarily reflects accelerating growth in cloud
native solutions, supported by further growth in Sage 50 cloud connected.
Cloud native revenue growth in Northern Europe was driven by strong new
customer acquisition in Sage Accounting, Sage Intacct and Sage People,
together with migrations, principally to Sage HR. Sage Intacct continues to
grow rapidly in the UK, as we accelerate investment across our sales channels.
International
Organic Revenue by Category FY22 FY21 Change
Organic Total Revenue £689m £674m +2%
Organic Recurring Revenue £626m £592m +6%
% Sage Business Cloud Penetration 59% 47% +12 ppts
% Subscription Penetration 67% 62% +5 ppts
Organic Recurring Revenue FY22 FY21 Change
Central and Southern Europe £486m £466m +4%
France £258m £249m +4%
Central Europe £108m £99m +9%
Iberia £120m £118m +3%
Africa & APAC £140m £126m +10%
The International region achieved organic recurring revenue growth of 6% to
£626m and organic total revenue growth of 2% to £689m. Sage Business Cloud
penetration increased significantly to 59%, up from 47% in the prior year,
while subscription penetration is 67%, up from 62% in the prior year.
In France, recurring revenue increased by 4% to £258m, with a strong
performance in cloud connected, supported by growth in cloud native solutions.
Total revenue in France was flat at £273m.
Central Europe achieved recurring revenue growth of 9% to £108m while total
revenue increased by 3% to £132m. Growth in the region is driven by a
combination of cloud connected and local products.
In Iberia, recurring revenue increased by 3% to £120m, with continued success
in migrating customers to subscription and cloud connected solutions. Total
revenue was flat at £134m.
Africa & APAC delivered strong recurring revenue growth of 10% to £140m,
driven by growth in both cloud native solutions and local products. Total
revenue in Africa & APAC increased by 8% to £150m compared with the prior
year.
Operating Profit
The Group increased organic operating profit by 8% to £383m (FY21: £353m).
Organic operating margin was 19.9% (FY21: 19.5%), trending upwards since last
year driven by operating efficiencies. During the year, the Group further
reassessed its bad debt provision in connection with Covid-19, releasing the
balance of the provision which resulted in a £7m credit to operating profit
(FY21: £8m credit).
Underlying operating profit was £377m (FY21: £368m), representing a margin
of 19.4% (FY21: 19.6%). The difference between organic and underlying
operating profit reflects the operating profit or loss from acquisitions and
disposals (as described on page 7).
EBITDA was £468m (FY21: £454m) representing a margin of 24.0%. The increase
in EBITDA principally reflects the improvement in organic operating profit,
partly offset by the impact of acquisitions and disposals on underlying
operating profit.
FY22 FY21 FY22 Margin
Organic Operating Profit £383m £353m 19.9%
Impact of disposals £1m £15m
Impact of acquisitions (£7m) -
Underlying Operating Profit £377m £368m 19.4%
Depreciation & amortisation £55m £50m
Share based payments £36m £36m
EBITDA £468m £454m 24.0%
Net Finance Cost
The statutory net finance cost for the period increased to £30m (FY21:
£26m), primarily reflecting the impact of interest on new debt issuance and
is broadly in line with the underlying net finance cost of £31m (FY21:
£25m).
Taxation
The underlying tax expense for FY22 was £83m (FY21: £86m), resulting in an
underlying tax rate of 24% (FY21: 25%). The statutory income tax expense for
FY22 was £77m (FY21: £62m), resulting in a statutory tax rate of 23% (FY21:
18%).
The difference between the underlying and statutory rate in FY22 primarily
reflects a non-taxable accounting net gain on disposals. The FY22 underlying
tax rate has decreased due to a reduction in the French corporation tax rate
together with certain non-recurring adjustments.
Earnings per Share
FY22 FY21 Change
Statutory Basic EPS 25.47p 26.33p -3%
Recurring items 6.72p 3.01p
Non-recurring items (6.45)p (6.25)p
Impact of foreign exchange - 0.70p
Underlying Basic EPS 25.74p 23.79p +8%
Underlying basic EPS increased by 8% to 25.74p, reflecting higher underlying
operating profit and a reduction in the number of shares outstanding following
the Group's share buyback programme.
Statutory basic earnings per share decreased by 3%, with the increase in
underlying basic earnings per share offset by the change in post-tax impact of
recurring items.
Cash Flow
Sage remains highly cash generative with underlying cash flow from operations
of £402m (FY21: £451m), representing underlying cash conversion of 107%
(FY21: 126%). Importantly, the Group has achieved cash conversion in excess of
100% for four consecutive years. This strong cash performance reflects further
growth in subscription revenue and continued strength in receivables
collection, offset by a reduction in payables driven by the timing of certain
payments to third parties during the year. Free cash flow of £295m (FY21:
£339m) largely reflects good underlying cash conversion.
Cash Flow APMs FY22 FY21 (as reported)
Underlying operating profit £377m £358m
Depreciation, amortisation and non-cash items in profit £51m £47m
Share based payments £36m £36m
Net changes in working capital (£40m) £65m
Net capital expenditure (£22m) (£55m)
Underlying Cash Flow from Operations £402m £451m
Underlying cash conversion % 107% 126%
Non-recurring cash items (£23m) (£9m)
Net interest paid (£21m) (£19m)
Income tax paid (£62m) (£81m)
Profit and loss foreign exchange movements (£1m) (£3m)
Free Cash Flow £295m £339m
Statutory Reconciliation of Cash Flow from Operations FY22 FY21 (as reported)
Statutory Cash Flow from Operations £368m £476m
Recurring and non-recurring items £55m £30m
Net capital expenditure (£22m) (£55m)
Other adjustment including foreign exchange translations £1m -
Underlying Cash Flow from Operations £402m £451m
Net debt and liquidity
Group net debt was £733m at 30 September 2022 (30 September 2021: £247m),
comprising cash and cash equivalents of £489m (30 September 2021: £567m) and
total debt of £1,222m (30 September 2021: £814m). The Group had £1,270m of
cash and available liquidity at 30 September 2022 (30 September 2021:
£1,236m).
The increase in net debt in the period is summarised in the table below.
FY22 FY21 (as reported)
Net debt at 1 October (£247m) (£151m)
Free cash flow £295m £339m
New leases (£6m) (£8m)
Disposal of businesses £43m £142m
Acquisition of businesses (£315m) -
M&A and equity investments (£22m) (£39m)
Dividends paid (£183m) (£189m)
Share buyback (£249m) (£353m)
Purchase of shares by Employee Benefit Trust (£32m) -
FX movement and other (£17m) £12m
Net debt at 30 September (£733m) (£247m)
The Group's debt is sourced from a syndicated multi-currency Revolving Credit
Facility (RCF), US private placement (USPP) loan notes, and sterling
denominated bond notes. The Group's RCF expires in February 2025 with
facility levels of £781m (split between US$719m and £135m tranches). At 30
September 2022, the RCF was undrawn (FY21: undrawn).
The Group's USPP loan notes at 30 September 2022 totalled £386m (US$400m and
EUR 30m) (FY21: £370m - US$400m and EUR 85m). The USPP loan notes have a
range of maturities between January 2023 and May 2025.
The Group's sterling denominated bond notes comprise a £400m 12-year bond,
issued in February 2022, with a coupon of 2.875%, and a £350m 10-year bond,
with a coupon of 1.625%, issued in February 2021.
Sage has an investment grade issuer credit rating assigned by Standard and
Poor's of BBB+ (stable outlook). Maturities within the next 18 months comprise
EUR 30m (£26m) and US$150m (£135m) of the Group's USPP loan notes in January
2023 and May 2023, respectively.
Capital allocation
Sage maintains a disciplined approach to capital allocation, with a focus on
accelerating strategic execution through organic and inorganic investment,
including through acquisitions and partnerships to enhance Sage Business Cloud
and further develop Sage's digital network. During the year Sage made
acquisitions of complementary technologies including Brightpearl, Futrli and
Lockstep, and completed its disposal programme with the sale of the Swiss
business and the South African payroll outsourcing business.
Sage has adopted 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 year, we have increased the full year dividend by 4% to 18.40p.
The Group also considers returning surplus capital to shareholders. On 24
January 2022, Sage completed a £300m share buyback programme that commenced
on 6 September 2021. A total of 39.8m shares were purchased under this
programme and are held as treasury shares. Including a previous £300m share
buyback programme undertaken during FY21, this brings the total capital
returned to shareholders since March 2021 to £600m. As a result, the weighted
average number of shares in issue during the year declined by 6% compared to
last year.
FY22 FY21 (as reported)
Net debt £733m £247m
EBITDA (Last Twelve Months) £468m £443m
Net debt/EBITDA Ratio 1.6x 0.6x
The Group's EBITDA over the last 12 months was £468m, resulting in a net debt
to EBITDA leverage ratio of 1.6x, up from 0.6x in the prior year principally
due to the impact of the share buyback and acquisitions on net debt. Group
return on capital employed (ROCE) for FY22 was 18% (FY21 as reported: 19%).
Sage intends to operate in a broad range of 1-2x net debt to EBITDA over the
medium term, with flexibility to move outside this range as business needs
require.
