TIDMSGE
RNS Number : 6441Z
Sage Group PLC
17 May 2023
The Sage Group plc
Results for the six months to 31 March 2023 (unaudited)
Consistent execution drives strong momentum
Steve Hare, Chief Executive Officer, commented:
"Sage performed strongly in the first half, accelerating revenue
growth, increasing profitability and making further progress
against our strategic priorities. Our investments in technology and
in sales and marketing are continuing to drive results, as small
and mid-sized businesses increasingly choose Sage as a valued
partner to transform the way they work.
"Our purpose is to knock down barriers so everyone can thrive.
We are committed to delivering innovative, AI-powered services that
make our customers' lives easier and their organisations more
productive and resilient. Sage's global platform, centred on our
expanding digital network, is enabling us to leverage our scale and
collective expertise to maximise the significant opportunities we
see across our markets.
"Small and mid-sized businesses are continuing to digitise,
despite the macroeconomic uncertainty, and through our trusted
technology and human approach Sage is well positioned to support
them. I am confident that our proven strategy will enable us to
deliver further efficient growth."
H1 22 Organic
Underlying Financial APMs [1] H1 23 [2] Change Change
Annualised Recurring Revenue (ARR) GBP2,100m GBP1,878m +12% +12%
Underlying Total Revenue GBP1,087m GBP989m +10% +10%
Underlying Recurring Revenue GBP1,039m GBP925m +12% +12%
Underlying Operating Profit GBP227m GBP199m +14% +19%
+0.6 +1.6
% Operating Profit Margin 20.8% 20.2% ppts ppts
EBITDA GBP275m GBP243m +13%
+0.6
% EBITDA Margin 25.2% 24.6% ppts
Underlying Basic EPS (p) 15.68p 13.83p +13%
Underlying Cash Conversion 117% 120% -3 ppts
---------- ---------- --------- --------
Statutory Measures H1 23 H1 22 Change
---------- ---------- --------- --------
Revenue GBP1,087m GBP934m +16%
Operating Profit GBP157m GBP204m -23%
% Operating Profit Margin 14.4% 21.8% -7.4ppts
Basic EPS (p) 9.78p 14.84p -34%
Dividend Per Share (p) 6.55p 6.30p +4%
---------- ---------- --------- --------
Please note that tables may not cast and change percentages may
not calculate precisely due to rounding.
Financial highlights
-- Underlying recurring revenue increased by 12% to GBP1,039m,
underpinned by strong Sage Business Cloud growth of 29% to GBP787m.
Underlying total revenue grew by 10% to GBP1,087m.
-- Underlying operating profit increased by 14% to GBP227m, with
margin increasing by 60 basis points to 20.8% driven by operating
efficiencies as we scale the Group.
-- EBITDA increased by 13% to GBP275m, with margin increasing by 60 basis points to 25.2%.
-- Statutory operating profit decreased by 23% to GBP157m due to
the change in recurring and non recurring items, including a GBP49m
one-off gain in the prior period relating to the disposal of Sage
Switzerland. [3]
-- Underlying basic EPS up 13% to 15.68p, reflecting the growth in underlying operating profit.
-- Continued strong cash performance, with cash conversion of
117% reflecting growth in subscription revenue and continued good
working capital management.
-- Robust balance sheet, with GBP1.2bn of cash and available
liquidity and net debt to EBITDA of 1.3x.
-- Interim dividend up 4% to 6.55p, in line with our progressive policy.
Strategic and operational highlights
-- Underlying annualised recurring revenue (ARR) up 12% to
GBP2,100m (H1 22: GBP1,878m), reflecting a strong performance
across all regions, with growth balanced between new and existing
customers.
-- GBP190m of ARR added through new customer acquisition on an
organic basis since H1 22, up from GBP150m in the prior year.
-- Cloud native ARR up 30% to GBP612m (H1 22: GBP470m), driven
by new customers and supported by migrations from cloud connected
and desktop products.
-- Renewal rate by value of 101%, ahead of last year (H1 22:
100%), with continued good retention rates and strong sales to
existing customers.
-- Sage Business Cloud penetration of 82% (H1 22: 72%), enabling
more customers to connect to Sage's cloud services and ecosystem
via Sage's digital network.
-- Subscription penetration of 78% (H1 22: 73%), reflecting
continued focus on attracting new customers and migrating existing
customers to subscription contracts.
-- Strong strategic progress, as we expand the availability of
global solutions across the Group and scale Sage's digital network
to power innovative features and AI-enabled services.
Outlook
Building on strong momentum in the first half, we now expect
organic recurring revenue growth for FY23 to be in the region of
11%, driven by continued strength in Sage Business Cloud. We
continue to expect 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) 7341 479956 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 webcast can be accessed via sage.com/investors or
directly via the following link:
https://edge.media-server.com/mmc/p/phr76hz5 . To join the
conference call, please register via
https://register.vevent.com/register/BIe70cc49034ad4da4a1888cdaa81177a1
.
Business Review
Sage delivered a strong first half, with revenue growth
accelerating compared to the prior year, and underlying and organic
operating margins trending upwards, driven by consistent strategic
execution.
Overview of results
The Group achieved underlying recurring revenue growth of 12% to
GBP1,039m (H1 22: GBP925m) in the first half, underpinned by a 29%
increase in Sage Business Cloud revenue to GBP787m, and underlying
total revenue growth of 10% to GBP1,087m (H1 22: GBP989m).
Regionally, North America increased recurring revenue by 17% to
GBP467m, with a strong performance from Sage Intacct and cloud
connected solutions, while UKIA
[4] grew recurring revenue by 11% to GBP303m, driven by a strong
cloud native performance together with growth in Sage 50 cloud. In
Europe, recurring revenue increased by 6% to GBP269m, with growth
across the Sage Business Cloud portfolio partly offset by the
disposal of the Swiss business in FY22.
Organic recurring revenue also grew by 12% to GBP1,039m (H1 22:
GBP931m), while organic total revenue grew by 10% to GBP1,087m (H1
22: GBP992m).
Our focus on growing cloud revenues has increased Sage Business
Cloud penetration to 82%, up 10 percentage points compared to H1
22. We have also continued to grow software subscription revenues,
leading to a rise in subscription penetration of 5 percentage
points to 78%. As a result of the evolving business mix, 96% of the
Group's revenue is now recurring.
Revenue growth by portfolio
The portfolio view breaks down Sage's underlying recurring
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.
Underlying Recurring Revenue by Organic
Portfolio [5] H1 23 H1 22 Change Change
Cloud native [6] GBP285m GBP206m +38% +32%
Cloud connected [7] GBP502m GBP403m +25% +25%
--------- ------- ------ -------
Sage Business Cloud GBP787m GBP609m +29% +27%
Products with potential to migrate GBP177m GBP241m -27% -25%
--------- ------- ------ -------
Future Sage Business Cloud Opportunity
[8] GBP964m GBP850m +13% +13%
Non-Sage Business Cloud [9] GBP75m GBP75m - +1%
--------- ------- ------ -------
Underlying Recurring Revenue GBP1,039m GBP925m +12% +12%
--------- ------- ------ -------
Sage Business Cloud Penetration 82% 72%
--------- -------
Underlying recurring revenue from cloud native solutions grew by
38% to GBP285m, driven by Sage Intacct together with other
solutions including Sage Accounting, Sage Payroll and Sage HR,
largely through new customer acquisition and supported by
migrations. Organic cloud native recurring revenue growth, which is
adjusted for the contribution from last year's acquisitions of
Brightpearl, Futrli and Lockstep, was 32%.
Underlying recurring revenue from cloud connected solutions
increased by 25% to GBP502m, reflecting good growth in the Sage 50
and Sage 200 franchises driven by existing and new customers,
together with significantly 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
13%.
The revenue performance of 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 underlying ARR increased by 12% to GBP2,100m (H1 22:
GBP1,878m), reflecting strong growth balanced between new and
existing customers. This was underpinned by cloud native ARR growth
of 30% to GBP612m (H1 22: GBP470m), with a continued strong
performance from Sage Intacct together with other solutions
including Sage Accounting, Sage Payroll and Sage HR. Organic ARR
also increased by 12% to GBP2,100m (H1 22: GBP1,883m).
Renewal rate by value of 101% (H1 22: 100%) is ahead of last
year reflecting good retention rates and strong sales to existing
customers, including a good performance in customer add-ons and
targeted price rises.
In total, Sage has added GBP190m of ARR through new customer
acquisition on an organic basis over the last 12 months, up from
GBP150m [10] a year earlier.
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 : Sage Intacct continues to grow strongly,
supported by our focus on product enhancements and sales and
marketing optimisation. We have further extended Sage Intacct's
reach into new geographies and verticals, including launching Sage
Intacct in continental Europe, starting with France. Sage Intacct
Construction is making good progress in the US, complemented by the
recent acquisition of Corecon, a cloud native project management
solution for the construction industry, while Sage Intacct
Manufacturing is now available in six countries across the Group.
Reflecting this progress, Sage Intacct's ARR grew by 30% in the US
over the last year, while outside the US it doubled.
-- Expand medium beyond financials : We also aim to drive growth
by delivering benefits for mid-sized businesses beyond core
accounting. Our AI-powered service to automate accounts payable
processes, significantly reducing invoice handling costs and data
entry error, has now been launched and is gaining traction with
customers on Sage Intacct in the US, Sage 50 in France and Sage
Accounting in the UK, with further expansion planned. Following
rapid growth in the US and Canada, Sage Intacct Planning, our
budgeting and planning tool, is now also available in the UK, South
Africa and Australia.
-- Build the small business engine : Sage continues to achieve
good levels of growth from its small business solutions, including
Sage Accounting, Sage HR and Sage 50. In the UK, the number of
accountants adopting Sage for Accountants, our accountancy practice
management suite, has more than doubled over the last six months to
almost 5,000, and building on this success we have now launched
Sage for Accountants in Canada. We have also launched a new tier of
Sage Accounting in the UK, initially provided through Sage for
Accountants, to help those taxpayers with the simplest of tax
affairs to digitise their record keeping and tax submissions.
-- Scale the network: Sage's digital network enables us to
connect organisations to their accountants, tax authorities,
customers and suppliers. Scaling the network creates a virtuous
circle, with more data powering AI solutions that enable richer
customer experiences. We are growing the network by connecting more
existing products, expanding the availability of global solutions
including Sage Intacct, and developing new solutions such as Sage
Active, our cloud-native, multi-legislation business management
solution for SMBs, that was built for the European market and
recently launched in France. The acquisition of Lockstep has also
accelerated our strategy by bringing new AI-driven workflow
automation tools to the digital network.
-- Learn and disrupt: We continue to learn and invest in
disruptive technologies to ensure we remain at the forefront of our
markets. We have made strong progress in leveraging our digital
network to embed AI-powered features across Sage Business Cloud,
helping to automate workflows from data ingestion through to
transaction classification. In the first half, we launched our
AI-powered accounts payable automation solution, expanded our
outlier detection service, and made Sage Intelligent Time, our
AI-powered time assistant, available in new markets. Looking ahead,
we have a strong AI pipeline, and through continued investment and
our strategic partnerships we aim to be a leader in this critical
area, helping both Sage and our customers become more effective and
more productive.
Colleagues
Management continues to focus on building an inclusive,
high-performing and accountable culture, in which every colleague
can perform at their best. Key to this is our listening strategy,
through which colleagues have the opportunity to share experiences
and insights. Our most recent all-colleague pulse survey achieved a
record 87% response rate and resulted in a strong score for
colleague satisfaction.
To develop and retain the best talent we continue to invest in
mentoring and training schemes, both in house and in conjunction
with third parties such as London Business School. We have also
launched a new internal talent marketplace to enhance workforce
mobility and agility. Our holistic approach to colleague wellbeing
includes a sharper focus on 'healthy finances' in response to the
cost-of-living crisis, and an improved range of benefits to support
mental health.
