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Sage Group PLC (SGE)

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Wednesday 09 May, 2012

Sage Group PLC

Half Yearly Report

RNS Number : 9333C
Sage Group PLC
09 May 2012
 



Wednesday 9 May 2012                                                                                           

The Sage Group plc unaudited results for the six months ended 31 March 2012 

 

Results at a glance

Continuing operations1


STATUTORY

UNDERLYING*

H1 2012

H1 2011

Change

H1 2012

H1 2011

Change

Revenue

£673.1m

£670.4m

-

£661.2m#

£649.0m#

+2%

EBITA

n/a

n/a

n/a

£180.9m

£179.9m

+1%

Pre-tax profit

£167.1m

£162.8m

+3%

£176.1m

£173.1m

+2%

Earnings per share

9.06p

8.79p

+3%

9.55p

9.35p

+2%

Interim dividend per share

3.48p

2.68p

+30%

n/a

n/a

n/a

1 Excludes the results of discontinued operations (Sage Healthcare) in both periods.

 

Financial highlights

§ Organic revenue# growth of 2%* in the period (H1 2011: 5%*), reflecting strong growth in subscription revenues of 5%* offset by a contraction of 4%* in software and software-related services revenue ("SSRS")

§ EBITAmargin maintained at 27% (H1 2011: 27%*) with continuing investment in strategic initiatives for growth

§ Underlying earnings per share increased by 2%* to 9.55p (H1 2011: 9.35p*), reflecting 2%* growth in underlying pre-tax profit

§ Strong operating cash flow of £207.7m (H1 2011: £222.6m), representing 115% of EBITA, with net cash of £122.1m at 31 March 2012 (31 March 2011: net debt of £106.0m; 30 September 2011: net debt of £24.9m)

§ Interim dividend increased by 30% to 3.48p per share (H1 2011: 2.68p per share), reflecting the rebasing announced in November 2011 and continued confidence in our business prospects

§ As at 4 May 2012, £147.8m returned to shareholders through the share buyback programme which will continue beyond the return of the Sage Healthcare proceeds

 

Operational highlights

§ 129,000 new paying customers added in the period (H1 2011: 131,000)

§ Subscription revenues continue to deliver good growth, reflecting progress in premium support and the ongoing strategic shift from software revenue to recurring support contracts

§ 81% renewal rate on support contracts maintained reflecting high quality customer service and value-added features (H1 2011: 81%)

§ Good progress in implementing our web strategy, including our alliance with Microsoft on the Windows Azure Cloud platform and the imminent launch of Sage One in North America

 

Guy Berruyer, Chief Executive, commented: "We have delivered a resilient performance in the first half of the year. The inherent strengths of the business are evident in our ability to attract new customers, our strong customer renewal rate and our continued high cash generation.    

Revenue performance in the period reflects the strategic switch to subscription revenues, which has exceeded our expectations.  It also reflects the challenging economic conditions, particularly in Europe, and we remain watchful of the broader business environment in this region.  Nevertheless, we have delivered a resilient financial and operational performance.

We have made good progress on our priorities and will increasingly see their impact on the business. We have also renewed our focus on accelerating growth.  This involves changing the way we will run our business, including a more disciplined approach to resource allocation, portfolio management and execution."

 

*Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets and acquisition costs.
# Organic figures exclude the contributions of current and prior period acquisitions, disposals and non-core products.
EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets and acquisition costs; and is after neutralising the impact of foreign exchange movements.

Enquiries:

The Sage Group plc          +44 (0) 191 294 3068

Tulchan Communications                +44 (0) 20 7353 4200

Guy Berruyer, Chief Executive

David Shriver

Paul Harrison, Chief Financial Officer

Lucy Legh

Murdo Montgomery, Investor Relations


 

An analyst presentation will be held at 8.45am today at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB.  A live webcast of the presentation will be hosted on www.investors.sage.com, dial-in number +44 (0) 20 3140 0668, pin code: 583105#.  A replay of the call will also be available for two weeks after the event: Tel: +44 (0) 20 3140 0698, pin code: 384148#.

 

Chief Executive's Review                                                                  

Overview of the period

We delivered 2%* organic revenue growth in the half (H1 2011: 5%*) reflecting a range of performances from across the business.  A feature of the period has been the combination of three main factors which have acted as a near-term constraint on growth.  The continued switch to subscription revenues has been a primary factor, which reflects the way we are driving the business strategically and which has served to reduce reported revenue by approximately 1%.  The macroeconomic environment has also been a constraint, holding back our European growth in particular.  Comparisons to the prior period are, as previously highlighted, impacted by one-off benefits enjoyed in H1 2011, which will be less of a factor in the second half.  Overall, however, we have made good progress on our growth initiatives and are encouraged by the underlying performance of the business.  

 

On a regional basis, the trading environment in Europe remained particularly challenging during the period.   Spain was the worst hit of our businesses, but the uncertain and deteriorating environment in France has also impacted performance.  In contrast, the UK and Germany delivered strong revenue growth relative to the underlying macroeconomic environment.  In North America, we are particularly encouraged by the shift from software revenue to recurring support contracts and by the continued progress with integrating payments into our core accounting and ERP solutions.  AAMEA continues to perform well with South Africa and Australia both growing strongly in excess of nominal GDP for the countries.  Sales into the broader African continent continue to be very strong with revenue growth rates in excess of 20%* and this continues to represent a good future opportunity for growth.

           

Our installed base of more than 6 million SME customers presents significant opportunities to drive organic revenue growth, including up-selling to higher tier premium contracts and cross-selling additional products and connected services.  We continued to make good progress with these initiatives during the period.  Up-selling to premium support continues to be attractive to our customers, with sales of new premium contracts and up-selling of existing premium contracts resulting in revenue from premium support growing by 6%*.  We are pleased with the success of our cross-selling initiatives in North America, with the cross-sell of payments into our accounting base growing by 13%* in the period.  These represent approximately one quarter of North American payments revenue.

 

Our payments businesses continued to perform well, with an organic revenue growth rate of 10% overall.  Payments remains a great example of how we can expand our offerings to support our customers and the integration and cross-selling opportunities this creates are compelling. 

 

Sage ERP X3, our global mid-market ERP solution, delivered organic revenue growth of 3%* in the period, with continued double digit growth outside of France, offset by difficult economic conditions in France, its largest market.  The UK, South Africa and Singapore exhibited particularly good growth. Sage ERP X3 is now available in a total of 56 countries and has more than 3,500 customers and 240 partners.

 

Notwithstanding the challenging trading conditions, we maintained our EBITA margin at 27% (H1 2011: 27%*) reflecting strong cost discipline whilst also continuing to invest in our key growth initiatives across the business. 

 

Changing the way we work to accelerate growth

Since my appointment as CEO, improving organic revenue growth has been the primary objective for the business.  We continue to make good progress on our growth initiatives, as evidenced by the growth of our subscription revenues, our ability to attract 129,000 new paying customers during the period, the momentum in our higher growth areas such as payments and our global, scalable products such as Sage ERP X3 and Sage One.

 

In our 2011 full year results statement, I highlighted our intent to focus more of our resources on areas with the highest growth potential.  With this in mind, we have been investing considerable management effort in developing our approach to accelerate growth.  At the heart of this is the belief that we can best capture our growth opportunity by a more disciplined and rigorous approach to resource allocation, prioritisation and execution. 

 

Importantly, the approach we have developed both builds on our existing strengths and growth initiatives, and will fundamentally change the way we work.  It is based on a centrally-driven plan which will ensure every business in the Group has a consistent focus on the high growth products in their portfolios.  Aligned to this is greater discipline in ensuring resources and investment are re-allocated to support these growth opportunities; and strengthened execution, embedding the best group-wide disciplines and practices across all businesses.  It will also continue to improve the way we work together, driving greater collaboration and leveraging scale opportunities where this makes sense for our business. 

 

We are early in the implementation stage and we look forward to providing further information at our investor day scheduled for 17 July 2012.  This is a multi-year plan which strengthens our conviction that, by leveraging our existing strengths, we can realise our growth potential. 

