Half-yearly Report
SAGE REVENUES RISE 9%* FOR THE HALF-YEAR ENDED 31 MARCH 2008
The Sage Group plc ("Sage"), one of the leading global suppliers of business
management software and services for small and medium-sized enterprises
("SMEs"), announces its unaudited results for the half-year ended 31 March
2008.
Financial highlights
Revenues increased by 9%* to £640.4m (H1 2007: £588.7m*)
EBITA†margin maintained at 24% (H1 2007: 24%*)
Adjusted pre-tax profit^ rose by 9% to £138.0m (H1 2007: £126.3m)
Adjusted earnings per share^ increased by 9% to 7.30p (H1 2007: 6.72p)
Operating cash flow of £187.4m, representing 123% of EBITA (H1 2007: 114%)
Rebased interim dividend increased to 2.43p per share (H1 2007: 1.27p per
share)
Operational and strategic highlights
8%* organic revenue growth, excluding Sage Healthcare Division, 5%* organic
growth overall (H1 2007: 7%*)
12%* total growth in subscription revenues±; representing 59% of our business;
5%* total growth in software and software-related services
Good performance in established product lines across our regions
Two acquisitions completed in HR and payroll and construction software and
services with a total enterprise value of £40.1m
*Foreign currency results for the prior half-year ended 31 March 2007 have been
retranslated based on the average exchange rates for the half-year ended 31
March 2008 of $2.01 and €1.35 to Sterling to facilitate the comparison of
results.
†Earnings before interest, tax and amortisation of intangible fixed assets.
^Pre-tax profit and earnings per share figures stated prior to amortisation of
intangible fixed assets and after neutralisation of foreign exchange movements.
A table reconciling adjusted pre-tax profit to statutory profit before taxation
of £122.6m is shown in Note 2 on page 10.
±Subscription revenues are recurring in nature and include premium support
(software combined with support), maintenance and support, transaction revenues
(payment and health insurance claims processing) and hosted products.
Regional analysis*
First half revenues First half EBITA
£m 2008 2007 2008 2007
UK 117.6 107.5 44.3 40.0
Mainland Europe 229.4 195.6 53.9 46.0
North America 248.5 249.0 43.6 46.7
Rest of World 42.3 36.6 10.0 9.9
637.8 588.7 151.8 142.6
Acquisitions - UK 2.6 - 0.6 -
Foreign exchange impact* - (14.0) - (4.0)
640.4 574.7 152.4 138.6
Chief Executive Paul Walker commented: "We are pleased to report a good
half-year performance, with overall growth in line with management
expectations. Our businesses in the UK, Mainland Europe and Rest of World all
showed good revenue and profit growth. Our North America business, excluding
Sage Healthcare Division, performed in line with expectations in a more
challenging economic environment, reflecting the benefit of the investments
made in the past six months. As previously explained, Sage Healthcare Division
is being restructured and is making progress in meeting its
operational targets.
"These results demonstrate the strength and resilience of our business model,
based on the high proportion of subscription revenues which underpin our
organic growth. Almost 60% of our revenues are derived from subscription
contracts, allowing us to grow our business through periods of challenging
economic conditions. The predictability of our revenue streams and the high
degree of recurring subscription revenues, combined with our large, loyal,
geographically diverse, customer base, give us confidence for the full year."
Enquiries:
The Sage Group plc +44 (0) 191 294 Tulchan Communications +44 (0) 20 7353
3068 4200
Paul Walker, Chief Executive Stephen Malthouse
Paul Harrison, Group Finance Director Lizzie Morgan
Cynthia Alers, Investor Relations Director
An analyst presentation will be held at 8.30amtoday at Deutsche Bank,
Winchester House, 1 Great Winchester Street, London EC2N 2DB. A live webcast
of the presentation will be hosted on www.investors.sage.com, dial-in number +
44 (0) 1452 568 051, pin code: 44987480.
Overview
We are pleased to report a good half-year performance, with overall growth in
line with management expectations. Our businesses in Mainland Europe and Rest
of World again experienced excellent growth. Our UK business also performed
well compared with a very strong first half in 2007, which had the benefit of
legislative stimulus. Our North American business, excluding Sage Healthcare
Division, grew in line with our expectations despite a more challenging
economic environment. Sage Healthcare Division implemented a number of actions
aimed at increasing support retention and improving overall customer
satisfaction. As a result, revenues from maintenance and support and network
services stabilised. System sales contracted compared to a strong performance
in 2007, which saw significant stimulus from changes in legislation relating to
insurance claims processing.
Over the period, we maintained the Group EBITA margin, whilst generating strong
operating cash flows. Our strong cash generation underpins the rebased
dividend payment in the period, as well as on-going strategic investment in our
businesses.
These results demonstrate the enduring defensive nature of our business model
that underpins our organic revenue growth. Our customers' appetite for
value-added support continues to grow, resulting in organic revenue growth of
10%* in maintenance and support revenues (including premium support), which are
the largest component within subscription revenues. Half our revenues are now
derived from these maintenance and support contracts, with very high average
retention rates of 80%. Overall, we have 1.7 million support contracts, of
which almost two thirds are now premium contracts, combining software and
support. Premium support contracts tend to enjoy high renewal rates and
superior pricing. Subscription revenues are highly profitable with attractive,
sustainable margins that help to drive our strong profit growth.
Product and services strategy
Our customers view Sage's products and services as an essential part of their
business management process. It is a long term relationship built on loyalty,
trust and quality advice that helps them run their businesses more
effectively. Our strong customer relationships are demonstrated by the 36,000
calls we took on an average daily basis over the period. This on-going dialog
with our customers is one of our primary competitive advantages.