Sage is committed to creating a diverse and equitable company
which fully represents the customers we serve and the communities
we recruit from. In December we published our first diversity,
equity and inclusion (DEI) impact report, highlighting progress
towards our DEI strategy. This included an improvement in gender
diversity, with one third of leadership teams meeting our FY26
gender diversity target [11] , up from 19% at the beginning of
FY22. We have also enhanced our diversity training and resources,
holding education and awareness workshops, and partnering with
Neurodiversity in Business to help drive best practice in
neurodiversity recruitment, retention and empowerment.
Sustainability and Society
Sage plays a key role in supporting SMBs which form the backbone
of economies around the world, helping bring prosperity to their
owners, employees and communities. Through our Sustainability and
Society strategy, Sage supports sustainable and inclusive economic
growth so everyone can thrive. During the first half, Sage
colleagues, customers and partners contributed over 56,000
volunteering hours to support charitable and environmental
causes.
In December, the Science Based Targets Initiative (SBTi)
validated our target to halve our carbon emissions by 2030 against
a 2019 baseline, underlining our commitment to achieve net zero
emissions by 2040 through robust initiatives addressing our supply
chain, properties, products and colleague actions. We are also
supporting SMBs on their own journey to net zero, with Sage Earth,
our innovative carbon accounting solution acquired in October, now
available to support UK-based Sage Accounting and Sage 50 customers
looking to measure and improve their environmental footprint. In
addition, we launched a report at COP 27 featuring insights from
over 4,000 SMBs across the UK and South Africa, and quantifying
their impact and influence on the environment and the economy.
Through Sage Foundation, which supports Sage's volunteering,
fundraising and social partnerships, we aim to support local
communities and knock down barriers to entrepreneurship. In the
first half, we have continued to support thousands of entrepreneurs
in underserved communities with loan funds and grants through our
partnerships with Kiva and The BOSS Network. In addition, we are
helping to develop STEM skills in over 10,000 young people in the
UK through our partnership with the Institute of Engineering and
Technology, and we have now also expanded this initiative to
Germany.
Sage has an ESG rating from MSCI of '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 the Group's results
on a statutory and underlying basis, alongside its organic
performance. Underlying measures allow management and investors to
understand the Group's financial performance adjusted for the
impact of foreign exchange movements and recurring and
non-recurring items, while organic measures also adjust for the
impact of acquisitions and disposals [12] .
Statutory and underlying financial results
Financial results Statutory Underlying
H1 23 H1 22 Change H1 23 H1 22 Change
---------- -------- ------- ---------- -------- -------
North America GBP483m GBP376m +28% GBP483m GBP420m +15%
UKIA GBP311m GBP284m +10% GBP311m GBP284m +10%
Europe GBP293m GBP274m +7% GBP293m GBP285m +3%
---------- -------- ------- ---------- -------- -------
Group total revenue GBP1,087m GBP934m +16% GBP1,087m GBP989m +10%
Operating profit GBP157m GBP204m -23% GBP227m GBP199m +14%
% Operating profit -7.4 +0.6
margin 14.4% 21.8% ppts 20.8% 20.2% ppts
Profit before tax GBP139m GBP189m -27% GBP210m GBP185m +13%
Net profit GBP100m GBP152m -34% GBP160m GBP141m +13%
Basic EPS 9.78p 14.84p -34% 15.68p 13.83p +13%
---------- -------- ------- ---------- -------- -------
The Group achieved statutory and underlying total revenue of
GBP1,087m in the first half. Statutory total revenue increased by
16% compared to the prior period, reflecting underlying total
revenue growth of 10% together with a 6-percentage point foreign
exchange tailwind, principally relating to the US Dollar in North
America.
Statutory operating profit decreased by 23% to GBP157m,
reflecting a 14% increase in underlying operating profit to GBP227m
offset by changes in recurring and non-recurring items, including
higher M&A related charges and a property restructuring charge
in H1 23 together with a one-off gain on the disposal of Sage
Switzerland in the prior period (see page 9).
Statutory basic EPS decreased by 34% to 9.78p, reflecting a
higher statutory net finance cost and the post-tax impact of
non-recurring items. Underlying basic EPS increased by 13% to
15.68p.
Revenue - underlying and organic reconciliation to statutory
Total revenue bridge H1 23 H1 22 Change
Statutory GBP1,087m GBP934m +16%
Recurring items [13] - GBP1m
Impact of FX [14] - GBP54m
----------- --------- ------
Underlying GBP1,087m GBP989m +10%
----------- --------- ------
Disposals - (GBP5m)
Held for sale - (GBP2m)
Acquisitions - GBP10m
----------- --------- ------
Organic GBP1,087m GBP992m +10%
----------- --------- ------
Statutory, underlying and organic total revenue was GBP1,087m in
H1 23. Underlying revenue in H1 22 of GBP989m reflects statutory
revenue of GBP934m retranslated at current year exchange rates,
resulting in a foreign exchange tailwind of GBP54m, together with a
GBP1m fair value adjustment to deferred income relating to the
acquisition of Brightpearl.
Organic revenue in H1 22 of GBP992m reflects underlying revenue
of GBP989m, adjusted for GBP5m of revenue from Sage's business in
Switzerland which was sold during the prior period, GBP2m of
revenue from the South African payroll outsourcing business which
was held for sale, and GBP10m of revenue from Brightpearl, Futrli
and Lockstep which were acquired during FY22.
Revenue by type
Underlying revenue mix H1 23 H1 22 Change Organic
change
Software subscription revenue GBP853m GBP724m +18% +17%
Other recurring revenue GBP186m GBP201m -7% -7%
--------- ------- ------ -------
Underlying recurring revenue GBP1,039m GBP925m +12% +12%
Other revenue (SSRS) GBP48m GBP64m -24% -22%
--------- ------- ------ -------
Underlying total revenue GBP1,087m GBP989m +10% +10%
--------- ------- ------ -------
Subscription Penetration 78% 73%
--------- -------
Underlying recurring revenue grew by 12% to GBP1,039m, supported
by an 18% increase in software subscription revenue to GBP853m,
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 7% to GBP186m
reflects customers migrating from maintenance and support to
subscription contracts. Other revenue (SSRS) declined by 24% to
GBP48m, in line with our strategy to transition away from licence
sales and professional services implementations. Underlying total
revenue increased by 10% in H1 23 to GBP1,087m.
Revenue performance by region
North America H1 23 H1 22 Change Organic
change
Underlying total revenue GBP483m GBP420m +15% +14%
Underlying recurring revenue GBP467m GBP398m +17% +16%
% Sage Business Cloud Penetration 84% 76% +8 ppts +8 ppts
% Subscription Penetration 77% 70% +7 ppts +7 ppts
Underlying recurring revenue H1 23 H1 22 Change Organic
change
US GBP405m GBP343m +18% +16%
Of which Sage Intacct GBP150m GBP115m +30% +30%
Canada GBP62m GBP55m +13% +13%
-------- -------- -------- --------
North America achieved underlying recurring revenue growth of
17% to GBP467m and total revenue growth of 15% to GBP483m.
Adjusting for the impact in the US of the acquisitions of
Brightpearl and Lockstep during FY22, organic recurring and total
revenue growth was 16% and 14% respectively. Sage Business Cloud
penetration increased to 84%, up from 76% in the prior year, driven
by growth in cloud native and cloud connected solutions, while
subscription penetration increased to 77%, up from 70% in the prior
year.
Cloud native growth was driven primarily through Sage Intacct,
which delivered strong recurring revenue growth of 30% to GBP150m,
reflecting continued success in attracting new customers and
supported by strong sales to existing customers.
Recurring revenue in the US increased by 18% to GBP405m, driven
by Sage Intacct alongside cloud connected growth across the Sage
200 and Sage 50 franchises, as well as success in migrations to
Sage Business Cloud. Total revenue for the US increased by 16% to
GBP420m.
In Canada, recurring revenue increased by 13% to GBP62m and
total revenue by 11% to GBP63m, driven mainly by Sage 50 cloud and
Sage 200 cloud solutions, together with strong growth in Sage
Intacct.
UKIA H1 23 H1 22 Change Organic
change
Underlying total revenue GBP311m GBP284m +10% +8%
Underlying recurring revenue GBP303m GBP273m +11% +10%
% Sage Business Cloud Penetration 88% 76% +12 ppts +12 ppts
% Subscription Penetration 89% 87% +2 ppts +2 ppts
Underlying recurring revenue H1 23 H1 22 Change Organic
change
UK & Ireland (Northern Europe) GBP230m GBP209m +10% +8%
Africa & APAC GBP73m GBP64m +15% +14%
-------- -------- --------- ---------
In the UKIA region, underlying recurring revenue grew by 11% to
GBP303m and total revenue grew by 10% to GBP311m. Adjusting for the
impact in the UK & Ireland of the acquisitions of Brightpearl
and Futrli during FY22, organic recurring and total revenue growth
was 10% and 8% respectively. Sage Business Cloud penetration
reached 88%, up from 76% in the prior year, while subscription
penetration increased to 89%, up from 87% in the prior year.
In the UK & Ireland, recurring revenue increased by 10% to
GBP230m, reflecting growth in cloud native solutions, supported by
further growth in Sage 50 cloud. Cloud native revenue growth was
driven by continued growth in small business solutions, including
Sage Accounting, together with Sage Intacct which is now starting
to scale rapidly through both the direct and partner channels.
Total revenue in the UK & Ireland increased by 10% to
GBP233m.
Africa & APAC delivered strong recurring revenue growth of
15% to GBP73m, driven by growth in both cloud native solutions and
local products. Total revenue in Africa & APAC increased by 10%
to GBP78m.
Europe H1 23 H1 22 Change Organic
change
Underlying total revenue GBP293m GBP285m +3% +4%
Underlying recurring revenue GBP269m GBP254m +6% +8%
% Sage Business Cloud Penetration 70% 61% +9 ppts +8 ppts
% Subscription Penetration 69% 65% +4 ppts +4 ppts
Underlying recurring revenue H1 23 H1 22 Change Organic
change
France GBP142m GBP133m +7% +7%
Central Europe GBP60m GBP59m +3% +10%
Iberia GBP67m GBP62m +7% +7%
-------- -------- -------- --------
Europe achieved underlying recurring revenue growth of 6% to
GBP269m and total revenue growth of 3% to GBP293m. Adjusting for
the impact of the disposal of the Swiss business in FY22, organic
recurring revenue growth and total revenue growth was 8% and 4%
respectively. Sage Business Cloud penetration increased
significantly to 70%, up from 61% in the prior year, while
subscription penetration reached 69%, up from 65% in the prior
year, driven by growth from new and existing customers together
with migrations.
In France, recurring revenue increased by 7% to GBP142m, with a
strong performance in cloud connected, particularly Sage 200 cloud,
together with growth in cloud native solutions. Total revenue in
France increased by 5% to GBP148m.
Central Europe achieved recurring revenue growth of 3% to
GBP60m, while total revenue decreased by 3% to GBP71m. Adjusting
for the disposal of the Swiss business, organic recurring and total
revenue growth in Central Europe was 10% and 3% respectively.
Growth in the region was driven by Sage Business Cloud, with a
particularly strong performance in HR solutions.
In Iberia, recurring revenue increased by 7% to GBP67m, with
continued success in cloud connected supported by growth in cloud
native solutions. Total revenue grew by 5% to GBP74m.
Operating profit
The Group increased underlying operating profit by 14% to
GBP227m (H1 22: GBP199m). Underlying operating margin increased by
60 basis points to 20.8% (H1 22: 20.2%), driven by operating
efficiencies as we scale the Group. On an organic basis, adjusting
for the full-year impact of acquisitions and disposals during FY22,
operating profit increased by 19% to GBP227m (H1 22: GBP191m), and
margin increased by 160 basis points to 20.8% (H1 22: 19.2%).
