Final Results

RNS Number : 7487S

Sage Group PLC

05 December 2012

The Sage Group plc audited results for the year ended 30 September 2012

Wednesday 5 December 2012

Delivering on our strategy

Continuing operations¹	STATUTORY			UNDERLYING*
Continuing operations¹	2012	2011	Change	2012	2011	Change
Revenue	£1,340.2m	£1,334.1m	-	£1,302.2m^#	£1,273.2m^#	+2%
EBITA^†	n/a	n/a	n/a	£366.4m	£356.0m	+3%
Pre-tax profit	£334.3m	£330.8m	+1%	£356.3m	£343.5m	+4%
Earnings per share	18.63p	19.44p	-4%	19.86p	20.28p	-2%
Dividend per share	10.15p	9.75p	+4%	n/a	n/a	n/a

¹ Excluding the results of discontinued operations in both periods.

Financial highlights

- Organic^# revenue growth of 2%* in the year (2011: 4%*), with 6%* growth in subscription revenue (2011: 5%* growth) and 5%* contraction in software and software-related service revenue (2011: 3%* growth)

- Organic revenue growth of 3%* in H2 compared to 2%* in H1 demonstrates improved momentum, particularly in North America

- EBITA^† margin maintained at 27% (2011: 27%*), reflects ability to protect margins in challenging markets whilst investing for growth

- Underlying pre-tax profit of £356.3m (2011: £343.5m*), an increase of 4%* over the year

- Underlying earnings per share of 19.86p (2011: 20.28p*), reflecting an increase in tax rate to 29% from 23%

- Strong operating cash flow of £383.8m (2011: £405.1m), representing 106%^{^} of EBITA

- Proposed final dividend of 6.67p per share (2011: 7.07p per share), resulting in a total dividend for the year of 10.15p per share (2011: 9.75p per share), an increase of 4%

- £299.8m returned to shareholders in the year through share buyback programme, supporting good progress towards capital structure target with net debt of £161.5m at 30 September 2012 (30 September 2011: £24.9m)

Delivering on our strategy

- Good progress made with our three cornerstones to drive accelerated growth:

- Focusing our business: disposal of Sage Healthcare; established a significant presence in Brazil; resource allocation programme to drive investment in growth; R&D centralised in three largest markets

- Capturing the technology opportunity: Sage One customer growth in UK & Ireland; development of hybrid cloud solutions on Azure; strong performances by our payment services businesses

- The benefits of subscription: continued good progress with premium support; launch of subscription pricing options in North America, Europe and South Africa

- Strength of our offering to new and existing customers continues with the addition of 289,000 (2011: 261,000) new paying customers during the year and renewal rate on support contracts maintained at 81%

Guy Berruyer, Chief Executive, said:

"We delivered a solid performance in the context of a macro-economic environment which remained difficult in most of our markets. We achieved strong growth in recurring revenue and focused on disciplined resource allocation, protecting margins at the same time as investing for growth. We are committed to driving strategic change and I am pleased with the momentum we have established with our growth initiatives.

A feature of the year has been the variable trading performance by geography. Europe's performance reflected good growth by the UK and Germany, offset by the impact of weaker markets in France and Spain. North America delivered the anticipated improvement in the second half of the year while AAMEA continued to deliver very strong growth.

As we look forward, the global macro-economic outlook remains uncertain and we are watchful of the environment in Europe, particularly in France. We are making good progress with our strategy for accelerating growth and remain confident we will continue to deliver on our strategic and financial goals."

^#Organic figures exclude the contributions of current and prior year acquisitions, disposals and non-core products.

*Underlying figures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest.

^†EBITA is defined as earnings before interest, tax, amortisation of acquired intangible assets, acquisition-related items and is after neutralising the impact of foreign exchange movements.

^{^}Cash generation from operations represents cash flows from operating activities divided by EBITA. EBITA for cash generation purposes is after acquisition-related items.

Enquiries:

The Sage Group plc +44 (0) 191 294 3068	Tulchan Communications +44 (0) 20 7353 4200
Guy Berruyer, Chief Executive Officer	David Shriver
Paul Harrison, Chief Financial Officer	Lucy Legh
Murdo Montgomery, Investor Relations

An analyst presentation will be held at 8.45am today at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. A live webcast of the presentation will be hosted on www.investors.sage.com, dial-in number +44 (0)20 3140 0668, pin code: 233217#. A replay of the call will also be available for two weeks after the event: Tel: +44 (0)20 3140 0698, pin code: 388138#.

The Sage Group plc will today publish its Annual Report & Accounts for the year ended 30 September 2012 on the Company's website at www.investors.sage.com.

Chief Executive's review

Overview of the year

We delivered 2%* organic revenue growth in the year (2011: 4%*), which reflects a solid performance in the context of a macro-economic environment which remained difficult in most of our markets. Growing organic subscription revenue by 6%* evidences our ability to grow recurring revenue even in challenging market conditions and the strength of our support offering to customers. The majority of the contraction in SSRS was attributable to weak market conditions, particularly in France and Spain, with the shift to recurring revenue a factor in other markets. We have also focused on disciplined resource allocation, protecting margins at the same time as investing for growth. We are committed to driving strategic change and I am pleased with the momentum we have established with our growth initiatives.

A feature of the year has been the variable trading performance by geography. The trading environment in Europe remained challenging during the year. Spain has been the worst hit of our markets, and remains in deep recession, but uncertain and deteriorating conditions in France also impacted performance. The UK and Germany, by contrast, delivered strong revenue growth, notably so relative to the economic backdrop. North America showed the anticipated sequential improvement in the second half of the year, driven by good progress with Sage Business Care and with Sage Payment Solutions. AAMEA continued to deliver double-digit revenue growth, with particularly strong revenue growth in South Africa and Africa more broadly. This variance in market conditions calls for management discipline in allocating resources, directing investment to our growth opportunities, such as Brazil and our Invest products, whilst protecting profitability in weaker markets such as Spain.

Strategy for growth

Accelerating growth remains our key priority. At our Investor Day in July 2012, we set out our ambition to double our long-term historic average organic revenue growth rate within the next three years, together with a targeted EBITA^† margin increase of 1 to 2 percentage points over the same period. The organic growth plans are underpinned by three cornerstones and we have made solid progress on these.

We have developed a number of Key Performance Indicators ("KPIs") which reflect the measures by which we are running the business to deliver the cornerstones. Measurement is important and we will continue to report on these KPIs as evidence of our progress. Notable developments for the year around the three cornerstones are covered in the commentary below, with the full set of KPIs set out in Appendix I.

Focusing our business

We are changing the way we run our business to capture the considerable opportunities we have to accelerate growth from our core business. This starts with a clear assessment of our core business, which is the provision of accounting, ERP, payroll, accountancy and related products for customers ranging in size from start-ups to mid-market companies. Importantly, we also have adjacent businesses that support the core, typically involving technology which is highly integrated such as payments and CRM solutions.

There are three key areas where we are sharpening our focus on the core.

Firstly, we have undertaken a systematic review of our portfolio of businesses to ensure it supports our strategy to accelerate growth. Proximity to Sage's core business and potential value creation are the principles used to assess the strategic fit of businesses within the portfolio and have guided our assessment of both acquisitions and disposals during the year. The disposal of our Healthcare business in the US and the acquisition of Folhamatic in Brazil both illustrate this approach. The rigour with which this approach is applied to our existing portfolio is also demonstrated by our identification of non-core businesses. These non-core businesses constitute approximately 10% of Group revenue.

Secondly, we are allocating investment to the most significant initiatives which will drive the Group's growth. We have completed a comprehensive review of our core business and have categorised our products as Invest, Harvest or Sunset. This determines where resources are allocated and we are reallocating R&D and sales and marketing resources to Invest products. We are reporting these measures as a KPI to track progress on our reallocation programme with 2012 as the base year. For 2012, the split by category for R&D is 35% for Invest, 53% for Harvest and 12% for Sunset and for sales and marketing investment, the split is 42%, 49% and 9% respectively. 2013 will see continued focus on reallocating investment towards Invest products.

Having the right organisational structure is a pre-requisite of a more centralised approach to resource allocation. R&D is now centralised in North America, the UK and France; our three largest markets. This is an important example of how we are changing processes to accelerate our ability to align resources to our priorities. It will take time for this programme to deliver in full, but the approach to streamlining resources is embedded across the Group.

The third key element of business focus is leveraging our global scale and assets. Sage One and Sage ERP X3 are examples of Invest products which are global products in reach and where we are looking to leverage global resources, capability and expertise to drive growth. Our technology strategy is another important example of how we are capturing the technology and commercial benefits of investing in global platforms and initiatives, whilst maintaining a focus on the end-user requirements of the local market. This links in turn to our subscription strategy, where we are executing with a global mindset, recognising that leveraging the knowledge of subscription pricing disciplines across the business is vital to our success.