Going concern
The Directors have robustly tested the going concern assumption in preparing
these financial statements, taking into account the Group's strong liquidity
position at 30 September 2022 and a number of downside sensitivities, and
remain satisfied that the going concern basis of preparation is appropriate.
Further information is provided in note 1 of the financial statements on page
22.
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) FY22 FY21 Change
Euro (€) 1.18 1.15 3%
US Dollar ($) 1.28 1.37 -7%
Canadian Dollar (C$) 1.63 1.73 -6%
South African Rand (ZAR) 20.21 20.28 -
Australian Dollar (A$) 1.80 1.82 -1%
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, one‑off or
frequency to aid understanding of the performance for the year or non-operational 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, unhedged share growth can be evaluated.
FX on intercompany balances and fair value adjustments; 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 capex (excluding business combinations and similar cash conversion.
items) and changes in working capital.
Underlying Cash Conversion Underlying Cash Flow from Operations divided by Underlying (as reported) Cash conversion informs management and investors about the cash operating
Operating Profit. cycle of the business and how efficiently operating profit is converted into
cash.
EBITDA EBITDA is Underlying Operating Profit excluding depreciation, amortisation and To calculate the Net Debt to EBITDA leverage ratio and to show profitability
share based payments. before the impact of major non-cash charges.
Annualised recurring revenue Annualised recurring revenue ("ARR") is the normalised organic recurring ARR represents the annualised value of the recurring revenue base that is
revenue in the last month of the reporting period, adjusted consistently expected to be carried into future periods, and its growth is a
period to period, multiplied by twelve. Adjustments to normalise reported forward‑looking indicator of reporting recurring revenue growth.
recurring revenue include those components that management has assessed should
be excluded in order to ensure the measure reflects that part of the
contracted revenue base which (subject to ongoing use and renewal) can
reasonably be expected to repeat in future periods (such as non‑refundable
contract sign‑up fees).
Renewal Rate by Value The ARR from renewals, migrations, upsell and cross-sell of active customers As an indicator of our ability to retain and generate additional revenue from
at the start of the year, divided by the opening ARR for the year. our existing customer base through up and cross sell.
Free Cash Flow Free Cash Flow is Underlying Cash Flow from Operations minus net interest paid To measure the cash generated by the operating activities during the period
and income tax paid and adjusted for non-recurring cash items (which excludes that is available to repay debt, undertake acquisitions or distribute to
net proceeds on disposals of subsidiaries) and profit and loss foreign shareholders.
exchange movements.
% Subscription Penetration Organic software subscription revenue as a percentage of organic total To measure the progress of migrating our customer base from licence and
revenue. maintenance to a subscription relationship.
% Sage Business Cloud Penetration Organic recurring revenue from the Sage Business Cloud (native and connected To measure the progress in the migration of our revenue base to the Sage
cloud) as a percentage of the organic recurring revenue of the Future Sage Business Cloud by connecting our solutions to the cloud and/or migrating our
Business Cloud Opportunity. customers to cloud connected and cloud native solutions.
Return on Capital Employed (ROCE) ROCE is calculated as: As an indicator of the current period financial return on the capital invested
in the Company.
- Underlying Operating Profit; minus
ROCE is used as an underpin in the FY20, FY21 and FY22 PSP awards.
- Amortisation of acquired intangibles; the result being divided by
The average (of the opening and closing balance for the period) total net
assets excluding net debt, provisions for non-recurring costs, financial
liability for purchase of own shares and tax assets or liabilities (i.e.
capital employed).
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 year ended 30 September 2022
Note Underlying Statutory 2022 Underlying as reported* 2021 Adjustments
Adjustments
£m
£m
Statutory 2021
2022
(note 3)
£m
£m (note 3)
2021
2022
£m
£m
Revenue 2 1,949 (2) 1,947 1,846 - 1,846
Cost of sales (138) - (138) (131) - (131)
Gross profit 1,811 (2) 1,809 1,715 - 1,715
Selling and administrative expenses (1,434) (8) (1,442) (1,357) 15 (1,342)
Operating profit 2 377 (10) 367 358 15 373
Finance income 1 - 1 1 - 1
Finance costs (32) 1 (31) (26) (1) (27)
Profit before income tax 346 (9) 337 333 14 347
Income tax expense 4 (83) 6 (77) (83) 21 (62)
Profit for the year 263 (3) 260 250 35 285
Earnings per share attributable to the owners of the parent (pence)
Basic 6 25.74p 25.47p 23.09p 26.33p
Diluted 6 25.44p 25.17p 22.87p 26.08p
All operations in the year relate to continuing operations.
Note:
* Underlying as reported is at 2021 reported exchange rates.
Consolidated statement of comprehensive income
For the year ended 30 September 2022
2022 2021
£m £m
Profit for the year 260 285
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss
Fair value gain on reassessment of equity investment (see note 11) 30 -
Actuarial gain on post-employment benefit obligations 3 2
33 2
Items that may be reclassified to profit or loss
Exchange differences on translating foreign operations and net investment 177 (60)
hedges
Exchange differences recycled through income statement on sale of foreign (13) (21)
operations
164 (81)
Other comprehensive income/(expense) for the year, net of tax 197 (79)
Total comprehensive income for the year 457 206
The notes on pages 21 to 41 form an integral part of this condensed
consolidated yearly report.
Consolidated balance sheet
As at 30 September 2022
Note 2022 2021
£m £m
Non-current assets
Goodwill 7 2,416 1,877
Other intangible assets 7 294 190
Property, plant and equipment 7 152 164
Equity investments 4 21
Trade and other receivables 128 113
Deferred income tax assets 19 40
3,013 2,405
Current assets
Trade and other receivables 355 295
Current income tax asset 39 37
Cash and cash equivalents (excluding bank overdrafts) 10 489 553
Assets classified as held for sale 11 - 39
883 924
Total assets 3,896 3,329
Current liabilities
Trade and other payables (368) (592)
Current income tax liabilities (13) (31)
Borrowings 10 (178) (65)
Provisions (33) (68)
Deferred income (734) (611)
Liabilities classified as held for sale 11 - (13)
(1,326) (1,380)
Non-current liabilities
Borrowings 10 (1,044) (749)
Post-employment benefits (19) (22)
Deferred income tax liabilities (16) (5)
Provisions (20) (49)
Trade and other payables (6) (3)
Deferred income (8) (10)
Derivative financial instruments (60) -
(1,173) (838)
Total liabilities (2,499) (2,218)
Net assets 1,397 1,111
Equity attributable to owners of the parent
Ordinary shares 9 12 12
Share premium 9 548 548
Translation reserve 206 42
Merger reserve 61 61
Retained earnings 570 448
Total equity 1,397 1,111
Consolidated statement of changes in equity
For the year ended 30 September 2022
Attributable to owners of the parent
Ordinary shares Share premium Translation reserve Merger reserves Retained earnings Total
£m
£m
£m
£m
£m
equity
£m
At 1 October 2021 12 548 42 61 448 1,111
Profit for the year - - - - 260 260
Other comprehensive income/(expense)
Exchange differences on translating foreign operations and net investment - - 177 - - 177
hedges
Exchange differences recycled through income statement on sale of foreign - - (13) - - (13)
operations
Fair value gain on reassessment of equity investment 30 30
Actuarial gain on post-employment benefit obligations - - - - 3 3
Total comprehensive income - - 164 - 293 457
for the year ended 30 September 2022
Transactions with owners
Employee share option scheme-value of employee services including deferred tax - - - - 37 37
Proceeds from issuance of treasury shares - - - - 7 7
Purchase of shares by Employee Benefit Trust - - - - (32) (32)
Dividends paid to owners of the parent - - - - (183) (183)
Total transactions with owners - - - - (171) (171)
for the year ended 30 September 2022
At 30 September 2022 12 548 206 61 570 1,397
Consolidated statement of changes in equity
For the year ended 30 September 2021
Attributable to owners of the parent
Ordinary shares Share premium Translation reserve Merger reserve Retained earnings Total
£m
£m
£m
£m
£m
equity
£m
At 1 October 2020 12 548 123 61 908 1,652
Profit for the year - - - - 285 285
Other comprehensive (expense)/income
Exchange differences on translating foreign operations and net investment - - (60) - - (60)
hedges
Exchange differences recycled through income statement on sale of foreign - - (21) - - (21)
operations
Actuarial gain on post-employment benefit obligations - - - - 2 2
Total comprehensive (expense)/income - - (81) - 287 206
for the year ended 30 September 2021
Transactions with owners
Employee share option scheme-value of employee services including deferred tax - - - - 36 36
Proceeds from issuance of treasury shares - - - - 8 8
Share buyback programme - - - - (602) (602)
Dividends paid to owners of the parent - - - - (189) (189)
Total transactions with owners - - - - (747) (747)
for the year ended 30 September 2021
At 30 September 2021 12 548 42 61 448 1,111
Consolidated statement of cash flows
For the year ended 30 September 2022
Note 2022 2021
£m £m
Cash flows from operating activities
Cash generated from continuing operations 368 476
Interest paid (21) (19)
Income tax paid (62) (81)
Net cash generated from operating activities 285 376
Cash flows from investing activities
Proceeds on settlement of non-current asset - 3
Disposal of subsidiaries, net of cash disposed 11 42 135
Acquisition of subsidiaries, net of cash acquired 11 (285) -
Purchases of equity investments - (21)
Purchases of intangible assets 7 (40) (17)
Purchases of property, plant and equipment 7 (12) (39)
Proceeds from disposals of property, plant and equipment 10 -
Interest received 1 1
Net cash (used in)/generated from investing activities (284) 62
Cash flows from financing activities
Proceeds from borrowings 10 516 344
Repayments of borrowings 10 (166) (481)
Capital element of lease payments 10 (19) (22)
Borrowing costs (1) (1)
Proceeds from issuance of treasury shares 7 8
Share buyback programmes 9 (249) (353)
Purchase of shares by Employee Benefit Trust 9 (32) -
Dividends paid to owners of the parent 5 (183) (189)
Net cash used in financing activities (127) (694)
Net decrease in cash, cash equivalents and bank overdrafts (126) (256)
(before exchange rate movement)
Effects of exchange rate movement 10 48 (25)
Net decrease in cash, cash equivalents and bank overdrafts (78) (281)
Cash, cash equivalents and bank overdrafts at 1 October 10 567 848
Cash, cash equivalents and bank overdrafts at 30 September 10 489 567
Notes to the financial information
For the year ended 30 September 2022
1. Group accounting policies
General information
The Sage Group plc (the "Company") and its subsidiaries (together the "Group")
is a leading global supplier of finance, HR and payroll software to small and
mid-sized businesses.
