Sage Group

168 Pages·2015·3.14 MB·English

T The Sage Group PLC
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S Annual Report and Accounts 2015
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Strategic report 2015 Financial highlights
Performance highlights 
02 Our business at a glance
04 Our business model
06 Company fundamentals Organic revenue growth Organic operating margin
08 Chairman’s statement
6% 27.1%
10 Chief Executive’s review
14 Our market %
6
16 Our strategy % %
28 Key performance indicators 5% 6.5 27.1
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30 Our strategy applied
36 Principal risks and uncertainties
44 Financial and operating review
50 Corporate Responsibility
Governance
59 Chairman’s introduction to Governance
60 Board of directors
62 Executive committee 14 15 14 15
64 Corporate governance report
74 Directors’ remuneration report Underlying basic EPS growth Underlying cash conversion
92 Directors’ report
12.6% 106%
Financial statements
99 I ndependent auditors’ report to the
members of The Sage Group plc %
% % 6
110104 GNrootuesp tfion tahnec Giarl osutapt efimnaennctisal statements 12.6 101 10
157 Company financial statements
%
163 Shareholder information 2
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Discover more about Sage online
www.sage.com
14 15 14 15
All images used within this Annual Report and
Accounts are those of real customers and colleagues.
About our non-GAAP Organic – in addition to Strategic progress
measures and why we the adjustments made
use them to underlying measures,
Throughout the strategic organic measures exclude – Winning in the market with global products: 
report we quote two kinds part-year contributions from
of non-GAAP measure: acquisitions, disposals and
underlying and organic. products held for sale in the – Increased paying subscriptions for Sage One
We use these measures in current and/or prior years.
monitoring performance This allows management to 173,000 (FY14: 86,000)
and incentivising and investors to understand
management. the like-for-like performance
of the business. – Increased Sage X3 organic revenue by 11%
Underlying – underlying
measures exclude certain Reconciliations of statutory
one-off and non-operational revenue, operating profit – Sage Live developed in 26 weeks from idea to launch
items, and prior year and basic earnings per
underlying measures are share to their underlying
retranslated at the current and organic equivalents – Growing software subscription revenues organically
year exchange rates to are in the Financial and
neutralise the effect of operating review starting by 29%, demonstrating traction in our transition to
currency fluctuations. on page 44. 
higher quality, sustainable revenue growth
Underlying measures allow During the year we have
management and investors made several revenue
to compare performance reporting changes.
– Supporting customers for life with the
without the potentially You can read about these
distorting effects of foreign changes and non-GAAP contract renewal rate increasing to 84%
exchange movements. definitions on pages 44
and 163 respectively.
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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 11
Our business at a glance
What we do and where
As a global technology company we energise the success of businesses and their
communities around the world through the use of smart technology and the imagination
of our people. We work with a thriving community of accountants, partners, developers
and entrepreneurs, the engine room of economies around the world.
OUR PRODUCT FOCUS
The “Golden Triangle” represents the strong value proposition Developing ever closer integration of our growth products is a
we can provide to our customers in three mission critical key focus of our investment. We are also investing in products
areas – