8th May 2008 07:00
SAGE REVENUES RISE 9%* FOR THE HALF-YEAR ENDED 31 MARCH 2008
The Sage Group plc ("Sage"), one of the leading global suppliers of business management software and services for small and medium-sized enterprises ("SMEs"), announces its unaudited results for the half-year ended 31 March 2008.
Financial highlights
Revenues increased by 9%* to ‚£640.4m (H1 2007: ‚£588.7m*)
EBITA¢â‚¬ margin maintained at 24% (H1 2007: 24%*)
Adjusted pre-tax profit^ rose by 9% to ‚£138.0m (H1 2007: ‚£126.3m)
Adjusted earnings per share^ increased by 9% to 7.30p (H1 2007: 6.72p)
Operating cash flow of ‚£187.4m, representing 123% of EBITA (H1 2007: 114%)
Rebased interim dividend increased to 2.43p per share (H1 2007: 1.27p per share)
Operational and strategic highlights
8%* organic revenue growth, excluding Sage Healthcare Division, 5%* organic growth overall (H1 2007: 7%*)
12%* total growth in subscription revenues‚±; representing 59% of our business; 5%* total growth in software and software-related services
Good performance in established product lines across our regions
Two acquisitions completed in HR and payroll and construction software and services with a total enterprise value of ‚£40.1m
*Foreign currency results for the prior half-year ended 31 March 2007 have been retranslated based on the average exchange rates for the half-year ended 31 March 2008 of $2.01 and ¢â€š¬1.35 to Sterling to facilitate the comparison of results.
¢â‚¬ Earnings before interest, tax and amortisation of intangible fixed assets.
^Pre-tax profit and earnings per share figures stated prior to amortisation ofintangible fixed assets and after neutralisation of foreign exchange movements.A table reconciling adjusted pre-tax profit to statutory profit before taxationof ‚£122.6m is shown in Note 2 on page 10.
‚±Subscription revenues are recurring in nature and include premium support (software combined with support), maintenance and support, transaction revenues (payment and health insurance claims processing) and hosted products.
Regional analysis* First half revenues First half EBITA ‚£m 2008 2007 2008 2007 UK 117.6 107.5 44.3 40.0 Mainland Europe 229.4 195.6 53.9 46.0 North America 248.5 249.0 43.6 46.7 Rest of World 42.3 36.6 10.0 9.9 637.8 588.7 151.8 142.6 Acquisitions - UK 2.6 - 0.6 - Foreign exchange impact* - (14.0) - (4.0) 640.4 574.7 152.4 138.6 Chief Executive Paul Walker commented: "We are pleased to report a goodhalf-year performance, with overall growth in line with managementexpectations. Our businesses in the UK, Mainland Europe and Rest of World allshowed good revenue and profit growth. Our North America business, excludingSage Healthcare Division, performed in line with expectations in a morechallenging economic environment, reflecting the benefit of the investmentsmade in the past six months. As previously explained, Sage Healthcare Divisionis being restructured and is making progress in meeting itsoperational targets. "These results demonstrate the strength and resilience of our business model,based on the high proportion of subscription revenues which underpin ourorganic growth. Almost 60% of our revenues are derived from subscriptioncontracts, allowing us to grow our business through periods of challengingeconomic conditions. The predictability of our revenue streams and the highdegree of recurring subscription revenues, combined with our large, loyal,geographically diverse, customer base, give us confidence for the full year." Enquiries:The Sage Group plc +44 (0) 191 294 Tulchan Communications +44 (0) 20 73533068 4200
Paul Walker, Chief Executive Stephen Malthouse Paul Harrison, Group Finance Director Lizzie Morgan Cynthia Alers, Investor Relations Director
An analyst presentation will be held at 8.30amtoday at Deutsche Bank,Winchester House, 1 Great Winchester Street, London EC2N 2DB. A live webcastof the presentation will be hosted on www.investors.sage.com, dial-in number +44 (0) 1452 568 051, pin code: 44987480. Overview
We are pleased to report a good half-year performance, with overall growth inline with management expectations. Our businesses in Mainland Europe and Restof World again experienced excellent growth. Our UK business also performedwell compared with a very strong first half in 2007, which had the benefit oflegislative stimulus. Our North American business, excluding Sage HealthcareDivision, grew in line with our expectations despite a more challengingeconomic environment. Sage Healthcare Division implemented a number of actionsaimed at increasing support retention and improving overall customersatisfaction. As a result, revenues from maintenance and support and networkservices stabilised. System sales contracted compared to a strong performancein 2007, which saw significant stimulus from changes in legislation relating toinsurance claims processing. Over the period, we maintained the Group EBITA margin, whilst generating strongoperating cash flows. Our strong cash generation underpins the rebaseddividend payment in the period, as well as on-going strategic investment in
ourbusinesses. These results demonstrate the enduring defensive nature of our business modelthat underpins our organic revenue growth. Our customers' appetite forvalue-added support continues to grow, resulting in organic revenue growth of10%* in maintenance and support revenues (including premium support), which arethe largest component within subscription revenues. Half our revenues are nowderived from these maintenance and support contracts, with very high averageretention rates of 80%. Overall, we have 1.7 million support contracts, ofwhich almost two thirds are now premium contracts, combining software andsupport. Premium support contracts tend to enjoy high renewal rates andsuperior pricing. Subscription revenues are highly profitable with attractive,sustainable margins that help to drive our strong profit growth.
