PLUS1
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sage Group Plc | LSE:SGE | London | Ordinary Share | GB00B8C3BL03 | ORD 1 4/77P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 1.40 | 0.19% | 751.60 | 751.40 | 751.80 | 755.40 | 748.00 | 752.00 | 975,650 | 15:41:25 |
| Industry Sector | Turnover (m) | Profit (m) | EPS - Basic | PE Ratio | Market Cap (m) |
|---|---|---|---|---|---|
| Software & Computer Services | 1,846.0 | 347.0 | 26.3 | 28.5 | 7,651 |
Sage Group PLC Results for the year ended 30 September 2022
16/11/2022 7:00am
UK Regulatory (RNS & others)
Sage (LSE:SGE)
Historical Stock Chart
From Sep 2022 to Mar 2023
TIDMSGE
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 FY22 FY21 [2] Change
(APMs) [1]
Organic Financial APMs
Organic Total Revenue GBP1,924m GBP1,809m +6%
Organic Recurring Revenue GBP1,824m GBP1,667m +9%
Organic Operating Profit GBP383m GBP353m +8%
% Organic Operating Profit Margin 19.9% 19.5% +0.4 ppts
Underlying Financial APMs
EBITDA GBP468m GBP454m +3%
% EBITDA Margin 24.0% 24.2% -0.2 ppts
Underlying Operating Profit GBP377m GBP368m +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) GBP2,027m GBP1,816m +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 GBP1,947m GBP1,846m +5%
Operating Profit GBP367m GBP373m -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 GBP1,824m, underpinned by Sage Business Cloud growth of 24% to GBP1,261m. Organic total revenue grew by 6% to GBP1,924m.
-- Organic operating profit grew by 8% to GBP383m, with margin increasing to 19.9% (FY21: 19.5%) driven by operating efficiencies as we scale the Group.
-- EBITDA increased by 3% to GBP468m, with margin decreasing slightly to 24.0% (FY21: 24.2%) mainly due to the impact of disposals.
-- Statutory operating profit decreased by 2% to GBP367m 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 GBP600m share buyback.
-- Continued strong cash performance, with cash conversion of 107% reflecting ongoing growth in subscription revenue.
-- Robust balance sheet, with c. GBP1.3bn 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 GBP2,027m (FY21: GBP1,816m), reflecting a strong performance across all regions, with growth accelerating from both new and existing customers.
-- GBP180m of ARR added through new customer acquisition , up from GBP140m in FY21 .
-- Cloud native ARR up 38% to GBP530m (FY21: GBP384m) 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 Conor McClafferty Relations David Ginivan, Corporate Sophia Johnston PR
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 . To join the conference call, please register via 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 GBP1,824m, underpinned by a 24% increase in Sage Business Cloud revenue to GBP1,261m, and organic total revenue growth of 6% to GBP1,924m. Regionally, North America increased recurring revenue by 14% to GBP779m, driven by Sage Intacct and cloud connected solutions, while Northern Europe grew recurring revenue by 7% to GBP419m, largely through a strong cloud native performance. In International, recurring revenue increased by 6% to GBP626m, 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 Recurring Total
[3]
FY22 FY21 Growth FY22 FY21 Growth
--------- --------- ------ --------- --------- ------
Cloud native [4] GBP419m GBP297m +41% GBP430m GBP311m +38%
Cloud connected [5] GBP842m GBP722m +17% GBP 852m GBP734m +16%
--------- --------- ------ --------- --------- ------
Sage Business Cloud GBP1,261m GBP1,019m +24% GBP1,282m GBP1,045m +23%
Products with potential to
migrate GBP422m GBP495m -15% GBP477m GBP580m -18%
--------- --------- ------ --------- --------- ------
Future Sage Business Cloud
Opportunity [6] GBP1,683m GBP1,514m +11% GBP1,759m GBP1,625m +8%
Non-Sage Business Cloud [7] GBP141m GBP153m -8% GBP165m GBP 184m -10%
--------- --------- ------ --------- --------- ------
Organic Total Revenue GBP1,824m GBP1,667m +9% GBP1,924m GBP1,809m +6%
--------- --------- ------ --------- --------- ------
Sage Business Cloud Penetration 75% 67%
--------- ---------
Recurring revenue from cloud native solutions grew by 41% to GBP419m, 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 GBP842m, 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 GBP2,027m (FY21: GBP1,816m) and reflecting strong growth balanced between new and existing customers. This was underpinned by cloud native ARR growth of 38% to GBP530m (FY21: GBP384m), reflecting a strong performance particularly from Sage Intacct, Sage People, Sage Accounting and Sage HR. In absolute terms cloud native ARR grew by GBP146m, up from GBP107m [8] 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 GBP180m of ARR through new customer acquisition during the year (FY21: GBP140m(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 GBP1 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] .
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] , 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 GBP1,824m and organic total revenue growth of 6% to GBP1,924m. The increase in recurring revenue was underpinned by a 24% rise in Sage Business Cloud revenue to GBP1,261m, 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 GBP100m, 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 GBP383m, 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 GBP818m GBP687m +19% GBP819m GBP734m +12%
Northern Europe GBP433m GBP402m +8% GBP434m GBP401m +8%
International GBP696m GBP757m -8% GBP696m GBP743m -6%
---------- ---------- ------- ---------- ---------- -------
Group Total Revenue GBP1,947m GBP1,846m +5% GBP1,949m GBP1,878m +4%
Operating Profit GBP367m GBP373m -2% GBP377m GBP368m +2%
% Operating Profit -1.3 -0.2
Margin 18.9% 20.2% ppts 19.4% 19.6% ppts
Profit Before Tax GBP337m GBP347m -3% GBP346m GBP343m +1%
Net Profit GBP260m GBP285m -9% GBP263m GBP257m +2%
Basic EPS 25.47p 26.33p -3% 25.74p 23.79p +8%
---------- ---------- ------- ---------- ---------- -------
The Group achieved statutory total revenue of GBP1,947m, a 5% increase on the prior year, reflecting good levels of organic growth in all regions partly offset by disposals, together with a GBP47m foreign exchange tailwind principally relating to the US Dollar in North America, and a GBP15m 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 GBP367m, 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 GBP377m.