The creation of our first Group Chief Marketing Officer ("CMO") role also reflects this focus on executing with a global mindset. Amanda Jobbins has joined as Group CMO and will be responsible for driving our efforts forward in managing Sage's global subscription pricing strategy, global relationships and global brand positioning.

Capturing the technology opportunity

Our approach to technology is guided by the current and future needs of our customers and the unrivalled position Sage enjoys to lead small and medium sized companies to apply technology to best effect. It recognises that these requirements differ by customer, by segment and by market and that technology provides a catalyst for Sage to develop a more active relationship with these customers, both existing and new. As important as leading our customers is our focus on capturing the commercial opportunities resulting from a more active customer relationship. We have invested significantly in our technology, our platforms and our products to capture the trends that are important to our customers, particularly the move to the cloud and the need for solutions that fully integrate and support mobility.

Sage One is the focus of our online investment for the start-up and small business segment. Sage One is a SaaS solution providing online bookkeeping and business management software to customers. It has been developed on a global technology platform which can be efficiently and effectively tailored to local market needs. We are satisfied with the momentum of Sage One in the UK & Ireland, with over 6,100 paying customers at the year end. We also launched Sage One in the US. We expect to establish momentum in the US during 2013 as we further enhance the solution and create the necessary distribution channels to drive customer adoption. We are alsofocused on growing the number of customers in the UK & Ireland as we benefit from the build-out of our channels and by targeting the 5 to 25 employee segment with a more advanced solution. We are also rolling-out Sage One to more countries, starting with Germany in early 2013 and to be followed by Canada, Spain and France. These priorities drive customer adoption which is the key measure of our success with Sage One.

Hybrid cloud is the focus of our investment for small to medium sized businesses ("SMB"), providing customers with compelling cost of ownership whilst retaining the choice of deployment, data control and tailoring their solution to their specific needs. Our partnership with Microsoft Azure, announced in May 2012, is a very significant development in delivering our hybrid cloud strategy. Building on the Azure platform allows us to speed up development of customer solutions, accelerate time to market and reduce duplication. The focus of development started in Europe with Sage 200 "hybrid" in the UK and Sage Murano in Spain which will both be released to market in 2013. North America is also working closely with Microsoft to develop a new generation of Sage ERP hybrid cloud products on Azure. The number of SMB customers adopting hybrid cloud solutions is an important measure of progress with our technology strategy. The 115 customers reported for this year's results principally reflect existing customers on SageCRM.com. We expect to see that number grow as hybrid cloud accounting and ERP products are released to market during 2013 and beyond.

Sage ERP X3 is the focus of our investment at the mid-market level and revenue growth of Sage ERP X3 is the key measure of our success with this segment. We are pleased with the progress of the international roll-out of Sage ERP X3 which has been a driver of its recent growth, and demonstrates our capability to develop products which are successful on a global scale. Sage ERP X3 revenue grew by 5%* in the year, with revenue outside of France growing by 17%* and now contributing 43% of Sage ERP X3 global revenue. Notable developments during the year include the launch of a subscription pricing option in North America and the recent launch of Sage ERP X3 v6.5 featuring integrated payments and other connected services.

We see mobile technology as a particularly compelling opportunity to develop more active relationships with our customers and to expand the number of our paying customers. We are evolving our product architecture to capture this growth opportunity. In October 2012, we launched four of the first business apps for Windows 8, namely Sage 50 Accounts Pulse in the UK, Sage eFactura Online in Spain, Sage Mobile Salary Calculator in Germany and Sage 100 Business Mobile in France. In the UK, we also launched the Sage Record Keeper app, co-developed with HMRC. North America is also developing mobile solutions. Working prototypes for two of these, Mobile Sales and Mobile Service, were showcased at the Sage Summit in July 2012, as examples of products which expand our addressable market and will be integrated into our key accounting products and payments.

Payment services represent our largest connected service and our payments businesses in North America, the UK & Ireland and South Africa continue to deliver strong revenue growth. Integration of payments to our installed base of accounting software customers is a compelling strategic opportunity and is our measure of progress. Our North American business continued to demonstrate good momentum with integration, with an 18%* increase in cross-sell revenue and over 9,700 customers have now adopted integrated payments.

The benefits of subscription

The third cornerstone of our growth strategy is migrating our customers to a subscription pricing relationship. Subscription represents a significant opportunity to deliver greater value to our customers and to capture the benefits of a more active relationship with our customers. Technology is an important enabler of this strategy, both as a catalyst for changing the needs and requirements of our customers and providing us with opportunities to offer greater features and functionality which will drive adoption. Subscription pricing is a relatively small part of our business today but to reflect its strategic importance, we have introduced the annualised value of our subscriber base as a measure to track progress. 2012 is the base year for this measure, with a value of £80.5m.

The move to subscription pricing reflects the evolving nature of our relationship with our customers and builds on the success we have had in transitioning customers to premium support. This will continue to be an important feature of our business model, as evidenced by the proportion of our contracts which are premium in nature increasing to 71%. This increase was driven by the success of Sage Business Care in North America and premium support packages in the UK.

During the year, we have launched a number of subscription pricing options for selected products across the Group, alongside traditional licence and support alternatives. In April 2012, we launched subscription pricing options for certain North American mid-market ERP products. The early evidence of the dual model approach is in line with the measured adoption we are targeting, with approximately 20% of sales being made on a subscription basis. Further subscription pricing options have been launched in North America, Europe and South Africa. We will continue to develop subscription pricing offerings for other key products across the Group.

Brazil

In June 2012, we announced the acquisition of a controlling interest in Folhamatic, a leading provider of accounting, tax and payroll and regulatory content software in Brazil. The acquisition established a significant presence for Sage in the large and growing Brazilian market and represented an important step in building our presence in high growth markets. We are pleased with the progress we have made with integration since this acquisition. Folhamatic has performed well, contributing revenue of £12.2m and EBITA^† of £3.0m, which is in line with our expectations. We have also supplemented the management team in Brazil with key appointments and strengthened our footprint by completing the important in-fill acquisitions of EBS and Cenize.

People

During the year, we announced some important changes to the Board. Tony Hobson retired in September 2012 after nine years on the Board, including five years as Chairman. Donald Brydon joined the Board in July 2012 as Chairman designate, becoming Chairman on 1 September 2012. On the executive side, David Clayton resigned from the Board in February 2012, after eight years with Sage in various Board roles. The Board would like to thank Tony and David for their substantial contribution to Sage and to welcome Donald as Chairman.

The Sage Business Index

The fourth Sage Business Index published in October 2012 tracks the views of nearly 11,000 small to medium sized companies from across the globe, including Europe, North America, Africa, Asia and Brazil. This report highlighted that nervousness about the economy, both at global and country levels, continues to affect confidence. Unsurprisingly, businesses in Europe feel the least confident, with French businesses recording the biggest fall in confidence. Businesses though are taking actions to weather the storm and are more confident about their own prospects notwithstanding the economic headwinds. This is an important reminder of the resilience of our customers.

Summary and outlook

We delivered a solid performance in the context of a macro-economic environment which remained difficult in most of our markets. We achieved strong growth in recurring revenue and focused on disciplined resource allocation, protecting margins at the same time as investing for growth. We are committed to driving strategic change and I am pleased with the momentum we have established with our growth initiatives.

Guy Berruyer

Chief Executive Officer

Chief Financial Officer's review

Revenue

Revenue from continuing operations was £1,340.2m which increased by 3%* compared to the prior year (2011: £1,299.1m*). Organic revenue grew by 2%* compared to the prior year.

Total subscription revenue was £922.7m (2011: £860.0m*) which grew organically by 6%*, benefiting from growth in premium subscription contracts and payment services. Subscription revenue is recurring in nature and includes stand-alone support, combined software and maintenance and support, and payment services.

Total revenue for software and software-related services ("SSRS") was £417.5m (2011: £439.1m*), which declined organically by 5%*, reflecting challenging macro-economic conditions, most notably in the mid-market, and our strategy of increasing our recurring revenue. The majority of the contraction was attributable to weak market conditions, particularly in France and Spain. Elsewhere, SSRS was more affected by a shift to recurring revenue, reflecting the transition of customers to premium support. SSRS services include stand-alone software licence sales (including new licences, upgrades and migrations) and professional services, hardware and business forms.

Organic revenue growth in the second half of the year was 3%*, compared to 2%* in the first half of the year. The anticipated stronger performance in North America in the second half of the year, and the continued strong growth in AAMEA were offset by a weakening economic environment in Europe, particularly in France.