Product and services strategy
Our customers view Sage's products and services as an essential part of theirbusiness management process. It is a long term relationship built on loyalty,trust and quality advice that helps them run their businesses moreeffectively. Our strong customer relationships are demonstrated by the 36,000calls we took on an average daily basis over the period. This on-going dialogwith our customers is one of our primary competitive advantages. We continue to improve our products and services through customer feedback,technological innovation and understanding of the local business environmentthat allows us to develop products tailored to our customers' needs. Ourhosted products and services still represent only a small part of our revenues,but they have shown strong growth in new and established markets, especially inCustomer Relationship Management solutions ("CRM"). We anticipate that growthin our hosted products will continue to develop in line with customer demand. Acquisition reviewAcquisitions remain an important part of our growth strategy, and we continueto make strategic acquisitions which expand our product and services offeringto new and existing SME customers. We are also actively pursuing opportunitiesin emerging markets. Over the period we made two acquisitions in the UK for a total enterprise valueof ‚£40.1m, broadening our product offerings in HR and payroll and constructionsoftware and services. In October 2007, we acquired KCS Global HoldingsLimited ("KCS") for an enterprise value of ‚£20.0m. KCS is one of the UK'sleading suppliers of personnel, payroll and time & attendance solutions.Combined with the acquisition last year of HR and payroll specialist Snowdrop,this acquisition represents an excellent opportunity for Sage to fulfil thegrowing need of SMEs for specialist advice in HR and payroll. In March 2008,we announced the acquisition of the Tekton Group Ltd ("Tekton"), one of theleading suppliers of software products and services to the UK constructionindustry, for a total enterprise value of ‚£20.1m. Tekton will broaden ouroffering to the UK construction industry and extend our mid-market constructionsolutions.
We continue to evaluate a strong pipeline of acquisition opportunities but remain disciplined in our valuation appraisals.
Regional reviewUK
UK revenues grew by 12% overall to ‚£120.2m (H1 2007: ‚£107.5m). Organic revenue growth was broadly in line with our expectations at 5%, compared to a very strong first half in 2007, which was boosted by a change in government legislation.
Sage 50, our flagship product, once again recorded excellent, double digitgrowth. Our product suites, Sage 50, Sage 200 and Sage 1000, continue to bewell received by the market and experienced strong growth, as customersmigrated from older software versions to the new product suites. Protx, thepayment solutions provider, showed very strong growth over the period. Payrollsolutions experienced slower growth against a strong prior period performance. ACT! also showed slower growth, although SalesLogix performed very well. Customers continued to migrate to premium support and subscription softwaremodels, which resulted in double digit growth in maintenance and supportrevenues (including premium support). We anticipate that premium support willcontinue to increase as a proportion of our revenues in the UK, strengtheningthe resilience of our business.
The EBITA margin was maintained at 37% (H1 2007: 37%).
The UK made two acquisitions in the period: KCS and Tekton. Both acquisitions are important strategic steps in expanding our portfolio of specialist solutions for our customers.
Mainland Europe
Total revenues in Mainland Europe grew by 17%* overall to ‚£229.4m (H1 2007: ‚£195.6m*) with strong organic revenue growth of 10%*. Mainland Europe is nowour largest constituent of Group profits, contributing 35% to Group EBITA. France showed strong organic revenue growth of 9%*, with good performances inCiel!, our entry-level solution, and in solutions for mid-market. Spain hadexcellent organic revenue growth of 30%*, driven by the introduction of newaccounting standards for Spanish SMEs and high adoption levels of premiumsupport offerings. As forecast, organic revenue in Germany/Switzerlanddeclined by 4%*, following an exceptionally strong performance in the first sixmonths of 2007 after changes in tax legislation. Poland continued to showexcellent double digit revenue growth.
The EBITA margin was maintained at 24% (H1 2007: 24%*).
North America
In March 2008, we announced the appointment of Sue Swenson as President and CEOof our North American business. Ms Swenson is a strong leader who brings awealth of international experience in managing large, customer-led businessesin competitive markets and who has a proven track record in growing businessesand improving customer service. Total revenue growth in North America was flat at ‚£248.5m (H1 2007: ‚£249.0m*),reflecting the reduced revenues in Sage Healthcare Division, which represents11% of total Group revenues. Organic revenue growth, excluding Sage HealthcareDivision, was 5%*.
The Business Management Division reported organic growth of 3%*, with goodperformances from Simply, ACCPAC ERP, and CRM products. Peachtree recordedflat growth ahead of a forthcoming upgrade release, although our premiumversion, Peachtree Quantum, had another strong performance with double digitorganic revenue growth. Our MAS range of solutions in the mid-market were wellreceived by our business partners with good growth in MAS 500, although MAS 90revenues were flat. The Industry & Specialised Solutions Division greworganically by 6%*, with good performances from Sage Timberline Office andNot-for-Profit products. Payment Solutions Division performed well, with 14%*growth. Revenues for Sage Healthcare Division did not meet management forecasts,although the business continues to be profitable. The business underwent anumber of management changes in the prior year, as well as facing disruptionresulting from the implementation of government legislation regulating healthinsurance claims processing. The business focused in this half-year onimproving the customer experience in all areas, and we expect to see someimprovement in support retention during the remainder of the year. The searchfor a CEO of this division is well advanced, and we anticipate making anannouncement on this appointment in the near future. The North American EBITA margin was 18% (H1 2007: 19%*), as forecast,reflecting the announced investment in our North American business. Theresults of this investment are beginning to be seen in both sales and servicesupport. Support response levels, as reflected in call resolution, wait timesand overall customer experience, have improved significantly after an increasein headcount. Sales team productivity has also increased with improved customertargeting and new partner engagement strategies. The North American EBITAmargin, excluding Sage Healthcare Division, was 23% (H1 2007: 25%*).