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 GBP1,947m GBP367m 18.9% GBP1,846m GBP373m 20.2%
Recurring items GBP2m GBP83m - - GBP40m -
[11]
Non - recurring
items:
- (GBP53m) - - (GBP126m) -
* Gain on disposal of subsidiaries
- (GBP20m) - - GBP62 m -
* (Reversal of) / restructuring costs
- - - - GBP9m -
* Office relocation
Impact of FX [12] - - - GBP32m GBP10m -
----------- ---------- --------- --------- --------- ---------
Underlying GBP1,949m GBP377m 19.4% GBP1,878m GBP368m 19.6%
----------- ---------- --------- --------- --------- ---------
Disposals (GBP7m) (GBP1m) - (GBP69m) (GBP15m) -
Acquisitions (GBP18m) GBP7m - - - -
----------- ---------- --------- --------- --------- ---------
Organic GBP1,924m GBP383m 19.9% GBP1,809m GBP353m 19.5%
----------- ---------- --------- --------- --------- ---------
Revenue
Statutory revenue of GBP1,947m in FY22 was slightly below underlying revenue of GBP1,949m, due to a fair value adjustment to deferred income relating to the acquisition of Brightpearl. Underlying revenue in FY21 of GBP1,878m reflects statutory revenue of GBP1,846m retranslated at current year exchange rates, resulting in an FX tailwind of GBP32m.
Organic revenue of GBP1,924m (FY21: GBP1,809m) reflects underlying revenue adjusted for GBP7m of revenue from businesses sold during the period, including Sage Switzerland and the South African payroll outsourcing business, and GBP18m of revenue from businesses acquired during the period, primarily Brightpearl. In FY21, revenue from disposals included GBP69m 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 GBP367m (FY21: GBP373m). Underlying operating profit of GBP377m (FY21: GBP368m) reflects statutory operating profit adjusted for recurring and non-recurring items. Recurring items of GBP83m (FY21: GBP40m) comprise GBP42m of amortisation of acquisition-related intangibles (FY21: GBP31m) and GBP39m of M&A related charges (FY21: GBP9m), in addition to a GBP2m deferred income adjustment relating to the acquisition of Brightpearl.
Non-recurring items include a GBP53m gain on disposal, principally from the sale of Sage's business in Switzerland (FY21: GBP126m gain from the disposal of Sage's businesses in Poland, Australia and Asia), together with a GBP20m 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 GBP383m (FY21: GBP353m) reflects underlying operating profit adjusted for GBP1m of operating profit from Sage's business in Switzerland and the South African payroll outsourcing business, and GBP7m of operating losses from businesses acquired during the year. In FY21, operating profit from disposals included GBP15m 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
GBPm % of Total GBPm % of Total
---------- ---------- --------- ---------- ------
Software Subscription
Revenue GBP1,445m 75% GBP1,263m 70% +14%
Other Recurring Revenue GBP379m 20% GBP404m 22% -6%
---------- ---------- --------- ---------- ------
Organic Recurring Revenue GBP1,824m 95% GBP1,667m 92% +9%
Other Revenue (SSRS) GBP100m 5% GBP142m 8% -30%
---------- ---------- --------- ---------- ------
Organic Total Revenue GBP1,924m 100% GBP1,809m 100% +6%
---------- ---------- --------- ---------- ------
Organic total revenue increased by 6% in FY22 to GBP1,924m. Organic recurring revenue grew by 9% to GBP1,824m, supported by a 14% increase in software subscription revenue to GBP1,445m, 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 GBP379m reflects customers migrating from maintenance and support to subscription contracts. Other revenue (SSRS) declined by 30% to GBP100m, 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 GBP810m GBP734m +10%
Organic Recurring Revenue GBP779m GBP685m +14%
% Sage Business Cloud Penetration 79% 73% +6 ppts
% Subscription Penetration 73% 66% +7 ppts
Organic Recurring Revenue FY22 FY21 Change
US GBP666m GBP581m +15%
Of which Sage Intacct GBP231m GBP176m +31%
Canada GBP113m GBP104m +9%
-------- -------- --------
North America achieved organic recurring revenue growth of 14% to GBP779m and organic total revenue growth of 10% to GBP810m. 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 GBP231m 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 GBP666m, 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 GBP695m.
In Canada, recurring revenue increased by 9% to GBP113m and total revenue by 6% to GBP115m, 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 GBP425m GBP401m +6%
Organic Recurring Revenue GBP419m GBP390m +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 GBP419m and organic total revenue growth of 6% to GBP425m. 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 GBP689m GBP674m +2%
Organic Recurring Revenue GBP626m GBP592m +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 GBP486m GBP466m +4%
France GBP258m GBP249m +4%
Central Europe GBP108m GBP99m +9%
Iberia GBP120m GBP118m +3%
Africa & APAC GBP140m GBP126m +10%
-------- -------- ---------
The International region achieved organic recurring revenue growth of 6% to GBP626m and organic total revenue growth of 2% to GBP689m. 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 GBP258m, with a strong performance in cloud connected, supported by growth in cloud native solutions. Total revenue in France was flat at GBP273m.