 

Implementing our web strategy

We continue to execute our customer driven strategy for leveraging the web and have made significant progress on a number of initiatives during the period. 

 

Sage One is our entry-level Software as a Service ("SaaS") solution which combines a global platform with local applications.  In the UK & Ireland, where the market is still in its early stages, Sage One continues to exhibit strong momentum, more than doubling its customer numbers in the last 6 months.  In December 2011, we launched Sage One Payroll in the UK & Ireland and already have more than 2,000 free trial users.  We will be launching Sage One in


North America imminently.  This is a key initiative for our entry-level offering in North America and will bring a differentiated offer to the market.

 

In the mid-market segment, we launched Cloud versions of our existing leading products including Sage ERP MAS 90 Online in North America and Office Line 365 in Germany.  We also announced our alliance with Microsoft to develop certain ERP solutions on the Windows Azure Cloud platform.  The focus of development will start in Europe with Sage 200 in the UK and Sage Murano in Spain.  These solutions are in development, will be rolled out to a small number of pilot sites in the coming months and will come to market in 2013. 

 

We are increasingly using the web to provide enhancements to our on-premise products through connected services and applications.  Services such as Sage Advisor in North America are helping to provide more active relationships with our customers and to drive the strategic shift to a subscription revenue model.  Sage Advisor delivers in-product assistance to help customers to maximize their investment by following usage patterns and offering personalised support and business advice.

 

Mobility is an increasingly important theme for our SME customers as they become more distributed and mobile.  Our payments businesses in North America and the UK have both recently introduced new mobile payments solutions. Sage Pay Mobile, launched in the UK last month, and Sage Mobile Payments 2.0, launched in North America, both provide secure processing of credit and debit card transactions on mobile devices, together with a focus on enhancing the customer experience through new features designed to save businesses time and increase the security of their transactions.

 

Acquisitions

Acquisitions remain an important enabler of our strategy.  During the period, we made the following acquisitions which although small, are important strategic acquisitions for the Group.

 

In October 2011, we acquired Alchemex (Pty) Ltd ("Alchemex"), a company based in South Africa providing business intelligence tools for SMEs, for a cash consideration of up to £6.7m.  We see business intelligence as a key growth area for Sage, and have embedded Alchemex technology into our products beginning in South Africa, Australia and North America. 

 

In February 2012, we entered the cardholder present market in the UK & Ireland by acquiring Integral Computers Limited ("Integral"), a payment processing provider based in Dublin, Ireland, for a cash consideration of up to £16.7m.  The Integral business is highly complementary to our Sage Pay business. It broadens its customer offering through the provision of multi-channel credit card settlement services whilst significantly extending its addressable market.

 

These acquisitions enable our businesses to add value to our customers whilst building our exposure in key high growth areas.  We continue to evaluate further acquisition opportunities in each of the areas of technology, and new and existing geographies.  We remain disciplined in our approach to acquisitions and will only acquire businesses that we believe represent good value for our shareholders.

 

 

People

During the period, we announced that David Clayton, Group Director of Strategy and Corporate Development, had decided to retire from the Board at the Annual General Meeting on 29 February 2012.  The Board would like to thank David for his substantial contribution to Sage over the past 8 years and we wish him well for the future.

 

Summary and outlook

We have delivered a resilient financial and operational performance in the first half of the year and, as we look forward, we are encouraged by both the underlying performance of our business and by the opportunities we have in our markets.   However, the macroeconomic environment remains a considerable headwind for a number of our European markets, and we remain watchful of the outlook for the economic climates in France and the UK in particular, as they remain exposed to the risk of renewed recession.

 

Since my appointment as CEO, I have been clear about the strong foundations of the business but also the opportunity to position the business towards higher growth.   We have made good progress in executing against our business priorities and will increasingly see their impact on the business.   We have also renewed our focus on accelerating growth.   This involves changing the way we will run our business, including a more disciplined approach to resource allocation, portfolio management and execution.

 

Guy Berruyer

Chief Executive Officer

 

Chief Financial Officer's Review                                                             

                                              

Revenues

Revenue grew by 2%* to £673.1m compared to the prior period (H1 2011: £662.4m*).  This excludes the results of Sage Healthcare (sold in November 2011), which is disclosed as discontinued operations.  Organic revenue also grew by 2%* compared to the prior period.  Organic revenue excludes the contributions of current and prior period acquisitions and disposals and non-core products.

 

Total subscription revenues were £451.4m (H1 2011: £430.2m*) which grew organically by 5%*, benefitting from growth in premium subscription contracts and the continued shift towards software and services being sold on a subscription basis.  Subscription revenues are recurring in nature and include stand-alone support (19% of subscription revenue), combined software with maintenance and support (71% of subscription revenue), and payment processing services (10% of subscription revenue).

 

Subscription contracts continue to be a key growth driver for Sage, particularly the evolution of our premium support ranges.  Of our contracts, more than two thirds are premium in nature, that is, contracts which combine software and support, and in certain cases, other premium services such as connected services, priority phone lines and backup services.

 

Total revenues for SSRS were £221.7m (H1 2011: £232.2m*), which contracted organically by 4%*.  SSRS revenues include stand-alone software licence sales (including new licences, upgrades and migrations) and professional services, hardware and business forms.  Our strategy of migration of software revenues to subscription revenue clearly impacted this growth.

 

Profitability

EBITA increased by 1%* to £180.9m (H1 2011: £179.9m*).  The Group's EBITA margin was maintained at 27% (H1 2011: 27%*).  At the same time we continued to invest in the strategic initiatives previously set out such as Sage ERP X3, customer support, and our web strategy.  Net finance costs of £4.8m (H1 2011: £6.8m) were lower partly due to the closing out of the interest rate swap in the prior period.  The average interest rate on borrowings during the period was 4.58% (H1 2011: 4.58%).  The income tax expense was £48.5m (H1 2011: £46.8m), and the effective tax rate was 29% (H1 2011: 29%).

 

Underlying earnings per share grew by 2%* to 9.55p (H1 2011: 9.35p*).  Statutory basic earnings per share from continuing operations for the period ended 31 March 2012 increased by 3% to 9.06p (H1 2011: 8.79p).  Statutory diluted earnings per share from continuing operations increased by 3% to 9.04p (H1 2011: 8.77p).

 

Regional review

Throughout the regional review, growth trends are stated on a currency neutral basis with prior period results retranslated at current period exchange rates.  This is done to facilitate the comparison of results.  A reconciliation of underlying headline revenue to organic revenue is shown in the table in note 1 on page 17.

 



 

 

 Europe

 

North
America

 

 

AAMEA

 

Group

underlying*

 

Foreign exchange

 

Adjustments

to EBITA

 

Group

statutory

Revenue

H1 FY12

£m

400.1

199.0

74.0

673.1

673.1

H1 FY11

£m

396.4

199.3

66.7

662.4

8.0

670.4

Change

%

+1%

0%

+11%

+2%

0%

EBITA/Operating profit

H1 FY12

£m

112.6

49.3

19.0

180.9

(9.0)

171.9

H1 FY11

£m

114.8

49.1

16.0

179.9

2.3

(12.6)

169.6

Change

%

-2%

0%

+19%

+1%

+1%

 

Europe

Total Europe revenues grew 1%* to £400.1m (H1 2011: £396.4m*).  On an organic basis, Europe grew by 1%* (H1 2011: 5%*).  Organic subscription revenues grew at 5%* (H1 2011: 5%*), with organic SSRS revenues contracting by 7%* (H1 2011: 5%* growth).

Organic revenue in our French business grew by 1%* in the period, reflecting a deterioration in the economic environment together with the impact of a particularly strong comparative period due to the move to a Single Euro Payments Area, as previously highlighted.  Subscription revenues grew strongly in the period particularly in Sage 100 and Sage ERP X3.

 

Our UK & Ireland business grew organically by 5%* in the period.  This growth is driven by a strong performance in subscription revenue particularly in SageCover Extra, our premium support offering for our core Sage 50 product.  Sage One continues to make good progress, doubling paying customers to 3,000 in the past six months and recently launching a payroll offering.  Our Accountants' Division has continued to perform well with stronger renewal rates on support contracts resulting in good growth.