Rest of World
Total revenues in Rest of World grew by 16%* to ‚£42.3m (H1 2007: ‚£36.6m*) withoverall organic revenue growth of 13%*. South Africa again reported excellentrevenue growth, with strong revenue growth in Pastel and payroll solutions, aswell as continuing customer adoption of support offerings. Australia reporteddouble digit revenue growth. We were satisfied with the performances of oursmaller businesses in the Far East, India and the Middle East. The EBITA margin decreased to 24% (H1 2007: 27%*) due to the dilutive effectsof acquisitions made in the prior year and planned investment in our SouthAfrican business made to meet increasing demand. The investment was made innew office premises, facilities and headcount. Financial reviewOver the period, we saw significant movement in foreign currency exchangerates. In particular, rates for the Euro to Sterling strengthened 13% to ¢â€š¬1.25from ¢â€š¬1.43, or an average rate of ¢â€š¬1.35 for the half-year. It is Sage's policyto align the currency denominations of our debt with the cash flows arisingfrom our trading activities in those same currencies to hedge our currencyexposure. We do not hedge pure translational exposure resulting fromconversion for accounting purposes of overseas companies results into Sterling. The change in the foreign currency exchange rate had a favourable impact on ourfinancial results as they are translated for accounting purposes intoSterling. In order to assess like-for-like performance, regional and Groupgrowth trends are shown on a currency neutral basis throughout thisannouncement, unless otherwise stated. An indication of the impact of foreignexchange movements is shown in the table in Note 2 on page 10.
Revenues
Revenues increased 9%* to ‚£640.4m (H1 2007: ‚£588.7m*). Organic revenue growthwas 8%*, excluding Sage Healthcare Division, and 5%* including Sage HealthcareDivision (H1 2007: 7%*). Organic revenue growth excludes the contributions ofcurrent year and prior year acquisitions (4% of total revenues) and non-coreproducts (2% of total revenues). Our customers are increasingly moving towards a subscription software model,where the software licence forms part of the annual support contract. To takeinto account this changing revenue stream and to facilitate understanding ofour underlying business, we are, in these interim results, reporting revenuesin two categories: software and software-related services, and subscriptionrevenues. Software and software-related services revenues principally includesoftware licences (where sold separately from a support contract), professionalservices, training, business forms and hardware. Subscription revenues includepremium support (software combined with support), maintenance and support,transaction revenues (payment and health insurance claims processing) andhosted products. We will continue to report these two revenue categories infuture. Over the period, total software and software-related services grew 5%*to ‚£259.9m. Organic revenue growth was 3%* excluding Sage HealthcareDivision. Total subscription revenues grew 12%* to ‚£380.5m with organicrevenue growth of 11%* excluding Sage Healthcare Division.
Profitability
EBITA margins were maintained at 24% (H1 2007 24%*) and adjusted pre-tax profit^ rose by 9% to ‚£138.0m (H1 2007: ‚£126.3m). Adjusted earnings per share^ grew9% to 7.30p (H1 2007: 6.72p). After accounting for the effects of amortisationand currency movements, statutory pre-tax profit rose 13% to ‚£122.6m (H1 2007:‚£108.6m). A reconciliation of adjusted pre-tax profit to statutory profitbefore taxation of ‚£122.6m is shown in the table in Note 2 on page 10.
The Group's EBITA margin was maintained at 24% (H1 2007: 24%*).
The Group's effective tax rate for the year is forecast to remain at 31% (H1 2007: 31%).
Cash flow
The Group remains highly cash generative with operating cash flow of ‚£187.4m representing 123% of EBITA (H1 2007: 114%).
At 31 March 2008, net debt stood at ‚£555.8m (30 September 2007: ‚£509.7m).
Sage
has in place committed syndicated borrowings of ‚£850m (comprising facilities of‚£650m and ‚£200m), expiring in 2011, of which ‚£614m is drawn. Despite currentconditions in the global credit markets, we successfully renewed the terms ofour ‚£200m credit facility in January of this year.