Central Europe achieved recurring revenue growth of 9% to GBP108m while total revenue increased by 3% to GBP132m. Growth in the region is driven by a combination of cloud connected and local products.
In Iberia, recurring revenue increased by 3% to GBP120m, with continued success in migrating customers to subscription and cloud connected solutions. Total revenue was flat at GBP134m.
Africa & APAC delivered strong recurring revenue growth of 10% to GBP140m, driven by growth in both cloud native solutions and local products. Total revenue in Africa & APAC increased by 8% to GBP150m compared with the prior year.
Operating Profit
The Group increased organic operating profit by 8% to GBP383m (FY21: GBP353m ). 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 GBP7m credit to operating profit (FY21: GBP8m credit).
Underlying operating profit was GBP377m (FY21: GBP368m), 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 GBP468m (FY21: GBP454m) 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 GBP383m GBP353m 19.9%
Impact of disposals GBP1m GBP15m
Impact of acquisitions (GBP7m) -
Underlying Operating Profit GBP377m GBP368m 19.4%
Depreciation & amortisation GBP55m GBP50m
Share based payments GBP36m GBP36m
--------- --------- ------------
EBITDA GBP468m GBP454m 24.0%
--------- --------- ------------
Net Finance Cost
The statutory net finance cost for the period increased to GBP30m (FY21: GBP26m), primarily reflecting the impact of interest on new debt issuance and is broadly in line with the underlying net finance cost of GBP31m (FY21: GBP25m).
Taxation
The underlying tax expense for FY22 was GBP83m (FY21: GBP86m), resulting in an underlying tax rate of 24% (FY21: 25%). The statutory income tax expense for FY22 was GBP77m (FY21: GBP62m), 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 GBP402 m (FY21: GBP451m), 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 GBP295m (FY21: GBP339m) largely reflects good underlying cash conversion.
Cash Flow APMs FY22 FY21 (as reported)
Underlying operating profit GBP377m GBP358m
Depreciation, amortisation and non-cash GBP51m GBP47m
items in profit
Share based payments GBP36m GBP36m
Net changes in working capital (GBP40m) GBP65m
Net capital expenditure (GBP22m) (GBP55m)
--------- -------------------
Underlying Cash Flow from Operations GBP402 m GBP451m
--------- -------------------
Underlying cash conversion % 107% 126%
Non-recurring cash items (GBP23m) (GBP9m)
Net interest paid (GBP21m) (GBP19m)
Income tax paid (GBP62m) (GBP81m)
Profit and loss foreign exchange movements (GBP1m) (GBP3m)
--------- -------------------
Free Cash Flow GBP295 m GBP339m
--------- -------------------
Statutory Reconciliation of Cash Flow FY22 FY21 (as reported)
from Operations
Statutory Cash Flow from Operations GBP368 m GBP476m
Recurring and non-recurring items GBP55m GBP30m
Net capital expenditure (GBP22m) (GBP55m)
Other adjustment including foreign exchange GBP1m -
translations
Underlying Cash Flow from Operations GBP402 m GBP451m
Net debt and liquidity
Group net debt was GBP733 m at 30 September 2022 (30 September 2021: GBP247m), comprising cash and cash equivalents of GBP489m (30 September 2021: GBP567m) and total debt of GBP1,222m (30 September 2021: GBP814m). The Group had GBP1,270m of cash and available liquidity at 30 September 2022 (30 September 2021: GBP1,236m).
The increase in net debt in the period is summarised in the table below.
FY22 FY21 (as reported)
Net debt at 1 October (GBP247m) (GBP151m)
Free cash flow GBP295 m GBP339m
New leases (GBP6m) (GBP8m)
Disposal of businesses GBP43m GBP142m
Acquisition of businesses (GBP315m) -
M&A and equity investments (GBP22m) (GBP39m)
Dividends paid (GBP183m) (GBP189m)
Share buyback (GBP249m) (GBP353m)
Purchase of shares by Employee Benefit (GBP32m) -
Trust
FX movement and other (GBP17m) GBP12m
Net debt at 30 September (GBP733 (GBP247m)
m )
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 GBP781m (split between US$719m and GBP135m tranches). At 30 September 2022, the RCF was undrawn (FY21: undrawn).
The Group's USPP loan notes at 30 September 2022 totalled GBP386m (US$400m and EUR 30m) (FY21: GBP370m - 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 GBP400m 12-year bond, issued in February 2022, with a coupon of 2.875%, and a GBP350m 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 (GBP26m) and US$150m (GBP135m) 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 GBP300m 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 GBP300m share buyback programme undertaken during FY21, this brings the total capital returned to shareholders since March 2021 to GBP600m . 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 GBP733 m GBP247m
EBITDA (Last Twelve Months) GBP468m GBP443m
--------- -------------------
Net debt/EBITDA Ratio 1.6x 0.6x
--------- -------------------
The Group's EBITDA over the last 12 months was GBP468m, 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 FY22 FY21 Change
GBP)
Euro (EUR) 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 Underlying measures are adjusted to Underlying measures
(revenue exclude items which in management's allow management and
and profit) judgement need to be disclosed separately investors to compare
measures by virtue of their size, nature or performance without
frequency to aid understanding of the the effects of foreign
performance for the year or comparability exchange movements,
between periods: one--off or non-operational
* Recurring items include purchase price adjustments items.
including amortisation of acquired intangible assets By including part-period
and adjustments made to reduce deferred income contributions from
arising on acquisitions, acquisition-related items, acquisitions, discontinued
unhedged FX on intercompany balances and fair value operations, disposals
adjustments; and and assets held for
sale of standalone
businesses in the
* Non-recurring items that management judge to be current and/or prior
one-off or non-operational such as gains and losses periods, the impact
on the disposal of assets, impairment charges and of M&A decisions on
reversals, and restructuring related costs. earnings per share
growth can be evaluated.
