Peachtree 2013 Annual Report Download - page 34

Financial and operating review continued
Cash flow and net debt
The Group remains highly cash generative with
cash flows from operating activities increasing 9%
to £417.4m (2012: £383.8m), representing strong
underlying cash conversion of 112% (2012: 106%).
Underlying cash conversion excludes cash add
backs and exceptional items of £1.9m (2012: £nil).
After interest, tax and net capital expenditure, free
cash flow was £268.6m (2012: £247.9m).
The net inflow from acquisitions and disposals
completed in the year was £60.7m. Proceeds of £81.4m
were received through the sale of the non-core products
in North America and Europe, and cash consideration
of £20.7m was paid in respect of acquisitions.
A total of £571.8m (2012: £434.0m) was returned
to shareholders through ordinary dividends paid
of £122.1m (2012: £136.5m), a special dividend
of £198.7m (2012: £nil) and shares repurchased of
£251.0m (2012: £297.5m). Net debt stood at £384.3m
at 30 September 2013 (30 September 2012: £161.5m)
which is equivalent to 1x EBITDA.
R&D and capital expenditure
Total R&D spend was £144.6m and grew organically
by 4%. During the year R&D expenditure on Invest
products increased 47% as resources have been
successfully reallocated from Sunset and Harvest
products. R&D expenditure is expensed as it is incurred.
Capital expenditure in the year ended 30 September
2013 (including the purchase of third-party software
systems for internal use) was £23.7m (2012: £26.2m).
The majority of this expenditure relates to IT infrastructure,
both in new and replacement systems.
Acquisitions and disposals during the year
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 £11.3m,
including a payment of £2.0m linked to the future
financial performance. The provisional fair value
of the assets acquired was £nil, resulting in provisional
goodwill of £11.3m.
During the year, the Group completed the sale of a
number of products that were identified as non-core.
The sale of these products represented a key strategic
milestone in focusing our business. On 21 March 2013,
the Group announced the completion of the disposal
of the trade and assets of Sage ACT! and Sage
Saleslogix to Swiftpage, and Sage Nonprofit Solutions
to Accel-KKR. Cash consideration of £58.3m was
paid upon completion. On 30 April 2013, the Group
completed the disposal of European non-core
products C&I, ATL, Automotive and Aytos, to Argos
Soditic, for a consideration of £34.9m. In addition,
on 30 April 2013, the Group completed the disposal
of other non-core products for a consideration
of £4.5m.
Treasury management
The Group’s Treasury function seeks to ensure liquidity
is available to meet the forecast needs of the Group,
to invest cash assets safely at market rates, and reduce
exposure to interest rate fluctuations, foreign exchange
movements 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.
The Group continues to be able to borrow at
competitive rates and currently deems this to be the
most effective means of raising finance. During the year
the Group successfully completed a USD$400m issue
of US private placement loan notes increasing total
notes issued into the US private placement market
at 30 September 2013 to £432.3m ($USD700m)
(2012: £185.8m, USD$300.0m). This transaction further
diversifies sources of funding underpinning the Group’s
capital structure targets, and extends maturities at
fixed rates.
In addition the Group has multi-currency revolving
credit facilities totalling £346.2m (2012: £338.3m)
(USD$271.0m and €214.0m tranches), provided
by a syndicate of banks, which expire in 2015.
At 30 September 2013, £9.6m of these facilities
were drawn (2012: £15.0m).
Foreign exchange
We do not hedge foreign currency profit and loss
translation exposures and our results therefore have
been impacted by movements in exchange rates.
The average Euro exchange rate used to translate
the Consolidated income statement showed movement
of 2.5% to £1 = €1.19 from £1 = €1.22. The average
US Dollar exchange rate showed movement of 1.3% to
£1 = $1.56 from £1 = $1.58. The average South African
Rand exchange rate moved significantly in the year
to £1 = ZAR14.60 from £1 = ZAR12.72, representing
a fluctuation of 14.8%. The average Brazilian Real
exchange rate used to translate the results of our
Brazilian businesses was R$3.30.
32 The Sage Group plc | Annual Report & Accounts 2013