Dividend
As announced on 28 November 2007, the Board proposed a rebasing of thedividend, reflecting the Group`s strong cash flow and recurring revenuestreams. The interim dividend reflects this rebasing and is being raised to2.43p per share (H1 2007: 1.27p per share). The dividend will be payable on 20June 2008 to shareholders on the register at close of business on 16 May 2008. PeopleIn April 2008, Sue Swenson joined Sage as President and CEO of our NorthAmerican business. She brings excellent operational skills, strategic visionand customer focus that will help lead our North American business in its nextimportant stage of development. We are delighted to welcome Ms Swenson toSage. In November 2007, Ian Mason, Chief Executive of Electrocomponents plc, joinedthe Board as a non-executive director. Mark Rolfe, former Finance Director ofGallaher Group plc, joined the Board in December 2007 as a non-executivedirector and in April 2008 became chair of the Audit Committee. Outlook
We are pleased to report a good half-year performance, with overall growth inline with management expectations. Our businesses in the UK, Mainland Europeand Rest of World all showed good revenue and profit growth. Our North Americabusiness, excluding Sage Healthcare Division, performed in line withexpectations in a more challenging economic environment, reflecting the benefitof the investments made in the past six months. As previously explained, SageHealthcare Division is being restructured and is making progress in meeting
itsoperational targets. These results demonstrate the strength and resilience of our business model,based on the high proportion of subscription revenues which underpin ourorganic growth. Almost 60% of our revenues are derived from subscriptioncontracts, allowing us to grow our business through periods of challengingeconomic conditions. The predictability of our revenue streams and the highdegree of recurring subscription revenues, combined with our large, loyal,geographically diverse, customer base, give us confidence for the full year. Consolidated income statement
For the six months ended 31 March 2008
Year Six months ended 30 ended 31 September Six months ended 31 March 2007 2007 March 2008 (Unaudited) (Unaudited) (Audited) Note ‚£m ‚£m ‚£m Continuing operations Revenue 1,2 640.4 574.7 1,157.6 Cost of sales (47.7) (53.2) (103.7) Gross profit 592.7 521.5 1,053.9 Selling and administrative expenses (455.7) (396.6) (798.7) Operating profit 1 137.0 124.9 255.2 Finance income 1.8 1.8 3.6 Finance expenses (16.2) (18.1) (35.5) Net finance expenses (14.4) (16.3) (31.9) Profit before taxation 2 122.6 108.6 223.3 Taxation 3 (38.0) (33.7) (69.2) Profit for the period 84.6 74.9 154.1 Attributable to: Equity shareholders 84.6 74.9 154.1 Profit for the period 8 84.6 74.9 154.1 EBITA* 1 152.4 138.6 283.2 Earnings per share (pence) - Basic 5 6.48p 5.78p 11.85p - Diluted 5 6.46p 5.74p 11.79p
Consolidated statement of recognised income and expense
For the six months ended 31 March 2008
Year Six months ended 30 ended 31 September Six months ended 31 March 2007 2007 March 2008 (Unaudited) (Audited) (Unaudited) Note ‚£m ‚£m ‚£m Profit for the period 8 84.6 74.9 154.1 Net exchange adjustments offset in reserves 8 44.8 (31.9) (51.6) Equity movement of deferred tax - - (3.3) Actuarial loss on employment benefits - - (1.2) Net profits/(losses) not recognised in income statement 44.8 (31.9) (56.1) Total recognised income for the period 129.4 43.0 98.0 Attributable to: Equity shareholders 129.4 43.0 98.0 Total recognised income for the period 129.4 43.0 98.0
* EBITA measure (Earnings before interest, tax and amortisation) excludes the effects of:
Amortisation of acquired intangible assets; and
Amortisation (or capitalisation) of software development expenditure.
Consolidated balance sheetAs at 31 March 2008 31 March 2007 30 September Restated 2007 31 March 2008 (Unaudited) (Audited) Note (Unaudited) ‚£m ‚£m ‚£m Non-current assets Goodwill 6 1,697.2 1,536.8 1,572.1 Other intangible assets 6 220.1 185.7 195.5 Property, plant and equipment 6 135.3 127.7 130.5 Deferred tax assets 8.7 25.1 8.3 2,061.3 1,875.3 1,906.4 Current assets Inventories 5.5 6.0 5.5 Trade and other receivables 283.3 234.8 230.3 Cash and cash equivalents 9 76.4 76.5 65.6 365.2 317.3 301.4 Total assets 2,426.5 2,192.6 2,207.8 Current liabilities Trade and other payables (233.3) (187.8) (210.2) Current tax liabilities (64.1) (58.1) (56.3) Financial liabilities - Borrowings (0.5) (0.4) (0.3) Deferred consideration (6.5) (12.4) (8.5) Deferred income (374.6) (318.4) (300.2) (679.0) (577.1) (575.5) Non-current liabilities Financial liabilities - Borrowings (614.7) (597.6) (562.0) Retirement benefit obligations (6.5) (2.1) (5.3) Deferred tax liabilities (13.0) (11.8) (14.2) (634.2) (611.5) (581.5) Total liabilities (1,313.2) (1,188.6) (1,157.0) Net assets 1,113.3 1,004.0 1,050.8 Equity
Share capital 7,8 13.1 13.0 13.0 Share premium account 7,8 481.9 474.2 478.2 Other reserves 8 36.9 11.8 (7.9) Retained earnings 8 581.4 505.0 567.5 Total parent shareholders' equity 8 1,113.3 1.004.0 1,050.8 Total equity 8 1,113.3 1,004.0 1,050.8
The notes on pages 9 to 17 form an integral part of this condensed consolidated half-yearly financial information.
Consolidated cash flow statement
For the six months ended 31 March 2008
Year Six months Six months ended 30 ended 31 ended 31 September March 2008 March 2007 2007 (Unaudited) (Unaudited) (Audited) Note ‚£m ‚£m ‚£m Cash flows from operating activities
Cash generated from continuing
operations 187.4 157.6 317.1 Interest received 1.8 1.7 3.6 Interest paid (16.0) (17.6) (34.4) Tax paid (31.1) (37.6) (66.1)
Net cash generated from operating
activities 142.1 104.1 220.2 Cash flows from investing activities
Acquisitions of subsidiaries (net
of cash acquired) (58.6) (33.0) (96.2) Disposal of subsidiaries - - 0.9 Purchase of intangible assets (8.4) (4.6) (15.9)
Purchase of property, plant and
equipment (10.6) (12.1) (22.1)
Proceeds from sale of property,
plant and equipment 0.1 0.2 0.2 Net cash used in investing activities (77.5) (49.5) (133.1) Cash flows from financing activities Net proceeds from issue of ordinary share capital 3.8 11.0 15.0
Finance lease principal payments - (0.1) (0.2)
Issue costs on loans (0.3) (0.2) (0.2) Repayment of borrowings (126.0) (79.1) (189.0) New borrowings 139.1 42.5 122.2
Dividends paid to shareholders 4 (74.5) (32.5) (49.0)
Net cash used in financing activities (57.9) (58.4) (101.2)
Net increase/(decrease) in cash
and cash equivalents (before exchange rate changes) 9 6.7 (3.8) (14.1)
Effects of exchange rate changes 9 4.1 (1.7) (2.3) Net increase/(decrease) in cash
and cash equivalents 10.8 (5.5) (16.4)
Cash and cash equivalents at 1
October 9 65.6 82.0 82.0
Cash and cash equivalents at
period end 9 76.4 76.5 65.6
Notes to financial information
For the six months ended 31 March 2008
Group accounting policiesa General information
The Sage Group plc ("the Company") and its subsidiaries (together "the Group") is one of the leading global suppliers of business management software and services to small and medium-sized enterprises. The Group operates in 23 countries worldwide in the UK & Ireland, Mainland Europe, North America, Southern Hemisphere and Asia.