Operating profit - underlying and organic reconciliation to
statutory
Operating profit H1 23 H1 22
bridge
Operating Operating Operating Operating
profit margin profit margin
Statutory GBP157m 14.4% GBP204m 21.8%
Recurring items [15] GBP50m - GBP34m -
Non - recurring items:
GBP20m - - -
* Property restructuring
- - (GBP49m) -
* Gain on disposal of subsidiaries
- - (GBP6m) -
* Reversal of restructuring costs
Impact of FX [16] - - GBP16m -
---------- --------- --------- ---------
Underlying GBP227m 20.8% GBP199m 20.2%
---------- --------- --------- ---------
Disposals - - - -
Held for sale - - (GBP1m) -
Acquisitions - - (GBP7m) -
---------- --------- --------- ---------
Organic GBP227m 20.8% GBP191m 19.2%
---------- --------- --------- ---------
The Group achieved a statutory operating profit in H1 23 of
GBP157m (H1 22: GBP204m). Underlying and organic operating profit
of GBP227m in H1 23 reflects statutory operating profit adjusted
for recurring and non-recurring items. Recurring items of GBP50m
(H1 22: GBP34m) comprise GBP26m of amortisation of
acquisition-related intangibles (H1 22: GBP18m) and GBP24m of
M&A related charges (H1 22: GBP15m). In H1 22, there was a
further GBP1m of deferred income adjustment relating to the
acquisition of Brightpearl.
Non-recurring items in H1 23 comprise a GBP20m charge for a
property restructuring programme following a strategic review of
the Group's property portfolio. The programme is expected to be
completed by 30 September 2023. In the prior year, non-recurring
items comprised a GBP49m gain on disposal from the sale of Sage's
business in Switzerland, together with a GBP6m reversal of employee
restructuring costs.
In addition, the retranslation of H1 22 operating profit at
current year exchange rates has resulted in an operating profit
tailwind of GBP16m. This has led to a 60-basis point margin
tailwind from foreign exchange to 20.2% (H1 22 underlying as
reported: 19.6%).
Organic operating profit of GBP191m in H1 22 reflects underlying
operating profit of GBP199m adjusted for GBP1m of operating profit
from the South African payroll outsourcing business, which was held
for sale, and GBP7m of operating losses from businesses acquired
during the period.
EBITDA
EBITDA was GBP275m (H1 22: GBP243m) representing a margin of
25.2%. The increase in EBITDA principally reflects the improvement
in underlying operating profit.
H1 23 H1 22 Margin
Underlying operating profit GBP227m GBP199m 20.8%
Depreciation & amortisation GBP28m GBP28m
Share based payments GBP20m GBP16m
--------- --------- -------
EBITDA GBP275m GBP243m 25.2%
--------- --------- -------
Net finance cost
The statutory net finance cost for the period increased to
GBP18m (H1 22: GBP15m), primarily reflecting the impact of interest
on new debt issuances, and is broadly in line with the underlying
net finance cost of GBP17m (H1 22: GBP14m).
Taxation
The underlying tax expense for H1 23 was GBP50m ( H1 22: GBP44m
), resulting in an underlying tax rate of 24% ( H1 22: 24 %). The
statutory income tax expense for H1 23 was GBP39m ( H1 22: GBP37m
), resulting in a statutory tax rate of 28% ( H1 22: 20 %).
The difference between the underlying and statutory rate in H1
23 primarily reflects non-deductible M&A activity-related
items. The H1 23 underlying tax rate is unchanged from H1 22 due to
the offsetting impact of an increase in the UK corporation tax rate
against a decrease in the French corporate tax rate.
Earnings per share
H1 23 H1 22 Change
Statutory basic EPS 9.78p 14.84p -34%
Recurring items 4.46p 2.97p
Non-recurring items 1.44p (5.19)p
Impact of foreign exchange - 1.21p
-----------------
Underlying basic EPS 15.68p 13.83p +13%
-----------------
Underlying basic EPS increased by 13% to 15.68p, reflecting
higher underlying operating profit.
Statutory basic earnings per share decreased by 34%, with the
increase in underlying basic earnings per share offset by the
change in post-tax impact of recurring and non-recurring items,
including higher M&A related charges and a property
restructuring charge in H1 23 together with a one-off gain on the
disposal of Sage Switzerland in the prior period.
Cash flow
Sage remains highly cash generative with underlying cash flow
from operations of GBP266 m (H1 22: GBP220 m ), representing
underlying cash conversion of 117% (H1 22: 120%). This strong cash
performance reflects further growth in subscription revenue and
continued good working capital management. Free cash flow of GBP194
m (H1 22: GBP167 m ) largely reflects strong underlying cash
conversion.
Cash flow APMs H1 23 H1 22 (as reported)
Underlying operating profit GBP227m GBP183m
Depreciation, amortisation and non-cash GBP27m GBP26m
items in profit
Share based payments GBP20m GBP16m
Net changes in working capital GBP2m GBP3m
Net capital expenditure (GBP10m) (GBP8m)
--------- --------------------
Underlying cash flow from operations GBP266 m GBP220m
--------- --------------------
Underlying cash conversion % 117 % 120%
Non-recurring cash items (GBP8m) (GBP12m)
Net interest paid and derivative financial (GBP28m) (GBP14m)
instruments
Income tax paid (GBP35m) (GBP27m)
Profit and loss foreign exchange movements (GBP1m) -
--------- --------------------
Free cash flow GBP194 m GBP167m
--------- --------------------
Statutory reconciliation of cash flow H1 23 H1 22 (as reported)
from operations
Statutory cash flow from operations GBP251 m GBP193m
Recurring and non-recurring items GBP24m GBP36m
Net capital expenditure (GBP10m) (GBP8m)
Other adjustments including foreign exchange GBP1m (GBP1m)
translations
Underlying cash flow from operations GBP266 m GBP220m
Net debt and liquidity
Group net debt was GBP691 m at 31 March 2023 (30 September 2022:
GBP733m), comprising cash and cash equivalents of GBP575 m (30
September 2022: GBP489m) and total debt of GBP1,266m (30 September
2022: GBP1,222m). The Group had GBP1,205m of cash and available
liquidity at 31 March 2023 (30 September 2022: GBP1,270m).
The decrease in net debt in the period is summarised in the
table below.
H1 23 H1 22 (as reported)
Net debt at 1 October (GBP733m) (GBP247m)
Free cash flow GBP194 m GBP167m
New leases (GBP9m) (GBP4m)
Disposal of businesses - GBP38m
Acquisition of businesses (GBP14m) (GBP223m)
M&A and equity investments (GBP16m) (GBP14m)
Dividends paid (GBP123m) (GBP119m)
Share buyback - (GBP249m)
FX movement and other GBP10m GBP1m
Net debt at 31 March (GBP691 (GBP650m)
m )
The Group's debt is sourced from a syndicated multi-currency
Revolving Credit Facility (RCF), and from sterling and euro
denominated bond notes. The Group's RCF was refinanced in December
2022 into a new facility of GBP630m which expires in December 2027,
with an extension option for up to two further years subject to
specific provisions. At 31 March 2023, the RCF was undrawn (H1 22:
undrawn).
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 GBP 350m 10-year bond, with a coupon of 1.625%, issued in
February 2021.
The Group established a Euro Medium Term Note (EMTN) programme
in January 2023 and issued EUR500m of 5-year notes in February
2023, with a coupon of 3.82%. This issuance funded the repayment of
the Group's outstanding US private placement loan notes totalling
GBP326m (US$400m), and enabled the Group to extend the maturity of
its debt portfolio and to diversify its funding sources.
Sage has an investment grade issuer credit rating assigned by
Standard and Poor's of BBB+ (stable outlook).
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 period Sage completed the
acquisition of Spherics, an innovative carbon accounting
solution.
Sage has a progressive dividend policy, intending to grow the
dividend over time while considering the future capital
requirements of the Group. Reflecting the Group's strong business
performance and cash generation during the first half, we have
increased the interim dividend by 4% to 6.55p. The Group also
considers returning surplus capital to shareholders.
H1 23 H1 22 (as reported)
Net debt GBP691 m GBP650m
EBITDA (Last Twelve Months) GBP520m GBP439m
--------- --------------------
Net debt/EBITDA Ratio 1.3x 1.5x
--------- --------------------
The Group's EBITDA over the last 12 months was GBP520m,
resulting in a net debt to EBITDA leverage ratio of 1.3x, down from
1.5x in the prior year principally due to the improvement in
EBITDA. Group return on capital employed (ROCE) for H1 23 was 19%
(H1 22 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 31 March 2023 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 20.
External audit tender
The Group's external auditors, Ernst & Young LLP, were first
appointed for the year ended 30 September 2015. In accordance with
applicable regulations, which include a requirement for audit
tendering at least every 10 years, the Audit and Risk Committee has
decided to run a tender process which is expected to conclude later
this year. Subject to shareholder approval, this will allow a
potential new audit firm to take up the role and conduct the audit
for the year ended 30 September 2025.
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 H1 23 H1 22 Change
GBP)
Euro (EUR) 1.14 1.19 -4%
US Dollar ($) 1.20 1.34 -11%
Canadian Dollar (C$) 1.62 1.70 -5%
South African Rand (ZAR) 21.13 20.62 +2%
Australian Dollar (A$) 1.78 1.85 -4%
------ ------ -------
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
and unhedged FX on intercompany balances; and operations, disposals
and assets held for
sale of standalone
* Non-recurring items that management judge to be businesses in the
one-off or non-operational such as gains and losses current and/or prior
on the disposal of assets, impairment charges and periods, the impact
reversals, and restructuring related costs. of M&A decisions on
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 recurring revenue annualised value of
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 derivative financial instruments, activities during
income tax paid, and adjusted for non-recurring the period that is
cash items (which excludes net proceeds available to repay
on disposals of subsidiaries) and profit debt, undertake acquisitions
and loss foreign exchange movements. or distribute to shareholders.
------------------------------------------------------------- ----------------------------------
% Subscription Underlying software subscription revenue To measure the progress
Penetration as a percentage of underlying total of migrating our customer
revenue. base from licence
and maintenance to
a subscription relationship.
------------------------------------------------------------- ----------------------------------
% Sage Business Underlying 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 underlying 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 FY21,
FY22 and FY23 PSP
The average (of the opening and closing awards.
balance for the period) total net assets
excluding net debt, derivative financial
instruments, provisions for non-recurring
costs, financial liability for purchase
of own shares and tax assets or liabilities
(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 six months ended 31 March 2023
Six months
Six months Six months Six months ended Six months Six months
ended ended ended 31 March ended ended
31 March 31 March 31 March 2022 31 March 31 March
2023 2023 2023 Underlying as 2022 2022
Underlying Adjustments* Statutory reported Adjustments* Statutory
Note GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- ------ ------------- ---------- -------------- ------------- ----------
Revenue 2 1,087 - 1,087 935 (1) 934
Cost of sales (76) - (76) (68) - (68)
--------------- ----------- ------ ------------- ---------- -------------- ------------- ----------
Gross profit 1,011 - 1,011 867 (1) 866
Selling and
administrative expenses (784) (70) (854) (684) 22 (662)
---------------------------- ------ ------------- ---------- -------------- ------------- ----------
Operating
profit 2 227 (70) 157 183 21 204
Finance income 4 - 4 - - -
Finance costs (21) (1) (22) (14) (1) (15)
--------------- ----------- ------ ------------- ---------- -------------- ------------- ----------
Profit before income tax 210 (71) 139 169 20 189
Income tax
expense 4 (50) 11 (39) (40) 3 (37)
--------------- ----------- ------ ------------- ---------- -------------- ------------- ----------
Profit for the
period 160 (60) 100 129 23 152
--------------- ----------- ------ ------------- ---------- -------------- ------------- ----------
* Adjustments are detailed in note 3.