Profitability

EBITA^† increased by 3%* to £366.4m (2011: £356.0m*) with the Group's EBITA^† margin maintained at 27% (2011: 27%*). The mixed market conditions in which we are operating call for agility in our business and focused resource allocation to protect profitability, whilst investing in our growth initiatives. During the year, we invested in growth opportunities, including products such as Sage ERP X3 and Sage One and markets such as Brazil, whilst protecting profitability in weaker markets like Spain.

Net finance costs declined to £10.6m (2011: £12.5m). The reduction in finance costs is primarily driven by reduced interest charges as the Group was in a net cash position for an extended period during the year. The average interest rate on borrowings during the year was 4.59% (2011: 3.96%). The income tax expense of £95.4m (2011: £74.8m) and the effective tax rate of 29% (2011: 23%) reflect an anticipated increase due to one-off favourable settlements in the prior year. Underlying earnings per share from continuing operations declined by 2%* to 19.86p (2011: 20.28p*) as a result of the increased tax charge. Statutory basic earnings per share from continuing operations declined by 4% to 18.63p (2011: 19.44p). Statutory diluted earnings per share from continuing operations declined by 4% to 18.60p (2011: 19.29p).

Regional review

Throughout the regional review, growth trends are stated on a currency neutral basis with prior year results retranslated at current year exchange rates. This is done to facilitate the comparison of results. A reconciliation of underlying headline revenue to organic revenue is shown in the table in note 1 on page 20.

		Europe	Americas	AAMEA	Group underlying*	Foreign exchange	Adjustments to EBITA^†	Group statutory
Revenue from continuing operations
FY12	£m	775.8	411.7	152.7	1,340.2	-	-	1,340.2
FY11	£m	765.1	395.8	138.2	1,299.1	35.0	-	1,334.1
Change	%	+1%	+4%	+10%	+3%			-
EBITA^†/Operating profit
FY12	£m	219.1	106.1	41.2	366.4	-	(21.5)	344.9
FY11	£m	220.9	100.9	34.2	356.0	9.5	(22.2)	343.3
Change	%	-1%	+5%	+20%	+3%			-

Europe

Total Europe revenue grew by 1%* to £775.8m (2011: £765.1m*). On an organic basis, this growth was also 1%* (2011: 4%*). Organic subscription revenue grew at 5%* (2011: 5%*), with organic software and software-related services revenue contracting by 7%* (2011: 3%* growth).

Revenue in our French business was flat* in the year, with licence sales for our mid-market business in particular suffering from a decline in business confidence in the country. Subscription revenue grew strongly in the year, particularly from Sage 100 and Sage ERP X3 offsetting weaker SSRS revenue. We expect conditions in France to remain challenging in the foreseeable future.

Our UK & Ireland business grew by 4%* in the year. This growth was driven by a strong performance in maintenance and support, particularly in Sage 50 and our Accountants' Division. Our mid-market business has also delivered good growth in the year, including Sage ERP X3 which continued its momentum in the UK.

Our Spanish business contracted by 7%* with the bulk of the contraction attributable to revenue shortfalls within the small business division and software for local authorities. As we expected, the market in Spain has remained challenging, with a decline in the number of small and medium sized businesses and low business confidence. In response to the continued weakness in the Spanish market, we restructured the business with an associated reduction in headcount, resulting in a charge towards the end of the year of £6.5m.

Revenue in Germany grew by 5%* with a solid performance in both SSRS and subscription revenue. Our German business delivered good growth due to new releases of our core products generating demand and a continued strong performance from our HR products.

Swiss revenue contracted by 3%* and our Polish business contracted by 20%* with a particularly difficult comparative due to the one-off VAT stimulus in the prior year. Our Portuguese business continued to benefit from legislative changes with growth of 2%* in the year.

Our Sage Pay business performed very strongly, with organic revenue growth of 25%* for the year, driven by new customers and the successful introduction of pricing increases. The Integral acquisition in February 2012 was another important development, giving Sage Pay a cardholder present capability. This business has been successfully rebranded to Sage Pay. The launch of Sage Pay in Germany in October 2012 also represented a significant milestone in the roll-out of Sage's payment services across Europe.

The EBITA^† margin for Europe was 28% (2011: 29%*), reflecting both the cost of the restructuring of our Spanish business and a focus on protecting profitability, notwithstanding challenging markets.

Americas

Total revenue from continuing operations in the Americas grew by 4%* to £411.7m (2011: £395.8m*), with organic revenue growth of 2%* (2011: 3%*). Organic subscription revenue grew 4%* (2011: 4%*), while organic software and software-related services revenue contracted by 6%* (2011: 3%* contraction). Organic revenue growth for the second half of the year was 3%* compared with 1%* for the first half of the year, demonstrating the anticipated sequential improvement in performance.

In North America, we continue to see the impact of the strategic switch to recurring revenue. Adoption of Sage Business Care, our premium support offering, was a key feature of the year particularly for Sage 50 US Edition and Sage 50 Canadian Edition, which both delivered good revenue growth. In April 2012, we announced the launch of a pure subscription option for our mid-market products including Sage 100 ERP, Sage 300 ERP and Sage 500 ERP and have also launched this option for Sage ERP X3 in North America and Sage 50 Canadian Edition.

Our payment services business showed good revenue growth of 6%*, driven by growth in merchant numbers and volumes and 18%* revenue growth in the cross-sell of integrated payment solutions into our accounting base.

In Brazil, Folhamatic has continued to perform well in the short period since the acquisition, contributing revenue of £12.2m and EBITA^† of £3.0m, which is in line with our expectations. We are also pleased with the progress made on integration. We have supplemented the management team around Mauricio Frizzarin, the founder and CEO of Folhamatic, with key appointments in senior finance and HR roles.

We have subsequently strengthened our footprint in Brazil with the important in-fill acquisitions of EBS and Cenize, as announced in September 2012. The acquisition of EBS, a provider of accounting, business management and tax software in Brazil, strengthens Sage's market leadership position in the accounting firm market in Brazil and extends the geographic breadth of our offering, particularly in the Southern region. The acquisition of Cenize, a provider of accounting software to small and micro businesses in Brazil, extends Sage's reach to an attractive market segment with significant growth potential.

The EBITA^† margin for Americas increased to 26% (2011: 25%*), reflecting an increase in margin of our North American business.

AAMEA (Africa, Australia, Middle East and Asia)

Total revenue in AAMEA grew by 10%* to £152.7m (2011: £138.2m*). Organic revenue grew 12%* (2011: 10%*). Organic subscription revenue showed strong growth of 15%* (2011: 13%*), while organic software and software-related services revenue grew by 8%* (2011: 6%*).

South Africa continued to deliver strong organic revenue growth of 16%*. Our core mid-market products such as Pastel and VIP have performed well in the year, and Sage ERP X3 has made significant progress in the country during the year. Sales into the broader African continent have continued to grow well and remain a good future opportunity.

Australia grew by 7%* led by good growth in subscription revenue from our key products in the country. Together, our Middle East and Asian businesses grew by 4%*, with a particularly strong performance in Singapore.

The EBITA^† margin was 27% (2011: 25%*), reflecting strong revenue growth and cost discipline.

Cash flows

The Group remains highly cash generative with an operating cash flow of £383.8m (2011: £405.1m), representing 106%^{^} of EBITA (2011: 111%). After interest, tax, net capital expenditure and discontinued operations, free cash flow was £247.9m. The net inflow from acquisitions and disposals completed in the year was £36.2m. After dividends paid of £136.5m, share buybacks of £297.5m and other movements of £13.3m, including exchange movements, net debt stood at £161.5m at 30 September 2012 (30 September 2011: £24.9m).

Balance sheet and capital structure

Debt and facilities

The Group has net debt of £161.5m at 30 September 2012 (30 September 2011: £24.9m). The Group is funded through retained earnings and multi-currency revolving credit facilities totalling £338.3m (2011: £358.3m) (US$271.0m and €214.0m tranches), which expire in 2015. At 30 September 2012, £15.0m of these facilities were drawn (2011: £nil). In addition, the Group has US private placement loan notes at 30 September 2012 of £185.8m (US$300.0m) (2011: £192.6m, US$300.0m). The Group continues to monitor opportunities to enhance and diversify its funding sources in the current capital market conditions.

Capital structure and dividend

We continue to generate a high proportion of revenue through recurring contracts, providing both high-quality products and responsive and valuable services to our loyal customer base. We expect our associated strong cash generation to continue in the future. We are rigorous in allocating capital to business investment and targeted acquisitions. We also look to return surplus capital to shareholders.

In September 2011, we announced a share buyback programme to return the proceeds from the disposal of Sage Healthcare to shareholders. We have continued the share buyback programme beyond these proceeds, and have returned a total of £299.8m during the year. We continue to make progress towards our target net debt level of a minimum of 1x EBITDA, by a combination of further capital returns to shareholders and targeted acquisitions, with a net debt to EBITDA ratio at 30 September 2012 of 0.4x.

