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The Sage Group PLC
Annual Report and Accounts 2015
RE-IMAGINING
BUSINESS

Table of contents

  • Page 1
    The Sage Group PLC Annual Report and Accounts 2015 RE-IMAGINING BUSINESS

  • Page 2
    ... to the Group financial statements 157 Company financial statements 163 Shareholder information 12.6% 12.6% 106% 101% 14 Discover more about Sage online www.sage.com 14 All images used within this Annual Report and Accounts are those of real customers and colleagues. 8.2% 15 About our non-GAAP...

  • Page 3
    ...GOVERNANCE FINANCIAL STATEMENTS WE ENERGISE THE SUCCESS OF BUSINESSES supporting the ambitions of the world's entrepreneurs as they power the global economy. Read our feature on product strategy on page 30 to discover how we meet business needs The Sage Group plc | Annual Report & Accounts 2015 1

  • Page 4
    ... using a card reader, or directly from electronic invoices. Accounting Our range of desktop or cloud accounting solutions allows customers to issue invoices, analyse business performance and manage cashflow, taxes, stock, budgets and more. 2 The Sage Group plc | Annual Report & Accounts 2015

  • Page 5
    ...border operations. Sage X3 is our global product for businesses with these characteristics where modules can be used to perform everything from monitoring the sales pipeline and customer relationships to managing inventory. FINANCIAL STATEMENTS OUR GLOBAL REACH Our established market positions and...

  • Page 6
    ...or payroll processing) £380m Shareholder Returns Dividends and share repurchases £146m Society Community Tax charge for the year Employees enabled to volunteer Full definitions of our revenue streams are on page 163 £90m 5 days per annum 4 The Sage Group plc | Annual Report & Accounts 2015

  • Page 7
    ...experiences to earn customers for life. OUR CUSTOMER JOURNEY Grow with our customers by revolutionising business, providing additional features and services. Identify when a customer would benefit from migrating up to the next product solution The Sage Group plc | Annual Report & Accounts 2015 W

  • Page 8
    ... solutions exist for all customers, regardless of how they choose to deploy their software. R&D and S&M spend in FY15 90% 10% Growth products Heritage products * Analysis covering Sage current top ten geographies measured by physical presence 6 The Sage Group plc | Annual Report & Accounts 2015

  • Page 9
    ...the annual dividend which has increased every year since we joined the FTSE 100. 15 year dividend history 13.10p Growing the annual dividend per share 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The Sage Group plc | Annual Report & Accounts 2015 7

  • Page 10
    Chairman's statement We have met our long-term financial targets for 2015 and are focussed on the next phase of long-term sustainable growth Chairman, Donald Brydon, looks back on this year progress. 8 The Sage Group plc | Annual Report & Accounts 2015

  • Page 11
    ... flows in order to invest in the business and drive sustainable, profitable growth. Our strong cash flow also continues to support both our ability to grow with bolt-on acquisitions and our progressive dividend policy. Donald Brydon Chairman The Sage Group plc | Annual Report & Accounts 2015 9

  • Page 12
    Chief executive's review Re-imagining business Chief Executive Officer, Stephen Kelly, sets the agenda for 2016 and beyond 10 The Sage Group plc | Annual Report & Accounts 2015

  • Page 13
    ... global rollout will continue in FY16. We are investing in our digital presence to enhance awareness of Sage One as we target the opportunity of Small & Medium Businesses which are not currently using a software solution to run their business. The Sage Group plc | Annual Report & Accounts 2015 11

  • Page 14
    ... and helping them to get paid faster by optimising the integration of payments products in the UK with our accounting and payroll solutions. Sage Payments enables customers to take full control of the movement of money from their business, complementing the existing service to receive payments. It...

  • Page 15
    ... has been supported by increasing renewal rates on growth products. - In addition, modernised versions of our most popular solutions, Sage 100 and Sage 300, have been developed and launched at Sage Summit to enable customers to experience the rich functionality of these products with the cloud. - We...

  • Page 16
    ... technology for both cloud and on-premise deployment. +17% Growth in public cloud spend year on year* * Market analysis performed by IDC for our top ten geographies and for the end user market of businesses in the 0 to 1,999 employee range. 14 The Sage Group plc | Annual Report & Accounts 2015

  • Page 17
    STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS MARKET FRAGMENTATION & LOCAL KNOWLEDGE Sage operates in a relatively fragmented market, with the top three providers accounting for only one quarter of market spend. Whilst individual competitors are strong in a small number of geographies, there is...

  • Page 18
    ... cloud and on-premise deployed products to win market share and drive accelerated new customer acquisition. Rigorous resource and capital allocation Truth three: Inconsistent digital capability The "zero touch selling" approach driven by digital, internet originated sales, with consistent service...

  • Page 19
    ... vo e e R ss Putting our customers at the heart of everything we do to provide exceptional experiences. See page 24 Using smart technology to make our customers' lives easier, giving them more time to focus on creating value. See page 22 The Sage Group plc | Annual Report & Accounts 2015 17

  • Page 20
    ...our colleagues to live our values and place customers at the heart of our thinking and actions. Our winning culture drives ambition, simplification and bias for action. We feel immense pride in putting our customers first." - Stephen Kelly, CEO 18 The Sage Group plc | Annual Report & Accounts 2015

  • Page 21
    ... and drop-off services: "The mobility and flexibility of Sage Live allows me to run my business from anywhere. Access to real-time information has allowed us to focus more on our customers." Jennifer Ku, LaundryLaundry.com FINANCIAL STATEMENTS The Sage Group plc | Annual Report & Accounts 2015 19

  • Page 22
    ... targeted, effective digital marketing campaigns. Sage Impact, our online portal for accountants and our Global Partner Programme have both been launched to support our community of partners. Why it's important As business management software solutions evolve in a mobile first, cloud age, they...