These interim financial results do not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. Statutory accounts for theyear ended 30 September 2007 were approved by the Board of directors on 18January 2008 and delivered to the Registrar of Companies. The report of theauditors on those accounts was unqualified, did not contain an emphasis ofmatter paragraph and did not contain any statement under Section 237 of theCompanies Act 1985.The Company is a limited liability Company incorporated and domiciled in theUK. The address of its registered office is North Park, Newcastle upon Tyne,NE13 9AA.
The Company is listed on the London Stock Exchange.
The Group consolidated half-yearly financial information was approved for issue by the Board of directors on 8 May 2008.
b Basis of preparation
This condensed consolidated half-yearly financial information for the half-yearended 31 March 2008 has been prepared in accordance with the Disclosure andTransparency Rules of the Financial Services Authority and with IAS 34,"Interim Financial Reporting" as adopted by the European Union. The half-yearlycondensed consolidated financial report should be read in conjunction with theannual financial statements for the year ended 30 September 2007, which havebeen prepared in accordance with IFRSs as adopted by the European Union.
c Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2007, as described in those annual financial statements.
Adoption of new and revised International Financial Reporting Standards
At the date of approval of this half-yearly information, the following standards, interpretations and amendments were issued but not yet mandatory for the Group and early adoption has not been applied.
International Financial Reporting Standards ("IFRS")
IFRS 8 "Operating Segments"
IFRS 3 (revised) "Business Combinations"
International Financial Reporting Interpretations Committee ("IFRIC") interpretations
IFRIC 12 "Service Concession Arrangements"
IFRIC 13 "Customer Loyalty Programmes"
IFRIC 14 "IAS19 - The limit of a defined benefit asset, minimum funding requirements and their interaction"
Amendments to existing standards
Amendment to IAS 1 "Presentation of Financial Statements: A Revised Presentation"
Amendment to IAS 23 "Borrowing Costs"
Amendment to IAS 27 "Consolidated and Separate Financial Statements"
Amendment to IAS 32 "Financial Instruments: Presentation" and IAS 1 "Presentation of Financial Statements: Puttable Financial Instruments and Obligations Arising on Liquidation"
Amendment to IFRS 2 "Share-based Payment: Vesting Conditions and Cancellations"
All the IFRSs, IFRIC interpretations and amendments to existing standards are yet to be endorsed by the EU at the date of approval of these consolidated financial statements with the exception of IFRS 8.
We are currently gathering data in order to assess the impact of each of the standards.
Notes to financial information
For the six months ended 31 March 2008
1 Segmental reporting
Six months ended 31 March 2008 Six months ended 31 March 2007 Operating Operating Revenue* EBITA* profit* Revenue* EBITA* profit* (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m UK & Ireland Mainland Europe 117.6 44.3 43.1 107.5 40.0 39.5 North 229.4 53.9 47.9 195.6 46.0 41.4 America 248.5 43.6 35.9 249.0 46.7 38.2 Rest of World 42.3 10.0 9.9 36.6 9.9 9.8 637.8 151.8 136.8 588.7 142.6 128.9 Acquisitions - UK & Ireland 2.6 0.6 0.2 - - - Foreign exchange impact* - - - (14.0) (4.0) (4.0) 640.4 152.4 137.0 574.7 138.6 124.9 * The 2008 trading results from businesses located outside the UK weretranslated into Sterling at the average exchange rates for the period. For ourtwo most significant foreign operating currencies, the US Dollar and the Euro,the resulting rates were ‚£1 = $2.01 and ‚£1 = ¢â€š¬1.35 respectively. Results forthe period ended 31 March 2007 have been retranslated at these exchange ratesto facilitate the comparison of results.
EBITA includes a charge for share-based payments of ‚£3.8m (H1 2007: ‚£4.5m).
The Board measures Group and regional performance by using EBITA (earnings before interest, tax and amortisation), which excludes the effects of amortisation of acquired intangible assets and the net amortisation or capitalisation of software development expenditure.