We continue to improve our products and services through customer feedback,
technological innovation and understanding of the local business environment
that allows us to develop products tailored to our customers' needs. Our
hosted products and services still represent only a small part of our revenues,
but they have shown strong growth in new and established markets, especially in
Customer Relationship Management solutions ("CRM"). We anticipate that growth
in our hosted products will continue to develop in line with customer demand.
Acquisition review
Acquisitions remain an important part of our growth strategy, and we continue
to make strategic acquisitions which expand our product and services offering
to new and existing SME customers. We are also actively pursuing opportunities
in emerging markets.
Over the period we made two acquisitions in the UK for a total enterprise value
of £40.1m, broadening our product offerings in HR and payroll and construction
software and services. In October 2007, we acquired KCS Global Holdings
Limited ("KCS") for an enterprise value of £20.0m. KCS is one of the UK's
leading suppliers of personnel, payroll and time & attendance solutions.
Combined with the acquisition last year of HR and payroll specialist Snowdrop,
this acquisition represents an excellent opportunity for Sage to fulfil the
growing need of SMEs for specialist advice in HR and payroll. In March 2008,
we announced the acquisition of the Tekton Group Ltd ("Tekton"), one of the
leading suppliers of software products and services to the UK construction
industry, for a total enterprise value of £20.1m. Tekton will broaden our
offering to the UK construction industry and extend our mid-market construction
solutions.
We continue to evaluate a strong pipeline of acquisition opportunities but
remain disciplined in our valuation appraisals.
Regional review
UK
UK revenues grew by 12% overall to £120.2m (H1 2007: £107.5m). Organic revenue
growth was broadly in line with our expectations at 5%, compared to a very
strong first half in 2007, which was boosted by a change in government
legislation.
Sage 50, our flagship product, once again recorded excellent, double digit
growth. Our product suites, Sage 50, Sage 200 and Sage 1000, continue to be
well received by the market and experienced strong growth, as customers
migrated from older software versions to the new product suites. Protx, the
payment solutions provider, showed very strong growth over the period. Payroll
solutions experienced slower growth against a strong prior period performance.
ACT! also showed slower growth, although SalesLogix performed very well.
Customers continued to migrate to premium support and subscription software
models, which resulted in double digit growth in maintenance and support
revenues (including premium support). We anticipate that premium support will
continue to increase as a proportion of our revenues in the UK, strengthening
the resilience of our business.
The EBITA margin was maintained at 37% (H1 2007: 37%).
The UK made two acquisitions in the period: KCS and Tekton. Both acquisitions
are important strategic steps in expanding our portfolio of specialist
solutions for our customers.
Mainland Europe
Total revenues in Mainland Europe grew by 17%* overall to £229.4m (H1 2007: £
195.6m*) with strong organic revenue growth of 10%*. Mainland Europe is now
our largest constituent of Group profits, contributing 35% to Group EBITA.
France showed strong organic revenue growth of 9%*, with good performances in
Ciel!, our entry-level solution, and in solutions for mid-market. Spain had
excellent organic revenue growth of 30%*, driven by the introduction of new
accounting standards for Spanish SMEs and high adoption levels of premium
support offerings. As forecast, organic revenue in Germany/Switzerland
declined by 4%*, following an exceptionally strong performance in the first six
months of 2007 after changes in tax legislation. Poland continued to show
excellent double digit revenue growth.
The EBITA margin was maintained at 24% (H1 2007: 24%*).
North America
In March 2008, we announced the appointment of Sue Swenson as President and CEO
of our North American business. Ms Swenson is a strong leader who brings a
wealth of international experience in managing large, customer-led businesses
in competitive markets and who has a proven track record in growing businesses
and improving customer service.
Total revenue growth in North America was flat at £248.5m (H1 2007: £249.0m*),
reflecting the reduced revenues in Sage Healthcare Division, which represents
11% of total Group revenues. Organic revenue growth, excluding Sage Healthcare
Division, was 5%*.
The Business Management Division reported organic growth of 3%*, with good
performances from Simply, ACCPAC ERP, and CRM products. Peachtree recorded
flat growth ahead of a forthcoming upgrade release, although our premium
version, Peachtree Quantum, had another strong performance with double digit
organic revenue growth. Our MAS range of solutions in the mid-market were well
received by our business partners with good growth in MAS 500, although MAS 90
revenues were flat. The Industry & Specialised Solutions Division grew
organically by 6%*, with good performances from Sage Timberline Office and
Not-for-Profit products. Payment Solutions Division performed well, with 14%*
growth.
Revenues for Sage Healthcare Division did not meet management forecasts,
although the business continues to be profitable. The business underwent a
number of management changes in the prior year, as well as facing disruption
resulting from the implementation of government legislation regulating health
insurance claims processing. The business focused in this half-year on
improving the customer experience in all areas, and we expect to see some
improvement in support retention during the remainder of the year. The search
for a CEO of this division is well advanced, and we anticipate making an
announcement on this appointment in the near future.
The North American EBITA margin was 18% (H1 2007: 19%*), as forecast,
reflecting the announced investment in our North American business. The
results of this investment are beginning to be seen in both sales and service
support. Support response levels, as reflected in call resolution, wait times
and overall customer experience, have improved significantly after an increase
in headcount. Sales team productivity has also increased with improved customer
targeting and new partner engagement strategies. The North American EBITA
margin, excluding Sage Healthcare Division, was 23% (H1 2007: 25%*).