  • Page 23
    ... quarter or the year. That means I've got a complete picture of my accounts thanks to Sage One." Alice Bailleul, Owner of Beauty Bike See more of Alice's story at www.sage.com/investors FINANCIAL STATEMENTS Alice Bailleul, Beauty Bike, France The Sage Group plc | Annual Report & Accounts 2015 21

  • Page 24
    .... The Sage ecosystem will be businesses' indispensable ally and the go-to source for advice. We'll surpass our customers' expectations with solutions to enable them to work faster, smarter and more profitably." - Klaus Michael Vogelberg, CTO 22 The Sage Group plc | Annual Report & Accounts 2015

  • Page 25
    ... Sage Drive. I wouldn't have been able to hire her without it. Sage 50 is the backbone of our business." Rajeev Arora, MD Davora Ltd, UK See more of Rajeev's story at www. sage.com/investors FINANCIAL STATEMENTS Rajeev Arora, Davora Ltd, UK The Sage Group plc | Annual Report & Accounts 2015...

  • Page 26
    ... and want to serve them for life: providing unparalleled choice, indispensable advice and the right solutions for them. The principle of supporting customers for life is at the heart of everything we do." - Brendan Flattery, President Europe 24 The Sage Group plc | Annual Report & Accounts 2015

  • Page 27
    ... Canny, a naturally flavoured milk brand and has experienced Sage One support first hand: "One of the best features of Sage One is the support. Always available, 24/7, I can't get enough of that." Liam Watson, Canny, UK FINANCIAL STATEMENTS The Sage Group plc | Annual Report & Accounts 2015 25

  • Page 28
    ... the customer who will continue to be the responsibility of the country managing director ("MD") who leads the sales and service experience and this will be their primary focus. The country MD will also represent Sage in the country and as the champion of Small & Medium Business. Marketing, Product...

  • Page 29
    ... service to our customers. Working on the Salesforce1 platform, the teams are collaborating to make sure that customers have a fantastic experience from enquiry to sale and beyond. Initially, the CBCs are supporting customers of Sage Live. The Sage Group plc | Annual Report & Accounts 2015...

  • Page 30
    ...continuation of our transition to subscription has helped to drive our renewal rate up to 84%. * As with all financial measures throughout this report, KPIs (both current and prior year) are stated after accounting changes described on page 44. 28 The Sage Group plc | Annual Report & Accounts 2015

  • Page 31
    ... was calculated before net capital expenditure and included movements on foreign exchange, which would have shown underlying cash conversion of 110% in FY15 (FY14: 106%). Performance: Underlying cash conversion has increased by 5% in FY15. The Sage Group plc | Annual Report & Accounts 2015 29

  • Page 32
    ... software whilst wanting to leverage the benefits of collaboration and mobility. For our larger customers, we are continuing to invest in cloud versions of our business management solutions such as Sage 200 in the UKI, Sage Murano in Spain, Sage Office Line in Germany, Sage 100 in France, and Sage...

  • Page 33
    ... of Growth products in the UKI, we have considered an illustrative customer lifecycle and the solutions Sage can offer depending on where in the cycle the customer sits. GOVERNANCE One Accounting ACCOUNTING 50 Accounts FINANCIAL STATEMENTS Live 200 St X3 PAYROLL & HR PAYMENTS Payments Pay One...

  • Page 34
    ... products We are using global products to appeal to new customers as we target winning in the market. Our cloud deployed global product which is ideally suited to start-ups and businesses up to around 10 employees in size. Everything that Sage One does as a product is designed to make customers...

  • Page 35
    ... to support Customer Choice Consume on-premise or as a cloud service 100k Accountants currently in our network TAKES THE COMPLEXITY OUT OF RUNNING MID-SIZED AND LARGER BUSINESSES ALL OF THESE TOOLS YOU NEED TO RUN YOUR PRACTICE IN ONE PLACE The Sage Group plc | Annual Report & Accounts 2015 33

  • Page 36
    ... within the global marketing function. We therefore expect to maintain an operating margin of at least 27%, it will become a better quality margin with greater efficiency and capacity for growth. Organic operating profit of at least 27% 34 The Sage Group plc | Annual Report & Accounts 2015

  • Page 37
    ...to our customers FINANCIAL STATEMENTS Revenue mix The transition of relevant relationships towards subscription is expected to be largely complete, with a base of SSRS and standalone maintenance and support revenue remaining. Global product uptake and cross-selling of multiple services is expected...

  • Page 38
    ... of two tiers of Risk Committee. Board Audit and Risk Committee Executive Committee Read pages 69-72 for Audit and Risk Committee Report Group Risk and Assurance Director Global Risk Committee Global Risk Team Regional Risk Committees 36 The Sage Group plc | Annual Report & Accounts 2015

  • Page 39
    ... and are co-ordinated from a single point. It works to support the operation of the committees at both a regional and global level, and further to guide, support and challenge the business, and embed risk management within business activities. The Sage Group plc | Annual Report & Accounts 2015 37

  • Page 40
    ... objectives or to successfully deliver the business strategy. Our risk management strategy supports the successful running of the business by identifying and managing risks to an acceptable level and delivering assurance on these. 38 TE AN Y AL The Sage Group plc | Annual Report & Accounts 2015

  • Page 41
    ... 2015 we have enhanced our reporting activities, with the definition of clear appetite statements for each principal risk and identification of supporting metrics which can be reported. Risk dashboards have been revised to incorporate these changes. In addition we have revised our Risk Management...