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 In addition to the adjustments made Organic measures allow
(revenue for Underlying measures, Organic measures: management and investors
and profit) * Exclude the contribution from discontinued operations, to understand the
measures disposals and assets held for sale of standalone like--for--like revenue
businesses in the current and prior period; and and current period
margin performance
of the continuing
* Exclude the contribution from acquired businesses business.
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 Underlying Cash Flow from Operations To show the cash flow
Cash Flow is Underlying Operating Profit adjusted generated by the operations
from Operations for non-cash items, net capex (excluding and calculate underlying
business combinations and similar items) cash conversion.
and changes in working capital.
------------------------------------------------------------- ----------------------------------
Underlying Underlying Cash Flow from Operations Cash conversion informs
Cash Conversion divided by Underlying (as reported) management and investors
Operating Profit. about the cash operating
cycle of the business
and how efficiently
operating profit is
converted into cash.
------------------------------------------------------------- ----------------------------------
EBITDA EBITDA is Underlying Operating Profit To calculate the Net
excluding depreciation, amortisation Debt to EBITDA leverage
and share based payments. ratio and to show
profitability before
the impact of major
non-cash charges.
------------------------------------------------------------- ----------------------------------
Annualised Annualised recurring revenue ("ARR") ARR represents the
recurring is the normalised organic recurring annualised value of
revenue revenue in the last month of the reporting the recurring revenue
period, adjusted consistently period base that is expected
to period, multiplied by twelve. Adjustments to be carried into
to normalise reported recurring revenue future periods, and
include those components that management its growth is a forward--looking
has assessed should be excluded in indicator of reporting
order to ensure the measure reflects recurring revenue
that part of the contracted revenue growth.
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 The ARR from renewals, migrations, As an indicator of
Rate by upsell and cross-sell of active customers our ability to retain
Value at the start of the year, divided by and generate additional
the opening ARR for the year. revenue from our existing
customer base through
up and cross sell.
------------------------------------------------------------- ----------------------------------
Free Cash Free Cash Flow is Underlying Cash Flow To measure the cash
Flow from Operations minus net interest generated by the operating
paid and income tax paid and adjusted activities during
for non-recurring cash items (which the period that is
excludes net proceeds on disposals available to repay
of subsidiaries) and profit and loss debt, undertake acquisitions
foreign exchange movements. or distribute to shareholders.
------------------------------------------------------------- ----------------------------------
% Subscription Organic software subscription revenue To measure the progress
Penetration as a percentage of organic total revenue. of migrating our customer
base from licence
and maintenance to
a subscription relationship.
------------------------------------------------------------- ----------------------------------
% Sage Business Organic recurring revenue from the To measure the progress
Cloud Penetration Sage Business Cloud (native and connected in the migration of
cloud) as a percentage of the organic our revenue base to
recurring revenue of the Future Sage the Sage Business
Business Cloud Opportunity. Cloud by connecting
our solutions to the
cloud and/or migrating
our customers to cloud
connected and cloud
native solutions.
------------------------------------------------------------- ----------------------------------
Return on ROCE is calculated as: As an indicator of
Capital * Underlying Operating Profit; minus the current period
Employed financial return on
(ROCE) the capital invested
* Amortisation of acquired intangibles; the result in the Company.
being divided by ROCE is used as an
underpin in the FY20,
FY21 and FY22 PSP
The average (of the opening and closing awards.
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 To calculate the Net
less current and non-current borrowings. Debt to EBITDA leverage
ratio and an indicator
of our indebtedness.
------------------------------------------------------------- ----------------------------------
Consolidated income statement
For the year ended 30 September 2022
Adjustments Adjustments
Underlying (note 3) (note 3)
Underlying
Statutory as reported* Statutory
2022 2022 2022 2021 2021 2021
Note GBPm GBPm GBPm GBPm GBPm GBPm
=========================== ==== =========== ============= ========== ============= ============ ===========
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
GBPm GBPm
===================================================================================== ===== =====
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 hedges 177 (60)
Exchange differences recycled through income statement on sale of foreign operations (13) (21)
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
2022 2021
Note GBPm GBPm
======================================================= ===== ======== ========
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 Share Translation Merger Retained Total
shares premium reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ========= ======== =========== ========= ========= =======
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 hedges - - 177 - - 177
Exchange differences recycled
through income statement
on sale of foreign operations - - (13) - - (13)
Fair value gain on reassessment
of equity investment 30 30
Actuarial gain on post-employment - - - - 3 3
benefit obligations
Total comprehensive income
for the year ended 30 September
2022 - - 164 - 293 457
===================================== ========= ======== =========== ========= ========= =======
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
for the year ended 30 September
2022 - - - - (171) (171)
===================================== ========= ======== =========== ========= ========= =======
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 Share Translation Merger Retained Total
shares premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
===================================== ======== ======== =========== ======== ========= =======
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 hedges - - (60) - - (60)
Exchange differences recycled
through income statement on
sale of foreign operations - - (21) - - (21)
Actuarial gain on post-employment
benefit obligations - - - - 2 2
Total comprehensive (expense)/income
for the year ended 30 September
2021 - - (81) - 287 206
===================================== ======== ======== =========== ======== ========= =======
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
for the year ended 30 September
2021 - - - - (747) (747)
===================================== ======== ======== =========== ======== ========= =======
At 30 September 2021 12 548 42 61 448 1,111
===================================== ======== ======== =========== ======== ========= =======
Consolidated statement of cash flows
For the year ended 30 September 2022
2022 2021
Note GBPm GBPm
============================================= ==== ===== =====
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 (before exchange rate movement) (126) (256) 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 GBPm, 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 GBP110m.