Consistent with this objective, and given the recent step-up of the dividend in 2011, we are pleased to propose a final dividend of 6.67p per share (2011: 7.07p per share), which increases our total dividend for the year by 4% to 10.15p per share (2011: 9.75p per share). This total dividend is covered 2x by profits. We intend to pursue a policy of further increasing our dividend broadly in line with underlying EPS growth over time.

Treasury management

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

Acquisitions and disposals

During the year we completed the following acquisitions. These acquisitions, detailed in the table below, further strengthen our offerings in key geographic areas, importantly establishing a leading market position in the large and growing Brazilian market, as well as enhancing our product and technology capability.

Date	Company	Amount acquired	Country	Enterprise Value £m
October 2011	Alchemex	100%	South Africa	5.5
February 2012	Integral	100%	Ireland	14.0
June 2012	Folhamatic	75%	Brazil	143.8
September 2012	Cenize	100%	Brazil	3.9

For the Folhamatic acquisition, the expected total cash consideration of £122.6m (R$398.0m) for 75% of the equity, includes a conditional payment of £24.0m to be paid if certain performance targets for the year to 31 December 2012 are met. We have also entered into a put and call arrangement over the remaining 25% of the equity which can be exercised in 2015. The transaction is consistent with our M&A strategy, being immediately earnings accretive and with the return on capital expected to meet our risk-adjusted hurdle rate in the third year post acquisition.

In November 2011, we completed the sale of Sage Healthcare to Vista Equity Partners. The net cash inflow from the sale was £198.9m which was returned to shareholders through a share buyback programme.

R&D and capex

The Group spent £159.4m in the year ended 30 September 2012 on research and development (2011: £148.9m*). No expenditure was capitalised and no amount (2011: £0.1m) was amortised to the income statement relating to prior years' expenditure which had been capitalised. Capital expenditure in the year ended 30 September 2012 (including the purchase of third-party software systems for internal use) was £26.2m (2011: £29.5m). The majority of this expenditure relates to IT infrastructure, both in new and replacement systems.

Foreign exchange

The financial results have been impacted by movements in exchange rates. The average Euro exchange rate used to translate the Consolidated income statement moved 6% compared to the prior year from £1 = €1.15 to £1 = €1.22, the average US Dollar exchange rate used moved 2% from £1 = $1.61 to £1 = $1.58 and the average South African Rand exchange rate used moved 14% from £1 = ZAR11.18 to £1 = ZAR12.72. In order to assess like-for-like performance, Group growth trends are shown on a foreign currency neutral basis where indicated.

Currency exposure arising from the net assets of the Group's foreign operations is managed primarily through borrowings denominated in the relevant foreign currencies. The Group also operates net investment hedges, using foreign currency borrowings.

Going concern

Based on normal business planning and control procedures, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements.

Archer Capital

On 14 November 2011, the Group reported a claim for damages made by Archer Capital ("Archer") following the termination of discussions between the Group and Archer relating to the potential purchase of MYOB. The Group strongly rejects the claim, which it understands to be in the region of £80.0m (A$130.0m), and will defend itself vigorously.

Events after the reporting period

Acquisition of EBS Empresa Brasileira de Sistemas Ltda.

On 11 October 2012, the Group acquired EBS Empresa Brasileira de Sistemas Ltda. a provider of accounting, business management and tax software in Brazil for a cash consideration of up to £10.5m, including a payment of £1.8m linked to the future financial performance. The provisional fair value of the assets acquired was £0.1m, resulting in provisional goodwill of £10.4m.

Executive Committee change

On 9 October 2012, the Group announced the appointment of Amanda Jobbins as Group Chief Marketing Officer, who will join Sage's Executive Committee.

Paul Harrison

Chief Financial Officer

Appendix I Key performance indicators ("KPIs") Strategic drivers		2012	2011
Focusing our business
Resource optimisation	R&D spend split by Invest, Harvest and Sunset	35:53:12	n/a
.	Sales and marketing spend split by Invest, Harvest and Sunset	42:49:09	n/a
Capturing the technology opportunity
Adoption of cloud products	Sage One customers	6,100	1,000
	Hybrid cloud customers	115	n/a
Integration of payments	Cross-sell of integrated payments - number of customers	9,700	8,600
Mid-market	Sage ERP X3 revenue growth	5%*	13%*
The benefits of subscription
Customer adoption	Annualised value of subscriber base	£80.5m	n/a
Financial drivers		2012	2011
Financial Performance
Growth	Organic^# revenue growth	2%*	4%*
Margin	EBITA^† / Revenue	27%	27%*
Profitability	Underlying EPS growth	-2%*	16%*
Cash generation	Net cash from operations / EBITA	106%^{^}	111%^{^}
Financial strength
Balance sheet	Net debt / EBITDA against stated target	0.4:1	0.1:1
	Interest cover	32.5x	27.5x
Customers		2012	2011
Loyalty	Renewal rate	81%	81%
Recommendation	Net Promoter Score	n/a	n/a

Net Promoter Score will be reported from 2013 onwards

Consolidated income statement

For the year ended 30 September 2012

	Note	2012 £m	2011 £m
Revenue	1	1,340.2	1,334.1
Cost of sales		(84.3)	(85.6)
Gross profit		1,255.9	1,248.5
Selling and administrative expenses		(911.0)	(905.2)
Operating profit	1	344.9	343.3
Finance income		2.6	1.9
Finance costs		(13.2)	(14.4)
Finance costs - net		(10.6)	(12.5)
Profit before income tax	2	334.3	330.8
Income tax expense	3	(95.4)	(74.8)
Profit for the year from continuing operations		238.9	256.0
Profit/(loss) for the year from discontinued operations	8	57.8	(67.0)
Profit for the year		296.7	189.0

Profit attributable to:
- Owners of the parent		296.6	189.0
- Non-controlling interest		0.1	-
		296.7	189.0
EBITA^†	1	366.4	365.5

Earnings per share attributable to the owners of the parent (pence)
From continuing operations
- Basic	4	18.63p	19.44p
- Diluted	4	18.60p	19.29p
From continuing and discontinued operations
- Basic	4	23.14p	14.35p
- Diluted	4	23.10p	14.24p

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

· amortisation of acquired intangible assets;

· amortisation of software development expenditure; and

· acquisition-related items.

Consolidated statement of comprehensive income

For the year ended 30 September 2012

	2012 £m	2011 £m
Profit for the year	296.7	189.0
Other comprehensive (expense)/income:
Exchange differences on translating foreign operations	(66.6)	6.5
Exchange differences recycled to the income statement in respect of the disposal of foreign operations	(55.7)	-
Actuarial (loss)/gain on post-employment benefit obligations	(2.6)	1.0
Deferred tax credit on actuarial loss on post-employment benefit obligations	1.0	-
Cash flow hedges	-	1.0
Other comprehensive (expense)/income for the year, net of tax	(123.9)	8.5

Total comprehensive income for the year	172.8	197.5

Total comprehensive income for the year attributable to:
- Owners of the parent	172.7	197.5
- Non-controlling interest	0.1	-
	172.8	197.5
Total comprehensive income/(expense) attributable to owners of the parent arising from:
- Continuing operations	170.6	264.5
- Discontinued operations	2.1	(67.0)
	172.7	197.5

Consolidated balance sheet As at 30 September 2012	Note	2012 £m	2011 £m
Non-current assets
Goodwill		1,814.4	1,736.3
Other intangible assets		139.8	118.1
Property, plant and equipment		142.2	146.4
Deferred income tax assets		10.0	20.7
		2,106.4	2,021.5
Current assets
Inventories		2.5	2.5
Trade and other receivables		302.8	285.4
Cash and cash equivalents (excluding bank overdrafts)	6	61.6	182.8
		366.9	470.7
Non-current assets classified as held for sale	8	-	251.1

Total assets		2,473.3	2,743.3

Current liabilities
Trade and other payables		(259.0)	(261.2)
Current income tax liabilities		(29.7)	(47.4)
Borrowings		(8.4)	(1.7)
Other financial liabilities		(60.0)	(50.0)
Deferred consideration		(10.0)	(2.0)
Deferred income		(420.3)	(404.7)
		(787.4)	(767.0)
Liabilities directly associated with non-current assets classified as held for sale	8	-	(49.7)

Non-current liabilities
Borrowings		(200.8)	(192.4)
Other financial liabilities	9	(68.3)	-
Post-employment benefits		(14.3)	(11.7)
Deferred income tax liabilities		(29.5)	(14.7)
		(312.9)	(218.8)

Total liabilities		(1,100.3)	(1,035.5)
Net assets		1,373.0	1,707.8

Equity attributable to owners of the parent
Ordinary shares	7	13.3	13.2
Share premium	7	524.5	513.2
Other reserves		76.5	266.8
Retained earnings		760.8	914.6
		1,375.1	1,707.8
Non-controlling interest		(2.1)	-
Total equity		1,373.0	1,707.8