  • Page 42
    ... figures In progress: - Creation of further Customer Business Centres, with staged adoption of global products, to better manage on-going customer relationships and the sales cycle 3. Market Intelligence Sage does not understand or anticipate changes in the external environment (including areas...

  • Page 43
    ... goal is to attain market share irrespective of profit, and a number of US listed companies with similar goals. Cloud products and digital sales and marketing strategies (zero touch sales) are reducing barriers to entry. Sage must be able to translate market intelligence into appropriate strategies...

  • Page 44
    ... of working, an Excellence in Governance initiative is being undertaken to ensure consistency and enhance effectiveness - Expansion in scope of Customer Business Centre supported products is planned as part of a gradual move to global products 42 The Sage Group plc | Annual Report & Accounts 2015

  • Page 45
    ... the financial viability statement In developing the financial viability statement, it was determined that a five year period should be used, consistent with the period of the Group's strategic plan and reflecting a typical life of on-premise products without upgrade. Management reviewed the...

  • Page 46
    ... Processing revenue, which is volume based and relates to payments and some payroll processing services. The impact is to disclose this revenue separately from SSRS and Recurring revenue, with no change to total revenue or the operating margin. 44 The Sage Group plc | Annual Report & Accounts 2015

  • Page 47
    ... exchange rates used to translate the consolidated income statement for the year are set out on page 47. Operating profit Organic operating profit margin excludes the contribution from acquisitions made in Germany and the US in Q4 2014 and Q1 2015 respectively. A reconciliation of the reported...

  • Page 48
    ... the principles issued by the Confederation of British Industry (CBI). Sage's tax policy has been agreed by the Board, with progress being monitored by the Group Audit and Risk Committee. The policy has been shared with the UK tax authorities. 46 The Sage Group plc | Annual Report & Accounts 2015

  • Page 49
    ... exchange The Group does not hedge foreign currency profit and loss translation exposures and the statutory results are therefore impacted by movements in exchange rates. The average rates used to translate the consolidated income statement and to neutralise foreign exchange in prior year underlying...

  • Page 50
    ... was introduced to Sage 50 in Germany, adopted by both new and existing customers. Increased focus on the business partner channel has helped to drive 9% revenue growth for Office Line, our flagship local product for medium sized businesses. 48 The Sage Group plc | Annual Report & Accounts 2015

  • Page 51
    ...goods and services tax was introduced in Malaysia during the first half of the year, with a government sponsored compliance scheme available to aid companies in fulfilling their obligations, which generated around £4m of non-repeating revenue. The Sage Group plc | Annual Report & Accounts 2015 49

  • Page 52
    ... customers around the world every day and have a privileged position to understand the issues they face and to provide support to overcome these issues. We leverage this position to champion Small & Medium Businesses, the lifeblood of our economy. 50 The Sage Group plc | Annual Report & Accounts...

  • Page 53
    ..., 135 of our colleagues slept under the stars, in the middle of the winter, in support of Daryl Blundell, General Manager, to help raise funds for him before he took part in the CEO Sleep Out on 18 June raising funds for Boys & Girls Town. The Sage Group plc | Annual Report & Accounts 2015 51

  • Page 54
    ... which our customers need to help their business grow. MAKE A DIFFERENCE Sage is a great place to work and our colleagues make a difference to local communities by relentlessly supporting our customers and their businesses to be successful. 52 The Sage Group plc | Annual Report & Accounts 2015

  • Page 55
    ... their successes. GOVERNANCE FINANCIAL STATEMENTS Developing our people On 1 July, Sage Academy was launched. Sage Academy is a global learning and development platform that supports colleagues in their career development and empowers them to win, delight and grow customers. Colleagues across the...

  • Page 56
    ... Women 6 2 2014 6 2 Men Women 2015 134 32 2014 127 36 Men 2015 6,913 Women 6,149 2014 7,017 5,958 * Top leadership includes the Sage Senior Management Team (top 100 leaders) plus any individual who is a company director of a group subsidiary. 54 The Sage Group plc | Annual Report & Accounts 2015

  • Page 57
    ... of this year's Annual Report & Accounts. For further details, our methodology document can be found at www.sage.com/company/about-sage/corporatesocial-responsibility Combustion of fuel and operation of facilities Electricity, heat, steam and cooling purchased for own use Company's chosen intensity...

  • Page 58
    ...Carbon Disclosure Project We once again took part in this project during the year under review by reporting our gas (scope 1) and electricity (scope 2) emissions for the financial year ended 30 September 2015. Whilst we do use the GHG Protocol methodology to measure our GHG emissions we welcome the...

  • Page 59
    ... more than just a celebration, we want to promote widespread awareness by harnessing partnerships with innovation centres, corporations, accelerators, schools, government, and in the media to support small businesses. The Sage Group plc | Annual Report & Accounts 2015 57

  • Page 60
    Directors' approval of strategic report Our 2015 Strategic report, from page 2 to page 57, has been reviewed and approved by the Board of Directors on 2 December 2015. Steve Hare Chief Financial Officer 58 The Sage Group plc | Annual Report & Accounts 2015

  • Page 61
    ... the financial year ended 30 September 2015 and to the date of this report, Sage has complied with the provisions of the Code. The Code is publicly available at the website of the UK Financial Reporting Council at www.frc.org.uk. This corporate governance section of the Annual Report & Accounts...

  • Page 62
    ...the financial year to 30 September 2015 and to the date of this report, there have been the following changes to the Board of Directors: Executive directors Guy Berruyer Stephen Kelly CEO CEO Retired 5 November 2014 Appointed on 5 November 2014 60 The Sage Group plc | Annual Report & Accounts 2015

  • Page 63
    ...19 years at IBM, where she held a number of different roles focusing on building and running strong organisations in sales, business development and marketing, culminating as Vice-President, Marketing & Sales Enablement, IBM Systems Software and ISVs. Experience: Jonathan is currently Group Finance...