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
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
---------------------- ------------------------------------------------------------- ------------------------------
Underlying Organic
Statutory adjustments* Underlying adjustments** Organic
GBPm GBPm GBPm GBPm GBPm Statutory Underlying Organic
---------------------- --------- ------------- ---------- -------------- ------- --------- ---------- -------
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
Southern Europe 490 - 490 (4) 486 (4%) (1%) 4%
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
Southern Europe 543 - 543 (5) 538 (7%) (4%) 1%
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 Impact
and Underlying on foreign Organic
as reported exchange Underlying adjustments* Organic
GBPm GBPm GBPm GBPm GBPm
====================== ====== ================== =============== ========== ============= =======
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
----------------- --------- ------------ ---------- ------------ ------------------------------------------
Underlying Organic Change Change Change
Statutory adjustments Underlying adjustments Organic Statutory Underlying Organic
GBPm GBPm GBPm GBPm GBPm % % %
================= ========= ============ ========== ============ ======= ========== =========== ========
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
----------------- --------- ------------ -------------- ------------- -------------------------------------
Impact
Underlying Underlying of foreign Organic
Statutory adjustments as reported exchange Underlying adjustments Organic
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ========= ============ ============== ============= ============ ============== =======
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
& APAC 111 (81) 30 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
GBPm GBPm
====================================================== ===== =====
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
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ========== ====== ========== ========== =======
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. GBP14m (2021: GBP7m) 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 GBP1m (2021: GBPnil) 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 GBP1m (2021: GBPnil).
In the prior year, fair value adjustments of GBP1m 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 GBP73m (2021: net credit GBP55m).
The gain on disposal of subsidiaries of GBP53m relates to the disposal of the Group's Swiss business (GBP49m) and the Group's payroll outsourcing business in South Africa (GBP4m). In the prior year, the gain on disposal of subsidiaries of GBP126m related to the Group's Polish business (GBP41m) and the Group's Australia and Asia Pacific business (GBP85m). Further details can be found in note 11.
Reversal of restructuring costs of GBP20m primarily relates to unutilised provisions recognised in the prior year, as some colleagues were redeployed or left the business (2021: charge GBP67m). 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 GBP62m were comprised of charges of GBP67m noted above, offset by the reversal of GBP5m of previous restructuring costs related to unutilised Professional Service provisions created in 2020.
In the prior year, office relocation costs of GBP9m 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
GBPm GBPm
==================================================== ===== =====
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 share) - 124
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 share) - 65
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 GBP124m 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
Underlying as reported* Underlying Statutory Statutory
2022 2021 2021 2022 2021
============================ ========== ============= ========== =========== =========
Earnings attributable to owners of
the parent** (GBPm)
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.
2022 2021
Reconciliation of earnings - continuing operations GBPm GBPm
============================================================================= ===== =====
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
Other
intangible
Goodwill assets Property, plant and equipment Total
GBPm GBPm GBPm GBPm
=============================================== ======== =========== ============================= =====
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
=============================================== ======== =========== ============================= =====
Other
intangible Property, plant
Goodwill assets and equipment Total
GBPm GBPm GBPm GBPm
=============================================== ======== =========== =============== =====
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
GBPm GBPm GBPm GBPm
=================================================== ========== ========== =========== ==========
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 GBP350m (USD 400m) (2021: GBPnil, USD nil) as hedging instruments in relation to the GBP350m 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 GBP60m liability.
9. Ordinary shares and share premium
Ordinary
Number of Shares Share premium Total
shares GBPm GBPm GBPm
======================================== ============= ======== ============= =====
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 GBP300m, of which GBP249m 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 GBP302m, 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 GBP32m (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
GBPm GBPm
============================================================================================= ===== =====
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 assets/non-cash items 51 47
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
GBPm GBPm
========================================================== ===== =====
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
========================================================== ===== =====
Analysis of
change in net At 1 At 1 Acquisition At 30
debt October October of Disposal of Non-cash Exchange September
(inclusive of 2020 2021 Cash flow subsidiaries subsidiaries movements movement 2022
leases) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== =========== =========== ========= ============ ============ =========== =========== ==========
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.
Total
Summary of acquisition GBPm
================================================== =====
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
GBPm
=================================== =====
Cash consideration (76)
Cash and cash equivalents acquired 1
Net cash outflow (75)
=================================== =====
Transaction costs of GBP5m 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 GBP1m 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 GBP3m and profit after tax would have decreased by GBP7m, 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 GBP3m and profit after tax would have decreased by GBP21m, which includes GBP14m 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 GBP221m, bringing the Group's ownership interest to 100%. In January 2021, the Group had acquired a 17% minority interest in Brightpearl for GBP17m.
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.
Total
Summary of acquisition GBPm
================================================ =====
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 GBP30m recognised in other comprehensive income in line with Sage's accounting policy.
Total
Fair value of identifiable net assets acquired GBPm
=============================================== =====
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:
Useful economic
Valuation life
Acquired intangible assets GBPm (years)
================================================ ============= ===============
Customer relationships 35 9 to 15
Technology 75 8
======================================================== ----- ===============
Acquired intangible assets 110
======================================================== ===== ===============
Acquired goodwill of GBP176m 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
GBPm
=================================== =====
Cash consideration (221)
Cash and cash equivalents acquired 11
Net cash outflow (210)
=================================== =====
Transaction costs of GBP7m 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 GBP10m 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 GBP17m and loss after tax of GBP26m reported by Brightpearl for the period since the acquisition date. The loss after tax includes GBP22m of other M&A activity-related items.
On an underlying basis, revenue would have increase by GBP8m and profit after tax would have decreased by GBP6m, 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 GBP8m and profit after tax would have decreased by GBP16m, which includes GBP10m 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 GBP17m comprising GBP15m payable in cash on completion and GBP2m 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 GBP17m 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 GBP13m, 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 GBP13m 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 GBP54m. Subsequently, on 4 April 2022 the Group completed the sale of its payroll outsourcing business in South Africa for gross consideration of GBP5m. Both businesses were held for sale at 30 September 2021. The gains on disposal are calculated as follows:
Switzerland Payroll outsourcing business (South Africa) Total
Gains on disposal GBPm GBPm GBPm
===================================================== =========== =========================================== =====
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 income to the
income statement 13 - 13
Gains on disposal 49 4 53
===================================================== =========== =========================================== =====
Net assets disposed comprise:
Switzerland Payroll outsourcing business (South Africa) Total
GBPm GBPm GBPm
=============================== =========== =========================================== =====
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:
Switzerland Payroll outsourcing business (South Africa) Total
Inflow of cash and cash equivalents on disposal GBPm GBPm GBPm
==================================================== =========== =========================================== =====
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.
2022 2021
Key management compensation GBPm GBPm
========================================== ===== =====
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 GBP11 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 Risk Trend: Improving Risk Environment
Customer Needs
------------------------------------------------------------------------------------------------------------------------
If we fail to As Sage continues to
anticipate, understand, communicate its new * A new brand launched to communicate the new vision of
and deliver against brand and purpose, understanding how Sage will support businesses.
the capabilities of how to attract new
and experiences customers whilst retaining
our current and its existing customers * Brand health surveys to provide an understanding of
future is essential. This requires customer perception of the Sage brand and its
customers need a deep and continuous products, used to inform and enhance our market
in a timely manner; flow of insights supported offerings
they will find by processes and systems.
alternative solution By understanding the
providers. needs of our customers, * A Market and Competitive Intelligence team to provide
Strategic alignment: Sage will differentiate insights that Sage uses to win in the market
itself from competitors,
build compelling value
propositions and offers, * Proactive analysis of customer activity and churn
leverage key drivers data, to improve customer experience
to identify opportunities,
influence product and
process roadmaps, decrease * Customer Segmentation Framework and the customer
churn and drive more market analysis by region to help inform product
effective revenue generation. roadmaps
* Customer Advisory Boards, Customer Design Sessions
and NPS detractor call-back channels to constantly
gather information on customer needs.
------------------------------------------------------- ---------------------------------------------------------------
Execution of Risk Trend: Improving Risk Environment
Product Strategy
------------------------------------------------------------------------------------------------------------------------
If we fail to We need to execute at
deliver the capabilities pace, a prioritised * A product strategy in line with FY23 strategic
and experiences product strategy that objectives and priorities, based on our market
outlined in our continues to simplify understanding and customer expectations
product strategy our product portfolio
in a timely manner, and focuses on our drive
we will not meet to create a digital * A robust product organisation supported by a
the needs of our network that will benefit governance model to enable the way we build products
customers or our our customers.
commercial goals.
* Migration framework in key countries to support our
Strategic alignment: 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 Risk Trend: Stable Risk Environment
Exploiting New
Business Models
------------------------------------------------------------------------------------------------------------------------
If we are unable We must be able to rapidly
to develop, commercialise deploy new innovations * Creation of a new Business Unit solely focused on
and scale new to our customers and creating the Sage Digital Network
business models partners by introducing
to diversify from technologies, services,
traditional SaaS, or new ways of working. * Continued focus on AI/ML development coupled with a
especially consumption-based Innovation requires drive to improve how to exploit data to provide
services and those us to address how we better management insight to our customers
which leverage drive change and transformation
data, we will across our people, processes,
not meet the needs and technology, and * Enhanced, consistent digital experience for all Sage
of our customers how we differentiate Business Cloud users through the Sage Design System
or our commercial our products and drive
goals. customer efficiencies.
Strategic alignment: * 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 We have a blend of channels
deliver a bespoke to communicate with * Market data and intelligence is used to support
blend of route our current and potential decision making regarding the best routes to market
to market channels customers and ensure
in each country, our customers receive
based upon common the right information * Dedicated colleagues are in place to support partners,
components, we on the right products and to help manage the growth of targeted channels
will not be able and services at the
to efficiently right time. Our sales
deliver the right channels include selling * Sale processes are targeted and configured by region
capabilities and directly to customers for key customer segments and verticals
experiences to through digital and
our current and telephony channels,
future customers. via our accountant network * A dedicated On-Boarding Squad to enhance user
Strategic alignment: and through partners, journeys to enable customer conversion
valued added resellers
(VARs) and Independent
Software Vendors (ISVs). * Acceleration of new partnerships to support the
We use these channels Digital Network
to maximise our marketing
and customer engagement
activities. This can * Centre of Excellence to support our Indirect Sales
shorten our sales cycle and Third-Party approach.
and ensure that customer
retention is improved.
