Peachtree 2012 Annual Report Download - page 32

Financial and operating review continued
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 nal 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 prots. 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 protably and reduce exposures to interest rate, foreign
exchange and other nancial risks. The Group does not engage in
speculative trading in nancial 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
October 2011 Alchemex 100% South Africa £5.5m
February 2012 Integral 100% Ireland £14.0m
June 2012 Folhamatic 75% Brazil £143.8m
September 2012 Cenize 100% Brazil £3.9m
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 inow from the sale was
* Underlying gures neutralise the impact of foreign exchange movements and exclude amortisation of acquired intangible assets, acquisition-related items and imputed interest.
† EBITA is dened as earnings before interest, tax, amortisation of acquired intangible assets, acquisition-related items and is after neutralising the impact of foreign exchange movements.
£198.8m 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 nancial 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
nancial 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 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 nancial
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 Ofcer, who will join
Sage’s Executive Committee.
30