Earnings per share
attributable to
the owners of the parent
(pence)
---------------------------- ------ ------------------------- -------------- ------------- ----------
Basic 6 15.68p 9.78p 12.62p 14.84p
Diluted 6 15.49p 9.66p 12.49p 14.68p
--------------- ----------- ------ ------------- ---------- -------------- ------------- ----------
Consolidated statement of comprehensive income
For the six months ended 31 March 2023
Six months Six months
ended ended
31 March 31 March
2023 2022
GBPm GBPm
------------------------------------------------------------------------------------- ---------- ----------
Profit for the period 100 152
------------------------------------------------------------------------------------- ---------- ----------
Other comprehensive income/(expense):
Items that will not be reclassified to profit or loss:
Fair value gain on reassessment of equity investment - 30
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign operations and net investment hedges (93) 24
Cash flow hedges (1) -
Exchange differences recycled through income statement on sale of foreign operations - (13)
------------------------------------------------------------------------------------- ---------- ----------
(94) 11
------------------------------------------------------------------------------------- ---------- ----------
Other comprehensive (expense)/income for the period, net of tax (94) 41
------------------------------------------------------------------------------------- ---------- ----------
Total comprehensive income for the period 6 193
------------------------------------------------------------------------------------- ---------- ----------
The notes on pages 20 to 37 form an integral part of this
condensed consolidated half-yearly report.
Consolidated balance sheet
As at 31 March 2023
30 September
31 March 31 March 2022
2023 2022 Restated*
Note GBPm GBPm GBPm
------------------------------------------------------- ----- --------- --------- -------------
Non-current assets
Goodwill 7 2,238 2,082 2,391
Other intangible assets 7 288 281 320
Property, plant and equipment 7 124 155 152
Equity investments 4 4 4
Trade and other receivables 125 116 128
Deferred income tax assets 35 34 19
Derivative financial instruments 2 - -
------------------------------------------------------- ----- --------- --------- -------------
2,816 2,672 3,014
------------------------------------------------------- ----- --------- --------- -------------
Current assets
Trade and other receivables 367 329 355
Current income tax asset 37 28 39
Cash and cash equivalents (excluding bank overdrafts) 9 575 515 489
Assets classified as held for sale 11 - 2 -
------------------------------------------------------- ----- --------- --------- -------------
979 874 883
------------------------------------------------------- ----- --------- --------- -------------
Total assets 3,795 3,546 3,897
------------------------------------------------------- ----- --------- --------- -------------
Current liabilities
Trade and other payables (302) (311) (368)
Current income tax liabilities (33) (23) (13)
Borrowings 9 (16) (42) (178)
Provisions (20) (44) (33)
Deferred income (770) (705) (734)
(1,141) (1,125) (1,326)
------------------------------------------------------- ----- --------- --------- -------------
Non-current liabilities
Borrowings 9 (1,250) (1,123) (1,044)
Post-employment benefits (19) (23) (19)
Deferred income tax liabilities (14) (24) (17)
Provisions (24) (36) (20)
Trade and other payables (14) (2) (6)
Deferred income (7) (9) (8)
Derivative financial instruments (20) - (60)
------------------------------------------------------- ----- --------- --------- -------------
(1,348) (1,217) (1,174)
------------------------------------------------------- ----- --------- --------- -------------
Total liabilities (2,489) (2,342) (2,500)
------------------------------------------------------- ----- --------- --------- -------------
Net assets 1,306 1,204 1,397
------------------------------------------------------- ----- --------- --------- -------------
Equity attributable to owners of the parent
Ordinary shares 8 12 12 12
Share premium 8 548 548 548
Translation reserve 113 53 206
Hedging reserve (1) - -
Merger reserves 61 61 61
Retained earnings 573 530 570
------------------------------------------------------- ----- --------- --------- -------------
Total equity 1,306 1,204 1,397
------------------------------------------------------- ----- --------- --------- -------------
*Restated for finalisation of the fair value of assets acquired
and liabilities assumed in the acquisition of Lockstep, completed
in the prior year (see notes 1 & 11).
Consolidated statement of changes in equity
For the six months ended 31 March 2023
Attributable to owners of the parent
----------------------------------- ------------------ -----------------------------------------------------------
Ordinary Share Translation Merger Retained Total
shares premium reserve Hedging reserve reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- -------- ----------- --------------- --------- --------- -------
At 1 October 2022 12 548 206 - 61 570 1,397
----------------------------------- -------- -------- ----------- --------------- --------- --------- -------
Profit for the period - - - - - 100 100
Other comprehensive expense
Exchange differences on translating
foreign operations and net
investment hedges - - (93) - - - (93)
Cash flow hedges - - - (1) - - (1)
Total comprehensive
(expense)/income
for the period ended 31 March 2023 - - (93) (1) - 100 6
----------------------------------- -------- -------- ----------- --------------- --------- --------- -------
Transactions with owners
Employee share option scheme -
value of employee services
including deferred tax - - - - - 25 25
Proceeds from issuance of treasury
shares - - - - - 2 2
Purchase of shares by Employee
Benefit Trust - - - - - (1) (1)
Dividends paid to owners of the
parent - - - - - (123) (123)
----------------------------------- -------- -------- ----------- --------------- --------- --------- -------
Total transactions with owners
for the period ended 31 March 2023 - - - - - (97) (97)
----------------------------------- -------- -------- ----------- --------------- --------- --------- -------
At 31 March 2023 12 548 113 (1) 61 573 1,306
----------------------------------- -------- -------- ----------- --------------- --------- --------- -------
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 2021 12 548 42 61 448 1,111
--------------------------------------- -------- -------- ----------- -------- --------- -------
Profit for the period - - - - 152 152
Other comprehensive income/(expense)
Exchange differences on translating
foreign operations and net investment
hedges - - 24 - - 24
Exchange differences recycled
through income statement on sale
of foreign operations - - (13) - - (13)
Fair value gain on reassessment
of equity investment - - - - 30 30
--------------------------------------- -------- -------- ----------- -------- --------- -------
Total comprehensive income
for the period ended 31 March
2022 - - 11 - 182 193
--------------------------------------- -------- -------- ----------- -------- --------- -------
Transactions with owners
Employee share option scheme
- value of employee services
including deferred tax - - - - 16 16
Proceeds from issuance of treasury
shares - - - - 3 3
Dividends paid to owners of the
parent - - - - (119) (119)
--------------------------------------- -------- -------- ----------- -------- --------- -------
Total transactions with owners
for the period ended 31 March
2022 - - - - (100) (100)
--------------------------------------- -------- -------- ----------- -------- --------- -------
At 31 March 2022 12 548 53 61 530 1,204
--------------------------------------- -------- -------- ----------- -------- --------- -------
Consolidated statement of cash flows
For the six months ended 31 March 2023
Six months Six months
ended ended
31 March 31 March
2023 2022
Notes GBPm GBPm
---------------------------------------------------------------------- ----- ---------- ----------
Cash flows from operating activities
Cash generated from continuing operations 9 251 193
Interest paid (28) (14)
Income tax paid (35) (27)
---------------------------------------------------------------------- ----- ---------- ----------
Net cash generated from operating activities 188 152
---------------------------------------------------------------------- ----- ---------- ----------
Cash flows from investing activities
Disposal of subsidiaries, net of cash disposed - 37
Acquisition of subsidiaries, net of cash acquired 11 (14) (210)
Purchases of intangible assets 7 (8) (17)
Purchases of property, plant and equipment (2) (4)
Proceeds from disposals of property, plant and equipment - 10
Interest received 4 -
---------------------------------------------------------------------- ----- ---------- ----------
Net cash used in investing activities (20) (184)
---------------------------------------------------------------------- ----- ---------- ----------
Cash flows from financing activities
Proceeds from issuance of treasury shares 8 2 3
Proceeds from borrowings 9 440 516
Repayments of borrowings 9 (353) (166)
Net payments for derivative financial instruments (2) -
Capital element of lease payments (10) (9)
Borrowing costs (2) -
Share buyback programme 8 - (249)
Purchase of shares by Employee Benefit Trust 8 (1) -
Dividends paid to owners of the parent 5 (123) (119)
---------------------------------------------------------------------- ----- ---------- ----------
Net cash used in financing activities (49) (24)
---------------------------------------------------------------------- ----- ---------- ----------
Net increase/(decrease) in cash, cash equivalents and bank overdrafts
(before exchange rate movement) 119 (56)
Effects of exchange rate movement 9 (33) 4
---------------------------------------------------------------------- ----- ---------- ----------
Net increase/(decrease) in cash, cash equivalents and bank overdrafts 86 (52)
Cash, cash equivalents and bank overdrafts at 1 October 9 489 567
---------------------------------------------------------------------- ----- ---------- ----------
Cash, cash equivalents and bank overdrafts at period end 9 575 515
---------------------------------------------------------------------- ----- ---------- ----------
Notes to the financial information
For the six months ended 31 March 2023
1. Group accounting policies
General information
The Sage Group plc ("the Company") and its subsidiaries
(together "the Group") is a leading global supplier of finance, HR
and payroll software to small and mid-sized businesses .
This condensed consolidated half-yearly financial report was
approved for issue by the board of directors on 16 May 2023.
The financial information set out above does not constitute the
Company's Statutory Accounts. Statutory Accounts for the year ended
30 September 2022 have been delivered to the Registrar of
Companies. The auditor's report was unqualified and did not contain
statements under section 498 (2), (3) or (4) of the Companies Act
2006.
Whilst the financial information included in this announcement
has been computed in accordance with UK-adopted International
Accounting Standards ("UK-IFRS") and International Financial
Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board ("IASB"), this announcement does not in
itself contain sufficient information to comply with IFRS or
UK-IFRS. The financial information has been prepared on the basis
of the accounting policies and critical accounting estimates and
judgements as set out in the Annual Report and Accounts 2022.
This condensed consolidated half-yearly financial report has
been reviewed, not audited.
The Company is a limited liability company incorporated and
domiciled in the UK. The address of its registered office is C23 -
5 & 6 Cobalt Park Way, Cobalt Park, Newcastle upon Tyne, NE28
9EJ. The Company is listed on the London Stock Exchange.
Basis of preparation
The financial information for the six months ended 31 March 2023
has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS
34, "Interim Financial Reporting" as issued by the IASB and as
adopted for use in the UK.
The condensed consolidated half-yearly financial report should
be read in conjunction with the annual financial statements for the
year ended 30 September 2022, which have been prepared in
accordance with UK-IFRS and IFRS as issued by the IASB.
Going concern
As at 31 March 2023, the Group had a strong liquidity position
with cash and available liquidity of GBP1.2bn, supported by strong
underlying cash conversion of 117% reflecting the strength of the
subscription-based business model. The Group's position is further
supported by a well-diversified customer base amongst small and
medium sized businesses with high quality recurring revenue and
strong retention rates.
In reaching its assessment on going concern, the Directors have
reviewed liquidity forecasts for the Group for the period to 30
September 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, without the need to draw down the revolving credit
facility or seek additional financing. If more severe impacts
occur, controllable mitigating actions to protect liquidity,
including the reduction of discretionary spend, are available to
the Group should they be required.
The Directors also reviewed the results of reverse stress
testing to provide an illustration of the level of churn and
deterioration in new customer acquisition which would be required
to exhaust cash down to minimum working capital requirements. The
result of the reverse stress testing has highlighted that such a
scenario would only arise following a 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 highly unlikely given the resilient
nature of the subscription business model, robust balance sheet,
and continued strong cash conversion.
After making enquiries, the Directors have a reasonable
expectation that Sage has adequate resources to continue in
operation throughout the going concern assessment period.
Accordingly, the consolidated financial information has been
prepared on a going concern basis.
Accounting policies
The accounting policies adopted in the preparation of these
condensed consolidated interim financial statements are consistent
with those of the annual financial statements for the year ended 30
September 2022. There has been one new accounting policy adopted in
the period relating to cash flow hedges, set out in further detail
below.
Cash flow hedges
When a derivative is designated as a cash flow hedging
instrument, the effective portion of changes in the fair value of
the derivatives is recognised in other comprehensive income and
accumulated in the hedging reserve. The effective portion of
changes in the fair value of the derivative that is recognised in
other comprehensive income is limited to the cumulative change in
fair value of the hedged item, determined on a present value basis,
from inception of the hedge. Any ineffective portion of changes in
the fair value of the derivative is recognised immediately in
profit or loss.