 

Our Spanish business continued to suffer from macro headwinds with an 8%* contraction in organic revenue in the period.  We expect these conditions to remain challenging in the foreseeable future.

 

Organic revenue in Germany grew strongly at 7%* with significant demand for the new release of our Classic Line product.

 

Revenues in the rest of Europe were mixed with Swiss revenues declining by 6%* organically and our Polish business declining by 28%* organically albeit with the prior period benefitting from the one-off VAT stimulus.  Our Portuguese business grew by 3%* driven in part by the certification of our products by the Portuguese government.

 

The EBITA margin for Europe was 28% (H1 2011: 29%*) reflecting continued investment into key growth initiatives such as premium support, payments, the web and Sage ERP X3.

 

North America

Total revenues from continuing operations in North America were flat* at £199.0m (H1 2011: £199.3m*), with organic revenue growth of 1%* (H1 2011: 4%*).  Organic subscription revenues grew 2%* (H1 2011: 4%*), while organic SSRS revenues contracted by 3%* (H1 2011: 2%* growth).

 

From a strategic perspective, there are some significant developments being driven through North America which means the business is currently going through a period of transformation.  Importantly, as previously announced, we are in the process of rebranding all products to maximise the leverage of the Sage brand.  So, for instance, Sage Peachtree in the US and Sage Simply Accounting in Canada will become Sage 50 U.S. Edition and Sage 50 Canadian Edition respectively, and Sage ERP MAS 90 will become Sage 100.  We consider this consistent use of the Sage brand to be a vital underpinning to cross-sell initiatives.

 

To this end, the cross-sell of integrated payment solutions into our accounting software customer base continued as an area of focus.  We made good progress with the integration of payment solutions into Sage ERP MAS 90 and now Sage Peachtree.  Cross-sell revenues represent a quarter of our payments division's revenues yet we have still sold integrated payments solutions to a very small proportion of our accounting software customer base - a great future opportunity.

 

In North America, we started to see the impact of the strategic switch to subscription revenues, particularly in our Sage Peachtree and Sage Simply Accounting products.  During the period, we saw a 27% increase in the number of US customers on Sage Business Care, our premium support contract, and we continue to see a significant opportunity in the US and in Canada to drive subscription revenue growth further.

 

The EBITA margin for North America was 25% (H1 2011: 25%*).

 

AAMEA (Africa, Australia, Middle East and Asia)

Total revenues in AAMEA grew by 11%* to £74.0m (H1 2011: £66.7m*).  Organic revenue grew 12%* (H1 2011: 10%*).  Organic subscription revenues showed strong growth of 14%* (H1 2011: 15%*), while organic SSRS grew by 10%* (H1 2011: 6%*).

 

South Africa continued to deliver strong organic revenue growth of 15%*, with a particularly good performance from core Pastel and VIP products.  Sales into the broader African continent continued to grow strongly with revenue growth rates in excess of 20% and this continues to represent a good future opportunity for growth.  Australia grew by 8%* organically outperforming GDP growth.  Together, our Middle East and Asian businesses grew organically by 11%* with a particularly strong performance in the mid-market in Singapore.

 

The  EBITA  margin  for  AAMEA  increased  to  26%  (H1 2011: 24%*).             

 

Cash flows

The Group remains highly cash generative with an operating cash flow from continuing operations of £207.7m (H1 2011: £222.6m), representing 115% of EBITA (H1 2011: 122%).  After interest, tax, net capital expenditure and discontinued operations, free cash flow was £138.9m.  The net inflow from acquisitions and disposals completed in the period was £182.9m.  After dividends paid of £92.1m, shares repurchased of £93.8m and other movements of £11.1m, including exchange movements, net cash stood at £122.1m at 31 March 2012 (31 March 2011: net debt of £106.0m; 30 September 2011: net debt of £24.9m).

 

Foreign exchange

The financial results have been impacted by movements in exchange rates.  The average Euro exchange rate used to translate the consolidated income statement showed movement of 3% to £1 = €1.19  from £1 = €1.16.  The average US Dollar exchange rate was consistent at £1 = $1.59.  The average South African Rand exchange rate moved significantly in the period to £1 = ZAR12.42 from £1 = ZAR11.02, representing a fluctuation of 13%.  In order to assess like-for-like performance, Group growth trends are shown on a foreign currency neutral basis where indicated.

 

Balance sheet and capital structure

Capital structure and dividend

We have continued with our share buyback programme to return the proceeds from the disposal of Sage Healthcare to shareholders.  As at 4 May 2012, we have repurchased 50.9m shares at a total cost of £147.8m.  We expect this programme to complete in the second half of this financial year.  With our strong balance sheet and high cash generation, we are reiterating our aim of reaching a net debt level of a minimum of 1x EBITDA over the next 12 months.  We will achieve this through a combination of further capital returns to shareholders and targeted acquisitions.  These further capital returns include continuing our share buyback programme beyond the return of the proceeds from the disposal of Sage Healthcare.  The Board will keep under review all means of achieving the minimum net debt target.

 

Consistent with this objective and reflecting the rebasing of the dividend in November 2011, we increased our interim dividend by 30% to 3.48p per share (H1 2011: 2.68p per share).  This total dividend is covered 2.7x by profits.  We intend to pursue a policy of further increasing our dividend broadly in line with underlying EPS growth over time.

 

Debt and facilities

The Group had net cash of £122.1m at 31 March 2012 (31 March 2011: net debt of £106.0m; 30 September 2011: net debt of £24.9m).  The Group continues to be able to borrow at competitive rates and currently deems this to be the most effective means of raising finance.  The Group is funded through retained earnings and US private placement loan notes at 31 March 2012 of £187.8m (US$300.0m) (H1 2011: £187.1m, US$300.0m).  In addition, the Group has multi-currency revolving credit facilities totalling £348.0m (H1 2011: £358.5m) (US$271.0m and €214.0m tranches), which expire in 2015; at 31 March 2012, these facilities were undrawn (H1 2011: undrawn).  The Group continues to monitor opportunities to enhance and diversify its funding sources in the current capital market conditions.

 

Treasury management

The Group's Treasury function seeks to ensure liquidity is available to meet the foreseeable needs of the Group, to invest cash assets safely and profitably and reduce exposure to interest rate, foreign exchange and other financial risks.  The Group does not engage in speculative trading in financial instruments and transacts only in relation to underlying business requirements.  The Group's treasury policies and procedures are periodically reviewed and approved by the Audit Committee and are subject to regular Group Internal Audit review.

 

Archer Capital

On 14 November 2011 the Group reported a claim for damages made by Archer Capital ("Archer") following the termination of discussions between the Group and Archer relating to the potential purchase of MYOB.  The Group strongly rejects the claim, which it understands to be in the region of £80m (A$130m), and will defend itself vigorously.

 

Paul Harrison

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated income statement

For the six months ended 31 March 2012

Continuing operations

Note

 

Six months ended

31 March

2012  (Unaudited)     £m

Restated

Six months  ended                 31 March

2011   (Unaudited)

£m

                            Year
ended

30 September
2011
(Audited)
£m

Revenue

1

673.1

670.4

1,334.1

Cost of sales

(42.2)

(43.9)

(85.6)

Gross profit

630.9

626.5

1,248.5

Selling and administrative expenses

(459.0)

(456.9)

(905.2)

Operating profit

1

171.9

169.6

343.3

Finance income

1.4

2.3

1.9

Finance costs

(6.2)

(9.1)

(14.4)

Finance costs - net

(4.8)

(6.8)

(12.5)

Profit before taxation

167.1

162.8

330.8

Income tax expense 

3

(48.5)

(46.8)

(74.8)

Profit for the period from continuing operations

118.6

116.0

256.0

Profit/(loss) for the period from discontinued operations

9

57.6

2.7

(67.0)

Profit for the period - attributable to owners of the parent

176.2

118.7

189.0

EBITA

1

180.9

182.2

365.5

Earnings per share (pence)

From continuing operations

     - Basic

5

9.06p

8.79p

19.44p

     - Diluted

5

9.04p

8.77p

19.29p

From continuing and discontinued operations

     - Basic

5

13.46p

9.00p

14.35p

     - Diluted

5

13.43p

8.97p

14.24p

Consolidated statement of comprehensive income

For the six months ended 31 March 2012

 

Six months ended

31 March

2012  (Unaudited)     £m

Restated

Six months  ended  31 March

2011   (Unaudited)

£m

 

Year
ended 

30 September
2011

(Audited)
£m

Profit for the period


176.2

118.7

189.0

Other comprehensive (expense)/income

 

Exchange differences on translating foreign operations

     - Exchange differences arising during the period

(35.9)

(6.2)

6.5

     - Reclassification adjustments relating to foreign operations disposed of in the period

(55.7)

-

-

Actuarial (loss)/gain on post employment benefit obligations

(0.5)

0.7

1.0

Cash flow hedges

-

1.0

1.0

Other comprehensive (expense)/income for the period, net of tax

(92.1)

(4.5)

8.5

Total comprehensive income for the period - attributable to owners of the parent

84.1

114.2

197.5

The notes on pages 15 to 25 form an integral part of this condensed consolidated half-yearly financial report.