The financial information set out above does not constitute the Company's
Statutory Accounts for the year ended 30 September 2022 or 2021 but is derived
from those accounts. Statutory Accounts for the year ended 30 September 2021
have been delivered to the Registrar of Companies and those for 2022 will be
delivered in December 2022. The auditors have reported on both sets of
accounts; their reports were unqualified and did not contain statements under
section 498 (2), (3) or (4) of the Companies Act 2006.
Whilst the financial information included in this announcement has been
computed in accordance with 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 & Accounts for 2022.
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
On 31 December 2020, as a result of the UK's withdrawal from the European
Union, IFRS as adopted by the European Union at that date was brought into UK
law and became UK-adopted International Accounting Standards (UK-IFRS), with
future changes being subject to endorsement by the UK Endorsement board. With
effect from 1 October 2021 the Group's statutory consolidated financial
statements were transitioned to UK-IFRS. There was no impact or change in
accounting policies from the transition. This change constitutes a change in
accounting framework.
The consolidated financial statements of The Sage Group plc. have been
prepared in accordance with UK-IFRS in conformity with the requirements of the
Companies Act 2006 and also prepared in accordance with IFRS as issued by the
IASB.
UK-IFRS can differ in certain respects from IFRS as issued by the IASB. The
differences have no impact on the Group's consolidated financial statements
for the years presented.
The consolidated financial statements have been prepared under the historical
cost convention, except where adopted IFRS require an alternative treatment.
The principal variations from the historical cost convention relate to
derivative financial instruments and equity investments which are measured at
fair value. The financial statements of the Group comprise the financial
statements of the Company and entities controlled by the Company (its
subsidiaries) prepared at the end of the reporting period. The accounting
policies have been consistently applied across the Group. The Company controls
an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity, which is usually from date of acquisition.
Going Concern
The impact of the economic environment on the Group and its key stakeholders
has been considered in the preparation of the financial statements and has
informed the level of stress testing performed. Specifically, consideration
has been given to the risks and uncertainties linked to the changing
macro-economic environment, and the possible impact on the Group's customer
base. In light of this, we note that the Group's operational and financially
robust position is supported by:
· High quality recurring and subscription based revenue;
· Resilient cash generation and robust liquidity position, supported by
strong underlying cash conversion of 107%, reflecting the strength of the
subscription business model; and
· A well-diversified small and medium sized customer base which is
geographically diverse.
The Directors have reviewed the liquidity and covenant forecasts for the Group
for the period to 31 March 2024 ("the going concern assessment period"), which
reflect the expected impact of economic conditions on trading. In doing so,
the Directors have also reviewed the extent to which the macro-economic
environment has been considered in building assumptions to support the
forecasts.
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. 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. Additional stress testing
has been performed as part of the severe but plausible scenarios (as described
within the Viability Statement of the Annual Report & Accounts for 2022).
The Directors also reviewed the results of reverse stress testing performed to
provide an illustration of the level of churn and deterioration in new
customer acquisition which would be required to trigger a breach in the
Group's covenants or 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 catastrophic 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 operational existence throughout the
going concern assessment period. Accordingly, the consolidated financial
information has been prepared on a going concern basis.
Accounting policies
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 30 September 2022.
Adoption of new and revised IFRSs
There are no accounting standards, amendments or interpretations effective for
the first time this financial year that have had a material impact on the
Group. No standards have been early adopted during the year.
Climate change
In preparing the consolidated financial statements management has considered
the impact of climate change, specifically with reference to the disclosures
included in the Strategic Report and the Group's stated net zero ambitions.
There were no factors identified that would have a material impact on the
Group's critical accounting estimates and judgements in the current year. The
considerations in relation to goodwill impairment testing are set out in Note
6.1 of the annual financial statements for the year ended 30 September 2022.
The assessment with respect to the impact of climate change will be kept under
review by management, as the future impacts depend on factors outside of the
Group's control, which are not all currently known.
Critical accounting estimates and judgements
The preparation of financial statements requires the use of accounting
estimates and assumptions by management. It also requires management to
exercise its judgement in the process of applying the accounting policies. We
continually evaluate our estimates, assumptions and judgements based on
available information. The areas involving a higher degree of judgement or
complexity are described below.
Revenue recognition
Over a third of the Company's revenue is generated from sales to partners
rather than end users. The key judgement is determining whether the business
partner is a customer of the Group. The key criteria in this determination is
whether the business partner has taken control of the product. Considering the
nature of Sage's subscription products and support services, this is usually
assessed based on whether the business partner has responsibility for payment,
has discretion to set prices, and takes on the risks and rewards of the
product from Sage.
Where the business partner is a customer of Sage, discounts are recognised as
a deduction from revenue.
Where the business partner is not a customer of Sage and their part in the
sale has simply been in the form of a referral, they are remunerated in the
form of a commission payment. These payments are treated as contract
acquisition costs.
Goodwill impairment
A key judgement is the ongoing appropriateness of the cash-generating units
(CGUs) for the purpose of impairment testing. CGUs are assessed in the context
of the Group's evolving business model, the Sage strategy, and the shift to
global product development. Management continues to assess performance and
allocate resources at a regional level, and so it is appropriate to monitor
goodwill at a regional level and CGUs to be based on geographical area of
operation.
The assumptions applied in calculating the value in use of the CGUs being
tested for impairment are a source of estimation uncertainty. The key
assumptions applied in the calculation relate to the future performance
expectations of the business-average medium-term revenue growth and long-term
growth rate-as well as the discount rate to be applied in the calculation.
These key assumptions used in performing the annual impairment assessment, and
further information on the level at which goodwill is monitored are disclosed
in the annual financial statements for the year ended 30 September 2022.
Business Combinations
When the Group completes a business combination, the consideration transferred
for the acquisition and the identifiable assets and liabilities are recognised
at their fair values. The amounts by which the consideration exceeds the net
assets acquired is recognised as goodwill. The application of accounting
policies to business combinations involves judgement and the use of estimates.
On 17 January 2022, the Group acquired the remaining 83% of shares in
Brightpearl which constituted a significant business combination. The key
areas of judgment and estimate include the identification and subsequent
measurement of acquired intangible assets. The total fair value of intangible
assets (excluding goodwill) acquired was £110m.
The Group engaged an external expert to support the identification and
measurement exercise. The intangible assets acquired that qualified for
recognition separately from goodwill were technology and customer
relationships. The fair value of the acquired technology was determined using
the relief from royalty method and the customer relationship was determined
using a discounted cashflow approach. These valuation techniques incorporate
several key assumptions including revenue forecasts and the application of an
appropriate discount rate to state future cash flows at their present value.
The relief from royalty method also requires the use of an appropriate royalty
rate which was determined with reference to licensing arrangements for similar
technologies. Full analysis of the consideration transferred, assets and
liabilities acquired, and goodwill recognised in business combinations are set
out in note 11.
Judgement was also required in allocating the acquired goodwill to CGUs. Based
on the strategic intent and rationale for the acquisition, and the way in
which management intend to monitor the performance of the business going
forward, goodwill has been allocated to the Group's UK & Ireland and North
America CGUs.
On 30 August 2022, the Group acquired 100% equity capital and voting rights of
Lockstep Network Holdings Inc (Lockstep) which constituted a significant
business combination. The key areas of judgement include the identification
and subsequent measurement of acquired intangible assets.
In line with IFRS 3, the initial accounting for the acquisition of Lockstep is
provisional. The residual excess of consideration over the net assets acquired
has been provisionally recognised entirely as goodwill. Adjustments to
provisional amounts will be made within the permitted measurement period where
they reflect new information obtained about facts and circumstances that were
in existence at the acquisition date. The acquisition accounting will be
finalised within 12 months of the acquisition date.