  • Page 64
    ..., recognising how she led the HR team to support the transformation of Premier Farnell. Sandra supports the Young Enterprise - Women in Business Programme by mentoring and encouraging young female entrepreneurs to start their own business. 62 The Sage Group plc | Annual Report & Accounts 2015

  • Page 65
    ... business and returning it to growth, as well as leading the Accountants Segment in Europe. He recently led the roll-out of Sage's brand campaign across Europe. Prior to Sage, Santiago spent 20 years working in the IT and software industry, across the globe, in sales, marketing and management roles...

  • Page 66
    ... Committee To oversee the Group's financial reporting, risk management and internal control procedures and the work of its internal and external auditors. Nomination Committee Remuneration Committee To determine the framework, policy and levels of remuneration and make recommendations to the Board...

  • Page 67
    ...non-executive directors, through a request to the Chairman or the Company Secretary. FINANCIAL STATEMENTS Chief Executive Officer Responsible for the formulation of strategy and running of the Group... the Group - managing the overall performance of Sage, concentrating on revenue and profitability as...

  • Page 68
    ... Board for the year In the year under review, the Board's focus has been on strategy and ensuring that the structures, capabilities and reports are in place to support the Group strategy. The Board has received regular reports from both the Chief Executive Officer and the Chief Financial Officer. In...

  • Page 69
    ...place for the year under review and up to the date of approval of the Annual Report and Accounts - they are regularly reviewed by the Board - the systems accord with the FRC guidance on risk management, internal control and related financial and business reporting. During 2015 the Board has directly...

  • Page 70
    ... to receive one and all information on Sage's activities, published financial results and the Annual Report & Accounts can be found on our website. There is regular dialogue with individual institutional shareholders and there are presentations to analysts after our announcement of the year-end and...

  • Page 71
    ...the quality of our financial reporting through review of the interim financial statements and the 2015 Annual Report and Accounts. Activities during the year During 2015, the Committee has been focused on a number of areas across financial reporting, risk management, internal controls and assurance...

  • Page 72
    ... led to a change in the application of the Group's accounting policy in two areas: - the treatment of payments to independent sales organisations who refer customers to the Group's payments business - the re-phasing of the upfront revenue received in relation to products where software does not...

  • Page 73
    ... is also responsible for ensuring that the external auditors are independent and responsible for both the setting and monitoring of compliance with the policy on non-audit services. The Sage Group plc | Annual Report & Accounts 2015 71

  • Page 74
    ...preparation of accounting records and financial statements - internal audit services - payroll services - legal and valuation advice The Committee must approve any individual non-audit services above a specific fee value. The ratio of audit fees to non-audit fees must be within Sage's pre-determined...

  • Page 75
    ... and knowledge required by a particular role with due regard for the benefit of diversity on the Board and at senior management level and make an appointment accordingly. Further details on the approach to diversity are set out on page 54. The Sage Group plc | Annual Report & Accounts 2015 73

  • Page 76
    ... in deciding his or her own remuneration. The Committee is required, in accordance with its terms of reference, to meet at least four times per year. During this financial year, the Committee met seven times. 74 The Sage Group plc | Annual Report & Accounts 2015

  • Page 77
    ...- the CFO will receive a salary increase of 3% effective 1 January 2016, consistent with increases for employees based in the UK. The CEO's salary will remain at its current level until the next review, with any changes effective 1 January 2017 The Sage Group plc | Annual Report & Accounts 2015 75

  • Page 78
    ...targets and actuals calculated prior to the change in the application of the revenue recognition policy to certain products) was an appropriate and fair basis of assessment for the FY15 bonus. On this basis, for the year ended 30 September 2015, Group organic revenue growth was 6.7%, reflecting good...

  • Page 79
    ... when setting and reviewing salaries annually. Pension Provide a competitive postretirement benefit, in a way that manages the overall cost to the Company. Defined contribution plan (with Company contributions set as a percentage of base salary). An individual may elect to receive some or all...

  • Page 80
    ... apply for the financial year 2016 are described in the Directors' annual remuneration report. Performance Share Plan (PSP) Motivates and rewards the achievement of long-term business goals. Supports the creation of shareholder value through the delivery of strong market performance aligned with...

  • Page 81
    .... - The Remuneration Committee may make minor amendments to the policy (for regulatory, exchange control, tax or administrative purposes or to take account of a change in legislation) without obtaining shareholder approval for that amendment. The Sage Group plc | Annual Report & Accounts 2015 79

  • Page 82
    ... charts do not take into account share price appreciation or dividends. In these illustrative charts, salaries are those applying from 1 January 2016, pension provision is assumed to be 25% of salary and benefits have been estimated using the figure included in the 2015 single figure of remuneration...

  • Page 83
    ... Committee's opinion, would materially affect the current or future value of the Company's shares, the Remuneration Committee may allow deferred share and PSP awards to vest and be released early on the same basis as for a change of control. The Sage Group plc | Annual Report & Accounts 2015 81

  • Page 84
    ... to the executive director by the Company will be reduced to reflect payments received in respect of that alternative employment. There is no automatic entitlement to annual bonus. Executive directors may receive a bonus in respect of the financial year of cessation, based on performance against...

  • Page 85
    ... targets that were set at the start of the financial year (i.e. with both targets and actuals calculated prior to the changes in the application of the revenue recognition policy to certain products outlined on page 110 of the Annual Report). The Sage Group plc | Annual Report & Accounts 2015 83

  • Page 86
    ...will be paid to him in respect of the financial year ending 30 September 2015. Disclosure of 2014 bonus targets The target ranges for financial measures used to determine the 2014 bonus were not disclosed in last year's Annual Report & Accounts as this was considered by the Board to be commercially...