 

†    EBITA measure (Earnings before interest, tax and adjustments) excludes the effects of:

•   Amortisation of acquired intangible assets;

•   Net amortisation of software development expenditure; and

•  Acquisition costs.

Consolidated balance sheet

As at 31 March 2012

 


Note

31 March      2012 (Unaudited)    £m

31 March       2011   (Unaudited)      £m

30 September 2011 

(Audited)

£m

Non-current assets

Goodwill

6

1,715.8

2,024.6

1,736.3

Other intangible assets

6

114.0

164.8

118.1

Property, plant and equipment

6

142.4

148.4

146.4

Deferred income tax assets

13.3

13.8

20.7

1,985.5

2,351.6

2,021.5

Current assets

Inventories

2.6

3.7

2.5

Trade and other receivables

317.0

319.7

285.4

Cash and cash equivalents (excluding bank overdrafts)

8

326.0

115.5

182.8

645.6

438.9

470.7

Non-current assets classified as held for sale

-

-

251.1

Total assets

1

2,631.1

2,790.5

2,743.3

 

Current liabilities

 

Trade and other payables

(257.5)

(293.0)

(261.2)

Current income tax liabilities

(30.1)

(79.1)

(47.4)

Borrowings

8

(0.9)

(1.9)

(1.7)

Other financial liabilities

(50.0)

-

(50.0)

Deferred consideration

(9.5)

(2.2)

(2.0)

Deferred income

(453.3)

(466.4)

(404.7)

(801.3)

(842.6)

(767.0)

Liabilities directly associated with non-current assets classified as held for sale

-

-

(49.7)

Non-current liabilities

Borrowings

(187.7)

(186.7)

(192.4)

Retirement benefit obligations

(12.4)

(11.7)

(11.7)

Deferred income tax liabilities

(19.5)

(42.6)

(14.7)

(219.6)

(241.0)

(218.8)

Total liabilities

(1,020.9)

(1,083.6)

(1,035.5)

Net assets

1,610.2

1,706.9

1,707.8

Equity attributable to owners of the parent

Ordinary shares

7

13.3

13.2

13.2

Share premium

7

520.9

507.9

513.2

Other reserves

175.2

254.1

266.8

Retained earnings

900.8

931.7

914.6

Total equity

1,610.2

1,706.9

1,707.8

The notes on pages 15 to 25 form an integral part of this condensed consolidated half-yearly financial report.

Consolidated statement of cash flows

For the six months ended 31 March 2012

 

Note

 

Six months ended

31 March

2012 (Unaudited)    £m

Restated

Six months ended 

31 March

2011 (Unaudited)

£m

 

Year
ended

30 September
2011
(Audited)
£m

Cash flows from operating activities

Cash generated from continuing operations

8

207.7

222.6

405.1

Interest paid

(5.6)

(8.4)

(13.0)

Income tax paid

(50.1)

(37.9)

(92.5)

Operating cash flows (used in)/generated from discontinued operations

(0.5)

7.0

15.4

Net cash generated from operating activities

151.5

183.3

315.0

Cash flows from investing activities

Acquisitions of subsidiaries, net of cash acquired

10.1

(16.2)

(1.2)

(1.4)

Disposal of subsidiaries, net of cash disposed

10.5

0.2

1.3

2.0

Purchases of property, plant and equipment

(8.8)

(11.4)

(23.0)

Proceeds from sale of property, plant and equipment

0.3

1.8

2.4

Purchases of intangible assets

(5.5)

(5.0)

(9.3)

Interest received

1.4

2.3

1.9

Investing cash flows generated from discontinued operations

10.4

198.9

-

-

Net cash generated from/(used in) investing activities

170.3

(12.2)

(27.4)

Cash flows from financing activities

Proceeds from issuance of ordinary shares

7

7.8

8.1

13.4

Purchase of treasury shares

7

(93.8)

-

-

Finance lease principal payments

8

(0.4)

(0.3)

(0.6)

Proceeds from borrowings

-

0.4

0.6

Repayments of borrowings

8

(0.2)

(60.3)

(60.4)

Movement in cash collected from customers

8

1.7

(5.5)

(23.0)

Dividends paid to Company's shareholders

4

(92.1)

(68.7)

(104.0)

Net cash used in financing activities

(177.0)

(126.3)

(174.0)

Net increase in cash, cash equivalents and bank overdrafts
(before exchange rate movement)

8

144.8

44.8

 

113.6

Effects of exchange rate movement

8

(0.8)

0.1

(2.2)

Net increase in cash, cash equivalents and bank overdrafts

144.0

44.9

111.4

Cash, cash equivalents and bank overdrafts at 1 October

8

182.0

70.6

70.6

Cash, cash equivalents and bank overdrafts at period end

8

326.0

115.5

182.0

The notes on pages 15 to 25 form an integral part of this condensed consolidated half-yearly financial report.

Consolidated statement of changes in equity

For the six months ended 31 March 2012


Attributable to owners of the parent

 

Ordinary
shares
£m

Share
premium
£m

Other
reserves
£m

Retained
earnings
£m

Total
equity
£m

At 1 October 2011 (Audited)

13.2

513.2

266.8

914.6

1,707.8

Profit for the period

-

-

-

176.2

176.2

Other comprehensive (expense)/income

Exchange differences on translating foreign operations

     - Exchange differences arising during the period

-

-

(35.9)

-

(35.9)

     - Reclassification adjustments relating to foreign operations disposed of in the period

-

-

(55.7)

-

(55.7)

Actuarial loss on post employment benefit obligations

-

-

-

(0.5)

(0.5)

Total comprehensive (expense)/income
for the period ended 31 March 2012 (Unaudited)

-

-

(91.6)

175.7

84.1

Transactions with owners

Proceeds from shares issued

0.1

7.7

-

-

7.8

Value of employee services

-

-

-

3.2

3.2

Purchase of treasury shares

-

-

-

(100.0)

(100.0)

Expenses related to purchase of treasury shares

-

-

-

(0.6)

(0.6)

Dividends to equity holders of the Company

-

-

-

(92.1)

(92.1)

Total transactions with owners
for the period ended 31 March 2012 (Unaudited)

0.1

7.7

-

(189.5)

(181.7)

At 31 March 2012 (Unaudited)

13.3

520.9

175.2

900.8

1,610.2

Attributable to owners of the parent


Ordinary
shares
£m

Share
premium
£m

Other
reserves
£m

Retained
earnings
£m

Total
equity
£m

At 1 October 2010 (Audited)

13.2

499.8

259.3

877.1

1,649.4

Profit for the period

-

-

-

118.7

118.7

Other comprehensive (expense)/income

Exchange differences on translating foreign operations


     - Exchange differences arising during the period

-

-

(6.2)

-

(6.2)

Actuarial gain on post employment benefit obligations

-

-

-

0.7

0.7

Cash flow hedges

-

-

1.0

-

1.0

Total comprehensive (expense)/income
for the period ended 31 March 2011 (Unaudited)

-

-

(5.2)

119.4

114.2

Transactions with owners

Proceeds from shares issued

-

8.1

-

-

8.1

Value of employee services

-

-

-

3.9

3.9

Dividends to equity holders of the Company

-

-

-

(68.7)

(68.7)

Total transactions with owners
for the period ended 31 March 2011 (Unaudited)

-

8.1

-

(64.8)

(56.7)

At 31 March 2011 (Unaudited)

13.2

507.9

254.1

931.7

1,706.9

The notes on pages 15 to 25 form an integral part of this condensed consolidated half-yearly financial report.