Rest of World
Total revenues in Rest of World grew by 16%* to £42.3m (H1 2007: £36.6m*) with
overall organic revenue growth of 13%*. South Africa again reported excellent
revenue growth, with strong revenue growth in Pastel and payroll solutions, as
well as continuing customer adoption of support offerings. Australia reported
double digit revenue growth. We were satisfied with the performances of our
smaller businesses in the Far East, India and the Middle East.
The EBITA margin decreased to 24% (H1 2007: 27%*) due to the dilutive effects
of acquisitions made in the prior year and planned investment in our South
African business made to meet increasing demand. The investment was made in
new office premises, facilities and headcount.
Financial review
Over the period, we saw significant movement in foreign currency exchange
rates. In particular, rates for the Euro to Sterling strengthened 13% to €1.25
from €1.43, or an average rate of €1.35 for the half-year. It is Sage's policy
to align the currency denominations of our debt with the cash flows arising
from our trading activities in those same currencies to hedge our currency
exposure. We do not hedge pure translational exposure resulting from
conversion for accounting purposes of overseas companies results into Sterling.
The change in the foreign currency exchange rate had a favourable impact on our
financial results as they are translated for accounting purposes into
Sterling. In order to assess like-for-like performance, regional and Group
growth trends are shown on a currency neutral basis throughout this
announcement, unless otherwise stated. An indication of the impact of foreign
exchange movements is shown in the table in Note 2 on page 10.
Revenues
Revenues increased 9%* to £640.4m (H1 2007: £588.7m*). Organic revenue growth
was 8%*, excluding Sage Healthcare Division, and 5%* including Sage Healthcare
Division (H1 2007: 7%*). Organic revenue growth excludes the contributions of
current year and prior year acquisitions (4% of total revenues) and non-core
products (2% of total revenues).
Our customers are increasingly moving towards a subscription software model,
where the software licence forms part of the annual support contract. To take
into account this changing revenue stream and to facilitate understanding of
our underlying business, we are, in these interim results, reporting revenues
in two categories: software and software-related services, and subscription
revenues. Software and software-related services revenues principally include
software licences (where sold separately from a support contract), professional
services, training, business forms and hardware. Subscription revenues include
premium support (software combined with support), maintenance and support,
transaction revenues (payment and health insurance claims processing) and
hosted products. We will continue to report these two revenue categories in
future. Over the period, total software and software-related services grew 5%*
to £259.9m. Organic revenue growth was 3%* excluding Sage Healthcare
Division. Total subscription revenues grew 12%* to £380.5m with organic
revenue growth of 11%* excluding Sage Healthcare Division.
Profitability
EBITA margins were maintained at 24% (H1 2007 24%*) and adjusted pre-tax profit
^ rose by 9% to £138.0m (H1 2007: £126.3m). Adjusted earnings per share^ grew
9% to 7.30p (H1 2007: 6.72p). After accounting for the effects of amortisation
and currency movements, statutory pre-tax profit rose 13% to £122.6m (H1 2007:
£108.6m). A reconciliation of adjusted pre-tax profit to statutory profit
before taxation of £122.6m is shown in the table in Note 2 on page 10.
The Group's EBITA margin was maintained at 24% (H1 2007: 24%*).
The Group's effective tax rate for the year is forecast to remain at 31% (H1
2007: 31%).
Cash flow
The Group remains highly cash generative with operating cash flow of £187.4m
representing 123% of EBITA (H1 2007: 114%).
At 31 March 2008, net debt stood at £555.8m (30 September 2007: £509.7m). Sage
has in place committed syndicated borrowings of £850m (comprising facilities of
£650m and £200m), expiring in 2011, of which £614m is drawn. Despite current
conditions in the global credit markets, we successfully renewed the terms of
our £200m credit facility in January of this year.
Dividend
As announced on 28 November 2007, the Board proposed a rebasing of the
dividend, reflecting the Group`s strong cash flow and recurring revenue
streams. The interim dividend reflects this rebasing and is being raised to
2.43p per share (H1 2007: 1.27p per share). The dividend will be payable on 20
June 2008 to shareholders on the register at close of business on 16 May 2008.
People
In April 2008, Sue Swenson joined Sage as President and CEO of our North
American business. She brings excellent operational skills, strategic vision
and customer focus that will help lead our North American business in its next
important stage of development. We are delighted to welcome Ms Swenson to
Sage.
In November 2007, Ian Mason, Chief Executive of Electrocomponents plc, joined
the Board as a non-executive director. Mark Rolfe, former Finance Director of
Gallaher Group plc, joined the Board in December 2007 as a non-executive
director and in April 2008 became chair of the Audit Committee.
Outlook
We are pleased to report a good half-year performance, with overall growth in
line with management expectations. Our businesses in the UK, Mainland Europe
and Rest of World all showed good revenue and profit growth. Our North America
business, excluding Sage Healthcare Division, performed in line with
expectations in a more challenging economic environment, reflecting the benefit
of the investments made in the past six months. As previously explained, Sage
Healthcare Division is being restructured and is making progress in meeting its
operational targets.
These results demonstrate the strength and resilience of our business model,
based on the high proportion of subscription revenues which underpin our
organic growth. Almost 60% of our revenues are derived from subscription
contracts, allowing us to grow our business through periods of challenging
economic conditions. The predictability of our revenue streams and the high
degree of recurring subscription revenues, combined with our large, loyal,
geographically diverse, customer base, give us confidence for the full year.