Website
This annual consolidated financial report for the year ended 30 September 2022
will be available on our website from 1 December 2022: www.sage.com/investors
(http://www.sage.com/investors)
2. Segment information
In accordance with IFRS 8 "Operating Segments", information for the Group's
operating segments has been derived using the information used by the chief
operating decision maker. The Group's Executive Leadership Team (previously
known as the Executive Committee) has been identified as the chief operating
decision maker, in accordance with its designated responsibility for the
allocation of resources to operating segments and assessing their performance,
through the Management Performance Reviews. The Executive Leadership Team uses
organic and underlying data to monitor business performance. Operating
segments are reported in a manner which is consistent with the operating
segments produced for internal management reporting.
The Group is organised into seven key operating segments: North America,
Northern Europe (UK & Ireland), Central Europe (Germany, Austria and
Switzerland), France, Iberia (Spain and Portugal), Africa and the Middle East,
and Asia (including Australia). For reporting under IFRS 8, the Group is
divided into three reportable segments. These segments are as follows:
· North America
· Northern Europe
· International-Central and Southern Europe (Central Europe, France and
Iberia)
The reportable segment International-Central and Southern Europe reflects the
aggregation of the operating segments for Central Europe, France and Iberia.
The aggregated operating segments are considered to share similar economic
characteristics because they have similar long-term gross margins and operate
in similar markets. Central Europe, France and Iberia operate principally
within the EU and the majority of their businesses are in countries within the
Euro area.
The remaining operating segments of Africa and the Middle East, and Asia
(including Australia) do not meet the quantitative thresholds for presentation
as separate reportable segments under IFRS 8, and so are presented together
and described as International-Africa & APAC. They include the Group's
operations in South Africa, Middle East, Australia, Singapore and Malaysia.
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. The Group reports revenue under
two revenue categories as noted below:
Category Examples
Recurring revenue Subscription contracts
Maintenance and support contracts
Other revenue Perpetual software licences
Upgrades to perpetual licences
Professional services
Training
Revenue by segment
Year ended 30 September 2022 Change
Statutory Underlying Underlying Organic Organic Statutory Underlying Organic
£m
£m
£m
adjustments* adjustments**
£m £m
Recurring revenue by segment
North America 786 1 787 (8) 779 23% 15% 14%
Northern Europe 427 1 428 (9) 419 9% 10% 7%
International-Central and 490 - 490 (4) 486 (4%) (1%) 4%
Southern Europe
International-Africa & APAC 140 - 140 - 140 (8%) (9%) 10%
Recurring revenue 1,843 2 1,845 (21) 1,824 9% 7% 9%
Other revenue by segment
North America 32 - 32 (1) 31 (30%) (35%) (37%)
Northern Europe 6 - 6 - 6 (42%) (42%) (52%)
International-Central and Southern Europe 53 - 53 (1) 52 (28%) (26%) (23%)
International-Africa & APAC 13 - 13 (2) 11 (41%) (42%) (16%)
Other revenue 104 - 104 (4) 100 (32%) (32%) (30%)
Total revenue by segment
North America 818 1 819 (9) 810 19% 12% 10%
Northern Europe 433 1 434 (9) 425 8% 8% 6%
International-Central and 543 - 543 (5) 538 (7%) (4%) 1%
Southern Europe
International-Africa & APAC 153 - 153 (2) 151 (12%) (13%) 8%
Total revenue 1,947 2 1,949 (25) 1,924 5% 4% 6%
* Adjustments between statutory and underlying numbers are detailed in note 3.
**Adjustments relate to the disposal of the Group's Swiss business and its
payroll outsourcing business in South Africa and the acquisitions of
Brightpearl and Lockstep (note 11)
Revenue by segment (continued)
Year ended 30 September 2021
Statutory and Underlying as reported Impact on foreign exchange Underlying Organic adjustments* Organic
£m
£m
£m
£m £m
Recurring revenue by segment
North America 641 44 685 - 685
Northern Europe 391 (1) 390 - 390
International-Central and Southern Europe 509 (13) 496 (30) 466
International-Africa & APAC 152 1 153 (27) 126
Recurring revenue 1,693 31 1,724 (57) 1,667
Other revenue by segment
North America 46 3 49 - 49
Northern Europe 11 - 11 - 11
International-Central and Southern Europe 74 (2) 72 (4) 68
International-Africa & APAC 22 - 22 (8) 14
Other revenue 153 1 154 (12) 142
Total revenue by segment
North America 687 47 734 - 734
Northern Europe 402 (1) 401 - 401
International-Central and Southern Europe 583 (15) 568 (34) 534
International-Africa & APAC 174 1 175 (35) 140
Total revenue 1,846 32 1,878 (69) 1,809
* Adjustments relate to the disposal of the Group's Swiss business and its
payroll outsourcing business in South Africa in the current year, as well as
the disposal of the Group's Polish business and Australia and Asia Pacific
business (excluding global products) (Asia Pacific) in the prior year.
Operating profit by segment
Year ended 30 September 2022
Statutory Underlying adjustments Underlying Organic adjustments £m Organic Change Change Change
£m
Statutory
Underlying
Organic
£m £m £m
%
%
%
Operating profit by segment
North America 116 30 146 - 146 7% (1%) (2%)
Northern Europe 58 47 105 7 112 (18%) 5% 12%
International-Central and Southern Europe 152 (61) 91 - 91
86% 1% 13%
International-Africa & APAC 41 (6) 35 (1) 34
(63%) 15% 37%
Total operating profit 367 10 377 6 383 (2%) 2% 8%
Year ended 30 September 2021
Statutory Underlying adjustments £m Underlying as reported Impact of foreign exchange Underlying Organic adjustments Organic
£m
£m £m £m £m £m
Operating profit by segment
North America 109 28 137 11 148 - 148
Northern Europe 71 28 99 - 99 - 99
International-Central and Southern Europe 82 10 92
(2) 90 (9) 81
International-Africa 111 (81) 30
& APAC
1 31 (6) 25
Total operating Profit 373 (15) 358 10 368 (15) 353
Reconciliation of underlying operating profit to statutory operating profit
2022 2021
£m
£m
Underlying operating profit by reportable segment
North America 146 148
Northern Europe 105 99
International-Central and Southern Europe 91 90
Total reportable segments 342 337
International-Africa & APAC 35 31
Underlying operating profit 377 368
Impact of movement in foreign currency exchange rates - (10)
Underlying operating profit (as reported) 377 358
Amortisation of acquired intangible assets (42) (31)
Adjustment to acquired deferred income (2) -
Other M&A activity-related items (39) (9)
Non-recurring items 73 55
Statutory operating profit 367 373
3. Adjustments between underlying profit and statutory profit
2022 2022 2022 2021 2021 2021
Non-
Non-
Recurring
recurring
Total
Recurring
recurring
Total
£m
£m
£m
£m
£m
£m
M&A activity-related items
Amortisation of acquired intangibles 42 - 42 31 - 31
Gain on disposal of subsidiaries - (53) (53) - (126) (126)
Adjustment to acquired deferred income 2 - 2 - - -
Other M&A activity-related items 39 - 39 9 - 9
Other items
(Reversal of)/restructuring costs - (20) (20) - 62 62
Office relocation - - - - 9 9
Total adjustments made to operating profit 83 (73) 10 40 (55) (15)
Fair value adjustments - - - 1 - 1
Foreign currency movements on intercompany balances (1) - (1) - - -
Total adjustments made to profit before income tax 82 (73) 9 41 (55) (14)
Recurring items
Acquired intangibles are assets which have previously been recognised as part of business combinations or similar transactions. These assets are predominantly brands, customer relationships and technology rights.
The adjustment to acquired deferred income represents the additional revenue
that would have been recorded in the period had deferred income not been
reduced as part of the purchase price allocation adjustment made for business
combinations.
Other M&A activity-related items relate to advisory, legal, accounting, valuation and other professional or consulting services which are related to M&A activity as well as acquisition-related remuneration, directly attributable integration costs and any required provision for future selling costs for assets held for sale. £14m (2021: £7m) of these costs have been paid in the year while the remainder is expected to be paid in subsequent financial years.
Foreign currency movements on intercompany balances of £1m (2021: £nil)
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 gain of £1m (2021: £nil).
In the prior year, fair value adjustments of £1m were in relation to an
embedded derivative asset which related to contractual terms agreed as part of
the US private placement debt. The related US private placement debt matured
during the current year, resulting in the extinguishment of the embedded
derivative asset. There were no associated gains or losses.
Non-recurring items
Net credit in respect of non-recurring items amounted to £73m (2021: net credit £55m).
The gain on disposal of subsidiaries of £53m relates to the disposal of the Group's Swiss business (£49m) and the Group's payroll outsourcing business in South Africa (£4m). In the prior year, the gain on disposal of subsidiaries of £126m related to the Group's Polish business (£41m) and the Group's Australia and Asia Pacific business (£85m). Further details can be found in note 11.
Reversal of restructuring costs of £20m primarily relates to unutilised
provisions recognised in the prior year, as some colleagues were redeployed or
left the business (2021: charge £67m). The provision was recognised in the
prior year following the implementation of a business transformation plan to
rebalance investment towards the Group's strategic priorities and simplify the
business.
In the prior year, the restructuring costs of £62m were comprised of charges
of £67m noted above, offset by the reversal of £5m of previous restructuring
costs related to unutilised Professional Service provisions created in 2020.