Notes to the financial information

For the six months ended 31 March 2012

Group accounting policies

a General information

The Sage Group plc ("the Company") and its subsidiaries (together "the Group") is one of the leading global suppliers of business management software and services to small and medium-sized enterprises. The Group operates in 24 countries worldwide in Europe, North America, Southern Hemisphere and Asia.

The Company is listed on the London Stock Exchange.  The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is North Park, Newcastle upon Tyne, NE13 9AA.

This condensed consolidated half-yearly financial report was approved for issue by the Board of directors on 9 May 2012.

This condensed consolidated half-yearly financial report does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 September 2011 were approved by the Board of directors on 30 November 2011 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.

This condensed consolidated half-yearly financial report has been reviewed, not audited.

b Basis of preparation

This condensed consolidated half-yearly financial report for the six months ended 31 March 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim Financial Reporting" as adopted by the European Union, ("EU"). The condensed consolidated half-yearly financial report should be read in conjunction with the annual financial statements for the year ended 30 September 2011, which have been prepared in accordance with IFRSs as adopted by the EU.

Restatement for discontinued operations

The results of discontinued operations are shown as a single amount on the face of the Consolidated income statement, comprising the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognised either on measurement to fair value less costs to sell, or on the disposal of the discontinued operation. The Consolidated income statement, the Consolidated statement of cash flows, and the related notes for the prior period have been restated to exclude discontinued operations. 

Going concern

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report.  Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated half-yearly financial report.

 

c Accounting policies

Changes in accounting policy

Other than as described below, the accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2011, as described in those annual financial statements.

Adoption of new and revised International Financial Reporting Standards

The following standards, interpretations, and amendments to standards were effective during the period to 31 March 2012 and have been adopted in this condensed consolidated half-yearly financial report.

-   Amendment to IFRIC 14, "Prepayments of a Minimum Funding Requirement"

-   Annual improvements to IFRSs (2010) (effective 1 January 2011). This is a collection of amendments to six standards and one IFRIC as part of the IASB's programme of annual improvements. The standards impacted are:

-   IFRS 1, "First-time Adoption of IFRS"

-   IFRS 3, "Business Combinations"

-   IFRS 7, "Financial Instruments: Disclosures"

-   IAS 1, "Presentation of Financial Statements"

-   IAS 27, "Separate Financial Statements"

-   IAS 34, "Interim Financial Reporting"

-   IFRIC 13, "Customer Loyalty Programmes"

 

Most of the amendments are effective for annual periods beginning on or after 1 January 2011; early adoption is permitted. 

There is no material impact of the adoption of these standards in this condensed consolidated half-yearly financial report.

New and amended standards not yet mandatory for the Group

At the date of approval of this condensed consolidated half-yearly financial report, the following new standards, interpretations and amendments were issued but not yet mandatory for the Group and early adoption has not been applied. 

International Accounting Standards ("IAS")

-   IAS 27 (revised 2011), "Separate Financial Statements"

-   IAS 28 (revised 2011), "Investments in Associates and Joint Ventures"

International Financial Reporting Standards ("IFRS")

-   IFRS 9, "Financial Instruments"

-   IFRS 10, "Consolidated Financial Statements"

-   IFRS 11, "Joint Arrangements"

-   IFRS 12, "Disclosure of Interests in Other Entities"

-   IFRS 13, "Fair Value Measurement"

Amendments to existing standards

-   Amendment to IFRS 1, "First-time Adoption of IFRS"

-   Amendment to IFRS 7, "Financial Instruments: Disclosures"

-   Amendment to IAS 1, "Presentation of Financial Statements"

-   Amendment to IAS 12, "Income Taxes"

-   Amendment to IAS 19, "Employee Benefits"

-   Amendment to IAS 32, "Financial Instruments: Presentation"

 

Group accounting policies (continued)

All of the IFRSs, IFRIC interpretations and amendments to existing standards are not yet endorsed by the EU at the date of approval of this condensed consolidated half-yearly financial report with the exception of IFRS 7, "Financial Instruments: Disclosures" which has been endorsed by the EU.

The future financial effect of the adoption of this standard will be dependent on the circumstances surrounding the future transactions to which they will apply, that are at present unknown.

Critical accounting estimates and judgements

In preparing this condensed consolidated half-yearly financial report, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are consistent with those of the annual financial statements for the year ended 30 September 2011.

Website

This condensed consolidated half-yearly financial report for the six months ended 31 March 2012 can also be found on our website:  www.investors.sage.com/reports_presentations

1 Segment information

In accordance with IFRS 8, "Operating Segments", information for the Group's operating segments has been derived using the information provided to and used by the Chief Operating Decision Maker. The Group's Executive Committee has been identified as the Chief Operating Decision Maker as the committee is responsible for the allocation of resources to operating segments and assessing their performance. The profit measure used by the Executive Committee is Earnings before interest, tax and adjustments ("EBITA") which excludes the effects of amortisation of acquired intangible assets, the net amortisation of software development expenditure and acquisition costs on a constant currency basis. Operating segments are reported in a manner which is consistent with the operating segments produced for internal management reporting.

The Group is organised into three operating segments. The UK is the home country of the parent. The main operations in the principal territories are as follows:

-   Europe (France, UK & Ireland, Spain, Germany, Switzerland, Poland and Portugal)

-   North America (US and Canada)

-   AAMEA (Africa, Australia, Middle East and Asia)

The African operations are principally based in South Africa, the Middle East and Asia operations are principally based in Singapore, Malaysia, UAE and India. 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 tables below show a segmental analysis of the results for continuing operations. For information relating to discontinued operations refer to note 9.

 

 

Revenue by segment (Unaudited)


Six months ended 31 March

2012

Restated

Six months ended 31 March

2011

Change


IFRS  statutory

£m

Organic revenue adjustment1

£m

Non-

GAAP

organic

£m

IFRS statutory

£m

Currency impact2

£m

Underlying

at constant currency

£m

Organic revenue adjustment1

£m

Non-

GAAP organic  constant currency

£m

IFRS

statutory

%

Underlying

at constant currency

%

Non-

GAAP organic constant currency

%

Subscription revenue by segment












Europe

257.3

(1.1)

256.2

245.7

(2.3)

243.4

(0.1)

243.3

5%

6%

5%

North America

154.1

(6.9)

147.2

151.2

0.5

151.7

(7.5)

144.2

2%

2%

2%

AAMEA

40.0

(0.1)

39.9

36.6

(1.5)

35.1

(0.1)

35.0

9%

14%

14%

Subscription revenue

451.4

(8.1)

443.3

433.5

(3.3)

430.2

(7.7)

422.5

4%

5%

5%

Software and software-related services revenue by segment ("SSRS")

 


 

 


 


 

 

 

 

Europe

142.8

(0.1)

142.7

155.8

(2.8)

153.0

-

153.0

-8%

-7%

-7%

North America

44.9

(3.5)

41.4

47.4

0.2

47.6

(4.7)

42.9

-5%

-6%

-3%

AAMEA

34.0

(0.2)

33.8

33.7

(2.1)

31.6

(1.0)

30.6

1%

8%

10%

SSRS revenue

221.7

(3.8)

217.9

236.9

(4.7)

232.2

(5.7)

226.5

-6%

-5%

-4%

Total revenue by segment

 


 

 


 


 

 

 

 

Europe

400.1

(1.2)

398.9

401.5

(5.1)

396.4

(0.1)

396.3

0%

1%

1%

North America

199.0

(10.4)

188.6

198.6

0.7

199.3

(12.2)

187.1

0%

0%

1%

AAMEA

74.0

(0.3)

73.7

70.3

(3.6)

66.7

(1.1)

65.6

5%

11%

12%

Total revenue

673.1

(11.9)

661.2

670.4

(8.0)

662.4

(13.4)

649.0

0%

2%

2%

 

1 Organic revenue adjustment excludes the contributions of current and prior period acquisitions, disposals and non-core products.