Consolidated income statement
For the six months ended 31 March 2008
Year
Six months ended 30
ended 31 September
Six months ended 31 March 2007 2007
March 2008 (Unaudited) (Unaudited) (Audited)
Note £m £m £m
Continuing
operations
Revenue 1,2 640.4 574.7 1,157.6
Cost of sales (47.7) (53.2) (103.7)
Gross profit 592.7 521.5 1,053.9
Selling and
administrative
expenses (455.7) (396.6) (798.7)
Operating profit 1 137.0 124.9 255.2
Finance income 1.8 1.8 3.6
Finance expenses (16.2) (18.1) (35.5)
Net finance
expenses (14.4) (16.3) (31.9)
Profit before
taxation 2 122.6 108.6 223.3
Taxation 3 (38.0) (33.7) (69.2)
Profit for the
period 84.6 74.9 154.1
Attributable to:
Equity
shareholders 84.6 74.9 154.1
Profit for the
period 8 84.6 74.9 154.1
EBITA* 1 152.4 138.6 283.2
Earnings per
share (pence)
- Basic 5 6.48p 5.78p 11.85p
- Diluted 5 6.46p 5.74p 11.79p
Consolidated statement of recognised income and expense
For the six months ended 31 March 2008
Year
Six months ended 30
ended 31 September
Six months ended 31 March 2007 2007
March 2008 (Unaudited) (Audited)
(Unaudited)
Note £m £m £m
Profit for the period 8 84.6 74.9 154.1
Net exchange adjustments
offset in reserves 8 44.8 (31.9) (51.6)
Equity movement of
deferred tax - - (3.3)
Actuarial loss on
employment benefits - - (1.2)
Net profits/(losses) not
recognised in income
statement 44.8 (31.9) (56.1)
Total recognised income
for the period 129.4 43.0 98.0
Attributable to:
Equity shareholders 129.4 43.0 98.0
Total recognised income
for the period 129.4 43.0 98.0
* EBITA measure (Earnings before interest, tax and amortisation) excludes the
effects of:
Amortisation of acquired intangible assets; and
Amortisation (or capitalisation) of software development expenditure.
Consolidated balance sheet
As at 31 March 2008
31 March 2007 30 September
Restated 2007
31 March 2008 (Unaudited) (Audited)
Note (Unaudited)
£m £m £m
Non-current assets
Goodwill 6 1,697.2 1,536.8 1,572.1
Other intangible
assets 6 220.1 185.7 195.5
Property, plant and
equipment 6 135.3 127.7 130.5
Deferred tax assets 8.7 25.1 8.3
2,061.3 1,875.3 1,906.4
Current assets
Inventories 5.5 6.0 5.5
Trade and other
receivables 283.3 234.8 230.3
Cash and cash
equivalents 9 76.4 76.5 65.6
365.2 317.3 301.4
Total assets 2,426.5 2,192.6 2,207.8
Current liabilities
Trade and other
payables (233.3) (187.8) (210.2)
Current tax
liabilities (64.1) (58.1) (56.3)
Financial
liabilities
- Borrowings (0.5) (0.4) (0.3)
Deferred
consideration (6.5) (12.4) (8.5)
Deferred income (374.6) (318.4) (300.2)
(679.0) (577.1) (575.5)
Non-current
liabilities
Financial
liabilities
- Borrowings (614.7) (597.6) (562.0)
Retirement benefit
obligations (6.5) (2.1) (5.3)
Deferred tax
liabilities (13.0) (11.8) (14.2)
(634.2) (611.5) (581.5)
Total liabilities (1,313.2) (1,188.6) (1,157.0)
Net assets 1,113.3 1,004.0 1,050.8
Equity
Share capital 7,8 13.1 13.0 13.0
Share premium
account 7,8 481.9 474.2 478.2
Other reserves 8 36.9 11.8 (7.9)
Retained earnings 8 581.4 505.0 567.5
Total parent
shareholders'
equity 8 1,113.3 1.004.0 1,050.8
Total equity 8 1,113.3 1,004.0 1,050.8
The notes on pages 9 to 17 form an integral part of this condensed consolidated
half-yearly financial information.
Consolidated cash flow statement
For the six months ended 31 March 2008
Year
Six months Six months ended 30
ended 31 ended 31 September
March 2008 March 2007 2007
(Unaudited) (Unaudited) (Audited)
Note £m £m £m
Cash flows from operating
activities
Cash generated from continuing
operations 187.4 157.6 317.1
Interest received 1.8 1.7 3.6
Interest paid (16.0) (17.6) (34.4)
Tax paid (31.1) (37.6) (66.1)
Net cash generated from operating
activities 142.1 104.1 220.2
Cash flows from investing
activities
Acquisitions of subsidiaries (net
of cash acquired) (58.6) (33.0) (96.2)
Disposal of subsidiaries - - 0.9
Purchase of intangible assets (8.4) (4.6) (15.9)
Purchase of property, plant and
equipment (10.6) (12.1) (22.1)
Proceeds from sale of property,
plant and equipment 0.1 0.2 0.2
Net cash used in investing
activities (77.5) (49.5) (133.1)
Cash flows from financing
activities
Net proceeds from issue of
ordinary share capital 3.8 11.0 15.0
Finance lease principal payments - (0.1) (0.2)
Issue costs on loans (0.3) (0.2) (0.2)
Repayment of borrowings (126.0) (79.1) (189.0)
New borrowings 139.1 42.5 122.2
Dividends paid to shareholders 4 (74.5) (32.5) (49.0)
Net cash used in financing
activities (57.9) (58.4) (101.2)
Net increase/(decrease) in cash
and cash equivalents (before
exchange rate changes) 9 6.7 (3.8) (14.1)
Effects of exchange rate changes 9 4.1 (1.7) (2.3)
Net increase/(decrease) in cash
and cash equivalents 10.8 (5.5) (16.4)
Cash and cash equivalents at 1
October 9 65.6 82.0 82.0
Cash and cash equivalents at
period end 9 76.4 76.5 65.6
Notes to financial information
For the six months ended 31 March 2008
Group accounting policies
a General information
The Sage Group plc ("the Company") and its subsidiaries (together "the Group")
is one of the leading global suppliers of business management software and
services to small and medium-sized enterprises. The Group operates in 23
countries worldwide in the UK & Ireland, Mainland Europe, North America,
Southern Hemisphere and Asia.