The Group designates the change in fair value of the forward
element of forward exchange contracts as the hedging instrument in
cash flow hedging relationships.
If the hedged future cash flows are no longer expected to occur,
then the amounts that have been accumulated in the hedging reserve
are immediately reclassified to profit or loss.
Adoption of new and revised IFRSs
There are no new accounting standards which are currently issued
but not yet effective which management expects would have a
material impact on the Group.
Critical accounting estimates and judgements
The preparation of financial statements requires the use of
accounting estimates and assumptions by management. It also
requires management to exercise its judgement in the process of
applying the accounting policies. We continually evaluate our
estimates, assumptions and judgements based on available
information. The areas involving a higher degree of judgement or
complexity are described below.
Revenue recognition
Over a third of the Company's revenue is generated from sales to
partners rather than end users. The key judgement is determining
whether the business partner is a customer of the Group. The key
criteria in this determination is whether the business partner has
taken control of the product. Considering the nature of Sage's
subscription products and support services, this is usually
assessed based on whether the business partner has responsibility
for payment, has discretion to set prices, and takes on the risks
and rewards of the product from Sage.
Where the business partner is a customer of Sage, discounts are
recognised as a deduction from revenue.
Where the business partner is not a customer of Sage and their
part in the sale has simply been in the form of a referral, they
are remunerated in the form of a commission payment. These payments
are treated as contract acquisition costs.
Goodwill impairment
Management has performed a review for indicators of impairment
of goodwill as at 31 March 2023. As a result of this review, no
indicators of impairment have been identified.
The carrying value of goodwill and the key assumptions used in
performing the annual impairment assessment are disclosed in note
6.1 of the annual financial statements for the year ended 30
September 2022.
Business combinations
In the period, the Group finalised the purchase price accounting
for Lockstep Network Holdings Inc ("Lockstep"), for which the Group
acquired 100% of the equity capital and voting rights in August
2022. At the end of the prior year, the amounts recognised relating
to the acquisition were provisional. As a result of the purchase
price accounting being finalised, certain adjustments have been
recognised in the period, specifically the recognition of
intangible assets and deferred tax liabilities, offset by a
deduction in the amount of goodwill provisionally recognised in the
prior year. Further explanation of the changes is set out in note
11.
Key areas of judgement include the identification and subsequent
measurement of acquired intangible assets, for which an external
expert was engaged to support the exercise. The recognised
intangible assets included the 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. In
addition, the relief from royalty method requires the use of an
appropriate royalty rate.
Website
This condensed consolidated half-yearly financial report for the
six months ended 31 March 2023 can also be found on our website:
www.sage.com/investors/financial-information/results .
2. Segment information
In accordance with IFRS 8, "Operating Segments", information for
the Group's operating segments has been derived using the
information used by the chief operating decision maker. The Group's
Executive Leadership Team (ELT) has been identified as the chief
operating decision maker, in accordance with their designated
responsibility for the allocation of resources to operating
segments and assessing their performance through the Management
Performance Reviews. The ELT uses organic and underlying data to
monitor business performance. Operating segments are reported in a
manner which is consistent with the operating segments produced for
internal management reporting.
The Group is organised into seven key operating segments: North
America, UK & Ireland, Central Europe (Germany, Austria and
Switzerland), France, Iberia (Spain and Portugal), Africa and the
Middle East, and Asia (including Australia). For reporting under
IFRS 8, the Group is divided into three reportable segments. These
segments are as follows:
-- North America
-- UK & Ireland
-- Europe (Central Europe, France and Iberia)
The remaining operating segments of Africa and the Middle East,
and Asia (including Australia) do not meet the quantitative
thresholds for presentation as separate reportable segments under
IFRS 8, and so are presented together and described as Africa &
APAC. They include the Group's operations in South Africa, the
Middle East, Australia, Singapore and Malaysia.
In previous reporting periods, the UK & Ireland reportable
segment was presented as Northern Europe, the Europe reportable
segment was presented as International - Central and Southern
Europe, and the Africa & APAC segment was presented as
International - Africa & APAC.
The reportable segments reflect the aggregation of the operating
segments for Central Europe, France and Iberia. The aggregated
operating segments are considered to share similar economic
characteristics because they have similar long-term gross margins
and operate in similar markets. Central Europe, France and Iberia
operate principally within the EU and the majority of their
businesses are in countries within the Euro area.
The revenue analysis in the table below is based on the location
of the customer, which is not materially different from the
location where the order is received and where the assets are
located.
Revenue by segment
Six months ended 31 March 2023
------------------------------------ ---------------------------------------------------------
Change Change Change
Statutory Underlying Organic Statutory Underlying Organic
GBPm GBPm GBPm % % %
------------------------------------ ----------- --------- ---------- ----------- --------
Recurring revenue by segment
North America 467 467 467 31% 17% 16%
UK & Ireland 230 230 230 11% 10% 8%
Europe 269 269 269 10% 6% 8%
Africa & APAC 73 73 73 14% 15% 14%
----------------------------- ----- ----------- --------- ---------- ----------- --------
Recurring revenue 1,039 1,039 1,039 19% 12% 12%
----------------------------- ----- ----------- --------- ---------- ----------- --------
Other revenue by segment
North America 16 16 16 (16%) (25%) (26%)
UK & Ireland 3 3 3 (19%) (19%) (33%)
Europe 24 24 24 (19%) (23%) (21%)
Africa & APAC 5 5 5 (30%) (31%) (10%)
----------------------------- ----- ----------- --------- ---------- ----------- --------
Other revenue 48 48 48 (20%) (24%) (22%)
----------------------------- ----- ----------- --------- ---------- ----------- --------
Total revenue by segment
North America 483 483 483 28% 15% 14%
UK & Ireland 233 233 233 10% 10% 7%
Europe 293 293 293 7% 3% 4%
Africa & APAC 78 78 78 9% 10% 12%
----------------------------- ----- ----------- --------- ---------- ----------- --------
Total revenue 1,087 1,087 1,087 16% 10% 10%
----------------------------- ----- ----------- --------- ---------- ----------- --------
Revenue by segment
Six months ended 31 March 2022
-------------------------------------------------------------------------------------------------------------
Impact
of
Underlying Underlying foreign Organic
Statutory adjustments* as reported exchange Underlying adjustments** Organic
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
Recurring revenue
by segment
North America 356 1 357 41 398 6 404
UK & Ireland 208 - 208 1 209 4 213
Europe 244 - 244 10 254 (4) 250
Africa & APAC 65 - 65 (1) 64 - 64
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
Recurring revenue 873 1 874 51 925 6 931
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
Other revenue by
segment
North America 20 - 20 2 22 - 22
UK & Ireland 4 - 4 - 4 - 4
Europe 30 - 30 1 31 (1) 30
Africa & APAC 7 - 7 - 7 (2) 5
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
Other revenue 61 - 61 3 64 (3) 61
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
Total revenue by
segment
North America 376 1 377 43 420 6 426
UK & Ireland 212 - 212 1 213 4 217
Europe 274 - 274 11 285 (5) 280
Africa & APAC 72 - 72 (1) 71 (2) 69
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
Total revenue 934 1 935 54 989 3 992
-------------------- ---------- -------------- ------------- --------- ---------- -------------- -------
* Adjustments are detailed in note 3.
** Adjustments relate to the acquisition of Brightpearl,
Lockstep and Futrli, disposal of the Group's Swiss business in the
prior period and the Group's payroll outsourcing business in South
Africa which was classified as held for sale in the prior
period.
Operating profit by segment
Six months ended 31 March 2023
----------------------------------------------------------------------------------------------------------------
Underlying Change Change Change
Statutory adjustments Underlying Organic Statutory Underlying Organic
GBPm GBPm GBPm GBPm % % %
---------------------------- ---------- ------------ ---------- ------- ---------- ----------- ----------
Operating profit by segment
North America 43 42 85 85 (27%) 1% 5%
UK & Ireland 35 25 60 60 4% 13% 25%
Europe 66 2 68 68 (32%) 37% 39%
Africa & APAC 13 1 14 14 (11%) 6% 9%
---------------------------- ---------- ------------ ---------- ------- ---------- ----------- --------
Total operating profit 157 70 227 227 (23%) 14% 19%
---------------------------- ---------- ------------ ---------- ------- ---------- ----------- --------
Six months ended 31 March 2022
---------------------------------------------------------------------------------------------------------------
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 59 14 73 12 85 (3) 82
UK & Ireland 34 17 51 1 52 (4) 48
Europe 97 (51) 46 3 49 - 49
Africa & APAC 14 (1) 13 - 13 (1) 12
----------------------- ---------- ------------ ------------ ----------- ---------- ------------ -------
Total operating profit 204 (21) 183 16 199 (8) 191
----------------------- ---------- ------------ ------------ ----------- ---------- ------------ -------
Reconciliation of underlying operating profit to statutory
operating profit
Six months ended Six months ended
31 March 2023 31 March 2022
GBPm GBPm
------------------------------------------------------- ----------------- -----------------
North America 85 85
UK & Ireland 60 52
Europe 68 49
-------------------------------------------------------- ----------------- -----------------
Total reportable segments 213 186
Africa & APAC 14 13
-------------------------------------------------------- ----------------- -----------------
Underlying operating profit 227 199
Impact of movement in foreign currency exchange rates - (16)
-------------------------------------------------------- ----------------- -----------------
Underlying operating profit (as reported) 227 183
Amortisation of acquired intangible assets (26) (18)
Adjustment to acquired deferred income - (1)
Other M&A activity-related items (24) (15)
Non-recurring items (20) 55
-------------------------------------------------------- ----------------- -----------------
Statutory operating profit 157 204
-------------------------------------------------------- ----------------- -----------------
3. Adjustments between underlying profit and statutory profit
Six months Six months Six months Six months Six months Six months
ended ended ended ended ended ended
31 March 31 March 31 March 31 March 31 March 31 March
2023 2023 2023 2022 2022 2022
Non- Non-
Recurring recurring Total Recurring recurring Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
M&A activity-related
items
Amortisation of acquired
intangibles 26 - 26 18 - 18
Gain on disposal of subsidiaries - - - - (49) (49)
Adjustment to acquired
deferred income - - - 1 - 1
Other M&A activity-related
items 24 - 24 15 - 15
Other items
Property restructuring
costs - 20 20 - - -
Reversal of restructuring
costs - - - - (6) (6)
--------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total adjustments made
to operating profit 50 20 70 34 (55) (21)
--------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Foreign currency movements
on intercompany balances 1 - 1 1 - 1
--------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total adjustments made
to profit before income
tax 51 20 71 35 (55) (20)
--------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
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 in the prior year
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 and directly attributable
integration costs. GBP4m (six months ended 31 March 2022: GBP5m) of
these costs have been paid in the period, while the remainder is
expected to be paid in subsequent periods.
Foreign currency movements on intercompany balances occur due to
retranslation of unhedged intercompany balances other than those
where settlement is not planned or likely in the foreseeable future
and resulted in a loss of GBP1m (six months ended 31 March 2022:
loss of GBP1m).
Non-recurring items
Property restructuring costs relate to the reorganisation of a
number of leased properties following a strategic review of the
Group's property portfolio, as a result of which certain of the
Group's properties were either exited or down-sized as part of a
consolidated plan. In the current period, costs of GBP20m consist
of impairment of GBP13m of right of use assets and other related
fixed assets that are no longer in use as well as a provision for
directly attributable future running costs associated with the
properties. The execution of the programme will be completed by 30
September 2023 with further costs expected to be incurred in the
second half of the year.
The gain on disposal of subsidiaries in the prior year of GBP49m
relates to the disposal of the Group's Swiss business.
Reversal of restructuring costs of GBP6m in the prior year
primarily relates to unutilised provisions recognised in 2021
following the implementation of a business transformation plan to
rebalance investment towards the Group's strategic priorities and
simplify the business. The reversal is a result of fewer colleagues
leaving the business as they were redeployed into other roles.