2 Foreign currency results for the six months ended 31 March 2011 have been retranslated based on the average exchange rates for the period ended 31 March 2012 to facilitate the comparison of results.

 

Profit by segment (Unaudited)


 Six months ended 31 March

2012

Restated  

Six months ended 31 March

2011

             Change

 

 

IFRS statutory operating profit

£m

Adjustment1

£m

Non-

GAAP   EBITA

£m

IFRS

statutory

operating

profit

£m

Adjustment1

£m

Non-

GAAP

EBITA reported

£m

Currency impact2

£m

Underlying

Non-

GAAP

EBITA  constant currency

£m

IFRS

statutory  operating profit

%

Non-GAAP EBITA

reported

%

Underlying

Non-

GAAP

EBITA  constant currency

%

Profit by segment












Europe

106.7

5.9

112.6

107.7

8.1

115.8

(1.0)

114.8

-1%

-3%

-2%

North America

46.7

2.6

49.3

45.7

4.1

49.8

(0.7)

49.1

2%

-1%

0%

AAMEA

18.5

0.5

19.0

16.2

0.4

16.6

(0.6)

16.0

14%

14%

19%

Total profit

171.9

9.0

180.9

169.6

12.6

182.2

(2.3)

179.9

1%

-1%

1%

 

1 Adjustment includes the effects of amortisation of acquired intangible assets, the net amortisation of software development expenditure and acquisition costs.

2 Foreign currency results for the six months ended 31 March 2011 have been retranslated based on the average exchange rates for the period ended 31 March 2012 to facilitate the comparison of results.

 

1 Segment information (continued)

Reconciliation of non-GAAP EBITA to IFRS statutory operating profit

Underlying non-GAAP EBITA at constant exchange rates

180.9

179.9

Impact of movements in foreign currency exchange rates

-

2.3

Non-GAAP EBITA reported

180.9

182.2

Amortisation of acquired intangible assets

(8.5)

(12.4)

Net amortisation of software development expenditure

-

(0.1)

Acquisition costs

(0.5)

(0.1)

IFRS statutory operating profit

171.9

169.6

 

Total assets by segment

31 March
2012
(Unaudited)
£m

31 March
2011
(Unaudited)
£m

30 September
2011
(Audited)
£m

Segment assets

Europe

1,418.7

1,214.3

1,261.4

North America

1,085.5

1,441.1

1,111.7

AAMEA

126.9

135.1

119.1

Non-current assets classified as held for sale

-

-

251.1

Consolidated total assets

2,631.1

2,790.5

2,743.3

2 Reconciliation to statutory revenue and profit before taxation

Reconciliation of revenue

 

Six months ended

31 March

2012 (Unaudited)  £m

Restated

Six months ended              31 March

2011 (Unaudited)

£m

Growth

(Unaudited)

%

Revenue on foreign currency exchange rate neutral basis

673.1

662.4

2%

Impact of movements in foreign currency exchange rates

-

8.0

IFRS statutory revenue

673.1

670.4

0%

 

Reconciliation of profit before taxation


 

Six months ended

31 March

2012 (Unaudited)  £m

Restated

Six months ended              31 March

2011 (Unaudited)

£m

Growth

(Unaudited)

%

Underlying pre-tax profit

176.1

173.1

2%

Impact of movements in foreign currency exchange rates

-

2.3

176.1

175.4

0%

Amortisation of acquired intangible assets

(8.5)

(12.4)

Net amortisation of software development expenditure

-

(0.1)

Acquisition costs

(0.5)

(0.1)

IFRS statutory profit before taxation

167.1

162.8

3%

3 Income tax expense

Income tax for the six months ended 31 March 2012 (Unaudited) is charged at 29% (six months ended 31 March 2011 (Unaudited): 29%; year ended 30 September 2011 (Audited): 23%), representing the best estimate of the average annual effective income tax rate expected for the full year, applied to the pre-tax income for the six months ended 31 March 2012.

4 Dividends


Six months ended

31 March

2012 (Unaudited)    £m

Six months ended                31 March

2011   (Unaudited)

£m

Year
ended

30 September
2011
(Audited)
£m

Final dividend paid for the year ended 30 September 2010 of 5.22p per share

-

68.7

68.7

Interim dividend paid for the year ended 30 September 2011 of 2.68p per share

-

-

35.3

Final dividend paid for the year ended 30 September 2011 of 7.07p per share

92.1

-

-


92.1

68.7

104.0

The interim dividend of 3.48p per share will be paid on 8 June 2012 to shareholders on the register at the close of business
on 18 May 2012.

5 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the period, excluding those held in the employee share trust and shares purchased by the Company held as treasury shares, which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has two classes of dilutive potential ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period and the contingently issuable shares under the Group's long-term incentive plan.

At 31 March 2012, the performance criteria for the vesting of the awards under the incentive scheme had not been met in all cases and consequently the shares in question are excluded from the diluted EPS calculation.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:

Reconciliations of the earnings and weighted average number of shares

Underlying    Six months ended              31 March   2012 (Unaudited)

Underlying      Six months ended

31 March    2011 (Unaudited)

Statutory

Six months ended              31 March    2012 (Unaudited)

Restated

Statutory

Six months ended              31 March    2011 (Unaudited)

Earnings (£m)





Profit for the period from continuing operations

£125.0m

£123.4m

£118.6m

£116.0m

Profit for the period from discontinued operations

£1.2m

 £ 5.0m

£57.6m

£2.7m


£126.2m

£128.4m

£176.2m

£118.7m

Number of shares (millions)

 

 

Weighted average number of shares

1,309.3

        1,319.2

1,309.3

1,319.2

Dilutive effects of shares

2.4

                  4.1

2.4

4.1

1,311.7

        1,323.3

1,311.7

1,323.3

Earnings per share

 

 

Basic earnings per share (pence)

 

 

Continuing operations

9.55p

9.35p

9.06p

8.79p

Discontinued operations

0.09p

0.38p

4.40p

0.21p

9.64p

9.73p

13.46p

9.00p

Diluted earnings per share (pence)

 

 

Continuing operations

9.53p

9.33p

9.04p

8.77p

Discontinued operations

0.09p

0.38p

4.39p

0.20p

9.62p

9.71p

13.43p

8.97p

5 Earnings per share (continued)

 

Reconciliation between statutory and underlying earnings per share

Six months ended             31 March    2012 (Unaudited)
 £m

Restated

Six months ended

31 March    2011 (Unaudited)
£m

Profit for the period from continuing operations

118.6

116.0

Earnings - discontinued operations

1.2

5.0

Adjustments:

 

Intangible amortisation excluding amortisation of computer software

8.5

12.5

Acquisition costs

0.5

0.1

Taxation on adjustments

(2.6)

(3.6)

Net adjustments

6.4

9.0

Earnings - underlying (before exchange movement)

126.2

130.0

Exchange movement

-

(2.3)

Taxation on exchange movement

-

0.7

Net exchange movement

-

(1.6)

Earnings - underlying (after exchange movement)

126.2

128.4

 

6 Non-current assets


Goodwill
(Unaudited)
£m

Other
intangible
assets
(Unaudited)
£m

Property, plant
and equipment
(Unaudited)
£m

Total
(Unaudited)
£m

Opening net book amount at 1 October 2011

1,736.3

118.1

146.4

2,000.8

Acquisitions

17.7

5.5

0.1

23.3

Additions

-

5.5

8.8

14.3

Disposals

-

(0.3)

(0.9)

(1.2)

Depreciation, amortisation and other movements

-

(12.0)

(11.0)

(23.0)

Exchange movement

(38.2)

(2.8)

(1.0)

(42.0)

Closing net book amount at 31 March 2012

1,715.8

114.0

142.4

1,972.2

Non-financial assets that have an indefinite life are not subject to amortisation, but are tested for impairment annually at the year-end (30 September) or whenever there is any indication of impairment. At 31 March 2012, there was no indication of impairment for non-financial assets with indefinite lives. Financial assets were reviewed for impairment as at 31 March 2012. There was no indication of impairment.