In the prior year, office relocation costs of £9m relate to the incremental depreciation charge resulting from accelerated depreciation in the UK North Park office in advance of the relocation to Cobalt Business Park.
4. Income tax expense
The effective tax rate on statutory profit before tax was 23% (2021: 18%),
whilst the effective tax rate on underlying profit before tax on continuing
operations was 24% (2021: 25%). The statutory effective tax rate is lower than
the underlying effective tax rate mainly due to due to non-taxable accounting
net gains on our disposals in the year.
The underlying effective tax rate is higher than the UK corporation tax rate
applicable to the Group primarily due to the geographic profile of the Group
and the inclusion of local business taxes in the corporate tax expense. This
net increase to the rate is offset by innovation tax credits for registered
patents and software, and research and development activities which attract
government tax incentives in a number of operating territories. The underlying
effective tax rate was decreased in the year principally due to a reduction in
the French corporation tax rate and certain non-recurring items.
5. Dividends
2022 2021
£m £m
Final dividend paid for the year ended 30 September 2021 of 11.63p per share 119 -
(2021: final dividend paid for the year ended 30 September 2020 of 11.32p per - 124
share)
Interim dividend paid for the year ended 30 September 2022 of 6.30p per share 64 -
(2021: interim dividend paid for the year ended 30 September 2021 of 6.05p per - 65
share)
183 189
In addition, the Directors are proposing a final dividend in respect of the
financial year ended 30 September 2022 of 12.10p per share which will absorb
an estimated £124m of shareholders' funds. The Company's distributable
reserves are sufficient to support the payment of this dividend. If approved
at the AGM, it will be paid on 10 February 2023 to shareholders who are on the
register of members on 13 January 2023. These financial statements do not
reflect this proposed dividend payable.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit for the year
attributable to owners of the parent by the weighted average number of
ordinary shares in issue during the year, excluding those held as treasury
shares, which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all potentially dilutive ordinary
shares, exercisable at the end of the year. The Group has one class of
dilutive potential ordinary shares. They are share options granted to
employees where the exercise price is less than the average market price of
the Company's ordinary shares during the year.
Underlying 2022 Underlying Underlying Statutory
as reported*
2021
2021
Statutory
2021
2022
Earnings attributable to owners of the parent** (£m)
Profit for the year 263 250 257 260 285
Number of shares (millions)
Weighted average number of shares 1,020 1,080 1,080 1,020 1,080
Dilutive effects of shares 12 10 10 12 10
1,032 1,090 1,090 1,032 1,090
Earnings per share attributable to owners of the
parent** (pence)
Basic earnings per share 25.74 23.09 23.79 25.47 26.33
Diluted earnings per share 25.44 22.87 23.57 25.17 26.08
Note:
* Underlying as reported is at 2021 reported exchange rates.
** All operations in the years relate to continuing operations.
Reconciliation of earnings - continuing operations 2022 2021
£m
£m
Underlying earnings attributable to owners of the parent 263 257
Impact of movement in foreign currency exchange rates, net of taxation - (7)
Underlying earnings attributable to owners of the parent (as reported) 263 250
Amortisation of acquired intangible assets (42) (31)
Gain on disposal of subsidiaries 53 126
Adjustment to acquired deferred income (2) -
Other M&A activity-related items (39) (9)
(Reversal of)/restructuring costs 20 (62)
Office relocation - (9)
Foreign currency movements on intercompany balances 1 -
Fair value adjustments - (1)
Taxation on adjustments between underlying and statutory profit before tax 6 21
Net adjustments (3) 35
Earnings: statutory profit for the year attributable to owners of the parent 260 285
7. Non-current assets
Goodwill Other Property, plant and equipment Total
£m
£m
intangible £m
assets
£m
Opening net book amount at 1 October 2021 1,877 190 164 2,231
Additions - 29 18 47
Acquisition of subsidiaries 255 110 2 367
Depreciation, amortisation and other movements - (56) (41) (97)
Exchange movement 284 21 9 314
Closing net book amount at 30 September 2022 2,416 294 152 2,862
Goodwill Other Property, plant Total
£m intangible and equipment £m
assets £m
£m
Opening net book amount at 1 October 2020 1,962 212 173 2,347
Additions - 30 49 79
Disposals - - (1) (1)
Disposals of subsidiaries (11) - - (11)
Transfer to held for sale (2) - (10) (12)
Depreciation, amortisation and other movements - (44) (43) (87)
Exchange movement (72) (8) (4) (84)
Closing net book amount at 30 September 2021 1,877 190 164 2,231
Goodwill is not subject to amortisation but is tested for impairment annually
or upon any indication of impairment. At 30 September 2022, there were no
indicators of impairment to goodwill. Full details of the outcome of the 2022
goodwill impairment review are provided in the 2022 financial statements.
8. 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 denominated bond notes is determined by
reference to quoted market prices and therefore can be considered as a level 1
fair value as defined within IFRS 13.
The fair value of US loan notes is determined by reference to interest rate
movements on the USD private placement market and therefore can be considered
as a level 2 fair value as defined within IFRS 13.
The fair value of bank loans is determined using a discounted cash flow
valuation technique calculated at prevailing interest rates, and therefore can
be considered as a level 3 fair value as defined within IFRS 13.
The respective book and fair values of bank loans, bond notes and loan notes
are included in the table below.
At 30 September 2022 At 30 September 2021
Book Value Fair Value Book Value Fair Value
£m £m £m £m
Long-term borrowings (excluding lease liabilities) (966) (753) (667) (682)
Short-term borrowing (excluding lease liabilities) (161) (158) (47) (48)
The fair value of the unlisted equity investments held by the Group is
determined using a market-based valuation approach. The significant
unobservable inputs used in level 3 fair value measurement are transaction
prices paid for identical or similar instruments of the investee and revenue
growth factors.
During the year, the Group has designated USD cross-currency interest rate
swap contracts totalling £350m (USD 400m) (2021: £nil, USD nil) as hedging
instruments in relation to the £350m sterling denominated bond notes.
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 as at the 30 September 2022 was a £60m liability.
9. Ordinary shares and share premium
Number of Ordinary Share premium Total
shares Shares £m £m
£m
At 1 October 2021 1,120,789,295 12 548 560
Cancellation of treasury shares (20,000,000) - - -
At 30 September 2022 1,100,789,295 12 548 560
At 1 October 2020 and 30 September 2021 1,120,789,295 12 548 560
During the year, the Group purchased a total of 27,979,129 Ordinary shares,
held as treasury shares, as part of a non-discretionary share buyback
programme entered into on 6 September 2021 and completed on 24 January 2022.
In September 2021, 11,868,392 Ordinary shares were purchased under this share
buyback programme. Total consideration for this share buyback programme was
£300m, of which £249m was paid during the current year.
In the prior year, the Group entered into another non-discretionary share
buyback programme under which 45,418,600 shares were bought back for a total
consideration of £302m, inclusive of stamp duty and related fees. This
programme was completed during the prior year.
In addition, during the year:
• The Group cancelled 20,000,000 treasury shares which reduced the
number of Ordinary shares to 1,100,789,295 at 30 September 2022.
• The Group agreed to satisfy the vesting of certain share awards,
utilising a total of 6,396,278 (2021: 5,544,880) treasury shares.
• The Employee Benefit Trust purchased £32m (2021: nil) of shares from
the market, funded by the Company. The Employee Benefit Trust did not receive
additional funds for future purchase of shares in the market (2021: nil).
At 30 September 2022 the Group held 81,168,903 (2021: 79,586,223) treasury
shares.
10. Cash flow and net debt
2022 2021
£m
£m
Statutory operating profit 367 373
Recurring and non-recurring items 10 (15)
Underlying operating profit (as reported) 377 358
Depreciation/amortisation/impairment/profit on disposal of non-current 51 47
assets/non-cash items
Share-based payments 36 36
Net changes in working capital (40) 65
Net capital expenditure (22) (55)
Underlying cash flow from operating activities 402 451
Non-recurring items (23) (9)
Net interest paid (21) (19)
Income tax paid (62) (81)
Exchange movement (1) (3)
Free cash flow 295 339
Net debt at 1 October (247) (151)
Disposals of businesses 43 142
Acquisition of businesses (315) -
Acquisition and disposals related items (22) (21)
Purchases of equity investments - (21)
Proceeds on settlement of non-current assets - 3
Proceeds from issuance of treasury shares 7 8
Dividends paid to owners of the parent (183) (189)
Share buyback programmes (249) (353)
Purchase of shares by Employee Benefit Trust (32) -
New leases (6) (8)
Exchange movement (23) 7
Other (1) (3)
Net debt at 30 September (733) (247)
2022 2021
£m
£m
Underlying cash flow from operations 402 451
Net capital expenditure 22 55
Recurring and non-recurring cash items (55) (30)
Other adjustments including foreign exchange translations (1) -
Statutory cash flow from operations 368 476
At 1 October 2020 At 1 October Cash flow Acquisition of subsidiaries Disposal of subsidiaries Non-cash movements Exchange movement At 30
£m
£m
£m
£m
£m
£m
Analysis of change in net debt (inclusive of leases) 2021 September
£m 2022
£m
Cash and cash equivalents 831 553 (124)
12 - - 48 489
Cash amounts included in held for sale 17 14 -
- (14) - - -
Cash, cash equivalents and bank overdrafts including cash as held for sale 848 567 (124)
12 (14) - 48 489
Liabilities arising from financing activities
Loans due within one year - (47) 46 - - (144) (16) (161)
Loans due after more than one year (877) (667) (396)
- - 143 (46) (966)
Lease liabilities due within one year (20) (18) 19
- - (17) (1) (17)
Lease liabilities after more than one year (93) (82) -
- - 11 (7) (78)
Lease liabilities included in held for sale (9) - -
- 1 - (1) -
(999) (814) (331) - 1 (7) (71) (1,222)
Total (151) (247) (455) 12 (13) (7) (23) (733)
11. Acquisitions and disposals
Acquisitions made during the current year
Lockstep
On 30 August 2022, the Group acquired 100% equity capital and voting rights of
Lockstep Network Holdings Inc (Lockstep). Lockstep provides cloud native
technology that automates accounting workflows between companies. The
acquisition of Lockstep accelerates Sage's strategy for growth by broadening
its value prioritisation for SMBs and expanding Sage's digital network.