4. Income tax expense
The effective tax rate on statutory profit before tax was 28%
(six months ended 31 March 2022: 20%) whilst the effective tax rate
on underlying profit before tax for continuing operations was 24%
(six months ended 31 March 2022: 24%). The effective income tax
rate represents the best estimate of the Group's average effective
income tax rate expected for the full year, applied to the profit
before income tax for the six months ended 31 March 2023.
The difference between the underlying and statutory rate for the
six months ended 31 March 2023 primarily reflects non-deductible
other M&A activity-related items.
5. Dividends
Six months Six months Year
ended ended ended
31 March 31 March 30 September
2023 2022 2022
GBPm GBPm GBPm
----------------------------------------- ---------- ---------- -------------
Final dividend paid for the year ended
30 September 2021 of 11.63p per share - 119 119
Interim dividend paid for the year ended
30 September 2022 of 6.30p per share - - 64
Final dividend paid for the year ended
30 September 2022 of 12.10p per share 123 - -
----------------------------------------- ---------- ---------- -------------
123 119 183
----------------------------------------- ---------- ---------- -------------
The interim dividend of 6.55p per share will be paid on 23 June
2023 to shareholders on the register at the close of business on 2
June 2023. The Company's distributable reserves are sufficient to
support the payment of this dividend. This condensed consolidated
half-yearly financial report does not reflect this proposed
dividend payable.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the period attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the period,
excluding those held as treasury shares and held by the Employee
Benefit Trust, which are treated as cancelled.
For diluted earnings per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares. The Group has one class of
potentially dilutive ordinary shares. They are share options
granted to employees where the exercise price is less than the
average market price of the Company's ordinary shares during the
period.
Underlying
Underlying as reported Six Underlying Statutory Statutory
Six months ended months ended Six months ended Six months ended Six months ended
31 March 31 March 31 March 31 March 31 March
2023 2022 2022 2023 2022
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Earnings
attributable to
owners of the
parent
Profit for the
period 160 129 141 100 152
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Number of shares
(millions)
Weighted average
number of shares 1,018 1,023 1,023 1,018 1,023
Dilutive effects
of shares 12 10 10 12 10
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
1,030 1,033 1,033 1,030 1,033
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Earnings per
share
attributable to
owners of the
parent (pence)
Basic earnings
per share 15.68 12.62 13.83 9.78 14.84
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Diluted earnings
per share 15.49 12.49 13.69 9.66 14.68
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Six months ended Six months ended
31 March 31 March
2023 2022
Reconciliation of earnings GBPm GBPm
---------------------------------------------------------------------------- ---------------- ----------------
Underlying earnings attributable to owners of the parent 160 141
Impact of movement in foreign currency exchange rates - (12)
---------------------------------------------------------------------------- ---------------- ----------------
Underlying earnings attributable to owners of the parent (as reported) 160 129
---------------------------------------------------------------------------- ---------------- ----------------
Amortisation of acquired intangible assets (26) (18)
Adjustment to acquired deferred income - (1)
Other M&A activity-related items (24) (15)
Foreign currency movements on intercompany balances (1) (1)
Property restructuring costs (20) -
Gain on disposal of subsidiaries - 49
Reversal of restructuring costs - 6
Taxation on adjustments 11 3
---------------------------------------------------------------------------- ---------------- ----------------
Net adjustments (60) 23
---------------------------------------------------------------------------- ---------------- ----------------
Earnings - statutory profit for period attributable to owners of the parent 100 152
---------------------------------------------------------------------------- ---------------- ----------------
7. Non-current assets
Other
intangible Property,
Goodwill assets plant and equipment Total
GBPm GBPm GBPm GBPm
------------------------------------------------ --------- ------------ --------------------- ------
Opening net book amount at 1 October 2022* 2,391 320 152 2,863
Additions - 8 12 20
Acquisition of subsidiary** 8 4 - 12
Impairment - - (13) (13)
Depreciation, amortisation and other movements - (33) (22) (55)
Exchange movement (161) (11) (5) (177)
------------------------------------------------ --------- ------------ --------------------- ------
Closing net book amount at 31 March 2023 2,238 288 124 2,650
------------------------------------------------ --------- ------------ --------------------- ------
*Opening net book amount restated for finalisation of fair value
of assets acquired and liabilities assumed in the acquisition of
Lockstep in the prior year (see notes 1 & 11).
**Assets acquired as part of the acquisition of Spherics (see
note 11).
Other Property,
intangible plant and
Goodwill assets equipment Total
GBPm GBPm GBPm GBPm
------------------------------------------------ --------- ------------ ----------- ------
Opening net book amount at 1 October 2021 1,877 190 164 2,231
Additions - 4 8 12
Acquisition of subsidiary 176 110 2 288
Depreciation, amortisation and other movements - (24) (21) (45)
Exchange movement 29 1 2 32
------------------------------------------------ --------- ------------ ----------- ------
Closing net book amount at 31 March 2022 2,082 281 155 2,518
------------------------------------------------ --------- ------------ ----------- ------
Impairment of property, plant and equipment in the period of
GBP13m relates to property restructuring costs, see note 3.
8. Ordinary shares and share premium
Ordinary
Number of Shares Share premium Total
shares GBPm GBPm GBPm
----------------------------------- -------------- --------- -------------- ------
At 1 October 2022 & 31 March 2023 1,100,789,295 12 548 560
----------------------------------- -------------- --------- -------------- ------
At 1 October 2021 1,120,789,295 12 548 560
Cancellation of treasury shares (20,000,000) - - -
----------------------------------- -------------- --------- -------------- ------
At 31 March 2022 1,100,789,295 12 548 560
----------------------------------- -------------- --------- -------------- ------
As at 31 March 2023:
-- The Group held 76,477,587 treasury shares (30 September 2022:
81,168,903). During the period the Group transferred 4,691,316
treasury shares to employees in order to satisfy vested awards (six
months ended 31 March 2022: 4,897,923 ).
-- The Employee Benefit Trust held 4,419,478 ordinary shares in
the Company (30 September 2022: 4,610,875 ordinary shares) at a
cost of GBP34m (30 September 2022: GBP33m). During the period, the
Employee Benefit Trust purchased GBP1m of ordinary shares from the
market, funded by the Company (six months ended 31 March 2022:
GBPnil).
The Employee Benefit Trust did not receive additional funds for
the purchase of shares in the market (six months ended 31 March
2022: GBPnil).
During the prior period, the Group completed a previously
announced non-discretionary share buyback programme which resulted
in the payment of GBP249m in the six months ended 31 March
2022.
9. Cash flow and net debt
Six months ended Six months ended
31 March 31 March
2023 2022
GBPm GBPm
-------------------------------------------------------------------------------- ----------------- -----------------
Statutory operating profit 157 204
Recurring and non-recurring items 70 (21)
-------------------------------------------------------------------------------- ----------------- -----------------
Underlying operating profit (as reported) 227 183
Depreciation/amortisation/impairment/profit on disposal of non-current
assets/non-cash items 27 26
Share-based payments 20 16
Net changes in working capital 2 3
Net capital expenditure (10) (8)
-------------------------------------------------------------------------------- ----------------- -----------------
Underlying cash flow from operations 266 220
Net interest paid and derivative financial instruments (28) (14)
Income tax paid (35) (27)
Non-recurring items (8) (12)
Exchange movement (1) -
-------------------------------------------------------------------------------- ----------------- -----------------
Free cash flow 194 167
-------------------------------------------------------------------------------- ----------------- -----------------
Net debt at 1 October (733) (247)
Disposal of subsidiaries or similar transactions, net of cash and lease
liabilities disposed - 38
Acquisition of subsidiaries or similar transactions, net of cash acquired and
lease liabilities
recognised (14) (223)
Acquisitions and disposals related items (16) (14)
Dividends paid to owners of the parent (123) (119)
Proceeds from issuance of treasury shares 2 3
New leases (9) (4)
Share buyback programme - (249)
Purchase of shares by Employee Benefit Trust (1) -
Exchange movement 9 (3)
Other - 1
-------------------------------------------------------------------------------- ----------------- -----------------
Net debt at 31 March (691) (650)
-------------------------------------------------------------------------------- ----------------- -----------------
Six months ended Six months ended
31 March 31 March
2023 2022
GBPm GBPm
----------------------------------------------------------- ----------------- -----------------
Underlying cash flow from operations 266 220
Net capital expenditure 10 8
Recurring and non-recurring cash items (24) (36)
Other adjustments including foreign exchange translations (1) 1
----------------------------------------------------------- ----------------- -----------------
Statutory cash flow from operations 251 193
----------------------------------------------------------- ----------------- -----------------
At At
1 October 2022 Cash flow Non-cash movement Exchange movement 31 March 2023
Analysis of change in net debt GBPm GBPm GBPm GBPm GBPm
------------------------------------ --------------- --------- ----------------- ----------------- --------------
Cash, cash equivalents and bank
overdrafts 489 119 - (33) 575
------------------------------------ --------------- --------- ----------------- ----------------- --------------
Liabilities arising from financing
activities
Loans due within one year (161) 148 - 13 -
Loans due after more than one year (966) (235) - 24 (1,177)
Lease liabilities due within one
year (17) 10 (9) - (16)
Lease liabilities after more than
one year (78) - - 5 (73)
------------------------------------ --------------- --------- ----------------- ----------------- --------------
(1,222) (77) (9) 42 (1,266)
------------------------------------ --------------- --------- ----------------- ----------------- --------------
Total (733) 42 (9) 9 (691)
------------------------------------ --------------- --------- ----------------- ----------------- --------------
The Group's debt is sourced from sterling and euro denominated
bond notes, with a syndicated Revolving Credit Facility ("RCF")
also available. Previously, certain US private placements ("USPP")
loan notes were held.
During the period, the Group issued euro denominated bond notes
under its newly established Euro Medium Term Note (EMTN) programme,
for a nominal amount of EUR 500m and an expiry date of February
2028. Cash proceeds from the issuance, net of transaction costs,
were EUR 498m (GBP442m).
At 31 March 2023, bond notes were GBP1,179m (30 September 2022:
GBP741m), comprised of sterling denominated bond notes GBP741m (30
September 2022: GBP741m) and euro denominated bond notes GBP438m
(30 September 2022: GBPnil)
The Group's RCF was refinanced in December 2022, with facility
levels of GBP630m, and expires in December 2027, with an extension
option for up to two further years subject to specific provisions.
At 31 March 2023, GBPnil of the RCF was drawn down and associated
unamortised costs of GBP2m had been paid and capitalised. The
previously held RCF comprising (USD 719m and GBP135m tranches) was
extinguished in December 2022.
Total USPP loan notes at 31 March 2023 were GBPnil following the
repayment of the remaining balance during the current period (30
September 2022: GBP386m comprising USD 400m and EUR 30m).
10. Financial instruments
For financial assets and liabilities, the carrying amount
approximates the fair value of the instruments, with the exception
of US private placement loan notes, euro and sterling denominated
bond notes and bank loans.
The fair value of the euro and 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 private placement loan notes is determined
by reference to interest rate movements on the US dollar private
placement market and therefore can be considered as a level 2 fair
value as defined within IFRS 13.
The fair value of bank loans is determined using a discounted
cash flow valuation technique calculated at prevailing interest
rates, and therefore can be considered as a level 3 fair value as
defined within IFRS 13.
The respective book and fair values of bank loans, bond notes
and loan notes are included in the table below.
At 31 March 2023 At 31 March 2022 At 30 September 2022
------------------------ ------------------------ ------------------------
Book Value Fair Value Book Value Fair Value Book Value Fair Value
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Long term-borrowings (excluding lease
liabilities) (1,177) (1,033) (1,045) (1,006) (966) (753)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Short term-borrowings (excluding lease
liabilities) - - (25) (26) (161) (158)
---------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
During the period, the Group issued EUR 500m of euro denominated
bond notes (see note 9). In relation to this transaction, the Group
also entered into cross-currency interest rate swaps in order to
hedge exposure to foreign currency exchange movements:
-- The Group designated EUR-GBP cross-currency interest rate
swap contracts totalling GBP264m (EUR 300m) as hedging instruments
in a cash flow hedge to hedge exposure to foreign currency exchange
movements of the forecast principal and interest payments of a
portion of the EUR 500m euro denominated bond entered into in the
year (see note 9).