Other intangible assets additions include £3.4m (31 March 2011: £3.9m) of acquired customer relationships and £2.1m (31 March 2011: £1.6m) of computer software.


Goodwill
(Unaudited)
£m

Other
intangible
assets
(Unaudited)
£m

Property, plant
and equipment
(Unaudited)
£m

Total
(Unaudited)
£m

Opening net book amount at 1 October 2010

2,031.1

179.1

149.6

2,359.8

Additions

0.5

5.5

              14.0

20.0

Disposals

-

-

(4.0)

(4.0)

Depreciation, amortisation and other movements

-

(19.7)

(11.8)

(31.5)

Exchange movement

(7.0)

(0.1)

                0.6

(6.5)

Closing net book amount at 31 March 2011

2,024.6

164.8

            148.4

2,337.8

 

7 Equity attributable to owners of the parent

Share capital and premium

Number
of shares
(Unaudited)

Ordinary
shares
(Unaudited)
£m

Share
premium
(Unaudited)
£m

Total
(Unaudited)
£m

At 1 October 2011

1,323,837,836

13.2

513.2

526.4

Shares issued/proceeds

3,665,802

0.1

7.7

7.8

At 31 March 2012

1,327,503,638

13.3

520.9

534.2

Share capital and premium

Number
of shares
(Unaudited)

Ordinary
 shares
(Unaudited)
£m

Share
premium
(Unaudited)
£m

Total
(Unaudited)
£m

At 1 October 2010

1,317,360,582

13.2

499.8

513.0

Shares issued/proceeds

4,045,889

-

8.1

8.1

At 31 March 2011

1,321,406,471

13.2

507.9

521.1

During the period the Group purchased 34,357,288 ordinary shares (31 March 2011: nil) at a cost of £100.0m (31 March 2011: nil) and a cash outflow of £93.8m (31 March 2011: nil).  Shares purchased under the Group's buyback programme are not cancelled but are retained in issue as treasury shares and represent a deduction from equity.

 

8 Cash flow and net debt

EBITA

180.9

182.2

Acquisition costs

(0.5)

(0.1)

Depreciation/amortisation/profit on disposal of intangible assets and property, plant and equipment

14.9

14.7

Share-based payments

3.2

3.9

Working capital movement

(43.7)

(37.1)

Deferred income movement

54.2

61.1

Exchange movement

(1.3)

(2.1)

Cash generated from continuing operations

207.7

222.6

Operating cash flows (used in)/generated from discontinued operations

(0.5)

7.0

Net interest paid

(4.2)

(6.1)

Income tax paid

(50.1)

(37.9)

Net capital expenditure

(14.0)

(14.6)

Free cash flow    

138.9

171.0

Opening net debt 1 October

(24.9)

(219.8)

Acquisitions/disposals

(16.0)

0.1

Investing cash flows generated from discontinued operations


198.9

-

Dividends paid to Company's shareholders

(92.1)

(68.7)

Purchase of treasury shares

(93.8)

-

Exchange movement

4.0

4.0

Other

7.1

7.4

Closing net cash/(debt) 31 March

122.1

(106.0)

 

8 Cash flow and net debt (continued)

Analysis of change in net (debt)/cash
(inclusive of finance leases)

At
1 October
2011
(Audited)
£m

Cash flow
(Unaudited)
£m

Acquisitions
(Unaudited)
£m

Non-cash movements

(Unaudited)
£m

Exchange movement

(Unaudited)
£m

At
31 March       2012

(Unaudited)
£m

Cash and cash equivalents

182.8

144.0

-

-

(0.8)

326.0

Bank overdrafts

(0.8)

0.8

-

-

-

-

Cash, cash equivalents and bank overdrafts

182.0

144.8

-

-

(0.8)

326.0

Finance leases due within one year

(0.9)

0.4

-

(0.4)

-

(0.9)

Loans due after more than one year

(190.0)

0.2

(0.1)

(0.5)

4.7

(185.7)

Finance leases due after more than one year

(2.4)

-

-

0.3

0.1

(2.0)

Cash collected from customers

(13.6)

(1.7)

-

-

-

(15.3)

Total

(24.9)

143.7

(0.1)

(0.6)

4.0

122.1

Included in cash above is £15.3m (31 March 2011: £32.9m, 30 September 2011: £13.6m) relating to cash collected from customers, which the Group is contracted to pay onto another party. A liability for the same amount is included in trade and other payables on the balance sheet and is classified within net debt above.

9 Discontinued operations

The control of Sage Software Healthcare, LLC ("Sage Healthcare") was passed to Vista Equity Partners on 10 November 2011 for cash proceeds of £204.0m.  These proceeds are being returned to shareholders through a share buyback programme.

Sage Healthcare is reported as discontinued operations, the financial performance for the period is below:

Revenue

16.5

72.3

Operating costs

(14.5)

(67.9)

Operating profit

2.0

4.4

Finance costs

(0.2)

-

Profit before taxation

1.8

4.4

Income tax expense

(0.7)

(1.7)

Profit after taxation

1.1

2.7

Profit on disposal

10.4

0.8

-

Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal

10.4

55.7

-

Profit for the period from discontinued operations

57.6

2.7

The cash flow statement shows amounts related to discontinued operations.  Earnings per share information can be found in note 5.

 

10 Acquisitions and disposals

10.1 Acquisitions made in the period

-      On 1 October 2011 the Group completed the acquisition of the entire share capital of Alchemex (Pty) Ltd ("Alchemex"), for cash consideration of £3.0m and contingent consideration of £3.7m. Total goodwill arising on the acquisition is £5.2m.

-      On 6 February 2012 the Group completed the acquisition of the entire share capital of Integral Computers Limited, ("Integral"), for cash consideration of £12.5m and contingent consideration of £4.2m. Total goodwill arising on the acquisition is £10.7m.

-      On 1 March 2012 the Group completed the acquisition of the entire share capital of TML BVBA Ltd ("TML"), for cash consideration of £2.8m. Total goodwill arising on the acquisition is £1.8m.

The net identifiable assets (including intangible assets) were recognised at their provisional fair values. The residual excess over the net identifiable assets acquired is recognised as goodwill.

 



 

Details of net assets acquired and goodwill are as follows:

Provisional fair value of net identifiable assets

Alchemex (Unaudited)

£m

Integral

(Unaudited)   £m

TML

(Unaudited)

£m

Intangible assets

1.1

4.4

-

Property, plant and equipment

-

0.1

-

Inventories

-

0.6

-

Trade and other receivables

0.3

1.3

1.3

Cash and cash equivalents

0.2

2.0

-

Trade and other payables

(0.1)

(0.8)

(0.2)

Deferred income

(0.1)

(1.1)

-

Borrowings

-

-

(0.1)

Deferred income tax

0.1

(0.5)

-

Total net identifiable assets acquired

1.5

6.0

1.0

Goodwill

5.2

10.7

1.8

Consideration

6.7

16.7

2.8

Consideration satisfied by:

 

 

 

Cash

3.0

12.5

2.8

Contingent consideration

3.7

4.2

-

Total purchase consideration

6.7

16.7

2.8

Goodwill represents the fair value of the assembled workforce at the time of acquisition, potential synergies and other potential future economic benefits that are anticipated from the integration of services already offered by Sage with existing product and service offerings with the acquired businesses. 

 

Contingent consideration payable to the former owners of Integral of £4.2m has been recognised at fair value, this additional consideration is dependent on revenue achievement for the period ending 31 December 2012.  Contingent consideration payable to the former owners of Alchemex of £3.7m has been recognised at fair value, this additional consideration is dependent on revenue achievement for the years ending 30 September 2012 - 2014.