Summary of acquisition Total
£m
Cash consideration 76
Deferred consideration 3
Holdback consideration 1
Acquisition-date fair value of consideration 80
Provisional fair value of identifiable net assets (1)
Provisional goodwill 79
In line with IFRS 3, the initial accounting for the acquisition of Lockstep is
provisional. The residual excess of consideration over the net assets acquired
has been provisionally recognised as unallocated goodwill. No goodwill is
expected to be deductible for tax purposes. Adjustments to provisional amounts
will be made within the permitted measurement period where they reflect new
information obtained about facts and circumstances that were in existence at
the acquisition date. It is expected that the acquisition accounting will be
finalised within 12 months. The results of the business are allocated to the
North America operating segment in line with the underlying operations.
The outflow of cash and cash equivalents on the acquisition is as follows:
Total
£m
Cash consideration (76)
Cash and cash equivalents acquired 1
Net cash outflow (75)
Transaction costs of £5m relating to the acquisition have been included in
selling and administrative expenses, classified as other M&A
activity-related items within recurring adjustments between underlying and
statutory results. These costs relate to advisory, legal and other
professional services. See note 3.
Arrangements have been put in place for retention bonus shares to remunerate
employees of Lockstep for future services. The amount recognised to date of
£1m is included in selling and administrative expenses, classified as other
M&A activity-related items. The total cost of these arrangements will be
recognised in future periods over the retention period, contingent on
employment.
The consolidated income statement includes revenue and loss after tax relating
to Lockstep for the period since the acquisition date, of which both are
immaterial. On an underlying basis, revenue would have increased by £3m and
profit after tax would have decreased by £7m, if Lockstep had been acquired
at the start of the financial year and included in the Group's results for the
year ended 30 September 2022. On a statutory basis, revenue would have
increased by £3m and profit after tax would have decreased by £21m, which
includes £14m of other M&A activity related items.
Brightpearl
On 17 January 2022, the Group obtained control of Brightpearl Limited
(Brightpearl) by acquiring the remaining share capital for cash consideration
of £221m, bringing the Group's ownership interest to 100%. In January 2021,
the Group had acquired a 17% minority interest in Brightpearl for £17m.
Brightpearl was acquired to deliver retail operations management capabilities
and provides a cloud native multi-channel retail management system for the
retail and ecommerce vertical, helping to accelerate the Group's strategy for
growth.
Summary of acquisition Total
£m
Cash consideration 221
Fair value of previously held minority interest 47
Acquisition-date fair value of consideration 268
Fair value of identifiable net assets (92)
Goodwill 176
The fair value of the previously held minority interest has been included in
the determination of goodwill, with the gain on revaluation of £30m
recognised in other comprehensive income in line with Sage's accounting
policy.
Fair value of identifiable net assets acquired Total
£m
Intangible assets 110
Deferred income (4)
Deferred tax liability (20)
Other net assets 6
Fair value of identifiable net assets acquired 92
Goodwill 176
Total consideration 268
A summary of the acquired intangible assets is set out below:
Valuation Useful economic life
£m
(years)
Acquired intangible assets
Customer relationships 35 9 to 15
Technology 75 8
Acquired intangible assets 110
Acquired goodwill of £176m comprises the fair value of the acquired control
premium, workforce in place and the expected synergies. The goodwill has been
allocated to the Group's geographic CGUs where the underlying benefit arising
from the acquisition is expected to be realised. This is predominantly within
the UK & Ireland and North America regions. No goodwill is expected to be
deductible for tax purposes. The results of the business are allocated to the
North America and Northern Europe operating segments in line with the
underlying operations.
The outflow of cash and cash equivalents on the acquisition is as follows:
Total
£m
Cash consideration (221)
Cash and cash equivalents acquired 11
Net cash outflow (210)
Transaction costs of £7m relating to the acquisition have been included in
selling and administrative expenses classified as other M&A
activity-related items within recurring adjustments between underlying and
statutory results. These costs relate to advisory, legal and other
professional services.
Arrangements have been put in place for retention payments to remunerate
employees of Brightpearl for future services. The amount recognised to date of
£10m is included in selling and administrative expenses, in the consolidated
income statement, as other M&A activity-related items. The total cost of
these arrangements will be recognised in future periods over the retention
period, contingent on employment.
The consolidated income statement includes revenue of £17m and loss after tax
of £26m reported by Brightpearl for the period since the acquisition date.
The loss after tax includes £22m of other M&A activity-related items.
On an underlying basis, revenue would have increase by £8m and profit after
tax would have decreased by £6m, if Brightpearl had been acquired at the
start of the finance year and included in the Group's results for the year
ended 30 September 2022. On a statutory basis, revenue would have increased by
£8m and profit after tax would have decreased by £16m, which includes £10m
of other M&A activity-related items.
Futrli
On 12 May 2022, the Group acquired 100% equity capital and voting rights of
Futrli Limited (Futrli), a company based in the UK, for total consideration of
£17m comprising £15m payable in cash on completion and £2m deferred
consideration.
The Futrli acquisition is accounted for as an asset acquisition which is an
acquisition of a legal entity that does not qualify as a business combination
under IFRS 3 "Business Combinations". This treatment has been adopted as the
value of the Futrli business largely comprises the rights to the acquired
technology, the Futrli software. As a result, no goodwill has been recognised
as part of the acquisition accounting.
The net assets recognised in the financial statements, including the
technology intangible, are based on a valuation of the acquired identifiable
net assets as at the acquisition date. The technology intangible has a fair
value of £17m and is recognised as an intangible asset (see note 7) which
will be amortised over a useful life of 8 years. Other net assets acquired are
negligible.
GoProposal
In the prior year, the Group acquired 100% controlling equity capital and
voting rights of GoProposal Limited (GoProposal) for total consideration of
£13m, which was accrued at 30 September 2021 and paid in cash during the
current year.
The GoProposal acquisition was accounted for as an asset acquisition which is
an acquisition of a legal entity that does not qualify as a business
combination under IFRS 3 "Business Combinations". As a result no goodwill was
recognised as part of the acquisition accounting, and a technology intangible
of fair value £13m was recognised as an intangible asset with a useful life
of 8 years (see note 7).
Disposals made during the current year
On 30 November 2021, the Group completed the sale of its Swiss business for
gross consideration of £54m. Subsequently, on 4 April 2022 the Group
completed the sale of its payroll outsourcing business in South Africa for
gross consideration of £5m. Both businesses were held for sale at 30
September 2021. The gains on disposal are calculated as follows:
Gains on disposal Switzerland Payroll outsourcing business (South Africa) Total
£m
£m £m
Cash consideration 54 5 59
Gross consideration 54 5 59
Transaction costs (3) - (3)
Net consideration 51 5 56
Net assets disposed (15) (1) (16)
Cumulative foreign exchange differences reclassified from other comprehensive 13 - 13
income to the income statement
Gains on disposal 49 4 53
Net assets disposed comprise:
Switzerland Payroll outsourcing business (South Africa) Total
£m £m £m
Goodwill 10 1 11
Property, plant and equipment 2 - 2
Customer acquisition costs 1 - 1
Trade and other receivables 1 - 1
Cash and cash equivalents 14 - 14
Total assets 28 1 29
Trade and other payables (3) - (3)
Borrowings (1) - (1)
Current income tax liabilities (1) - (1)
Post-employment benefits (2) - (2)
Deferred income (6) - (6)
Total liabilities (13) - (13)
Net assets 15 1 16
The gains are reported within continuing operations, as a non-recurring
adjustment between underlying and statutory results.
The net inflow of cash and cash equivalents on the disposals is calculated as
follows:
Inflow of cash and cash equivalents on disposal Switzerland Payroll outsourcing business (South Africa) Total
£m £m £m
Cash consideration 54 5 59
Transaction costs (3) - (3)
Net consideration received 51 5 56
Cash disposed (14) - (14)
Net inflow of cash and cash equivalents on disposal 37 5 42
Prior to the disposal, the Swiss business formed part of the Group's
International - Central and Southern Europe reporting segment and the payroll
outsourcing business in South Africa formed part of the International - Africa
& APAC reporting segment.
Discontinued operations and assets and liabilities held for sale
There are no assets or liabilities held for sale at 30 September 2022.