  • Page 87
    ... number of vested shares has been calculated based on both the performance assessment outlined above and the application of time pro-rating to reflect his period of employment as a proportion of time elapsed between the grant date and the vesting date. The Sage Group plc | Annual Report & Accounts...

  • Page 88
    ...FTSE 100 companies (excluding financial services and extracting companies), increasing to 100% of the award vesting if Sage's TSR is upper quartile. Type of award Maximum number of shares Face value (£) Face value (% of salary) Threshold vesting (% of award) End of performance period Stephen Kelly...

  • Page 89
    ... the values at intervening financial year ends. Relative importance of spend on pay The charts below show the all-employee pay cost (as stated in the notes to the accounts), profit before tax and returns to shareholders by way of dividends and share buyback for 2014 and 2015. The information shown...

  • Page 90
    ...% 40% 50% TSR performance comprises share price growth and dividends paid. Sage's TSR performance will be measured relative to the TSR of the constituents of the FTSE 100, excluding financial services and extracting companies. Recurring revenue is revenue earned from customers for the provision of...

  • Page 91
    ... year period of joining the Board. Interests in shares The interests of each person who was a director of the Company as at 30 September 2015 (together with interests held by his or her connected persons) were: Ordinary shares at 30 September 2015 number Ordinary shares at 30 September 2014 number...

  • Page 92
    ... Group's only executive share option scheme is the ESOS. In the year under review, executive directors did not receive grants under this scheme. The outstanding executive share options granted to each director of the Company under the ESOS are as follows: Shares under option at 1 October 2014 number...

  • Page 93
    ...,047 - - - - 11,047 11,047 12 January 2018 FINANCIAL STATEMENTS - Awards are not subject to further performance conditions once granted. The market price of a share on 12 January 2015, the date of the awards made in the year ended 30 September 2015, was 462.7p. - No variations were made in the...

  • Page 94
    ... since the last report were as follows: - Reviewed the remuneration policy in light of the strategy outlined at our Capital Markets Day, and consulted with shareholders on the alignment of the remuneration policy to business strategy - Reviewed the performance of the Group for the year, and the...

  • Page 95
    Directors' report STRATEGIC REPORT The Directors present their report together with the audited consolidated financial statements for the year ended 30 September 2015. The Annual Report & Accounts contains statements that are not based on current or historical fact and are forward-looking in ...

  • Page 96
    ... by making information available to employees on matters of concern to them. Employees regularly receive updates on the financial and economic factors affecting the Group from both central and local management. Many employees are stakeholders in the Company through participation in share option...

  • Page 97
    ... comprises profit growth and a change in the weighted average share base as a result of share repurchases and movements in shares held by the Employee Benefit Trust, the impact of which is as follows: % change Underlying basic EPS Powers of the directors The business of the Company will be managed...

  • Page 98
    ...to any significant foreign exchange transactional exposure within these subsidiaries. Financial risk management The Group's exposure to and management of capital, liquidity, credit, interest rate and foreign currency risk are summarised below. 96 The Sage Group plc | Annual Report & Accounts 2015

  • Page 99
    ..., the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group and the Company for that period. The Sage Group plc | Annual Report & Accounts 2015 97

  • Page 100
    ... Notes to the Group financial statements Supplementary notes to the Group financial statements. 1. Basis of preparation and critical accounting estimates and judgements 110 Results for the year 2. Segment information 3. Profit before income tax 4. Income tax expense 5. Earnings per share 114 118...

  • Page 101
    ... Sage Group plc's Group financial statements and Parent company financial statements (the "financial statements") give a true and fair view of the state of the Group's and of the Parent company's affairs as at 30 September 2015 and of the Group's profit for the year then ended; - the Group financial...

  • Page 102
    ...to establish whether a service had been provided or a sale had occurred in the financial year to support the revenue recognised. We also considered the adequacy of the Group's disclosures in respect of the restatement of revenue in the current year and the accounting policies for revenue recognition...

  • Page 103
    ...financial statements either because of the size of these accounts or their risk profile. The reporting components where we performed audit procedures accounted for 90% of the Group's adjusted Profit before tax measure used to calculate materiality and 90% of the Group's Revenue. For the current year...

  • Page 104
    ... the financial and non-financial information in the Annual Report and Accounts 2015 to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by...

  • Page 105
    ... to the financial statements since they were initially presented on the web site. - Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Sage Group plc | Annual Report & Accounts 2015 103

  • Page 106
    Consolidated income statement For the year ended 30 September 2015 Note Underlying 2015 £m Adjustments (note 3.6) 2015 £m Statutory 2015 £m Underlying as reported * 2014 (restated) £m Adjustments (note 3.6) 2014 £m Statutory 2014 (restated) £m Revenue Cost of sales Gross profit Selling...

  • Page 107
    ... for the year, net of tax Total comprehensive income for the year Total comprehensive income for the year attributable to: - Owners of the parent - Non-controlling interest (27.4) 166.9 166.9 - 166.9 149.9 0.9 150.8 Financial statements The Sage Group plc | Annual Report & Accounts 2015 105

  • Page 108
    ....0 98.1 126.7 29.4 1,687.2 1,515.2 113.5 128.8 26.2 1,783.7 The consolidated financial statements on pages 104 to 155 were approved by the Board of Directors on 2 December 2015 and are signed on their behalf by: S Hare Chief Financial Officer 106 The Sage Group plc | Annual Report & Accounts 2015

  • Page 109
    STRATEGIC REPORT Consolidated statement of changes in equity For the year ended 30 September 2015 GOVERNANCE eributable to owners of the parent Ordinary shares £m Share premium £m Other reserves £m Retained earnings £m Total equity £m At 1 October 2014 (restated) Profit for the year Other...