-- The Group designated USD-GBP cross-currency interest rate
swap contracts totalling GBP264m (USD 321m) as hedging instruments
in a net investment hedge to hedge exposure to foreign currency
exchange movements of its net investment in its subsidiaries in the
US.
During the second half of the prior year, the Group designated
USD-GBP cross-currency interest rate swap contracts totalling
GBP350m (USD 429m) as hedging instruments in a net investment hedge
to hedge exposure to foreign currency exchange movements of its net
investment in its subsidiaries in the US. This hedge relationship
is still active in the current period.
The fair value of the cross-currency interest rate swaps held by
the Group is determined using a discounted cash flow valuation
technique at market rates and therefore can be considered as a
level 2 fair value as defined within IFRS 13. The fair value of the
swaps held by the Group as at 31 March 2023 was a GBP18m net
liability (30 September 2022: a GBP60m liability).
11. Acquisitions and disposals
Measurement adjustments to business combinations reported using
provisional amounts
On 30 August 2022, the Group acquired 100% equity capital and
voting rights of Lockstep Network Holdings Inc ("Lockstep") for
total cash consideration of GBP80m, of which GBP3m was deferred and
paid in the current period.
The net assets acquired recognised in the financial statements
at 30 September 2022 were based on a provisional assessment of
their fair value while the Group undertook a valuation of the
acquired intangible assets. During the period, the purchase price
accounting has been approved and completed.
The intangible assets identified and subsequently valued as at
the date of acquisition include:
Useful economic
Valuation life
Acquired intangible assets GBPm (years)
----------------------------- ----------- ---------------
Customer relationships 3 8
Technology 23 8
------------------------------ ---------- ---------------
Acquired intangible assets 26
------------------------------ ---------- ---------------
The comparative information for the financial year 2022 has been
restated to reflect the adjustment to the provisional amounts.
As a result of the recognition of intangible assets of GBP26m,
and net deferred tax liability of GBP1m, there was a corresponding
decrease of GBP25m to goodwill. The balancing GBP54m goodwill
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 North America CGU where the underlying
benefit arising from the acquisition is expected to be realised. No
goodwill is expected to be deductible for tax purposes. The results
of the business are allocated to the North America operating
segment in line with the underlying operations.
No other adjustments have been made to the provisional fair
value of assets and liabilities reported at 30 September 2022, as
set out below:
Previously reported provisional fair
Fair value of identifiable net values Measurement adjustments Final fair values
assets acquired GBPm GBPm GBPm
------------------------------------ ------------------------------------ ----------------------- -----------------
Intangible assets - 26 26
Deferred tax liability - (1) (1)
Other identifiable net assets 1 - 1
------------------------------------ ------------------------------------ ----------------------- -----------------
Fair value of identifiable net
assets acquired 1 25 26
Goodwill 79 (25) 54
------------------------------------ ------------------------------------ ----------------------- -----------------
Total consideration 80 - 80
------------------------------------ ------------------------------------ ----------------------- -----------------
The increased amortisation charge on the intangibles assets from
the acquisition date to 30 September 2022 was not material and
therefore no adjustment has been made for this. No changes have
been identified to the directly attributable acquisition related
costs which were included during the financial year ended 30
September 2022 in relation to the acquisition.
Acquisitions made during the current period
On 11 October 2022, the Group acquired 100% equity capital and
voting rights of Spherics Technologies Ltd ("Spherics"), a company
based in the UK, for total cash consideration GBP11m. Spherics
provides a carbon accounting software solution to help businesses
easily understand and reduce their environmental impact.
Total
Summary of acquisition GBPm
--------------------------------------------- -----
Acquisition-date fair value of consideration 11
Fair value of identifiable net assets (4)
Deferred tax liability 1
--------------------------------------------- -----
Goodwill 8
--------------------------------------------- -----
Acquired intangible net assets comprises technology, at a fair
value of GBP4m, which will be amortised over a useful economic life
of 8 years.
Acquired goodwill of GBP8m 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 UK &
Ireland CGU where the underlying benefit arising from the
acquisition is expected to be realised. No goodwill is expected to
be deductible for tax purposes. The results of the business are
allocated to the UK & Ireland 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 (11)
Cash and cash equivalents acquired -
----------------------------------- -----
Net cash outflow (11)
----------------------------------- -----
Transaction costs of GBP1m relating to the acquisition have been
included in selling and administrative expenses, classified as
other M&A activity-related items within recurring adjustments
between underlying and statutory results. These costs relate to
advisory, legal, and other professional services. See note 3.
Arrangements have been put in place for retention payments to
remunerate employees of Spherics for future services. The amount
recognised to date of GBP2m 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 reported by Spherics for the
period since the acquisition date, includes an immaterial amount of
revenue and loss after tax.
On an underlying and statutory basis, impact on revenue and
profit after tax would have been immaterial, if Spherics had been
acquired at the start of the financial year and included in the
Group's results for the six months ended 31 March 2023.
Disposals and discontinued operations
Discontinued operations and assets and liabilities held for
sale
The Group had no discontinued operations during the six-month
periods ended 31 March 2023 or 31 March 2022.
Assets held for sale at 31 March 2022 included one disposal
group comprising the Group's payroll outsourcing business in South
Africa, with a net book value of GBP2m. This business was
subsequently sold on 4 April 2022 for cash consideration GBP5m
resulting in a gain on disposal totalling GBP4m.
There are no assets held for sale at 31 March 2023.
12. Related party transactions
The Group's related parties are its subsidiary undertakings and
its key management personnel, which comprises the Group's Executive
Leadership Team members and the Non-executive Directors.
Transactions and outstanding balances between the parent and its
subsidiaries within the Group, and between those subsidiaries, have
been eliminated on consolidation and are not disclosed in this
note.
Six months ended Six months ended
31 March 31 March
2023 2022
Key management compensation GBPm GBPm
------------------------------------------- ----------------- -----------------
Salaries and short-term employee benefits 5 5
Share-based payments 3 2
------------------------------------------- ----------------- -----------------
8 7
------------------------------------------- ----------------- -----------------
Key management personnel are deemed to be members of the
Executive Leadership Team, as defined in the Group's Annual Report
and Accounts 2022 and the Non-executive Directors. Since the
signing of the Group's Annual Report and Accounts 2022, there have
been no changes to the composition of the Executive Leadership
Team.
13. Events after the balance sheet date
On 5 May 2023, the Group acquired 100% of the outstanding equity
securities of Corecon Technologies, Inc. ('Corecon') for cash
consideration of GBP13m (subject to a customary post-closing net
debt and working capital adjustment). Corecon is a cloud native
subscription-based software company used to streamline and manage
project operations focused on the construction industry. Due to the
timing of the acquisition the results of Corecon are not included
in our financial statements for the period ended 31 March 2023 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 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
the Annual Report and Accounts 2022.
KEY
Scale Sage Expand medium Build the small Scale the Learn and
Intacct beyond financials business engine network disrupt
PRINCIPAL RISK RISK CONTEXT MANAGEMENT AND MITIGATION
Understanding Risk Trend: Stable Risk Environment
Customer Needs
-----------------------------------------------------------------------------------------
If we fail to anticipate, As Sage continues to
understand , and communicate its brand * Brand campaigns to communicate the vision of how Sage
deliver against and purpose , will support businesses.
the capabilities understanding
and experiences of how to attract new
our current and customers whilst * Brand health surveys to provide an understanding of
future retaining customer perception of the Sage brand and its
customers need its existing customers products, used to inform and enhance our market
in a timely manner is essential. This offerings.
; they will find requires
alternative solution a deep and continuous
providers. flow of insights * A Market and Competitive Intelligence team to provide
Strategic alignment: supported insights that Sage uses to win in the market.
by processes and systems.
By understanding the
needs of our customers, * Proactive analysis of customer activity and churn
Sage will differentiate data, to improve customer experience .
itself from competitors,
build compelling value
propositions and offers, * Customer Segmentation Framework and the customer
leverage key drivers market analysis by region to help inform product
to identify roadmaps.
opportunities,
influence product and
process roadmaps, * Customer Advisory Boards, Customer Design Sessions
decrease and NPS detractor call-back channels to constantly
churn and drive more gather information on customer needs.
effective revenue
generation.
-------------------------- -------------------------------------------------------------
Execution of Product Risk Trend Improving Risk Environment
Strategy
-----------------------------------------------------------------------------------------
If we fail to deliver We need to execute at
the capabilities pace, a prioritised * A product strategy in line with strategic objectives
and experiences product strategy that and priorities , based on our market understanding
outlined in our continues to simplify 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.
* 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
to develop, commercialise rapidly * A new Business Unit solely focused on creating the
and scale new business deploy new innovations Sage Digital Network.
models to diversify to our customers and
from traditional partners by introducing
SaaS, especially technologies, services, * Continued focus on AI /ML development coupled with a
consumption-based or new ways of working. drive to improve how to exploit data to provide
services and those Innovation requires better management insight to our customers.
which leverage us to address how we
data , we will drive change and
not meet the needs transformation * Enhanced, consistent digital experience for all Sage
of our customers across our people, Business Cloud users through the Sage Design System.
or our commercial processes
goals. , and technology, and
Strategic alignment: how we differentiate * Strategic acquisition and collaboration with partners
our products and drive to complement and enable accelerated innovation.
customer efficiencies.
* Focused colleague engagement to accelerate innovation
across the organisation through a Continuous
Innovation Community.
-------------------------- -------------------------------------------------------------
Route to Market Risk Trend: Stable Risk Environment
-----------------------------------------------------------------------------------------
If we fail to deliver We have a blend of
a bespoke blend channels * Market data and intelligence is used to support
of route to market to communicate with decision making regarding the best routes to market
channels in each our current and potential
country, based customers and ensure
upon common components, our customers receive * Dedicated colleagues are in place to support partners,
we will not be the right information and to help manage the growth of targeted channels
able to efficiently on the right products
deliver the right and services at the
capabilities and right time. Our sales * Sale processes are targeted and configured by region
experiences to channels include selling for key customer segments and verticals
our current and directly to customers
future customers. through digital and
Strategic alignment: telephony channels, * A dedicated On-Boarding Squad to enhance user
via our accountant journeys to enable customer conversion
network
and through partners,
valued added resellers * Acceleration of new partnerships to support the
(VARs) and Independent Digital Network
Software Vendors (ISVs).
We use these channels
to maximise our marketing * Centre of Excellence to support our Indirect Sales
and customer engagement and Third - Party approach.
activities. This can
shorten our sales cycle
and ensure that customer
retention is improved.
-------------------------- -------------------------------------------------------------
Customer Experience Risk Trend: Stable Risk Environment
-----------------------------------------------------------------------------------------
If we fail to effectively We must maintain a sharp
identify and deliver focus on the relationship * Battlecards are in place for key products in all
ongoing value to we have with our countries, setting out the strengths and weaknesses
our customers by customers, of competitors and their products
focusing on their constantly focusing
needs over the on delivering the
lifetime of their products, * A data-driven Customer Success Framework to enhance
customer journey, services and experiences the customer experience and ensure that Sage is
we will not be our customers need to better positioned to meet the current and future
able to achieve be successful. If we needs of the customer
sustainable growth do not do this, they
through renewal. will likely find another
Strategic alignment: provider who does give * Customer Journey mapping and mapping of the five core
them these things. customer processes to ensure appropriate strategy
Conversely, alignment and alignment to Target Operating Model
if we do these things
well these customers
will stay with Sage, * 'Customer for life' roadmaps, detailing how products
increasing their lifetime fit together, any interdependencies, and migration
value, becoming our pathways for current and potential customers
greatest marketing
advocates.