Consolidated statement of changes in equity

For the year ended 30 September 2012

	Attributable to owners of the parent
	Ordinary shares £m	Share premium £m	Other reserves £m	Retained earnings £m		Total £m		Non-controlling interest £m		Total equity £m
At 1 October 2011	13.2	513.2	266.8	914.6		1,707.8		-		1,707.8

Profit for the year	-	-	-	296.6		296.6		0.1		296.7
Other comprehensive (expense)/income:
Exchange differences on translating foreign operations	-	-	(66.6)	-		(66.6)		-		(66.6)
Exchange differences recycled to the income statement in respect of the disposal of foreign operations	-	-	(55.7)	-		(55.7)		-		(55.7)
Actuarial loss on post-employment benefit obligations	-	-	-	(2.6)		(2.6)		-		(2.6)
Deferred tax credit on actuarial loss on post-employment benefit obligations	-	-	-	1.0		1.0		-		1.0
Total comprehensive (expense)/income for the year ended 30 September 2012	-	-	(122.3)	295.0		172.7		0.1		172.8

Transactions with owners:
Employee share option scheme:
- Proceeds from shares issued	0.1	11.3	-	-		11.4		-		11.4
- Value of employee services	-	-	-	1.2		1.2		-		1.2
- Equity movement of deferred income tax	-	-	-	(1.7)		(1.7)		-		(1.7)
Purchase of treasury shares	-	-	-	(299.8)		(299.8)		-		(299.8)
Expenses related to purchase of treasury shares	-	-	-	(2.0)		(2.0)		-		(2.0)
Close period share buyback programme	-	-	-	(10.0)		(10.0)		-		(10.0)
Put and call arrangement	-	-	(68.0)	-		(68.0)		-		(68.0)
Non-controlling interest arising on business combination	-	-	-	-		-		(2.2)		(2.2)
Dividends paid to owners of the parent	-	-	-	(136.5)		(136.5)		-		(136.5)
Total transactions with owners for the year ended 30 September 2012	0.1	11.3	(68.0)	(448.8)		(505.4)		(2.2)		(507.6)
At 30 September 2012	13.3	524.5	76.5	760.8		1,375.1		(2.1)		1,373.0

	Attributable to owners of the parent
	Ordinary shares £m	Share premium £m	Other reserves £m	Retained earnings £m		Total £m		Non-controlling interest £m		Total equity £m
At 1 October 2010	13.2	499.8	259.3	877.1		1,649.4		-		1,649.4

Profit for the year	-	-	-	189.0		189.0		-		189.0
Other comprehensive income:
Exchange differences on translating foreign operations	-	-	6.5	-		6.5		-		6.5
Actuarial gain on post-employment benefit obligations	-	-	-	1.0		1.0		-		1.0
Cash flow hedges	-	-	1.0	-		1.0		-		1.0
Total comprehensive income for the year ended 30 September 2011	-	-	7.5	190.0		197.5		-		197.5

Transactions with owners:
Employee share option scheme:
- Proceeds from shares issued	-	13.4	-	-		13.4		-		13.4
- Value of employee services	-	-	-	3.2		3.2		-		3.2
- Equity movement of deferred income tax	-	-	-	(1.7)		(1.7)		-		(1.7)
Close period share buyback programme	-	-	-	(50.0)		(50.0)		-		(50.0)
Dividends paid to owners of the parent	-	-	-	(104.0)		(104.0)		-		(104.0)
Total transactions with owners for the year ended 30 September 2011	-	13.4	-	(152.5)		(139.1)		-		(139.1)
At 30 September 2011	13.2	513.2	266.8	914.6		1,707.8		-		1,707.8
Consolidated statement of cash flows For the year ended 30 September 2012					Note		2012 £m		2011 £m
Cash flows from operating activities
Cash generated from continuing operations					6		383.8		405.1
Interest paid							(11.5)		(13.0)
Income tax paid					6		(95.2)		(92.5)
Operating cash flows (used in)/generated from discontinued operations					6		(2.3)		15.4
Net cash generated from operating activities							274.8		315.0

Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired					9		(162.8)		(1.4)
Disposal of subsidiaries, net of cash disposed					9		0.1		2.0
Purchases of intangible assets							(10.8)		(9.3)
Purchases of property, plant and equipment							(19.3)		(23.0)
Proceeds from sale of property, plant and equipment							0.6		2.4
Interest received							2.6		1.9
Investing cash flows generated from discontinued operations, net of cash disposed					6		198.9		-
Net cash generated from/(used in) investing activities							9.3		(27.4)

Cash flows from financing activities
Proceeds from issuance of ordinary shares					7		11.4		13.4
Purchase of treasury shares and related expenses					6		(297.5)		-
Finance lease principal payments							(0.7)		(0.6)
Proceeds from borrowings							15.3		0.6
Repayments of borrowings							(0.7)		(83.4)
Dividends paid to owners of the parent					5		(136.5)		(104.0)
Net cash used in financing activities							(408.7)		(174.0)

Net (decrease)/increase in cash, cash equivalents and bank overdrafts (before exchange rate movement)					6		(124.6)		113.6
Effects of exchange rate movement					6		(3.0)		(2.2)
Net (decrease)/increase in cash, cash equivalents and bank overdrafts							(127.6)		111.4
Cash, cash equivalents and bank overdrafts at 1 October					6		182.0		70.6
Cash, cash equivalents and bank overdrafts at 30 September					6		54.4		182.0

Notes to the financial information

For the year ended 30 September 2012

Group accounting policies

General information

The Sage Group plc ("the Company") and its subsidiaries (together "the Group") is a leading global supplier of business management software to small and medium sized companies. The Group has over six million customers and more than 13,500 employees in 24 countries covering Europe, Americas, Africa, Australia, Middle East and Asia.

The financial information set out above does not constitute the Company's Statutory Accounts for the year ended 30 September 2012 or 2011, but is derived from those accounts. Statutory Accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in December 2012. The auditors have reported on both sets of accounts; their reports were unqualified and did not contain statements under section 498 (2), (3) or (4) of the Companies Act 2006.

Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU"), this announcement does not in itself contain sufficient information to comply with IFRSs. The financial information has been prepared on the basis of the accounting policies as set out in the Statutory Accounts for 2012 and 2011.

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.

Annual Report & Accounts for the year ended 30 September 2012

Today The Sage Group plc will publish its Annual Report & Accounts for the year ended 30 September 2012. The full document can be viewed on the Company's website at www.investors.sage.com/reports_presentations. The document will also be uploaded to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

Basis of preparation

The financial information for the year ended 30 September 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority. The consolidated financial information should be read in conjunction with the Annual Report & Accounts for the year ended 30 September 2012, which have been prepared in accordance with IFRSs as adopted by the EU.

The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this announcement. Accordingly, the consolidated financial information has been prepared on a going concern basis and in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

1 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 Committee has been identified as the chief operating decision maker as the Committee is responsible for the allocation of resources to operating segments and assessing their performance. The profit measure used by the Executive Committee is Earnings before interest, tax and adjustments ("EBITA") which excludes the effects of amortisation of acquired intangible assets, the amortisation of software development expenditure and acquisition-related items on a constant currency basis. Operating segments are reported in a manner which is consistent with the operating segments produced for internal management reporting.

The North America operating segment has been renamed to Americas. For the year ended 30 September 2012 this includes operations in Brazil which have arisen from acquisitions made during the year (note 9).

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

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

· Americas (US, Brazil and Canada)

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

The Africa operations are principally based in South Africa, the Middle East and Asia operations are principally based in Singapore, Malaysia, UAE and India. The revenue analysis in the table below is based on the location of the customer which is not materially different from the location where the order is received and where the assets are located.

The tables below show a segmental analysis of the results for continuing operations. For information relating to discontinued operations refer to note 8.