  • Page 110
    ... benefit obligations (note 10) Deferred tax credit on actuarial loss on post-employment obligations (note 4) Total comprehensive (expense)/income for the year ended 30 September 2014 Transactions with owners: Employee share option scheme: - Proceeds from shares issued - Value of employee services...

  • Page 111
    ... 6.2 7 (47.3) (6.0) (16.4) 2.1 2.2 (65.4) (14.1) (8.3) (19.7) 1.1 2.1 (38.9) 12.1 418.6 (19.2) (84.6) 314.8 382.4 (20.2) (107.2) 255.0 FINANCIAL STATEMENTS Financial statements 12.2 120.1 (0.4) 119.7 143.7 263.4 63.6 (2.8) 60.8 82.9 143.7 The Sage Group plc | Annual Report & Accounts 2015 109

  • Page 112
    ... this deferral in 2015 of £1.3m (2014: £1.3m) is taken to other reserves. During the period, management has also considered the accounting for its arrangements with Business Partners who refer customers to the Group, such as Independent Sales Organisations ("ISOs") in the US Payments business, and...

  • Page 113
    ... 2006 applicable to companies reporting under IFRS. Foreign currencies The consolidated financial statements are presented in sterling, which is the functional currency of the parent Company and the presentation currency for the consolidated financial statements. The Sage Group plc | Annual Report...

  • Page 114
    ...rewards of ownershiw of the software wroduct from Sage. At this woint the business wartner is able to sell on the licence to the end user at a wrice of its determination and consequently bears the credit risk of the onward sale. Where the business wartner is a customer of Sage, there are two ways in...

  • Page 115
    ... for the Group for the year ended 30 September 2015: - IFRS 15, "Revenue from Contracts with Customers". The Group is in the process of assessing the impact that the application of this standard will have on the Group's financial statements. The Sage Group plc | Annual Report & Accounts 2015 113

  • Page 116
    ... is received and where the assets are located. Revenue categories are defined in Note 3.1. Processing revenue has been disclosed separately for year ended 30 September 2015 and the prior year comparatives have been restated to this effect. 114 The Sage Group plc | Annual Report & Accounts 2015

  • Page 117
    ... FINANCIAL STATEMENTS Year ended 30 September 2014 (restated) Statutory and underlying as reported £m Impact of foreign exchange £m Organic adjustments £m Underlying £m Organic £m Recurring revenue by segment Europe North America International Recurring revenue Software and software related...

  • Page 118
    ...£m Underlying operating profit Amortisation of acquired intangible assets Fair value adjustments and goodwill impairment Statutory operating profit 223.0 (6.4) - 216.6 102.4 (7.5) - 94.9 54.5 (4.3) (64.5) (14.3) 379.9 (18.2) (64.5) 297.2 116 The Sage Group plc | Annual Report & Accounts 2015

  • Page 119
    ....0 88.4 196.8 5.0 1,353.5 299.6 2.1 (23.0) FINANCIAL STATEMENTS 278.7 (89.8) 188.9 North America £m Year ended 30 September 2014 (restated) Europe £m International £m Group £m Underlying operating profit (as reported) Amortisation of acquired intangible assets Fair value adjustments and...

  • Page 120
    ... to reflect the substance of the transaction. When customers are offered discounts on bundled products and/or services, the combined discount is allocated to the constituent elements of the bundle, based upon publically available list prices. 118 The Sage Group plc | Annual Report & Accounts 2015

  • Page 121
    ... and professional services to customers. All other operating expenses incurred in the ordinary course of business are recorded in selling and administrative expenses. FINANCIAL STATEMENTS TWe XY``Yabcg bdems have been included in arriving at operating profit Note 2015 £m 2014 £m Staff...

  • Page 122
    ... and warehouses under non-cancellable operating lease agreements. These leases have various terms, escalation clauses and renewal rights. The Group also leases vehicles, plant and equipment under non-cancellable operating lease agreements. 120 The Sage Group plc | Annual Report & Accounts 2015

  • Page 123
    ..., impairment charges and reversals and restructuring. These are items which management judge to be of a one-off nature or non-operational, which would distort a reader of the Company's accounts understanding of underlying business performance. The Sage Group plc | Annual Report & Accounts 2015 121

  • Page 124
    ... acquisition of Mastermaq. The prior year fair value adjustment (£0.4m) related to the accounting loss on the settlement of the put and call arrangement to acquire 25% of the share capital of Folhamatic, within the Brazilian sub-group, from the non-controlling interest holder. This transaction...

  • Page 125
    .... 2015 £m 2014 £m Tax on items credited to other comprehensive income Dbfbrrbd tax crbdit on actuarial loss on post-bmploymbnt bbnbfit obligations Total tax on itbms crbditbd to othbr comprbhbnsivb incomb/bquity (0.6) (0.6) (0.4) (0.4) The Sage Group plc | Annual Report & Accounts 2015 123

  • Page 126
    ...at the end of the year. The Group has one class of dilutive potential ordinary shares. They are share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year. 124 The Sage Group plc | Annual Report & Accounts 2015

  • Page 127
    ... year results to current year exchange rates as shown in the table on page 48 within the financial review. The prior year weighted average share base has been restated to include shares held by the Employee Benefit Trust as treasury shares. The Sage Group plc | Annual Report & Accounts 2015 125

  • Page 128
    ... 1,433.0 In the current year the Gruup acquired Paychuice and recurded guudwill uf £59.6m (nute 15.1). The Gruup alsu incurred a fair value adjustment uf £2.3m in relatiun tu the acquisitiun uf Exact which was acquired un 15 September 2014. 126 The Sage Group plc | Annual Report & Accounts 2015

  • Page 129
    ... carrying value of goodwill at the end of the reporting period by CGU: „Â...†‡ £m 2014 £m GOVERNANCE France UK & Ireland Spain Sage Pay Europe Germany Switzerland Poland Portugal North America - Sage Business Solutions Division (SBS) - Sage Payment Solutions Division (SPS) Brazil South Africa...