Whilst Sage is known * Continuous Net Promoter Score (NPS) surveying allows
for its quality customer Sage to identify customer challenges rapidly , and
support, this area respond in a timely manner to emerging trends
requires
constant, proactive
focus. By helping * Launch of member service to provide business tools
customers and advise to support businesses
to recognise and fully
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 timely provision of cloud native * Dedicated colleagues in place to support partners,
manner, we will products. and to help manage the growth of targeted channels.
fail to deliver Sage also has an
the right capabilities extensive
and experiences network of sales partners * Standardised implementation plans for Sage products
to our customers. critical to our success that facilitate efficient partner implementation.
Strategic alignment: in the market, and
suppliers
upon whom it places * Managed growth of the API estate, including enhanced
reliance. product development that enables access by
Any interruption in third-party API developers.
these services or
relationships
could have a profound * Enhanced third-party management framework, to support
impact on Sage's closer alignment and oversight of third-party
reputation activities.
in the market and could
result in significant
financial liabilities * A specialized Procurement function supporting the
and losses. business with the selection of strategic third-party
suppliers and negotiation of contracts.
* Investing in new types of partnerships to explore and
grow business in new markets.
-------------------------- -------------------------------------------------------------
People and Performance Risk Trend: Stable Risk Environment
-----------------------------------------------------------------------------------------
If we fail to ensure As we evolve our
we have engaged priorities, * Extensive focus on hiring channels to ensure we are
colleagues with the capacity, knowledge attractive in the market through our enhanced
the critical skills, , and leadership skills employee value proposition, enhanced presence through
capabilities , we need will continue social media such as Glassdoor, Comparably, Twitter,
and capacity we to change. Sage will LinkedIn, and Facebook.
need to deliver not only need to attract
on our strategy, the talent and experience
we will not be we will need to help * Hiring practices focused on the skills we need in
successful. navigate this change balance with organisational costs supported by a
Strategic alignment: . We will also need methodology for upskilling and building capability in
to provide an environment the long term from within the organisation.
where colleagues can
develop to meet these
new expectations, an * Reward mechanisms designed to incentivize and drive
environment where the right behaviour with a focus on ensuring fair and
everyone equitable pay in all markets.
can perform at their
very best.
By empowering colleagues * Focused development of our leaders (e.g. a 7-month
and leaders to make Senior Leadership Programme) to ensure they create
decisions, be innovative, the environment which enables colleagues to thrive
and be bold in delivering and perform at their very best.
on our commitments,
Sage will be able to
create an attractive * An effective hybrid working model across the
working environment. organization.
By addressing drivers
of colleague voluntary
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 * Values that align with the Sage brand.
and enable them competency
to take accountability that encourages
in line with our colleagues * Integration of Values and Behaviours into all
shared Values and to always do the right colleague priorities including talent attraction,
Behaviours, we thing, put customers selection, onboarding as well as performance
will be challenged at the heart of business management.
to maintain a culture and drive innovation
, that meets Sage's is critical in Sage's
business ambitions. success. Devolution * All colleagues are actively encouraged to take up to
Strategic alignment: of decision making, five paid Sage Foundation days each year, to support
and the acceptance of charities and provide philanthropic support to the
accountability for these community.
decisions, will need
to go hand in hand as
the organisation develops * Commitments to diversity, equity and inclusion (DEI)
and sustains its shared including zero tolerance to discrimination, equal
Values and Behaviours, chance to everyone, inclusive culture, removing
and fosters a culture barriers, DEI education, and development of a new DEI
that provides customers strategy to ensure we deliver on our commitments.
a rich digital
environment.
Sage will also need * A DEI strategy focused on building diverse teams, an
to create a culture equitable culture, and fostering inclusive
of empowered leaders leadership. This strategy is supported by measurable
that supports the plans and metrics to track progress.
development
of ideas, and that
provides * A new transparency and accountability development
colleagues with a safe framework.
environment allowing
for honest disclosures
and discussions. Such * Code of Conduct communicated to all colleagues, and
a trusting and empowered subject to certification every two years.
environment can help
sustain innovation,
enhance customer success * Core eLearning modules rolled out across Sage, with
, and drive the regular refresher training.
engagement
that results in increased
market share. * 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 responsibly Information is the life
collect, process blood of a digital * Multi-year cyber security programmes in IT and
and store data, company products to ensure Sage is driving continuous
together with ensuring - protecting the improvement and cyber risk reduction across
an appropriate confidentiality, technology, business processes and culture
standard of cyber integrity and
security across accessibility
the business, we of this data is critical * Accountability within both IT and Product for all
will not meet our for a data -driven internal and external data being processed by Sage.
regulatory obligations, business, The Chief Information Security Officer oversees
and will lose the and failure to do so information security, with a network of Information
trust of our stakeholders. can have significant Security Officers that directly support the business
Strategic alignment: financial and regulatory
consequences in the
General Data Protection * The Chief Data Protection Officer oversees
Regulation (GDPR) era. information protection
In addition, we also
need to use our data
efficiently and * Formal certification schemes maintained across the
effectively business, and include internal and external
to drive improved validation of compliance
business
performance.
* All colleagues are required to undertake awareness
training for cyber security, information management
and data protection, with a focus on the GDPR
requirements
* A Cyber Security Risk Management Methodology is
deployed to provide objective risk information on our
assets and systems.
-------------------------- -------------------------------------------------------------
Data Strategy Risk Trend: Improving Risk Environment
-----------------------------------------------------------------------------------------
If we fail to recognise Data is central to the
the value of our Sage strategy to deliver * Data strategy across customer, product, and
data assets, deliver our ambition enterprise data to support the delivery of customer
effective data of a digital network. value and solve customer problems, including the use
foundations, and The strategy is of enhanced Artificial Intelligence /Machine Learning
capitalise on their underpinned capabilities.
use , we will not by our ability to
be able to realise innovate
their full potential and develop solutions * A global data function that drives focus and
to secure strategically to enhance customer alignment across the organization. In FY22, Sage
aligned outcomes. propositions, improve appointed its first Chief Data Officer.
Strategic alignment: insight and decision
making and create new
business models and * A defined set of Data ethics and principles to ensure
ecosystems. Successful we use customer data responsibly to achieve our
ability to use data strategy.
will accelerate our
growth and will be a
key driver in helping * Plan to increase digital network participation, which
customers transform will contribute to more data to support the delivery
how they run and build of real customer value and solve real customer
their businesses. problems.
* Governance policies, processes , and tooling to
enhance and manage the quality and consistency of our
data.
* A data asset catalogue to enable creation of use
cases.
-------------------------- -------------------------------------------------------------
Readiness to Scale Risk Trend: Improving Risk Environment
-----------------------------------------------------------------------------------------
If we fail to maintain As Sage transitions
a reliable, scalable to a digital company, * Migrating of products to public cloud offerings to
, and secure live we continue to focus improve scalability, resilience, and security.
services environment on scaling our current
, we will be unable and future platform
to deliver the services environment * Accountability across product owners, underpinned by
consistent cloud in a robust, agile, ongoing risk assessments and continuous improvement
experience expected and speedy manner to projects.
by our customers. ensure the delivery
Strategic alignment: of a consistent and
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 * Service - level objectives including uptime,
with the governance responsiveness, and mean time to repair objectives.
to ensure optimal service
availability,
performance, * Defined Real - Time Demand Management processes and
security protection controls and also Disaster Recovery Capability and
and restoration (if operational resilience models.
required).
* 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 fully We are committed to
, 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 medium businesses (SMBs),
- related opportunities and our planet the * Underpinning the strategy is a robust
and risks we may opportunity cross-functional governance framework.
fail to deliver to thrive.
positive change
to social and Internally, it is * Tracking tools in place to enable horizon scanning
environmental essential and to track the Sustainability and Society
issues and damage that Sage understands strategy's impact.
the confidence the potential impact
of our stakeholders. of climate change to
its strategy and * As part of our broader Sustainability function, the
Strategic alignment: operations Sage Foundation, established in 2015, remains focused
and considers appropriate on the areas of education, employment, and
mitigations. entrepreneurship via the contribution of time,
investment, and capability on managing climate risks.
Societal and Governance
related issues are
integral * An integrated framework for the management of ESG
to Sage's purpose and related risk, including physical and transitional
Values and to the climate risks as recommended by the Taskforce for
delivery Climate Related Financial Disclosures (TCFD).
of Sage's strategy.
-------------------------- -------------------------------------------------------------
Statement of Directors' Responsibilities
The condensed consolidated half-yearly financial report for the
six months ended 31 March 2023 includes the following
responsibility statement.
Each of the Directors confirms that, to the best of their
knowledge:
-- the Group condensed consolidated interim financial
statements, which have been prepared in accordance with IAS34,
"Interim Financial Reporting" as adopted by the UK and as issued by
the IASB, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
-- the Interim Management Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rules
4.2.7R and 4.2.8R, namely:
o an indication of important events that have occurred during
the six months ended 31 March 2023 and their impact on the
condensed consolidated half-yearly financial report, and a
description of the principal risks and uncertainties that the Group
faces for the remaining six months of the current financial year;
and
o any related party transactions in the six months ended 31
March 2023 that have materially affected the financial position or
performance of the Group during that period and any changes in the
related party transactions described in the last Annual Report that
could have a material effect on the financial position or
performance of the Group in the six months ended 31 March 2023.
The Directors of The Sage Group plc are consistent with those
listed in the Group's Annual Report and Accounts 2022, except for
the following changes:
-- Maggie Chan Jones, in her role as Non-Executive Director has
been appointed to the Board with effect from 1 December 2022;
and
-- Roisin Donnelly , in her role as Non-Executive Director has
been appointed to the Board with effect from 3 February 2023 .
A list of current directors is maintained on the Group's
website: www.sage.com .
On behalf of the Board
S Hare
Chief Executive Officer
16 May 2023
Independent review report to The Sage Group plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 March 2023 which comprises Consolidated income
statement, Consolidated statement of comprehensive income,
Consolidated balance sheet, Consolidated statement of changes in
equity, Consolidated statement of cash flows and the related
explanatory notes 1 to 13. We have read the other information
contained in the half yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
March 2023 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" (ISRE) issued by the Financial Reporting Council. A review
of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK adopted international
accounting standards. The condensed set of financial statements
included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34,
"Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis of Conclusion
section of this report, nothing has come to our attention to
suggest that management have inappropriately adopted the going
concern basis of accounting or that management have identified
material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE, however future events or conditions may
cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our Conclusions Relating to Going Concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
16 May 2023
Notes: [1] The maintenance and integrity of The Sage Group plc
web site is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial information since
it was initially presented on the web site. [2] Legislation in the
United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
[1] See Appendix 1 for full definitions and guidance on the
usage of the Alternative Performance Measures.
[2] To aid comparability, underlying and organic measures for
the prior period have been retranslated at current period exchange
rates, while organic measures also adjust for the impact of
acquisitions and disposals. A reconciliation of underlying and
organic measures to statutory measures is set out on pages 6 and 9.
In line with Sage's financial reporting changes announced on 8(th)
December 2022, all references to revenue, profit and margin are on
an underlying basis unless otherwise stated.
[3] See page 9 for further details.
[4] United Kingdom & Ireland, Africa and APAC.
[5] The 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.
[6] Recurring 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.
[7] Recurring 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.
[8] Recurring revenue from customers using products that are
part of, or that management believe have a clear pathway to, Sage
Business Cloud.
[9] Recurring 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.
[10] As reported
[11] Global gender diversity target of no more than 60% of any
one gender, in any leadership team, anywhere in Sage, by FY26
[12] Underlying and organic revenue and profit measures are
defined in Appendix 1.
[13] Recurring and non-recurring items are defined in Appendix 1
and detailed in note 3 of the financial statements.
[14] Impact of retranslating H1 22 revenue at H1 23 average
rates
[15] Recurring and non-recurring items are defined in Appendix 1
and detailed in note 3 of the financial statements.
[16] Impact of retranslating H1 22 operating profit at H1 23
average rates.
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IR MZGMKLVRGFZM
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