The outflow of cash and cash equivalents on acquisitions is calculated as follows:

Alchemex (Unaudited) £m

Integral (Unaudited) £m

TML (Unaudited) £m

Total (Unaudited) £m

Cash consideration

3.0

12.5

2.8

18.3

Cash and cash equivalents acquired

(0.2)

(2.0)

-

(2.2)

Borrowings acquired

-

-

0.1

0.1

1

Net cash outflow in respect of acquisitions

2.8

10.5

2.9

16.2

 

The intangible assets acquired as part of the acquisitions can be analysed as follows:


Alchemex (Unaudited)

£m

Integral

(Unaudited) £m

Technology

 

0.9

1.8

Customer relationships

 

0.2

2.6

Total intangible assets acquired

 

1.1

4.4

10.2 Contribution of acquisitions

From the date of the acquisition to 31 March 2012 these acquisitions contributed £1.5m to Group revenue and £0.1m to Group profit after tax. Had these acquisitions occurred at the beginning of the financial period, Group revenue would have been £678.4m and Group profit after tax from continuing operations would have been £119.2m.

10.3 Acquisition related costs

Acquisition related costs of £0.5m (31 March 2011: £0.1m) have been included in selling and administrative expenses in the consolidated income statement for the six months ended 31 March 2012.

 



 

10 Acquisitions and disposals (continued)

10.4 Disposal of Sage Software Healthcare, LLC

On 10 November 2011 the Group disposed of Sage Software Healthcare, LLC ("Sage Healthcare") for £204.0m consideration. 

Details of net assets disposed of and the profit on disposal are as follows:

Sage Healthcare disposal

Carrying value pre-disposal

(Unaudited) £m

Non-current assets classified as held for sale

249.4

Liabilities directly associated with non-current assets classified as held for sale

(46.4)

Net assets disposed

203.0

 

The gain on disposal is calculated as follows:

(Unaudited)

£m

Disposal proceeds, less costs to sell recognised in the period

203.8

Net assets disposed

(203.0)

Profit on disposal

0.8

Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal

55.7

Gain on disposal

56.5

The gain on disposal is that reflected in profit for the period from discontinued operations in the consolidated income statement (see note 9).  In the year ended 30 September 2011 impairment charges and costs to sell totalling £121.5m were recognised in the loss for the period from discontinued operations in the consolidated income statement in respect of this transaction.  All cash flows occurred in the current period.

 

The inflow of cash and cash equivalents on the disposal of Sage Healthcare is calculated as follows:

(Unaudited)   £m

Disposal proceeds, less total costs to sell

Cash disposed

(1.0)

Net cash inflow

198.9

 

10.5 Other disposals made in the period

On 26 January 2012 the Group disposed of Edibase a small product line of Sage SAS for net cash consideration of £0.2m.

11 Contingent liabilities

The Group had no contingent liabilities at 31 March 2012 (31 March 2011 and 30 September 2011: none).

12 Related party transactions

The Group's related parties are its subsidiary undertakings and Executive Committee members. The Group has taken advantage of the exemption available under IAS 24, "Related Party Disclosures", not to disclose details of transactions with its subsidiary undertakings. 

Key management compensation

Six months
ended
31 March
2012
(Unaudited)
£m

Six months
ended
31 March
2011
(Unaudited)
£m

Salaries and short-term employee benefits

3.3

3.5

Post employment benefits

0.4

0.3

Share-based payments

1.1

1.8

4.8

5.6

The key management figures given above include directors. Key management personnel are deemed to be members of the Executive Committee. The members of the Executive Committee are defined in the Group's Annual Report and Accounts 2011.  During the period, the Company announced that David Clayton, Group Director of Strategy and Corporate Development, had decided to retire from the Board at the AGM on 29 February 2012. 

 

Supplier transactions occurred during the period between Softline (Pty) Ltd, one of the Group's subsidiary companies and Ivan Epstein, Chief Executive Officer, AAMEA.  These transactions relate to the lease of three properties in which Ivan Epstein has a minority and indirect shareholding.  During the period £0.4m (31 March 2011: £0.3m) relating to these transactions was charged through selling and administrative expenses.  There were no outstanding amounts payable as at the period ended 31 March 2012 (31 March 2011: £nil).

Supplier transactions occurred during the period between Sage SP, S.L., one of the Group's subsidiary companies and Álvaro Ramírez, Chief Executive Officer, Europe.  These transactions relate to the lease of a property in which Álvaro Ramírez has a minority shareholding.  During the period £0.1m (31 March 2011: £0.1m) relating to these transactions was charged through selling and administrative expenses.  There were no outstanding amounts payable as at the period ended 31 March 2012 (31 March 2011: £nil).

These arrangements are subject to independent review using external advisers to ensure all transactions are at arm's length.

13 Group risk factors

Risks can materialise and impact on both the achievement of business priorities and the successful running of Sage's business. A key element in achieving our business priorities and maintaining services to customers is the management of risks. Sage's risk management strategy is therefore to support the successful running of the business by identifying and managing risks to an acceptable level and delivering assurances on this.  Despite the current uncertainty in the global economy, the principal risks and uncertainties facing the Group, and the mitigating factors to address these risks and uncertainties, have not changed from those set out in the Annual Report and Accounts 2011.  These risks and uncertainties are not expected to change materially in the remainder of the year and can be summarised as follows:

-   External business factors - As a technology company, operating in many different countries throughout the world, there is a risk that Sage does not appropriately respond to external business factors, such as changing business needs, changing technologies, competitor activities, compliance and regulatory requirements and the economic environment.

-   Products and services - There is a risk to Sage's reputation and future ability to grow as a business if poor quality products and services are released to customers. This risk relates to both traditional on premise products and services and online, customer facing products and services. In addition, for online customer facing products and services, Sage must ensure that it adequately protects and secures customers' data.

-   Loss of key management - While Sage operates in a decentralised culture, with many different operating companies across the globe, there is a risk as with any other business, relating to key man dependency and loss of key management.

-   Intellectual property - Sage relies on intellectual property laws, including laws on copyright, patents, trade secrets and trademarks, to protect our products. Despite laws and regulations being in place, unauthorised copies of software still exist. The internet provides new methods for illegal copying of the technology used in Sage's products and services.

Sage has detailed the potential impact and mitigation of the above risks in the Annual Report and Accounts 2011 (pages 20 and 21), and on the website (www.sage.com).  Sage has also defined risk management responsibilities and processes, which are summarised in the Annual Report and Accounts 2011. These responsibilities and processes have continued to be in operation throughout the Group in the first half of the 2012 financial year. A full discussion of the risks to our future business performance and the risk management responsibilities and processes within Sage, are on pages 51 and 52 of the Annual Report and Accounts 2011, and on the website (www.sage.com).

14 Events after the reporting period

Share buyback

On 29 March 2012 the Group appointed Deutsche Bank AG to manage an irrevocable share buyback programme during the close period for £50.0m (31 March 2011: nil) which commenced on 2 April 2012 and will run up to 9 May 2012.  From 2 April 2012 to 4 May 2012, the latest practicable date prior to publication of the half-yearly financial report, 16,590,000 ordinary shares of 1p each were repurchased at a cost of £47.8m through Deutsche Bank AG at an average price of 288.23 pence per share. The highest and lowest prices paid for these shares were 300.70 pence per share and 279.40 pence per share respectively. The purchased shares will all be held as treasury shares, the total number of ordinary shares in issue (excluding shares held as treasury shares) at 4 May 2012 is 1,280,056,700.

 


Statement of Directors' Responsibilities

The directors' confirm that this condensed consolidated half-yearly financial report has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

-   an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-   material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

On behalf of the Board

G S Berruyer                                        P S Harrison

Chief Executive Officer                        Chief Financial Officer

9 May 2012                                           9 May 2012

Independent review report to The Sage Group plc

Introduction

We have been engaged by the Company to review the condensed consolidated half-yearly financial report for the six months ended 31 March 2012, which comprises the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated statement of cash flows, the Consolidated statement of changes in equity and related notes. We have read the other information contained in the condensed consolidated half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in the Group accounting policies, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2012 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

Newcastle upon Tyne

9 May 2012

 


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