Revenue by segment

	Year ended 30 September 2012			Year ended 30 September 2011					Change
	IFRS statutory £m	Organic revenue adjustment¹£m	Non- GAAP organic £m	IFRS statutory £m	Currency impact ²£m	Underlying at constant currency £m	Organic revenue adjustment¹£m	Non- GAAP organic constant currency £m	IFRS statutory %	Underlying at constant currency %	Non- GAAP organic constant currency %
Subscription revenue by segment
Europe	516.1	(5.1)	511.0	500.9	(16.0)	484.9	-	484.9	3%	6%	5%
Americas	324.2	(23.0)	301.2	299.7	3.8	303.5	(14.7)	288.8	8%	7%	4%
AAMEA	82.4	(0.1)	82.3	75.9	(4.3)	71.6	(0.3)	71.3	9%	15%	15%
Subscription revenue	922.7	(28.2)	894.5	876.5	(16.5)	860.0	(15.0)	845.0	5%	7%	6%
Software and software-related services ("SSRS") revenue by segment
Europe	259.7	-	259.7	294.8	(14.6)	280.2	-	280.2	-12%	-7%	-7%
Americas	87.5	(9.3)	78.2	91.2	1.1	92.3	(9.1)	83.2	-4%	-5%	-6%
AAMEA	70.3	(0.5)	69.8	71.6	(5.0)	66.6	(1.8)	64.8	-2%	6%	8%
SSRS revenue	417.5	(9.8)	407.7	457.6	(18.5)	439.1	(10.9)	428.2	-9%	-5%	-5%
Total revenue by segment
Europe	775.8	(5.1)	770.7	795.7	(30.6)	765.1	-	765.1	-3%	1%	1%
Americas	411.7	(32.3)	379.4	390.9	4.9	395.8	(23.8)	372.0	5%	4%	2%
AAMEA	152.7	(0.6)	152.1	147.5	(9.3)	138.2	(2.1)	136.1	4%	10%	12%
Total revenue	1,340.2	(38.0)	1,302.2	1,334.1	(35.0)	1,299.1	(25.9)	1,273.2	0%	3%	2%

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

2 Foreign currency results for the prior year ended 30 September 2011 have been retranslated based on the average exchange rates for the year ended 30 September 2012 of $1.58/£1 and €1.22/£1 to facilitate the comparison of results.

Profit by segment

	Year ended 30 September 2012			Year ended 30 September 2011					Change
	IFRS statutory operating profit £m	Adjustment¹£m	Non-GAAP EBITA £m	IFRS statutory operating profit £m	Adjustment¹£m	Non-GAAP EBITA reported £m	Currency impact²£m	Underlying Non-GAAP EBITA constant currency £m	IFRS statutory operating profit %	Non-GAAP EBITA reported %	Underlying Non-GAAP EBITA constant currency %
Profit by segment
Europe	207.8	11.3	219.1	213.7	15.6	229.3	(8.4)	220.9	-3%	-4%	-1%
Americas	96.8	9.3	106.1	94.2	5.5	99.7	1.2	100.9	3%	6%	5%
AAMEA	40.3	0.9	41.2	35.4	1.1	36.5	(2.3)	34.2	14%	13%	20%
Total profit	344.9	21.5	366.4	343.3	22.2	365.5	(9.5)	356.0	0%	0%	3%

1 Adjustment includes the effects of amortisation of acquired intangible assets, amortisation of software development expenditure and acquisition-related items.

Reconciliation of Non-GAAP EBITA to IFRS statutory operating profit	2012 £m	2011 £m
Non-GAAP EBITA at constant exchange rates	366.4	356.0
Impact of movements in foreign currency exchange rates	-	9.5
Non-GAAP EBITA reported	366.4	365.5
Amortisation of acquired intangible assets	(17.1)	(21.7)
Amortisation of software development expenditure	-	(0.1)
Acquisition-related items	(4.4)	(0.4)
IFRS statutory operating profit	344.9	343.3

2 Reconciliation of statutory revenue and profit before income tax

Reconciliation of revenue	2012 £m	2011 £m	Growth %
Revenue at constant exchange rates	1,340.2	1,299.1	+3%
Impact of movements in foreign currency exchange rates	-	35.0
IFRS statutory revenue	1,340.2	1,334.1	0%

Reconciliation of profit before income tax	2012 £m	2011 £m	Growth %
Underlying pre-tax profit	356.3	343.5	+4%
Impact of movements in foreign currency exchange rates	-	9.5
	356.3	353.0	+1%
Amortisation of acquired intangible assets	(17.1)	(21.7)
Amortisation of software development expenditure	-	(0.1)
Acquisition-related items	(4.4)	(0.4)
Imputed interest	(0.5)	-
IFRS statutory profit before income tax from continuing operations	334.3	330.8	+1%

3 Income tax expense

Income tax for the year ended 30 September 2012 gives an effective rate of 29% (year ended 30 September 2011: 23%).

4 Earnings per share

Basic earnings per share is calculated by dividing the profit for the year by the weighted average number of ordinary shares in issue during the year, excluding those held as treasury shares, which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all 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 year and the contingently issuable shares under the Group's long-term incentive plan. For performance-related share plans, a calculation is performed to determine the satisfaction, or otherwise, of the forecast performance conditions at the end of the reporting period, and the number of shares which would be issued based on the forecast status at the end of the reporting period.

Reconciliations of the earnings and weighted average number of shares	Underlying 2012	Underlying 2011	Statutory 2012	Statutory 2011
Earnings (£m)	.	.	.	.
Profit for the year from continuing operations	254.6	267.0	238.9	256.0
Profit/(loss) for the year from discontinued operations	1.2	11.3	57.8	(67.0)
	255.8	278.3	296.7	189.0
Number of shares (millions)			.
Weighted average number of shares	1,282.2	1,316.7	1,282.2	1,316.7
Dilutive effects of shares	1.9	10.4	1.9	10.4
.	1,284.1	1,327.1	1,284.1	1,327.1
Earnings per share
Basic earnings per share (pence)
Continuing operations	19.86	20.28	18.63	19.44
Discontinued operations	0.09	0.86	4.51	(5.09)
	19.95	21.14	23.14	14.35
Diluted earnings per share (pence)
Continuing operations	19.83	20.12	18.60	19.29
Discontinued operations	0.09	0.85	4.50	(5.05)
	19.92	20.97	23.10	14.24

Reconciliation between statutory and underlying earnings per share	2012 £m	2011 £m
IFRS statutory profit for the year from continuing operations	238.9	256.0
Adjustments:
Earnings - trading from discontinued operations	1.9	18.9
Intangible amortisation excluding amortisation of computer software	17.1	21.8
Acquisition-related items	4.4	0.4
Imputed interest on put and call arrangement to acquire non-controlling interest and deferred consideration	0.5	-
Taxation on adjustments	(7.0)	(11.3)
Net adjustments	16.9	29.8
Earnings - underlying (before exchange movement)	255.8	285.8
Exchange movement	-	(9.8)
Taxation on exchange movement	-	2.3
Net exchange movement	-	(7.5)
Earnings - underlying (after exchange movement)	255.8	278.3

5 Dividends

	2012 £m	2011 £m
Final dividend paid for the year ended 30 September 2011 of 7.07p per share	92.1	-
(2011: final dividend paid for the year ended 30 September 2010 of 5.22p per share)	-	68.7

Interim dividend paid for the year ended 30 September 2012 of 3.48p per share	44.4	-
(2011: interim dividend paid for the year ended 30 September 2011 of 2.68p per share)	-	35.3
	136.5	104.0

In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2012 of 6.67p per share which will absorb an estimated £78.2m of shareholders' funds. It will be paid on 8 March 2013 to shareholders who are on the register of members on 15 February 2013. These financial statements do not reflect this dividend payable.

6 Cash flow and net debt

Analysis of change in net debt (inclusive of finance leases)	At 1 October 2011 £m	Cash flow £m	Acquisitions £m	Non-cash movements £m	Exchange movement £m	At 30 September 2012 £m
Cash and cash equivalents	182.8	(118.2)	-	-	(3.0)	61.6
Bank overdrafts	(0.8)	(6.4)	-	-	-	(7.2)
Cash, cash equivalents and bank overdrafts	182.0	(124.6)	-	-	(3.0)	54.4
Finance leases due within one year	(0.9)	0.7	(0.2)	(0.8)	-	(1.2)
Loans due after more than one year	(190.0)	(14.8)	(0.1)	(1.1)	6.8	(199.2)
Finance leases due after more than one year	(2.4)	-	-	0.8	-	(1.6)
Cash collected from customers	(13.6)	0.2	-	-	(0.5)	(13.9)
Total	(24.9)	(138.5)	(0.3)	(1.1)	3.3	(161.5)

Included in cash above is £13.9m (2011: £13.6m) relating to cash collected from customers, which the Group is contracted to pay onto another party.
A liability for the same amount is included in trade and other payables on the balance sheet and is classified within net debt above.