These interim financial results do not comprise statutory accounts within the
meaning of Section 240 of the Companies Act 1985. Statutory accounts for the
year ended 30 September 2007 were approved by the Board of directors on 18
January 2008 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an emphasis of
matter paragraph and did not contain any statement under Section 237 of the
Companies Act 1985.
The Company is a limited liability Company incorporated and domiciled in the
UK. The address of its registered office is North Park, Newcastle upon Tyne,
NE13 9AA.
The Company is listed on the London Stock Exchange.
The Group consolidated half-yearly financial information was approved for issue
by the Board of directors on 8 May 2008.
b Basis of preparation
This condensed consolidated half-yearly financial information for the half-year
ended 31 March 2008 has been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Services Authority and with IAS 34,
"Interim Financial Reporting" as adopted by the European Union. The half-yearly
condensed consolidated financial report should be read in conjunction with the
annual financial statements for the year ended 30 September 2007, which have
been prepared in accordance with IFRSs as adopted by the European Union.
c Accounting policies
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 30 September 2007, as described in
those annual financial statements.
Adoption of new and revised International Financial Reporting Standards
At the date of approval of this half-yearly information, the following
standards, interpretations and amendments were issued but not yet mandatory for
the Group and early adoption has not been applied.
International Financial Reporting Standards ("IFRS")
IFRS 8 "Operating Segments"
IFRS 3 (revised) "Business Combinations"
International Financial Reporting Interpretations Committee ("IFRIC")
interpretations
IFRIC 12 "Service Concession Arrangements"
IFRIC 13 "Customer Loyalty Programmes"
IFRIC 14 "IAS19 - The limit of a defined benefit asset, minimum funding
requirements and their interaction"
Amendments to existing standards
Amendment to IAS 1 "Presentation of Financial Statements: A Revised
Presentation"
Amendment to IAS 23 "Borrowing Costs"
Amendment to IAS 27 "Consolidated and Separate Financial Statements"
Amendment to IAS 32 "Financial Instruments: Presentation" and IAS 1
"Presentation of Financial Statements: Puttable Financial Instruments and
Obligations Arising on Liquidation"
Amendment to IFRS 2 "Share-based Payment: Vesting Conditions and Cancellations"
All the IFRSs, IFRIC interpretations and amendments to existing standards are
yet to be endorsed by the EU at the date of approval of these consolidated
financial statements with the exception of IFRS 8.
We are currently gathering data in order to assess the impact of each of the
standards.
Notes to financial information
For the six months ended 31 March 2008
1 Segmental reporting
Six months ended 31 March 2008 Six months ended 31 March 2007
Operating Operating
Revenue* EBITA* profit* Revenue* EBITA* profit*
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
£m £m £m £m £m £m
UK & Ireland
Mainland
Europe 117.6 44.3 43.1 107.5 40.0 39.5
North 229.4 53.9 47.9 195.6 46.0 41.4
America
248.5 43.6 35.9 249.0 46.7 38.2
Rest of
World 42.3 10.0 9.9 36.6 9.9 9.8
637.8 151.8 136.8 588.7 142.6 128.9
Acquisitions
- UK &
Ireland 2.6 0.6 0.2 - - -
Foreign
exchange
impact* - - - (14.0) (4.0) (4.0)
640.4 152.4 137.0 574.7 138.6 124.9
* The 2008 trading results from businesses located outside the UK were
translated into Sterling at the average exchange rates for the period. For our
two most significant foreign operating currencies, the US Dollar and the Euro,
the resulting rates were £1 = $2.01 and £1 = €1.35 respectively. Results for
the period ended 31 March 2007 have been retranslated at these exchange rates
to facilitate the comparison of results.
EBITA includes a charge for share-based payments of £3.8m (H1 2007: £4.5m).
The Board measures Group and regional performance by using EBITA (earnings
before interest, tax and amortisation), which excludes the effects of
amortisation of acquired intangible assets and the net amortisation or
capitalisation of software development expenditure.
Reconciliation of EBITA to Six months ended
operating profit 31
Six months ended 31 March March 2007
2008 (Unaudited) £m (Unaudited) £m
EBITA
Net amortisation of software 152.4 138.6
development expenditure
(0.3) (0.5)
Amortisation of acquired
intangible assets (15.1) (13.2)
Operating profit 137.0 124.9
2 Reconciliation to statutory revenue and profit before taxation
Reconciliation of revenue Six months
ended 31
March 2008 Six months ended
31 Growth
(Unaudited) March 2007 (Unaudited)
(Unaudited)
£m £m %
Revenue on foreign currency
exchange rate neutral basis 640.4 588.7 9%
Impact of movements in foreign
currency exchange rates - (14.0)
Statutory revenue 640.4 574.7 11%
Reconciliation of profit before Six months
taxation ended 31
March 2008
Six months ended 31 Growth
(Unaudited) March 2007 (Unaudited)
(Unaudited)
£m £m %
Adjusted pre-tax profit 138.0 126.3 9%
Impact of movements in foreign
currency exchange rates - (4.0)
138.0 122.3 13%
Net amortisation of software
development expenditure (0.3) (0.5)
Amortisation of acquired
intangible assets (15.1) (13.2)
Statutory profit before taxation 122.6 108.6 13%
Notes to financial information
For the six months ended 31 March 2008
3 Taxation
Income tax for the six months ended 31 March 2008 (Unaudited) is charged at 31%
(six months ended 31 March 2007 (Unaudited): 31%; year ended 30 September 2007
(Audited): 31%), representing the best estimate of the average annual effective
income tax rate expected for the full year, applied to the pre-tax income for
the six months ended 31 March 2008.