  • Page 130
    ... market assessment of the time value of money at the end of the Q3 2015 and...management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of any CGU to exceed its recoverable amount. 128 The Sage Group plc | Annual Report & Accounts 2015

  • Page 131
    ... lives. The estimated useful lives are as follows: FINANCIAL STATEMENTS Brand names Technology/In process R&D ("IPR&D") Customer relationships Computer software - - - - 3 to 20 years 3 to 7 years 4 to 15 years 2 to 5 years Other intangible assets that are acquired by the Group are stated at...

  • Page 132
    ... leases are depreciated over the shorter of the asset's useful life and the lease term. The carrying value of property, plant and equipment is reviewed for impairment whenever events indicate that the carrying value may not be recoverable. 130 The Sage Group plc | Annual Report & Accounts 2015

  • Page 133
    ... the awountE inveEted by the Group in working capital balanceE at the end of the financial year. Working capital iE wade up of inventorieE, trade and other receivableE and trade and other payableE. InventorieE wainly conEiEt of warehouEe Etock of Sage productE, awaiting Ehipwent to buEineEE partnerE...

  • Page 134
    ...At 1 October Increase in provision for receivables impairment Receivables written-off during the year as uncollectible Unused amounts reversed Exchange movement At 30 September 25.5 5.7 (6.1) (6.0) (1.3) 17.8 17.7 6.4 (4.5) (1.7) (1.4) 15.5 132 The Sage Group plc | Annual Report & Accounts 2015

  • Page 135
    ... risk at the end of the reporting period is the fair value of each class of receivables mentioned above. The Group held no collateral as security. The directors estimate that the carrying value of trade receivables approximated their fair value. 8.3 Trade and other payables Accounting policy Trade...

  • Page 136
    ... current/past service cost and the net interest cost which is the change in the net defined benefit liability that arises from the passage of time. The Group underwrites both financial and demographic risks associated with this type of plan. 134 The Sage Group plc | Annual Report & Accounts 2015

  • Page 137
    STRATEGIC REPORT GOVERNANCE Accounting policy Obligations under defined contribution schemes are recognised as an operating cost in the income statement as incurred. The Group also operates a small defined benefit pension scheme in Switzerland and other post-employment benefit schemes in France. ...

  • Page 138
    ... in the balance sheet liability At 1 October Exchan)e movement Total expense as reco)nised in the income statement Contributions paid Actuarial )ain/(loss) At 30 September (13.6) 0.8 (2.0) 0.9 (4.8) (18.7) (12.9) 0.8 (2.0) 0.9 (0.4) (13.6) 136 The Sage Group plc | Annual Report & Accounts 2015

  • Page 139
    ... at the year-end. A deferred tax asset represents a tax reduction that is expected to arise in a future period. A deferred tax liability represents taxes which will become payable in a future period as a result of a current or an earlier transaction. FINANCIAL STATEMENTS Accounting policy Deferred...

  • Page 140
    ...statement credit Reclassification from deferred tax asset Reclassification to other deferred tax Change in tax rate Exchange...- 4.6 - 1.0 (3.7) (12.3) 3.0 (10.8) 3.2 (2.9) (4.6) (0.5) 0.2 (15.4) 19.6 (23.1) 6.2 (2.9) - (0.5) 1.2 (19.1) 10.3 138 The Sage Group plc | Annual Report & Accounts 2015

  • Page 141
    ... Acquisitions Non-cash movements Exchange movement Movement in net debt in the year Net debt at 1 October Net debt at 30 September 90.5 (17.8) 72.7 (21.3) - (39.6) 11.8 (437.2) (425.4) 63.6 (112.8) (49.2) - (0.9) (2.8) (52.9) (384.3) (437.2) The Sage Group plc | Annual Report & Accounts 2015 139

  • Page 142
    ... 2015, 83% of the cash and cash equivalents balance was deposited with financial institutions rated at least A3 by Moody's Investors Service. The investment instruments utilised are money market funds, money market term deposits and bank deposits. 140 The Sage Group plc | Annual Report & Accounts...

  • Page 143
    ... The Group has in the year incurred total issue costs amounting to £0.8m in respect of the note issue into the US private placement market. These issue costs were paid during the year ended 30 September 2015 and are allocated to the income statement over the term of the facility using the effective...

  • Page 144
    ... anb analyses their sensitivity to changes in key inputs, such as interest rates anb foreign exchange rates. Crebit risk is further biscloseb in the Directors' Report. Accounting policy Financial assets anb liabilities are recogniseb in the Group's balance sheet when the Group becomes party to the...

  • Page 145
    ... reflecting changes of reasonable proportion in the context of movement in those currency pairs over the last year. Using the above assumptions, the following table shows the illustrative effect on the consolidated income statement and equity. The Sage Group plc | Annual Report & Accounts 2015 143

  • Page 146
    ... elsewhere in the financial statements, being changes in the amount which shareholders have invested in the Group. The Group utilises share award schemes as part of its employee remuneration package. Share option schemes for our employees include The Sage Group Performance Share Plan for directors...

  • Page 147
    ...-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest allowing for the effect of non-market-based vesting conditions. Fair value is measured using the Black-Scholes or the Monte Carlo pricing...