------------------------------------------------------- ---------------------------------------------------------------
Customer Experience Risk Trend: Stable Risk Environment
------------------------------------------------------------------------------------------------------------------------
If we fail to We must maintain a sharp
effectively identify focus on the relationships * Battlecards are in place for key products in all
and deliver ongoing we have with our customers, countries, setting out the strengths and weaknesses
value to our customers constantly focusing of competitors and their products
by focusing on on We must maintain
their needs over a sharp focus on the
the lifetime of relationship we have * A data-driven Customer Success Framework to enhance
their customer with our customers, the customer experience and ensure that Sage is
journey, we will constantly focusing better positioned to meet the current and future
not be able to on delivering the products, needs of the customer
achieve sustainable services and experiences
growth through our customers need to
renewal. be successful. If we * Customer Journey mapping and mapping of the five core
Strategic alignment: do not do this, they customer processes to ensure appropriate strategy
will likely find another alignment and alignment to Target Operating Model
provider who does give
them these things. Conversely,
if we do these things * 'Customer for life' roadmaps, detailing how products
well these customers fit together, any interdependencies, and migration
will stay with Sage, pathways for current and potential customers
increasing their lifetime
value, becoming our
greatest marketing advocates. * Continuous Net Promoter Score (NPS) surveying allows
Whilst Sage is known Sage to identify customer challenges rapidly, and
for its quality customer respond in a timely manner to emerging trends
support, this area requires
constant, proactive
focus. By helping customers * Launch of member service to provide business tools
to recognise and fully and advise to support businesses
realise the value of
Sage's products we can
help increase the value
of these relationships
over time and reduce
the likelihood of customer
loss. By aligning our
people, processes, and
technology with this
focus in mind, all Sage
colleagues can help
support our customers
to be successful and
in turn drive increased
financial performance.
------------------------------------------------------- ---------------------------------------------------------------
Third Party Reliance Risk Trend: Stable Risk Environment
------------------------------------------------------------------------------------------------------------------------
If we do not embed Sage places reliance
our partners as on third-party providers * Centre of Excellence for our Indirect Sales and
an integral and to support the delivery Third- Party partners
aligned part of of our products to our
Sage's go-to-market customers through the
strategy in a provision of cloud native * Dedicated colleagues in place to support partners,
timely manner, products. and to help manage the growth of targeted channels
we will fail to Sage also has an extensive
deliver the right network of sales partners
capabilities and critical to our success * Standardised implementation plans for Sage products
experiences to in the market, and suppliers that facilitate efficient partner implementation
our customers. upon whom it places
Strategic alignment: reliance.
Any interruption in * Managed growth of the API estate, including enhanced
these services or relationships product development that enables access by
could have a profound third-party API developers
impact on Sage's reputation
in the market and could
result in significant * Enhanced third-party management framework, to support
financial liabilities closer alignment and oversight of third-party
and losses. 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 As we evolve our priorities,
ensure we have the capacity, knowledge, * Extensive focus on hiring channels to ensure we are
engaged colleagues and leadership skills attractive in the market through our enhanced
with we need will continue employee value proposition, enhanced presence through
the critical skills, to change. Sage will social media such as Glassdoor, Comparably, Twitter,
capabilities, not only need to attract LinkedIn, and Facebook
and capacity we the talent and experience
need to deliver we will need to help
on our strategy, navigate this change. * Hiring practices focused on the skills we need in
we will not be We will also need to balance with organisational costs supported by a
successful. provide an environment methodology for upskilling and building capability in
Strategic alignment: where colleagues can the long term from within the organisation
develop to meet these
new expectations, an
environment where everyone * Reward mechanisms designed to incentivize and drive
can perform at their the right behaviour with a focus on ensuring fair and
very best. equitable pay in all markets
By empowering colleagues
and leaders to make
decisions, be innovative, * Focused development of our leaders (e.g. a 7-month
and be bold in delivering Senior Leadership Programme) to ensure they create
on our commitments, the environment which enables colleagues to thrive
Sage will be able to and perform at their very best
create an attractive
working environment.
By addressing drivers * Implementing an effective hybrid working model across
of colleague voluntary the organization
attrition, and embracing
the values of successful
technology companies,
Sage can increase colleague
engagement and create
an aligned high-performing
team.
------------------------------------------------------- ---------------------------------------------------------------
Culture Risk Trend: Improving Risk Environment
------------------------------------------------------------------------------------------------------------------------
If we do not fully The development of a
empower our colleagues shared behavioural competency * New values launched to align with our new Sage brand
and enable them that encourages colleagues
to take accountability to always do the right
in line with our thing, put customers * Integration of Values and Behaviours into all
shared Values at the heart of business colleague priorities including talent attraction,
and Behaviours, and drive innovation selection, onboarding as well as performance
we will be challenged is critical in Sage's management
to maintain a success. Devolution
culture, that of decision making,
meets Sage's business and the acceptance of * All colleagues are actively encouraged to take up to
ambitions. accountability for these five paid Sage Foundation days each year, to support
Strategic alignment: decisions, will need charities and provide philanthropic support to the
to go hand in hand as community
the organisation develops
and sustains its shared
Values and Behaviours, * Commitments to diversity, equity and inclusion (DEI)
and fosters a culture including zero tolerance to discrimination, equal
that provides customers chance to everyone, inclusive culture, removing
a rich digital environment. barriers, DEI education, and development of a new DEI
Sage will also need strategy to ensure we deliver on our commitments
to create a culture
of empowered leaders
that supports the development * A DEI strategy focused on building diverse teams, an
of ideas, and that provides equitable culture, and fostering inclusive
colleagues with a safe leadership. This strategy is supported by measurable
environment allowing plans and metrics to track progress
for honest disclosures
and discussions. Such
a trusting and empowered * A new transparency and accountability development
environment can help framework
sustain innovation,
enhance customer success,
and drive the engagement * Code of Conduct communicated to all colleagues, and
that results in increased subject to certification every two years
market share.