4 Dividends
Year
Six months ended 30
ended 31 September
Six months ended 31 March 2007 2007
March 2008 (Unaudited) (Audited)
(Unaudited)
£m £m £m
Final dividend paid for the year
ended 30 September 2006 of 2.51
pence per share - 32.5 32.5
Interim dividend paid for the
year ended 30 September 2007 of
1.27 pence per share - - 16.5
Final dividend paid for the year
ended 30 September 2007 of 5.73
pence per share 74.5 - -
74.5 32.5 49.0
The interim dividend of 2.43 pence per share will be paid on 20 June 2008 to
shareholders on the register at the close of business on 16 May 2008.
5 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period, excluding those held in the employee share
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 dilutive potential ordinary
shares. The Group has two classes of dilutive potential ordinary shares: those
share options granted to employees where the exercise price is less than the
average market price of the Company's ordinary shares during the period and the
contingently issuable shares under the Group's long-term incentive plan.
At 31 March 2008, the performance criteria for the vesting of the awards under
the incentive scheme had not been met and consequently the shares in question
are excluded from the diluted EPS calculation.
Reconciliations of the earnings and weighted average number of shares used in
the calculations are set out below:
Six months ended 31 March Six months ended 31 March
2008 2007
(Unaudited) (Unaudited)
Weighted Weighted
average average
number number
of Per-share of Per-share
Earnings shares amount Earnings shares amount
£m millions pence £m millions pence
Basic EPS
Earnings attributable
to ordinary
shareholders 84.6 1,304.8 6.48 74.9 1,297.2 5.78
Effect of dilutive
securities
Options - 4.2 (0.02) - 8.2 (0.04)
Diluted EPS 84.6 1,309.0 6.46 74.9 1,305.4 5.74
Notes to financial information
For the six months ended 31 March 2008
Adjusted EPS - non GAAP measure
Six months ended 31 March Six months ended 31 March
2008 2007
(Unaudited) (Unaudited)
Weighted Weighted
average average
number number
of Per-share of Per-share
Earnings shares amount Earnings shares amount
£m millions pence £m millions pence
Basic EPS
Earnings attributable
to ordinary
shareholders 84.6 1,304.8 6.48 74.9 1,297.2 5.78
Non EBITA items:
Intangible amortisation
and net development
expenditure 15.4 13.7
Taxation (4.8) (4.2)
Net EBITA adjustments 10.6 - 0.82 9.5 - 0.73
Adjusted basic EPS 95.2 1,304.8 7.30 84.4 1,297.2 6.51
Exchange adjustments 4.0
Taxation (1.2)
- - - 2.8 - 0.21
Adjusted EPS 95.2 1,304.8 7.30 87.2 1,297.2 6.72
6 Capital expenditure
Restated
(Unaudited)
Six months ended 31 March 2007 £m
Opening net book amount 1 October 2006 1,881.3
Additions 48.4
Disposals (0.4)
Depreciation, amortisation and other movements (including exchange
differences) (79.1)
Closing net book amount 31 March 2007 1,850.2
(Unaudited)
Six months ended 31 March 2008 £m
Opening net book amount 1 October 2007
1,898.1
Additions
79.4
Disposals
(0.1)
Depreciation, amortisation and other movements (including exchange
differences) 75.2
Closing net book amount 31 March 2008 2,052.6
Non-financial assets that have an indefinite life are not subject to
amortisation, but are tested for impairment annually at the year-end (30
September) or whenever there is any indication of impairment. At 31 March 2008,
there was no indication of impairment for non-financial assets with indefinite
lives.
Financial assets were reviewed for impairment as at 31 March 2008. There was no
indication of impairment.