	2012 £m	2011 £m
EBITA	366.4	365.5
Acquisition-related items	(4.4)	(0.4)
Depreciation/amortisation/profit on disposal of intangible assets and property, plant and equipment	29.0	29.2
Share-based payments	1.3	3.2
Changes in working capital	(16.7)	(19.7)
Increase in deferred income	12.6	29.9
Exchange movement	(4.4)	(2.6)
Cash flows from operating activities	383.8	405.1
Operating cash flows (used in)/generated from discontinued operations	(2.3)	15.4
Net interest paid	(8.9)	(11.1)
Income tax paid	(95.2)	(92.5)
Net capital expenditure	(29.5)	(29.9)
Free cash flow	247.9	287.0
Net debt at 1 October	(24.9)	(219.8)
Acquisitions and disposals of subsidiaries, net of cash	(162.7)	0.6
Investing cash flows generated from discontinued operations, net of cash	198.9	-
Dividends paid to owners of the parent	(136.5)	(104.0)
Purchase of treasury shares and related expenses	(297.5)	-
Exchange movement	3.3	(1.9)
Other	10.0	13.2
Net debt at 30 September	(161.5)	(24.9)

7 Ordinary shares and share premium

	Number of shares	Ordinary shares £m	Share Premium £m	Total £m
At 1 October 2010	1,317,360,582	13.2	499.8	513.0
Shares issued/proceeds	6,477,254	-	13.4	13.4
At 30 September 2011	1,323,837,836	13.2	513.2	526.4
Shares issued/proceeds	5,679,734	0.1	11.3	11.4
At 30 September 2012	1,329,517,570	13.3	524.5	537.8

8 Discontinued operations and non-current assets held for sale

The control of Sage Software Healthcare, LLC ("Sage Healthcare") was passed to Vista Equity Partners on 10 November 2011 for cash proceeds of £204.0m. The proceeds have been returned to shareholders through a share buyback programme. Further disposal information can be found in note 9.

Discontinued operations - financial performance

Sage Healthcare is reported in the financial statements as discontinued operations. The financial performance for the period is below:

	2012 £m	2011 £m
Revenue	16.5	149.7
Selling and administrative expenses	(14.4)	(138.2)
Operating profit	2.1	11.5
Finance costs	(0.2)	-
Profit on disposal of Sage Healthcare	0.9	-
Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal	55.7	-
Impairment of disposal group to fair value less costs to sell	-	(121.5)
Profit/(loss) before income tax	58.5	(110.0)
Income tax (expense)/credit	(0.7)	43.0
Profit/(loss) for the year from discontinued operations	57.8	(67.0)

Earnings per share information can be found in note 4.

The cash flow statement shows amounts related to discontinued operations.

Non-current assets and liabilities classified as held for sale

There are no disposal groups classified as held for sale in the current year. At 30 September 2011 the assets and liabilities relating to Sage Healthcare were presented as held for sale following the announcement on 22 September 2011 that a definitive agreement to sell Sage Healthcare had been reached.

	2012 £m	2011 £m
Goodwill	-	183.1
Other intangible assets	-	36.2
Property, plant and equipment	-	1.9
Inventories	-	1.0
Trade and other receivables	-	28.9
Non-current assets classified as held for sale	-	251.1

Trade and other payables	-	(19.7)
Deferred income	-	(30.0)
Liabilities directly associated with non-current assets classified as held for sale	-	(49.7)

Net assets classified as held for sale	-	201.4

9 Acquisitions and disposals

Acquisitions made during the year

Folhamatic Tecnologia em Sistemas S.A.

On 25 June 2012 the Group completed the acquisition of 75% share of the share capital of Folhamatic Tecnologia em Sistemas S.A. ("Folhamatic") based in Brazil for cash consideration of £122.6m.

The provisional fair value of the liabilities acquired was £9.2m, resulting in provisional goodwill of £129.6m. In the purchase 75% of the voting rights were acquired. The non-controlling interest has been measured at the non-controlling interest's proportionate share of the net liabilities of £2.2m.

The Group has entered into a put and call arrangement to acquire the remaining 25% share in Folhamatic. Under the terms of the agreement the price to be payable is based on a multiple of expected EBITDA for the year ending 31 December 2014 and is estimated at £71.0m, which is £68.3m after discounting to present value of the estimated redemption amount. This has been included as a non-current financial liability.

The acquisition of Folhamatic represents an important step in building the Group's presence in key emerging markets. This acquisition is consistent with the Group's strategy and was approved following the Board's evaluation of the potential return on capital. Folhamatic has a leading market position in a large and growing economy.

Alchemex (Pty) Ltd

The entire share capital of Alchemex (Pty) Ltd ("Alchemex") was acquired on 1 October 2011 for cash consideration of £2.8m and deferred consideration of £2.8m. The fair value of the assets acquired was £1.1m, resulting in goodwill of £4.5m.

Integral Computers Limited

The entire share capital of Integral Computers Limited, ("Integral") was acquired on 6 February 2012 for cash consideration of £11.9m and contingent consideration of £4.0m. The fair value of the assets acquired was £5.6m, resulting in goodwill of £10.3m.

Other

The entire share capital of TML BVBA Ltd ("TML") was acquired on 1 March 2012 for cash consideration of £2.6m. The fair value of the assets acquired was £0.9m, resulting in goodwill of £1.7m.

Cenize Informática Ltda. ("Cenize") was acquired on 24 August 2012 for cash consideration of £1.0m and contingent consideration of £2.9m. The fair value of the assets acquired was £nil, resulting in goodwill of £3.9m.

There were no other acquisitions made in the year.

The net identifiable assets (including intangible assets) were recognised at their provisional fair values. The residual excess over the net assets acquired has been recognised as goodwill. Details of net assets acquired and goodwill are as follows:

Summary of acquisitions		£m
Purchase consideration	.
Cash	.	140.9
Deferred/contingent consideration	.	9.7
Total purchase consideration	.	150.6
Fair value of net identifiable liabilities	.	1.6
Fair value of net identified liabilities attributable to non-controlling interest	.	(2.2)
Goodwill	.	150.0

Goodwill represents the fair value of the assembled workforce at the time of acquisition along with potential synergies with the existing Sage business.

Provisional fair value of acquisitions	Folhamatic £m	Alchemex £m	Integral £m	Other £m	Total £m
Intangible assets - brands, technology and customer relationships	36.4	1.0	4.2	-	41.6
Intangible assets - computer software	0.6	-	-	-	0.6
Property, plant and equipment	1.2	-	0.3	-	1.5
Inventories	0.1	-	0.3	-	0.4
Trade and other receivables	10.0	0.3	1.0	1.3	12.6
Cash and cash equivalents	0.8	0.1	1.9	-	2.8
Trade and other payables	(8.1)	(0.1)	(0.6)	(0.3)	(9.1)
Current borrowings	(0.2)	-	-	-	(0.2)
Non-current borrowings	-	-	-	(0.1)	(0.1)
Deferred consideration	(21.8)	-	-	-	(21.8)
Income tax - current	(0.3)	-	-	-	(0.3)
Income tax - deferred	(10.1)	(0.1)	(0.5)	-	(10.7)
Deferred income	(17.8)	(0.1)	(1.0)	-	(18.9)
Total net identifiable (liabilities)/assets acquired	(9.2)	1.1	5.6	0.9	(1.6)
Non-controlling interest	2.2	-	-	-	2.2
Goodwill	129.6	4.5	10.3	5.6	150.0
Consideration satisfied by:
Cash	122.6	2.8	11.9	3.6	140.9
Deferred/contingent consideration	-	2.8	4.0	2.9	9.7
Total purchase consideration	122.6	5.6	15.9	6.5	150.6
The outflow of cash and cash equivalents on the acquisitions is calculated as follows:
Cash consideration	(122.6)	(2.8)	(11.9)	(3.6)	(140.9)
Cash and cash equivalents acquired	0.8	0.1	1.9	-	2.8
Borrowings acquired	(0.2)	-	-	(0.1)	(0.3)
Deferred consideration acquired, paid post acquisition	(21.8)	-	-	-	(21.8)
Acquisition costs acquired, paid post acquisition	(2.6)	-	-	-	(2.6)
Net cash outflow in respect of acquisitions	(146.4)	(2.7)	(10.0)	(3.7)	(162.8)
The intangible assets acquired as part of these acquisitions can be analysed as follows:
Brands	6.8	-	-	-	6.8
Technology	18.0	0.8	1.7	-	20.5
Customer relationships	11.6	0.2	2.5	-	14.3
	36.4	1.0	4.2	-	41.6

Deferred/contingent consideration

Part of the cash paid on the Folhamatic acquisition is being held in an escrow account pending final determination of the results for the year ending 31 December 2012. The funds held in escrow will be paid out to shareholders in FY13 once the final acquisition price is determined, which is based on a multiple of expected EBITDA for the year ending 31 December 2012. The cash paid was based on an estimate of the EBITDA for the year ending 31 December 2012.

During the year previously contingent consideration was fixed under the original terms of the agreement and as such is now deferred consideration. Deferred consideration payable to the former owners of Alchemex of £2.8m has been recognised at fair value; this additional consideration is payable for the years ending 30 September 2012-2014.

Contingent consideration payable to the former owners of Integral of £4.0m has been recognised at fair value; this additional consideration is dependent on revenue achievement for the year ending 31 December 2012.

Contingent consideration payable to the former owners of Cenize of £2.9m has been recognised at fair value; this additional consideration is contingent on the EBITDA results for the year ending 31 December 2014.