  • Page 148
    ...adjusted according to TSR performance over the same three-year period compared with a group of international software and computer services companies. The comparator group for awards made in 2012 comprised the following companies: - - - - Adobe Systems ARM Holdings Blackbaud Cap Gemini - - - - Cegid...

  • Page 149
    ... and the assumptions used in the calculation are as follows: Grant date January 2015 January 2015 January 2015 May 2015 May 2015 June 2015 June September September 2015 2015 2015 FINANCIAL STATEMENTS Share price at grant date Number of employees Shares under award Vesting period (years) Expected...

  • Page 150
    ... price at grant date Number of employees Shares under award Vesting period (years) Expected volatility Award life (years) Expected life (years) Risk free rate Expected dividends expressed as a dividend yield £3.72 7 880,881 2 20% 2 2 0.60% - 148 The Sage Group plc | Annual Report & Accounts 2015

  • Page 151
    ... GAAP and frozen on transition to IFRS. Other reserve Other reserve relates to the recognition of a put and call arrangement to acquire the remaining non-controlling interest's 25% share in Folhamatic. This was acquired in 2014. See note 13.4. The Sage Group plc | Annual Report & Accounts 2015 149

  • Page 152
    ... used in the current year to satisfy an award under the RSP. The costs of funding and administering the scheme are charged to the profit and loss account of the Company in the period to which they relate. The market value of the shares at 30 September 2015 was £18.2m (2014: £19.8m). 150 The Sage...

  • Page 153
    ... in respect of corporate transactions and related exchange differences. 2015 Â, 2014 £m At 1 October Non-controlling interest's share of profit of the year Purchase of non-controlling interest At 30 September - - - - (1.0) 0.9 0.1 - The Sage Group plc | Annual Report & Accounts 2015 151

  • Page 154
    ... combined customer base. Summary of acquisitions £m Strategic report Governance Financial statements Strategic report Governance Financial statements Purchase consideration Fair value of net identifiable assets Goodwill 75.2 (15.6) 59.6 152 The Sage Group plc | Annual Report & Accounts 2015

  • Page 155
    ... selling and administrative expenses. There were no outstanding amounts payable for the year ended 2015 (2014: £nil). These arrangements are subject to independent review using external advisers to ensure all transactions are at arm's length. The Sage Group plc | Annual Report & Accounts 2015 153

  • Page 156
    ... in these financial statements, our structure is such that there are a number of different operating and holding companies that contribute significantly to the overall result. Our subsidiaries are located around the world and each contributes to the profits, assets and cash flow of the Group. The...

  • Page 157
    ... Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Direct Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect FINANCIAL STATEMENTS The Sage Group plc | Annual Report & Accounts 2015 155

  • Page 158
    ... due in more than one year 159 159 159 160 160 Strategic report Strategic report Net debt and capital structure 7. Equity 161 Governance Governance Other notes 8. Related party transactions 162 Financial statements Financial statements 156 The Sage Group plc | Annual Report & Accounts 2015

  • Page 159
    ... 11.8 541.2 (101.8) 2,418.8 2,870.0 11.7 737.9 (87.2) 2,419.0 2,879.4 The financial statements on pages 177 to 162 were approved by the Board of Directors on 2 December 2017 and are signed on their behalf by: S Hare Chief Financial Officer The Sage Group plc | Annual Report & Accounts 2015 157

  • Page 160
    ...settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company's estimate of the shares that will eventually vest allowing for the effect of non-market-based vesting conditions. Fair value is measured using the Black-Scholes or the Monte Carlo pricing...

  • Page 161
    ... accounts for the year ended 30 September 2015, are shown in note 17 of the Group financial statements. All of these subsidiary undertakings are wholly owned. All subsidiaries are engaged in the development, distribution and support of business management software and related products and services...

  • Page 162
    Notes to the Company financial statements continued Operating assets and liabilities 5 Creditors: amounts falling due within one year 2015 £m 2014 £m Bank loans and overdrafts Amounts owed to Group undertakings Other creditors Accruals and deferred income US senior bank loans -unsecured - 729.3...

  • Page 163
    ... loss account £m Total £m At 01 October 2014 Employee share option scheme: - New shares issued - Value of employee services Utilisation of treasury shares Purchase of treasury shares Expenses related to purchase of treasury shares Close period share buyback programme Profit for the financial year...

  • Page 164
    ... Trust received additional funds of £2.2m which were used to purchase 377,860 shares in the market. These were used in the current year to satisfy an award under the RSP. The cost of funding and administering the scheme is charged to the profit and loss account of the Company in the period to which...

  • Page 165
    ...the entire benefit is passed to the customer at the point of delivery. It comprises revenue for software or upgrades sold on a perpetual license basis and software related services, including hardware sales, professional services and training. The Sage Group plc | Annual Report & Accounts 2015 163

  • Page 166
    ... Per Share SSRS Software & Software Related Services ERP Enterprise Resource Planning TSR Total Shareholder Return ESOS Executive Share Operating Scheme WLE Women's Leadership Exchange EU European Union WRVS Royal Voluntary Service 164 The Sage Group plc | Annual Report & Accounts 2015

  • Page 167
    Shareholder information Financial calendar Annual General Meeting Dividend payments Final payable - year ended 30 September 2015 Interim payable - period ending 31 March 2016 Results announcements Interim results - period ending 31 March 2016 Final results - year ending 30 September 2016 1 March ...

  • Page 168
    ... accounting through brilliant technology, working with a thriving community of business owners, accountants, partners and developers. www.sage.com The Sage Group plc North Park, Newcastle upon Tyne, NE13 9AA. Registered in England Company number 2231246 Cover picture: Gemma Price, Superfood Market...