Notes to financial information
For the six months ended 31 March 2008
7 Share capital
Ordinary Share
Number of shares premium Total
shares (Unaudited) (Unaudited) (Unaudited)
Capital (Unaudited) £m £m £m
Opening balance 1 October
2006
1,294,280,944 12.9 462.8 475.7
Allotted under share option
schemes 7,477,208 0.1 11.4 11.5
At 31 March 2007 1,301,758,152 13.0 474.2 487.2
Opening balance 1 October
2007
1,304,160,154 13.0 478.2 491.2
Allotted under share option
schemes 2,521,592 0.1 3.7 3.8
At 31 March 2008 1,306,681,746 13.1 481.9 495.0
8 Shareholders' funds and reconciliation of changes in shareholders' equity
Share Share Other Retained Equity Minority Total
capital premium reserves earnings funds interest equity
£m £m £m £m £m £m £m
At 1 October 2006 12.9 462.8 43.7 458.1 977.5 0.1 977.6
Exchange
adjustments - - (31.9) - (31.9) - (31.9)
New shares issued 0.1 - - - 0.1 - 0.1
Purchase of - - - - - (0.1) (0.1)
minority interest
Net profit - - - 74.9 74.9 - 74.9
Share options
- proceeds from - 11.4 - - 11.4 - 11.4
shares issued
- value of - - - 4.5 4.5 - 4.5
employee services
Dividends - - - (32.5) (32.5) - (32.5)
At 31 March 2007 -
(Unaudited) 13.0 474.2 11.8 505.0 1,004.0 1,004.0
Share Share Other Retained Equity Minority Total
capital premium reserves earnings funds interest equity
£m £m £m £m £m £m £m
At 1 October 2007 13.0 478.2 (7.9) 567.5 1,050.8 - 1,050.8
Exchange
adjustments - - 44.8 - 44.8 - 44.8
New shares issued 0.1 - - - 0.1 - 0.1
Net profit - - - 84.6 84.6 - 84.6
Share options
- proceeds from - 3.7 - - 3.7 - 3.7
shares issued
- value of - - - 3.8 3.8 - 3.8
employee services
Dividends - - - (74.5) (74.5) - (74.5)
At 31 March 2008 -
(Unaudited) 13.1 481.9 36.9 581.4 1,113.3 1,113.3
Other reserves relate to the merger reserve which was present under UK GAAP and
frozen on transition to IFRS along with the translation reserve. The merger
reserve and translation reserves were £61.1m and (£24.2m) respectively at 31
March 2008 (£61.1m and (£69.0m) respectively at 30 September 2007; and £61.1m
and (£49.3m) respectively at 31 March 2007).
Notes to financial information
For the six months ended 31 March 2008
9 Net debt
Exchange
movement /
At 1 October other At 31 March
Analysis of 2006 Cash flow (Unaudited) 2007
change in net (Audited) (Unaudited) (Unaudited)
debt £m £m £m £m
Cash and cash
equivalents 82.0 (3.8) (1.7) 76.5
Loans due within
one year (0.9) 0.6 - (0.3)
Finance leases
due within one
year (0.1) - - (0.1)
Loans due after
more than one
year (661.7) 39.4 25.7 (596.6)
Finance leases
due after more
than one year (0.2) 0.1 - (0.1)
Cash collected
from customers (12.7) (3.2) 0.6 (15.3)
(593.6) 33.1 24.6 (535.9)
Exchange
movement /
At 1 October other At 31 March
Analysis of 2007 Cash flow (Unaudited) 2008
change in net (Audited) (Unaudited) (Unaudited)
debt £m £m £m £m
Cash and cash
equivalents 65.6 6.7 4.1 76.4
Loans due within
one year (0.2) 0.1 (0.1) (0.2)
Finance leases
due within one
year (0.1) - (0.2) (0.3)
Loans due after
more than one
year (561.1) (9.4) (43.5) (614.0)
Finance leases
due after more
than one year (0.1) - - (0.1)
Cash collected
from customers (13.8) (3.5) (0.3) (17.6)
(509.7) (6.1) (40.0) (555.8)
Included in cash above is £17.6m (30 September 2007: £13.8m) relating to cash
collected from customers, which we are contracted to pay onto another party. A
liability for the same amount is included in trade and other payables on the
balance sheet and is classified within net debt above.
Notes to financial information
For the six months ended 31 March 2008
10 Business combinations (Unaudited)
KCS
On 26 October 2007 the Group completed the acquisition of KCS Global Holdings
Limited ("KCS"), for a consideration of £20.2m (inclusive of £0.3m related
costs). Total goodwill arising on the acquisition is £13.8m. The fair values of
net assets acquired are based on provisional assessments pending final
determination of certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the
acquisition to 31 March 2008 the acquisition contributed £2.6m to revenue and £
0.2m to profit.
All intangible assets were recognised at their respective fair values. The
residual excess over the net assets acquired is recognised as goodwill.
Details of net assets acquired and goodwill are as follows:
£m
Purchase consideration:
- cash paid 19.9
- direct costs relating to the acquisition 0.3
Total purchase consideration 20.2
- fair value of net identifiable assets acquired (see below) (6.4)
Goodwill 13.8
Goodwill represents the fair value of the assembled workforce at the time of
acquisition and other potential future economic benefit that is anticipated
will be derived from the integration of services offered by KCS with existing
product and service offerings within our UK business.
The fair value adjustments contain some provisional amounts which will be
finalised in the 2008 accounts.
Carrying values Provisional
pre-acquisition fair value
KCS acquisition £m £m
Intangible fixed assets 7.3 7.8
Property, plant and equipment 0.2 0.2
Receivables 1.3 1.3
Payables (1.2) (1.3)
Deferred income (1.6) (1.6)
Taxation - Current (0.2) (0.2)
Cash and cash equivalents 0.2 0.2
Net assets acquired 6.0 6.4
Goodwill 13.8
Consideration 20.2
Consideration satisfied by:
Cash 20.2
20.2
The outflow of cash and cash equivalents on the acquisition of KCS is
calculated as follows:
£m
Cash consideration 20.2
Cash acquired (0.2)
20.0
The intangible assets acquired as part of the acquisition of KCS can be
analysed as follows:
£m
Brand 0.5
Customer relationships 4.5
Technology 2.8
7.8
Notes to financial information
For the six months ended 31 March 2008
Tekton
On 29 March 2008 the Group completed the acquisition Hallco 1390 Ltd which
trades under the name of Tekton Group Ltd ("Tekton"), for a consideration of £
21.2m (inclusive of £0.2m related costs). Total goodwill arising on the
acquisition is £15.6m. The fair values of net assets acquired are based on
provisional assessments pending final determination of certain assets and
liabilities.