Contribution of acquisitions

From the dates of the acquisitions to 30 September 2012, the acquisitions contributed £17.9m to revenue and £3.5m to profit before income tax. Had these acquisitions occurred at the beginning of the financial year, contribution to Group revenue would have been £55.4m and Group profit before income tax would have increased by £1.1m.

Acquisition-related items

Acquisition-related items of £4.4m (2011: £0.4m) have been included in selling and administrative expenses in the Consolidated income statement. These acquisition-related items (previously recognised in goodwill prior to IFRS 3 (Revised), "Business Combinations") relate to completed transactions and include advisory, legal, accounting, valuation and other professional or consulting fees.

Disposal of Sage Software Healthcare, LLC

On 10 November 2011 the Group disposed of Sage Healthcare for £204.0m consideration. Details of net assets disposed of and the profit on disposal are as follows:

Sage Healthcare disposal	Carrying value pre-disposal £m
Non-current assets classified as held for sale	249.3
Liabilities directly associated with non-current assets classified as held for sale	(46.4)
Net assets disposed	202.9

The profit on disposal is calculated as follows:	£m
Disposal proceeds	204.0
Costs to sell recognised in year	(0.2)
Disposal proceeds, less costs to sell recognised in year	203.8
Net assets disposed	(202.9)
Profit on disposal	0.9
Cumulative exchange gain in respect of the net assets of the subsidiary, reclassified from equity on disposal	55.7
Profit on disposal	56.6

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

The inflow of cash and cash equivalents on the disposal of Sage Healthcare is calculated as follows:	£m
Disposal proceeds, less total costs to sell	199.9
Cash disposed	(1.0)
Net cash inflow from the disposed of discontinued operations	198.9

Other disposals

On 26 January 2012 the Group disposed of Edibase a small product line of Sage SAS, for net cash consideration of £0.1m.

Contribution of disposals

Had the disposals occurred at the beginning of the financial year, Group revenue from continuing operations would have been £1,340.1m, Group profit before income tax from continuing operations would have been unchanged. Sage Healthcare is reported in the financial statements as discontinued operations, the financial performance for the period is given in note 8.

Analysis of net outflow of cash in respect of acquisitions and disposals

The outflow of cash and cash equivalents on the acquisitions and disposals is calculated as follows:		£m
Folhamatic		(146.4)
Alchemex		(2.7)
Integral		(10.0)
Other		(3.7)
Acquisitions of subsidiaries		(162.8)
Other		0.1
Disposal of subsidiaries		0.1
Sage Healthcare		198.9
Disposal of discontinued operations		198.9

Analysis of goodwill The total additions and disposals to goodwill are calculated as follows:		£m
Folhamatic		129.6
Alchemex		4.5
Integral		10.3
Other		5.6
Additions		150.0
Disposals		-
Net movement in goodwill on acquisitions and disposals		150.0

10 Related party transactions

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

Key management compensation	2012 £m	2011 £m
Salaries and short-term employee benefits	5.0	7.3
Post-employment benefit	0.5	1.0
Share-based payments	0.7	1.7
	6.2	10.0

The key management figures given above include directors. Key management personnel are deemed to be members of the Executive Committee and are defined in the Group's Annual Report & Accounts 2012.

Supplier transactions occurred during the year between Softline (Pty) Ltd, one of the Group's subsidiary companies, and Ivan Epstein Chief Executive Officer, AAMEA. These transactions relate to the lease of three properties in which Ivan Epstein has a minority and indirect shareholding. During the year £0.8m (2011: £0.8m) relating to these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the year ended 2012 (2011: £nil).

Supplier transactions occurred during the year between Sage SP, S.L., one of the Group's subsidiary companies and Álvaro Ramírez, Chief Executive Officer, Europe. These transactions relate to the lease of a property in which Álvaro Ramírez has a minority shareholding. During the year £0.2m (2011: £0.3m) relating to these transactions was charged through selling and administrative expenses. There were no outstanding amounts payable for the year ended 2012 (2011: £nil).

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

11 Group risk factors

Risks can materialise and impact on both the achievement of business strategy and the successful running of our business. A key element in achieving our strategy and maintaining services to our customers is the management of risks. Our risk management strategy is therefore to support the successful running of the business by identifying and managing risks to an acceptable level and delivering assurances on this.

In addition to the principal risks and uncertainties set out below, we have reviewed its plans in light of potential risks to achieving its strategic objectives. Principal risks and uncertainties have been updated to reflect high level strategic risks. Lower level strategic risks are analysed and mitigated via the normal, embedded risk management process.

External business factors

Risk

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

Potential impact

There is a potential for an adverse impact on business performance if external business factors and changes thereto are not appropriately addressed. Such adverse impacts could affect Sage's competitive position, revenue and margin, make demands on employees and cause financial penalties to be incurred.

Mitigation process

We continue to build strong customer relationships, develop and expand our product and services offering and seek organic and acquisitive growth opportunities. We develop appropriate strategic direction and maintain knowledge of industry developments to ensure a proactive response to changing needs. Our business model and the significant percentage of our revenue which is recurring, give comfort and support against economic exposure. Our Group-wide compliance programme seeks to ensure that local, national and international regulatory requirements are identified and complied with. A detailed quarterly forecasting process helps to ensure robust and realistic challenge to financial performance.

Products and services

Risk

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

Potential impact

Sage's reputation and competitive advantage could be jeopardised if a poor quality product or service was released to customers. The impact of Sage's products and services on its customers' ability to do business increases the severity of the risk. The change in the product and services landscape in terms of online customer facing products and services and the need to ensure reliability and availability also increases the potential impact of the risk.

Mitigation process

Sage has detailed product and service release and quality control procedures which are adhered to in advance of a product or service release. Sage also has thorough quality assurance processes and initiatives relating to the level of service provided to customers. Sage has a detailed framework to control the risks associated with the provision of online services and the protection of customers' data.

Change management

Risk

Our strategy has sought to focus the business and appropriately prioritise resources. Given new business priorities, there are risks associated with the change management impact on employees, systems and the alignment of talent with prioritised business areas. In addition, while Sage operates in a decentralised culture, with many different operating companies across the globe, there is a risk, as with any other business, relating to key man dependencies and loss of key management.

Potential impact

If the change management implications of resource prioritisation are not identified and managed, talent and resources key to successful strategic delivery could be lost. Loss of key knowledge, personnel or failure to update systems to respond to changing business priorities could result in an inability for Sage to operate effectively and maintain a competitive edge. Loss of key management could result in important, sensitive information leaving the Group.

Mitigation process

A change management programme including a talent review and systems requirements review is in place to ensure change management implications are addressed. Sage has detailed key man dependency identification processes and detailed succession planning processes in place to mitigate against the risk of loss of key personnel.

Intellectual property

Risk

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

Potential impact

Illegal or unauthorised copies of Sage's software could be sold without our knowledge, impacting financial results and Sage's reputation.

Mitigation process

While relying, as other companies do, on the laws and regulations in existence, Sage continually polices the unauthorised use of its products. Sage also ensures the secure storage of source code throughout the Group.

12 Events after the reporting period

Share buyback

On 30 September 2012 the Group appointed Deutsche Bank AG to manage an irrevocable buyback programme during the close period which commenced on 1 October 2012 and will run up to 5 December 2012. From 1 October 2012 to 29 November 2012, the latest practical date prior to publication of the Annual Report & Accounts, 17,925,641 ordinary shares of 1p each were repurchased through Deutsche Bank AG at a weighted average price of 308.89p per share. The highest and lowest prices paid for these shares were 322.00p per share and 298.70p per share respectively. The purchased shares have not been cancelled and are held as treasury shares. The total number of ordinary shares in issue (excluding shares held as treasury shares) at 29 November 2012 is 1,210,714,269.

Acquisition of EBS Empresa Brasileira de Sistemas Ltda.

On 11 October 2012 the Group acquired EBS Empresa Brasileira de Sistemas Ltda.; a provider of accounting, business management and tax software in Brazil; for a cash consideration of up to £10.5m, including a payment of £1.8m linked to the future financial performance. The provisional fair value of the assets acquired was £0.1m, resulting in provisional goodwill of £10.4m.

Executive Committee change

On 9 October 2012 the Group announced the appointment of Amanda Jobbins as Group Chief Marketing Officer, who will join Sage's Executive Committee.

13 Responsibility statement of the directors on the Annual Report & Accounts

The Group's Annual Report & Accounts for the year ended 30 September 2012 includes the following responsibility statement.

Each of the directors confirms that, to the best of their knowledge:

· the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Directors' report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

G S Berruyer P S Harrison

Chief Executive Chief Financial Officer

5 December 2012 5 December 2012

This information is provided by RNS

The company news service from the London Stock Exchange

END

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