Assets and liabilities held for sale at 30 September 2021 included two
disposal groups which comprised the Group's business in Switzerland and the
payroll outsourcing business in South Africa as well as the Group's North Park
property site assets in the UK.
The two disposal groups were disposed in the year as discussed above. The sale
of the Group's North Park property completed in October 2021. No gain was
recognised on disposal as the assets were sold for their residual value.
The Group had no discontinued operations during the year (30 September 2021:
none).
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 2022 2021
£m £m
Salaries and short-term employee benefits 10 8
Share-based payments 5 4
15 12
The key management figures given above include the executive directors of the
Group.
13. Events after the balance sheet date
On 11 October 2022, the Group acquired 100% equity capital and voting rights
of Spherics Technology Limited (Spherics) for total cash consideration of £11
million. Spherics provides a carbon accounting solution to help businesses
easily understand and reduce their environmental impact. Due to the timing of
the acquisition, being after 30 September 2022, the results of Spherics are
not included in our financial statements for the year ended 30 September 2022
and the acquisition accounting has not yet been completed. In line with IFRS
3, the purchase price accounting for the acquisition will be finalised within
12 months of the acquisition date.
Managing Risk through our Risk Management Framework
Through our risk process, Sage is able to effectively manage our strategic,
operational, commercial, compliance, change and emerging risks. This helps us
to deliver our strategic objectives and goals through risk informed decisions.
The Board's role is to maintain oversight of the key principal and business
risks, together with ensuring that the appropriate committees are managing the
risks effectively. Additionally, the Board reviews the effectiveness of our
risk management approach and challenges our leaders to articulate their risk
management strategies.
Sage continually assesses its principal risks to ensure alignment to our
strategy and consideration of where Sage is currently on its journey to
transforming into a digital business.
By monitoring risk and performance indicators related to this strategy,
principal risk owners focus on those metrics that signal current performance,
as well as any emerging risks and issues. The principal risks reflect our five
strategic priorities. The management and mitigation actions described below
reflect the principal risks and build on those actions previously reported in
our FY22 Annual Report.
PRINCIPAL RISK RISK CONTEXT MANAGEMENT AND MITIGATION
Understanding Customer Needs Risk Trend: Improving Risk Environment
If we fail to anticipate, understand, and deliver against the capabilities and As Sage continues to communicate its new brand and purpose, understanding · A new brand launched to communicate the new vision of how Sage
experiences our current and future of how to attract new customers whilst retaining its existing customers is will support businesses.
essential. This requires a deep and continuous flow of insights supported by
customers need in a timely manner; they will find alternative solution processes and systems. · Brand health surveys to provide an understanding of customer
providers.
perception of the Sage brand and its products, used to inform and enhance our
By understanding the needs of our customers, Sage will differentiate itself market offerings
Strategic alignment: from competitors, build compelling value propositions and offers, leverage key
drivers to identify opportunities, influence product and process roadmaps, · A Market and Competitive Intelligence team to provide insights
decrease churn and drive more effective revenue generation. that Sage uses to win in the market
· Proactive analysis of customer activity and churn data, to
improve customer experience
· Customer Segmentation Framework and the customer market analysis
by region to help inform product roadmaps
· Customer Advisory Boards, Customer Design Sessions and NPS
detractor call-back channels to constantly gather information on customer
needs.
Execution of Product Strategy Risk Trend: Improving Risk Environment
If we fail to deliver the capabilities and experiences outlined in our product We need to execute at pace, a prioritised product strategy that continues to · A product strategy in line with FY23 strategic objectives and
strategy in a timely manner, we will not meet the needs of our customers or simplify our product portfolio and focuses on our drive to create a digital priorities, based on our market understanding and customer expectations
our commercial goals. network that will benefit our customers.
· A robust product organisation supported by a governance model to
enable the way we build products
Strategic alignment: · Migration framework in key countries to support our customers in
their journey to the cloud
· Continued expansion of Sage Intacct outside of North America and
for additional product verticals (i.e. retail with the acquisition of
Brightpearl)
· Digitalisation of Sage products to support strategic objections
through the integration of Lockstep (recent acquisition)
· Product design governance to ensure product development is always
driven by our understanding of our ability to penetrate key markets.
Developing and Exploiting New Business Models Risk Trend: Stable Risk Environment
If we are unable to develop, commercialise and scale new business models to We must be able to rapidly deploy new innovations to our customers and · Creation of a new Business Unit solely focused on creating the
diversify from traditional SaaS, especially consumption-based services and partners by introducing technologies, services, or new ways of working. Sage Digital Network
those which leverage data, we will not meet the needs of our customers or our
commercial goals. Innovation requires us to address how we drive change and transformation · Continued focus on AI/ML development coupled with a drive to
across our people, processes, and technology, and how we differentiate our improve how to exploit data to provide better management insight to our
Strategic alignment: products and drive customer efficiencies. customers
· Enhanced, consistent digital experience for all Sage Business
Cloud users through the Sage Design System
· Strategic acquisition (e.g. Lockstep) and collaboration with
partners to complement and enable accelerated innovation
· Focused colleague engagement to accelerate innovation across the
organisation through a Continuous Innovation Community.
Route to Market Risk Trend: Improving Risk Environment
If we fail to deliver a bespoke blend of route to market channels in each We have a blend of channels to communicate with our current and potential · Market data and intelligence is used to support decision making
country, based upon common components, we will not be able to efficiently customers and ensure our customers receive the right information on the right regarding the best routes to market
deliver the right capabilities and experiences to our current and future products and services at the right time. Our sales channels include selling
customers. directly to customers through digital and telephony channels, via our · Dedicated colleagues are in place to support partners, and to
accountant network and through partners, valued added resellers (VARs) and help manage the growth of targeted channels
Strategic alignment: Independent Software Vendors (ISVs).
· Sale processes are targeted and configured by region for key
We use these channels to maximise our marketing and customer engagement customer segments and verticals
activities. This can shorten our sales cycle and ensure that customer
retention is improved. · A dedicated On-Boarding Squad to enhance user journeys to enable
customer conversion
· Acceleration of new partnerships to support the Digital Network
· Centre of Excellence to support our Indirect Sales and
Third-Party approach.
Customer Experience Risk Trend: Stable Risk Environment
If we fail to effectively identify and deliver ongoing value to our customers We must maintain a sharp focus on the relationships we have with our · Battlecards are in place for key products in all countries,
by focusing on their needs over the lifetime of their customer journey, we customers, constantly focusing on We must maintain a sharp focus on the setting out the strengths and weaknesses of competitors and their products
will not be able to achieve sustainable growth through renewal. relationship we have with our customers, constantly focusing on delivering the
products, services and experiences our customers need to be successful. If we · A data-driven Customer Success Framework to enhance the customer
Strategic alignment: do not do this, they will likely find another provider who does give them experience and ensure that Sage is better positioned to meet the current and
these things. Conversely, if we do these things well these customers will stay future needs of the customer
with Sage, increasing their lifetime value, becoming our greatest marketing
advocates. · Customer Journey mapping and mapping of the five core customer
processes to ensure appropriate strategy alignment and alignment to Target
Whilst Sage is known for its quality customer support, this area requires Operating Model
constant, proactive focus. By helping customers to recognise and fully realise
the value of Sage's products we can help increase the value of these · 'Customer for life' roadmaps, detailing how products fit
relationships over time and reduce the likelihood of customer loss. By together, any interdependencies, and migration pathways for current and
aligning our people, processes, and technology with this focus in mind, all potential customers
Sage colleagues can help support our customers to be successful and in turn
drive increased financial performance. · Continuous Net Promoter Score (NPS) surveying allows Sage to
identify customer challenges rapidly, and respond in a timely manner to
emerging trends
· Launch of member service to provide business tools and advise to
support businesses
Third Party Reliance Risk Trend: Stable Risk Environment
If we do not embed our partners as an integral and aligned part of Sage's Sage places reliance on third-party providers to support the delivery of our · Centre of Excellence for our Indirect Sales and Third- Party
go-to-market strategy in a timely manner, we will fail to deliver the right products to our customers through the provision of cloud native products. partners
capabilities and experiences to our customers.
Sage also has an extensive network of sales partners critical to our success · Dedicated colleagues in place to support partners, and to help
Strategic alignment: in the market, and suppliers upon whom it places reliance. manage the growth of targeted channels
Any interruption in these services or relationships could have a profound · Standardised implementation plans for Sage products that
impact on Sage's reputation in the market and could result in significant facilitate efficient partner implementation
financial liabilities and losses.
· Managed growth of the API estate, including enhanced product
development that enables access by third-party API developers
· Enhanced third-party management framework, to support closer
alignment and oversight of third-party activities.
· A specialized Procurement function supporting the business with
the selection of strategic third-party suppliers and negotiation of contracts.
· Investing in new types of partnerships to explore and grow
business in new markets.
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 talent the market through our enhanced employee value proposition, enhanced presence
the critical skills, capabilities, and capacity we need to deliver on our and experience we will need to help navigate this change. We will also need to through social media such as Glassdoor, Comparably, Twitter, LinkedIn, and
strategy, we will not be successful. provide an environment where colleagues can develop to meet these new Facebook
expectations, an environment where everyone can perform at their very best.