Reconciliation of EBITA to Six months ended operating profit 31 Six months ended 31 March March 2007 2008 (Unaudited) ‚£m (Unaudited) ‚£m EBITA
Net amortisation of software 152.4 138.6
development expenditure (0.3) (0.5) Amortisation of acquired intangible assets (15.1) (13.2) Operating profit 137.0 124.9
2 Reconciliation to statutory revenue and profit before taxation
Reconciliation of revenue Six months ended 31 March 2008 Six months ended 31 Growth (Unaudited) March 2007 (Unaudited) (Unaudited) ‚£m ‚£m % Revenue on foreign currency exchange rate neutral basis 640.4 588.7 9%
Impact of movements in foreign
currency exchange rates - (14.0) Statutory revenue 640.4 574.7 11%
Reconciliation of profit before Six months
taxation ended 31 March 2008 Six months ended 31 Growth (Unaudited) March 2007 (Unaudited) (Unaudited) ‚£m ‚£m % Adjusted pre-tax profit 138.0 126.3 9%
Impact of movements in foreign
currency exchange rates - (4.0) 138.0 122.3 13% Net amortisation of software development expenditure (0.3) (0.5) Amortisation of acquired intangible assets (15.1) (13.2)
Statutory profit before taxation 122.6 108.6 13%
Notes to financial information
For the six months ended 31 March 2008
3 Taxation
Income tax for the six months ended 31 March 2008 (Unaudited) is charged at 31%(six months ended 31 March 2007 (Unaudited): 31%; year ended 30 September 2007(Audited): 31%), representing the best estimate of the average annual effectiveincome tax rate expected for the full year, applied to the pre-tax income forthe six months ended 31 March 2008.4 Dividends Year Six months ended 30 ended 31 September Six months ended 31 March 2007 2007 March 2008 (Unaudited) (Audited) (Unaudited) ‚£m ‚£m ‚£m
Final dividend paid for the year ended 30 September 2006 of 2.51
pence per share - 32.5 32.5 Interim dividend paid for the
year ended 30 September 2007 of 1.27 pence per share - - 16.5 Final dividend paid for the year ended 30 September 2007 of 5.73
pence per share 74.5 - - 74.5 32.5 49.0
The interim dividend of 2.43 pence per share will be paid on 20 June 2008 to shareholders on the register at the close of business on 16 May 2008.
5 Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held in the employee share trust, which are treated as cancelled.
For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all dilutive potential ordinaryshares. The Group has two classes of dilutive potential ordinary shares: thoseshare options granted to employees where the exercise price is less than theaverage market price of the Company's ordinary shares during the period and thecontingently issuable shares under the Group's long-term incentive plan.At 31 March 2008, the performance criteria for the vesting of the awards underthe incentive scheme had not been met and consequently the shares in questionare excluded from the diluted EPS calculation.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below:
Six months ended 31 March Six months ended 31 March 2008 2007 (Unaudited) (Unaudited) Weighted Weighted average average number number of Per-share of Per-share Earnings shares amount Earnings shares amount ‚£m millions pence ‚£m millions pence Basic EPS Earnings attributable to ordinary shareholders 84.6 1,304.8 6.48 74.9 1,297.2 5.78 Effect of dilutive securities Options - 4.2 (0.02) - 8.2 (0.04) Diluted EPS 84.6 1,309.0 6.46 74.9 1,305.4 5.74
Notes to financial information
For the six months ended 31 March 2008
Adjusted EPS - non GAAP measure
Six months ended 31 March Six months ended 31 March 2008 2007 (Unaudited) (Unaudited) Weighted Weighted average average number number of Per-share of Per-share Earnings shares amount Earnings shares amount ‚£m millions pence ‚£m millions pence Basic EPS Earnings attributable to ordinary shareholders 84.6 1,304.8 6.48 74.9 1,297.2 5.78 Non EBITA items: Intangible amortisation and net development expenditure 15.4 13.7 Taxation (4.8) (4.2) Net EBITA adjustments 10.6 - 0.82 9.5 - 0.73 Adjusted basic EPS 95.2 1,304.8 7.30 84.4 1,297.2 6.51 Exchange adjustments 4.0 Taxation (1.2) - - - 2.8 - 0.21 Adjusted EPS 95.2 1,304.8 7.30 87.2 1,297.2 6.72 6 Capital expenditure Restated (Unaudited)
Six months ended 31 March 2007 ‚£m Opening net book amount 1 October 2006 1,881.3
Additions 48.4 Disposals (0.4)
Depreciation, amortisation and other movements (including exchange
differences) (79.1)
Closing net book amount 31 March 2007 1,850.2
(Unaudited)
Six months ended 31 March 2008 ‚£m Opening net book amount 1 October 2007
1,898.1 Additions 79.4 Disposals (0.1)
Depreciation, amortisation and other movements (including exchange
differences) 75.2
Closing net book amount 31 March 2008 2,052.6 Non-financial assets that have an indefinite life are not subject toamortisation, but are tested for impairment annually at the year-end (30September) or whenever there is any indication of impairment. At 31 March 2008,there was no indication of impairment for non-financial assets with indefinitelives.
Financial assets were reviewed for impairment as at 31 March 2008. There was no indication of impairment.
Notes to financial information
For the six months ended 31 March 2008
7 Share capital Ordinary Share Number of shares premium Total shares (Unaudited) (Unaudited) (Unaudited)Capital (Unaudited) ‚£m ‚£m ‚£m Opening balance 1 October 2006 1,294,280,944 12.9 462.8 475.7 Allotted under share option schemes 7,477,208 0.1 11.4 11.5 At 31 March 2007 1,301,758,152 13.0 474.2 487.2 Opening balance 1 October 2007 1,304,160,154 13.0 478.2 491.2 Allotted under share option schemes 2,521,592 0.1 3.7 3.8 At 31 March 2008 1,306,681,746 13.1 481.9 495.0
8 Shareholders' funds and reconciliation of changes in shareholders' equity
Share Share Other Retained Equity Minority Total capital premium reserves earnings funds interest equity ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m At 1 October 2006 12.9 462.8 43.7 458.1 977.5 0.1 977.6 Exchange adjustments - - (31.9) - (31.9) - (31.9) New shares issued 0.1 - - - 0.1 - 0.1 Purchase of - - - - - (0.1) (0.1) minority interest Net profit - - - 74.9 74.9 - 74.9 Share options - proceeds from - 11.4 - - 11.4 - 11.4 shares issued - value of - - - 4.5 4.5 - 4.5 employee services Dividends - - - (32.5) (32.5) - (32.5) At 31 March 2007 - (Unaudited) 13.0 474.2 11.8 505.0 1,004.0 1,004.0 Share Share Other Retained Equity Minority Total capital premium reserves earnings funds interest equity ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m At 1 October 2007 13.0 478.2 (7.9) 567.5 1,050.8 - 1,050.8 Exchange adjustments - - 44.8 - 44.8 - 44.8 New shares issued 0.1 - - - 0.1 - 0.1 Net profit - - - 84.6 84.6 - 84.6 Share options - proceeds from - 3.7 - - 3.7 - 3.7 shares issued - value of - - - 3.8 3.8 - 3.8 employee services Dividends - - - (74.5) (74.5) - (74.5) At 31 March 2008 - (Unaudited) 13.1 481.9 36.9 581.4 1,113.3 1,113.3
Other reserves relate to the merger reserve which was present under UK GAAP andfrozen on transition to IFRS along with the translation reserve. The mergerreserve and translation reserves were ‚£61.1m and (‚£24.2m) respectively at 31March 2008 (‚£61.1m and (‚£69.0m) respectively at 30 September 2007; and ‚£61.1mand (‚£49.3m) respectively at 31 March 2007).