* Core eLearning modules rolled out across Sage, with
regular refresher training
* Whistleblowing and incident reporting mechanisms in
place to allow issues to be formally reported and
investigated.
------------------------------------------------------- ---------------------------------------------------------------
Cyber Security Risk Trend: Improving Risk Environment
and Data Privacy
------------------------------------------------------------------------------------------------------------------------
If we fail to Information is the life
responsibly collect, blood of a digital company * Multi-year cyber security programmes in IT and
process and store - protecting the confidentiality, products to ensure Sage is driving continuous
data, together integrity and accessibility improvement and cyber risk reduction across
with ensuring of this data is critical technology, business processes and culture
an appropriate for a data-driven business,
standard of cyber and failure to do so
security across can have significant * Accountability within both IT and Product for all
the business, financial and regulatory internal and external data being processed by Sage.
we will not meet consequences in the The Chief Information Security Officer oversees
our regulatory General Data Protection information security, with a network of Information
obligations, and Regulation (GDPR) era. Security Officers that directly support the business
will lose the In addition, we also
trust of our stakeholders. need to use our data
Strategic alignment: efficiently and effectively * The Chief Data Protection Officer oversees
to drive improved business information protection
performance.
* 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 Data is central to the
recognise the Sage strategy to deliver * Data strategy across customer, product, and
value of our data our ambition enterprise data to support the delivery of customer
assets, deliver of a digital network. value and solve customer problems, including the use
effective data The strategy is underpinned of enhanced Artificial Intelligence /Machine Learning
foundations, and by our ability to innovate capabilities
capitalise on and develop solutions
their use, we to enhance customer
will not be able propositions, improve * A global data function that drives focus and
to realise their insight and decision alignment across the organization. In FY22, Sage
full potential making and create new appointed its first Chief Data Officer.
to secure strategically business models and
aligned outcomes. ecosystems. Successful
Strategic alignment: ability to use data * A defined set of Data ethics and principles to ensure
will accelerate our we use customer data responsibly to achieve our
growth and will be a strategy
key driver in helping
customers transform
how they run and build * Plan to increase digital network participation, which
their businesses. 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 Risk Trend: Improving Risk Environment
Scale
------------------------------------------------------------------------------------------------------------------------
If we fail to As Sage transitions
maintain a reliable, to a digital company, * Migrating of products to public cloud offerings to
scalable, and we continue to focus improve scalability, resilience, and security.
secure live services on scaling our current
environment, we and future platform
will be unable services environment * Accountability across product owners, underpinned by
to deliver the in a robust, agile, ongoing risk assessments and continuous improvement
consistent cloud and speedy manner to projects
experience expected ensure the delivery
by our customers. of a consistent and
Strategic alignment: robust cloud platform * Formal onboarding process including ongoing
and associated digital management in Portfolio Management processes
network.
Sage must provide the
right infrastructure * Incident and problem management change processes
and operations for all adhered to for all products and services
our customer products,
a hosting platform together
with the governance * Service-level objectives including uptime,
to ensure optimal service responsiveness, and mean time to repair objectives
availability, performance,
security protection
and restoration (if * Defined Real-Time Demand Management processes and
required). 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, Risk Trend: Improving Risk Environment
Social and Governance
------------------------------------------------------------------------------------------------------------------------
If we fail to We are committed to
fully, and continually, investing in education, * A robust Sustainability and Society strategy which
respond to the technology, and the was launched in 2021, focusing on three pillars: Tech
range of environmental environment to give for Good, Fuel for Business, Protect the Planet
(especially climate), individuals, small and
social, and governance-related medium businesses (SMBs),
opportunities and our planet the opportunity * Underpinning the strategy is a robust
and risks we may to thrive. cross-functional governance framework
fail to deliver Our goal is to use our
positive change technology, time, and
to social and experience to back a * Tracking tools in place to enable horizon scanning
environmental generation of diverse, and to track the Sustainability and Society
issues and damage sustainable businesses. strategy's impact
the confidence The potential benefits
of our stakeholders. of investing in our
ESG strategy include: * As part of our broader Sustainability function, the
Strategic alignment: * Increased customer engagement Sage Foundation, established in 2015, remains focused
on the areas of education, employment, and
entrepreneurship via the contribution of time,
* Better use of resources, for example lower energ investment, and capability on managing climate risks
y and
water consumption and associated costs
* An integrated framework for the management of ESG
related risk, including physical and transitional
* Enhanced stakeholder trust climate risks as recommended by the Taskforce for
Climate Related Financial Disclosures (TCFD)
* Improved ability to attract and retain talent,
enabling colleagues to perform at their best
* 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 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] Please see Appendix 1 for guidance on the usage and definitions of Alternative Performance Measures.
[2] 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] 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] 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] 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] Revenue from customers using products that are part of, or that management believe have a clear pathway to, Sage Business Cloud.
[7] 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] As reported
[9] Underlying and organic revenue and profit measures are defined in Appendix 1.
[10] United Kingdom, Ireland, Africa and APAC
[11] Recurring and non-recurring items are defined in Appendix 1 and detailed in note 3 of the financial statements.
[12] Impact of retranslating FY21 results at FY22 average rates
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(END) Dow Jones Newswires
November 16, 2022 02:00 ET (07:00 GMT)
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