Strategic alignment:
· Hiring practices focused on the skills we need in balance with
By empowering colleagues and leaders to make decisions, be innovative, and be organisational costs supported by a methodology for upskilling and building
bold in delivering on our commitments, capability in the long term from within the organisation
Sage will be able to create an attractive working environment. By addressing · Reward mechanisms designed to incentivize and drive the right
drivers of colleague voluntary attrition, and embracing the values of behaviour with a focus on ensuring fair and equitable pay in all markets
successful technology companies, Sage can increase colleague engagement and
create an aligned high-performing team. · Focused development of our leaders (e.g. a 7-month Senior
Leadership Programme) to ensure they create the environment which enables
colleagues to thrive and perform at their very best
· Implementing an effective hybrid working model across the
organization
Culture Risk Trend: Improving Risk Environment
If we do not fully empower our colleagues and enable them to take The development of a shared behavioural competency that encourages colleagues · New values launched to align with our new Sage brand
accountability in line with our shared Values and Behaviours, we will be to always do the right thing, put customers at the heart of business and drive
challenged to maintain a culture, that meets Sage's business ambitions. innovation is critical in Sage's success. Devolution of decision making, and · Integration of Values and Behaviours into all colleague
the acceptance of accountability for these decisions, will need to go hand in priorities including talent attraction, selection, onboarding as well as
Strategic alignment: hand as the organisation develops and sustains its shared Values and performance management
Behaviours, and fosters a culture that provides customers a rich digital
environment. · All colleagues are actively encouraged to take up to five paid
Sage Foundation days each year, to support charities and provide philanthropic
Sage will also need to create a culture of empowered leaders that supports the support to the community
development of ideas, and that provides colleagues with a safe environment
allowing for honest disclosures and discussions. Such a trusting and empowered · Commitments to diversity, equity and inclusion (DEI) including
environment can help sustain innovation, enhance customer success, and drive zero tolerance to discrimination, equal chance to everyone, inclusive culture,
the engagement that results in increased market share. removing barriers, DEI education, and development of a new DEI strategy to
ensure we deliver on our commitments
· A DEI strategy focused on building diverse teams, an equitable
culture, and fostering inclusive leadership. This strategy is supported by
measurable plans and metrics to track progress
· A new transparency and accountability development framework
· Code of Conduct communicated to all colleagues, and subject to
certification every two years
· 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 responsibly collect, process and store data, together with Information is the life blood of a digital company - protecting the · Multi-year cyber security programmes in IT and products to ensure
ensuring an appropriate standard of cyber security across the business, we confidentiality, integrity and accessibility of this data is critical for a Sage is driving continuous improvement and cyber risk reduction across
will not meet our regulatory obligations, and will lose the trust of our data-driven business, and failure to do so can have significant financial and technology, business processes and culture
stakeholders. regulatory consequences in the General Data Protection Regulation (GDPR) era.
In addition, we also need to use our data efficiently and effectively to drive · Accountability within both IT and Product for all internal and
Strategic alignment: improved 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
· 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, deliver effective data Data is central to the Sage strategy to deliver our ambition · Data strategy across customer, product, and enterprise data to
foundations, and capitalise on their use, we will not be able to realise their
support the delivery of customer value and solve customer problems, including
full potential to secure strategically aligned outcomes. of a digital network. The strategy is underpinned by our ability to innovate the use of enhanced Artificial Intelligence /Machine Learning capabilities
and develop solutions to enhance customer propositions, improve insight and
Strategic alignment: decision making and create new business models and ecosystems. Successful · A global data function that drives focus and alignment across the
ability to use data will accelerate our growth and will be a key driver in organization. In FY22, Sage appointed its first Chief Data Officer.
helping customers transform how they run and build their businesses.
· A defined set of Data ethics and principles to ensure we use
customer data responsibly to achieve our strategy
· Plan to increase digital network participation, 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 consistency of our data
· A data asset catalogue to enable creation of use cases
Readiness to Scale Risk Trend: Improving Risk Environment
If we fail to maintain a reliable, scalable, and secure live services As Sage transitions to a digital company, we continue to focus on scaling our · Migrating of products to public cloud offerings to improve
environment, we will be unable to deliver the consistent cloud experience current and future platform services environment in a robust, agile, and scalability, resilience, and security.
expected by our customers. speedy manner to ensure the delivery of a consistent and robust cloud platform
and associated digital network. · Accountability across product owners, underpinned by ongoing risk
Strategic alignment:
assessments and continuous improvement projects
Sage must provide the right infrastructure and operations for all our customer
products, a hosting platform together with the governance to ensure optimal · Formal onboarding process including ongoing management in
service availability, performance, security protection and restoration (if Portfolio Management processes
required).
· Incident and problem management change processes adhered to for
all products and services
· Service-level objectives including uptime, responsiveness, and
mean time to repair objectives
· Defined Real-Time Demand Management processes and controls and
also Disaster Recovery Capability and operational resilience models
· Improved focus and monitoring of product availability.
· 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 we fail to fully, and continually, respond to the range of environmental We are committed to investing in education, technology, and the environment to · A robust Sustainability and Society strategy which was launched
(especially climate), social, and governance-related opportunities and risks give individuals, small and medium businesses (SMBs), and our planet the in 2021, focusing on three pillars: Tech for Good, Fuel for Business, Protect
we may fail to deliver positive change to social and environmental issues and opportunity to thrive. the Planet
damage the confidence
Our goal is to use our technology, time, and experience to back a generation · Underpinning the strategy is a robust cross-functional governance
of our stakeholders. of diverse, sustainable businesses. framework
The potential benefits of investing in our ESG strategy include: · Tracking tools in place to enable horizon scanning and to track
the Sustainability and Society strategy's impact
Strategic alignment: · Increased customer engagement
· As part of our broader Sustainability function, the Sage
· Better use of resources, for example lower energy and water Foundation, established in 2015, remains focused on the areas of education,
consumption and associated costs employment, and entrepreneurship via the contribution of time, investment, and
capability on managing climate risks
· Enhanced stakeholder trust
· An integrated framework for the management of ESG related risk,
· Improved ability to attract and retain talent, enabling including physical and transitional climate risks as recommended by the
colleagues to perform at their best Taskforce for Climate Related Financial Disclosures (TCFD)
· Stronger community relations
Statement of Directors' Responsibilities
Responsibility statement of the Directors on the Annual Report & Accounts
The Annual Report & Accounts for the year ended 30 September 2022 includes
the following responsibility statement.
The Directors as at the date of this report, whose names and functions are
listed in the Board of Directors section of the Annual Report and Accounts,
confirm that:
- To the best of their knowledge, the Group's financial
statements, which have been prepared in accordance UK-adopted International
Accounting Standards (UK-IFRS), give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Group;
- To the best of their knowledge, the Company's financial
statements, which have been prepared in accordance with United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice),
including FRS 102 "The Financial Reporting Standard applicable in the UK and
Republic of Ireland", give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
- To the best of their knowledge, the Directors' report and the
Strategic report include a fair review of the development and performance of
the business and the position of the Group and the Company, together with a
description of the principal risks and uncertainties that it faces.
The contents of this announcement, including the responsibility statement
above, have been extracted from the annual report and accounts for the year
ended 30 September 2022 which may be found at www.sage.com/investors
(http://www.sage.com/investors) and will be published on 1 December 2022.
Accordingly, this responsibility statement makes reference to the financial
statements of the Company and the Group and to the relevant narrative
appearing in that annual report and accounts rather than the contents of this
announcement.
On behalf of the Board
S Hare
Chief Executive Officer
15 November 2022
1 (#_ftnref1) Please see Appendix 1 for guidance on the usage and
definitions of Alternative Performance Measures.
2 (#_ftnref2) Organic revenue and operating profit for FY21 have been
restated to aid comparability with FY22. The definition of organic measures
can be found in Appendix 1 with a full reconciliation of organic, underlying
and statutory measures on page 7. Unless otherwise specified, all references
to revenue, profit and margins are on an organic basis.
3 (#_ftnref3) The revenue portfolio breakdown is provided as supplementary
information to illustrate the differences in the evolution and composition of
key parts of our product portfolio. These portfolios do not represent
Operating Segments as defined under IFRS 8.
4 (#_ftnref4) Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that product runs in
a cloud-based environment enabling customers to access full, updated
functionality at any time, from any location, over the Internet.
5 (#_ftnref5) Revenue from subscription customers using products that are
part of Sage's strategic future product portfolio, where that product is
normally deployed on-premise, and for which a substantial part of the value
proposition is linked to functionality delivered in or through the cloud.
6 (#_ftnref6) Revenue from customers using products that are part of, or
that management believe have a clear pathway to, Sage Business Cloud.
7 (#_ftnref7) Revenue from customers using products for which management
does not currently envisage a path to Sage Business Cloud, either because the
product addresses a segment outside Sage's core focus, or due to the
complexity and expense involved in a migration.
8 (#_ftnref8) As reported
9 (#_ftnref9) Underlying and organic revenue and profit measures are defined
in Appendix 1.
10 (#_ftnref10) United Kingdom, Ireland, Africa and APAC
11 (#_ftnref11) Recurring and non-recurring items are defined in Appendix 1
and detailed in note 3 of the financial statements.
12 (#_ftnref12) Impact of retranslating FY21 results at FY22 average rates
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