Notes to financial information
For the six months ended 31 March 2008
9 Net debt Exchange movement / At 1 October other At 31 March Analysis of 2006 Cash flow (Unaudited) 2007 change in net (Audited) (Unaudited) (Unaudited) debt ‚£m ‚£m ‚£m ‚£m Cash and cash equivalents 82.0 (3.8) (1.7) 76.5 Loans due within one year (0.9) 0.6 - (0.3) Finance leases due within one year (0.1) - - (0.1) Loans due after more than one year (661.7) 39.4 25.7 (596.6) Finance leases due after more than one year (0.2) 0.1 - (0.1) Cash collected from customers (12.7) (3.2) 0.6 (15.3) (593.6) 33.1 24.6 (535.9) Exchange movement / At 1 October other At 31 March Analysis of 2007 Cash flow (Unaudited) 2008 change in net (Audited) (Unaudited) (Unaudited) debt ‚£m ‚£m ‚£m ‚£m Cash and cash equivalents 65.6 6.7 4.1 76.4 Loans due within one year (0.2) 0.1 (0.1) (0.2) Finance leases due within one year (0.1) - (0.2) (0.3) Loans due after more than one year (561.1) (9.4) (43.5) (614.0) Finance leases due after more than one year (0.1) - - (0.1) Cash collected from customers (13.8) (3.5) (0.3) (17.6) (509.7) (6.1) (40.0) (555.8)
Included in cash above is ‚£17.6m (30 September 2007: ‚£13.8m) relating to cashcollected from customers, which we are contracted to pay onto another party. Aliability for the same amount is included in trade and other payables on thebalance sheet and is classified within net debt above.
Notes to financial information
For the six months ended 31 March 2008
10 Business combinations (Unaudited)
KCS
On 26 October 2007 the Group completed the acquisition of KCS Global HoldingsLimited ("KCS"), for a consideration of ‚£20.2m (inclusive of ‚£0.3m relatedcosts). Total goodwill arising on the acquisition is ‚£13.8m. The fair values ofnet assets acquired are based on provisional assessments pending finaldetermination of certain assets and liabilities.In the purchase 100% of the voting shares were acquired. From the date of theacquisition to 31 March 2008 the acquisition contributed ‚£2.6m to revenue and ‚£0.2m to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill.
Details of net assets acquired and goodwill are as follows:
‚£m Purchase consideration: - cash paid 19.9 - direct costs relating to the acquisition 0.3 Total purchase consideration 20.2
- fair value of net identifiable assets acquired (see below) (6.4)
Goodwill 13.8 Goodwill represents the fair value of the assembled workforce at the time ofacquisition and other potential future economic benefit that is anticipatedwill be derived from the integration of services offered by KCS with existingproduct and service offerings within our UK business.
The fair value adjustments contain some provisional amounts which will be finalised in the 2008 accounts.
Carrying values Provisional pre-acquisition fair value KCS acquisition ‚£m ‚£m Intangible fixed assets 7.3 7.8 Property, plant and equipment 0.2 0.2 Receivables 1.3 1.3 Payables (1.2) (1.3) Deferred income (1.6) (1.6) Taxation - Current (0.2) (0.2) Cash and cash equivalents 0.2 0.2 Net assets acquired 6.0 6.4 Goodwill 13.8 Consideration 20.2 Consideration satisfied by: Cash 20.2 20.2 The outflow of cash and cash equivalents on the acquisition of KCS iscalculated as follows: ‚£m Cash consideration 20.2 Cash acquired (0.2) 20.0 The intangible assets acquired as part of the acquisition of KCS can beanalysed as follows: ‚£m Brand 0.5 Customer relationships 4.5 Technology 2.8 7.8
Notes to financial information
For the six months ended 31 March 2008
Tekton
On 29 March 2008 the Group completed the acquisition Hallco 1390 Ltd which trades under the name of Tekton Group Ltd ("Tekton"), for a consideration of ‚£ 21.2m (inclusive of ‚£0.2m related costs). Total goodwill arising on the acquisition is ‚£15.6m. The fair values of net assets acquired are based on provisional assessments pending final determination of certain assets and liabilities.
In the purchase 100% of the voting shares were acquired. From the date of theacquisition to 31 March 2008 the acquisition contributed ‚£nil to revenue and ‚£nil to profit.
All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill.