In the purchase 100% of the voting shares were acquired. From the date of the
acquisition to 31 March 2008 the acquisition contributed £nil to revenue and £
nil to profit.
All intangible assets were recognised at their respective fair values. The
residual excess over the net assets acquired is recognised as goodwill.
Details of net assets acquired and goodwill are as follows:
£m
Purchase consideration:
- cash paid 20.0
- direct costs relating to the acquisition 0.2
- deferred consideration 1.0
Total purchase consideration 21.2
- fair value of net identifiable assets acquired (see below) (5.6)
Goodwill 15.6
Goodwill represents the fair value of the assembled workforce at the time of
acquisition and other potential future economic benefit that is anticipated
will be derived from the integration of services offered by Tekton with
existing product and service offerings within our UK business.
The fair value adjustments contain some provisional amounts which will be
finalised in the 2009 accounts.
Carrying values Provisional
pre-acquisition fair value
Tekton acquisition £m £m
Intangible fixed assets 11.9 6.0
Property, plant and equipment 0.3 0.3
Inventories 0.2 0.2
Receivables 2.5 2.2
Payables (2.3) (2.3)
Deferred income (1.7) (1.7)
Taxation - Current (0.2) (0.2)
Cash and cash equivalents 1.1 1.1
Net assets acquired 11.8 5.6
Goodwill 15.6
Consideration 21.2
Consideration satisfied by:
Cash 20.2
Deferred consideration 1.0
21.2
The outflow of cash and cash equivalents on the acquisition of Tekton is
calculated as follows:
£m
Cash consideration 20.2
Cash acquired (1.1)
19.1
Notes to financial information
For the six months ended 31 March 2008
The intangible assets acquired as part of the acquisition of Tekton can be
analysed as follows:
£m
Customer relationships 2.0
Technology 4.0
6.0
Contribution of acquisitions
The contribution to Group revenue and net profit, had the acquisitions occurred
at the beginning of the year, has not been disclosed as it would be
impracticable to determine these amounts due to the following reasons:
Certain of the acquisitions had a different year end to the Group;
Certain of the acquisitions accounted under a different GAAP to the Group,
making accounting information not comparable to the rest of the Group; and
In certain instances, accounting information is not sufficient to determine
accurately the fair value adjustments that would have been made to the balance
sheets one year ago.
Other
During the six months to 31 March 2008 adjustments were made in respect of
goodwill on prior year acquisitions of £15.5m, due to additional consideration
of £15.0m, of which £14.5m related to consideration paid on acquiring the
additional 30% share capital of XRT on 7 November 2007, and a decrease in net
assets of £0.5m.
When the accounting for acquisitions is provisional at a period end date and is
then amended within 12 months, the carrying amount of the assets and associated
goodwill is accounted for at the revised level from the original acquisition
date. Comparative information presented for the periods before the accounting
is complete should be presented as if the initial accounting had been complete
from the acquisition date. As a result the consolidated balance sheet for the
period ended 31 March 2007 has been restated to reflect the final accounting.
The impact of the restatement has been to increase goodwill by £96.4m, reduce
deferred tax assets by £91.1m and increase trade and other payables by £5.3m.
There is no impact on the consolidated income statement.
11 Contingent liabilities
The Group had no contingent liabilities at 31 March 2008 (31 March 2007 and 30
September 2007: none).
12 Related party transactions
The Group has taken advantage of the exemption available under IAS 24, "Related
Party Disclosures", not to disclose details of transactions with its subsidiary
undertakings. There are no other external related parties.
Six months ended 31 Six months ended 31
March 2008 March 2007
(Unaudited) (Unaudited)
Key management compensation £m £m
Salaries and short-term
employee benefits 2.8 2.9
Post-employment benefits 0.1 0.1
Share-based payments 1.0 1.1
3.9 4.1
13 Group risk factors
As with all businesses, the Group is affected by certain risks, not wholly
within our control, which could have a material impact on the Group's long term
performance and could cause actual results to differ materially from forecast
and historic results.
The principal risks and uncertainties facing the Group have not changed from
those set out in the Annual Report and Accounts 2007. These include: Highly
competitive environment; disruption to systems and networks; changes in the
economic, political, legal, accounting and business environment; changes in
technology; changes to regulatory requirements; changes to legal protection of
intellectual property; and changes in foreign currency exchange rates. For a
full discussion of the risks to our future business performance, please refer
to pages 36-37 in our Annual Report and Accounts 2007, or to
www.investors.sage.com.
Statement of Directors' Responsibilities
We confirm that to the best of our knowledge this condensed set of financial
statements has been prepared in accordance with IAS 34 as adopted by the
European Union, and that the interim management report herein includes a fair
review of the information required by DTR 4.2.7 and DTR 4.2.8.
On behalf of the Board
P A Walker
Chief Executive
8 May 2008
P S Harrison
Group Finance Director
8 May 2008
Report on review of consolidated half-yearly financial information
Introduction
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 2008, which comprises the Consolidated income statement, Consolidated
statement of recognised income and expense, Consolidated balance sheet,
Consolidated cash flow statement and related notes. 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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure and Transparency
Rules of the United Kingdom's Financial Services Authority.
As disclosed in the Group accounting policies, the annual financial statements
of the Group are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with International Accounting
Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. This report, including the conclusion, has been prepared for and only
for the Company for the purpose of the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not, in producing
this report, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2008 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Newcastle upon Tyne
8 May 2008
Notes:
(a) The maintenance and integrity of The Sage Group plc website 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 statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
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