Details of net assets acquired and goodwill are as follows:
‚£m Purchase consideration: - cash paid 20.0 - direct costs relating to the acquisition 0.2 - deferred consideration 1.0 Total purchase consideration 21.2
- fair value of net identifiable assets acquired (see below) (5.6)
Goodwill 15.6
Goodwill represents the fair value of the assembled workforce at the time of acquisition and other potential future economic benefit that is anticipated will be derived from the integration of services offered by Tekton with existing product and service offerings within our UK business.
The fair value adjustments contain some provisional amounts which will be finalised in the 2009 accounts.
Carrying values Provisional pre-acquisition fair value Tekton acquisition ‚£m ‚£m Intangible fixed assets 11.9 6.0 Property, plant and equipment 0.3 0.3 Inventories 0.2 0.2 Receivables 2.5 2.2 Payables (2.3) (2.3) Deferred income (1.7) (1.7) Taxation - Current (0.2) (0.2) Cash and cash equivalents 1.1 1.1 Net assets acquired 11.8 5.6 Goodwill 15.6 Consideration 21.2 Consideration satisfied by: Cash 20.2 Deferred consideration 1.0 21.2 The outflow of cash and cash equivalents on the acquisition of Tekton iscalculated as follows: ‚£m Cash consideration 20.2 Cash acquired (1.1) 19.1
Notes to financial information
For the six months ended 31 March 2008
The intangible assets acquired as part of the acquisition of Tekton can beanalysed as follows: ‚£m Customer relationships 2.0 Technology 4.0 6.0 Contribution of acquisitions
The contribution to Group revenue and net profit, had the acquisitions occurred at the beginning of the year, has not been disclosed as it would be impracticable to determine these amounts due to the following reasons:
Certain of the acquisitions had a different year end to the Group;
Certain of the acquisitions accounted under a different GAAP to the Group, making accounting information not comparable to the rest of the Group; and
In certain instances, accounting information is not sufficient to determine accurately the fair value adjustments that would have been made to the balance sheets one year ago.
OtherDuring the six months to 31 March 2008 adjustments were made in respect ofgoodwill on prior year acquisitions of ‚£15.5m, due to additional considerationof ‚£15.0m, of which ‚£14.5m related to consideration paid on acquiring theadditional 30% share capital of XRT on 7 November 2007, and a decrease in netassets of ‚£0.5m. When the accounting for acquisitions is provisional at a period end date and isthen amended within 12 months, the carrying amount of the assets and associatedgoodwill is accounted for at the revised level from the original acquisitiondate. Comparative information presented for the periods before the accountingis complete should be presented as if the initial accounting had been completefrom the acquisition date. As a result the consolidated balance sheet for theperiod ended 31 March 2007 has been restated to reflect the final accounting. The impact of the restatement has been to increase goodwill by ‚£96.4m, reducedeferred tax assets by ‚£91.1m and increase trade and other payables by ‚£5.3m. There is no impact on the consolidated income statement.
11 Contingent liabilities
The Group had no contingent liabilities at 31 March 2008 (31 March 2007 and 30 September 2007: none).
12 Related party transactions
The Group has taken advantage of the exemption available under IAS 24, "RelatedParty Disclosures", not to disclose details of transactions with its subsidiaryundertakings. There are no other external related parties. Six months ended 31 Six months ended 31 March 2008 March 2007 (Unaudited) (Unaudited) Key management compensation ‚£m ‚£m Salaries and short-term employee benefits 2.8 2.9 Post-employment benefits 0.1 0.1 Share-based payments 1.0 1.1 3.9 4.1 13 Group risk factors
As with all businesses, the Group is affected by certain risks, not whollywithin our control, which could have a material impact on the Group's long termperformance and could cause actual results to differ materially from forecastand historic results.The principal risks and uncertainties facing the Group have not changed fromthose set out in the Annual Report and Accounts 2007. These include: Highlycompetitive environment; disruption to systems and networks; changes in theeconomic, political, legal, accounting and business environment; changes intechnology; changes to regulatory requirements; changes to legal protection ofintellectual property; and changes in foreign currency exchange rates. For afull discussion of the risks to our future business performance, please referto pages 36-37 in our Annual Report and Accounts 2007, or to www.investors.sage.com.
Statement of Directors' Responsibilities
We confirm that to the best of our knowledge this condensed set of financialstatements has been prepared in accordance with IAS 34 as adopted by theEuropean Union, and that the interim management report herein includes a fairreview of the information required by DTR 4.2.7 and DTR 4.2.8. On behalf of the BoardP A WalkerChief Executive8 May 2008 P S HarrisonGroup Finance Director8 May 2008
Report on review of consolidated half-yearly financial information
Introduction
We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 31March 2008, which comprises the Consolidated income statement, Consolidatedstatement of recognised income and expense, Consolidated balance sheet,Consolidated cash flow statement and related notes. We have read the otherinformation contained in the half-yearly financial report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in the Group accounting policies, the annual financial statementsof the Group are prepared in accordance with IFRSs as adopted by the EuropeanUnion. The condensed set of financial statements included in this half-yearlyfinancial report has been prepared in accordance with International AccountingStandard 34, "Interim Financial Reporting", as adopted by the European Union. Our responsibilityOur responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. This report, including the conclusion, has been prepared for and onlyfor the Company for the purpose of the Disclosure and Transparency Rules of theFinancial Services Authority and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, 'Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity' issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making enquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us tobelieve that the condensed set of financial statements in the half-yearlyfinancial report for the six months ended 31 March 2008 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Newcastle upon Tyne8 May 2008 Notes:(a) The maintenance and integrity of The Sage Group plc website is
the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and
dissemination of financial statements may differ from legislation in other jurisdictions.
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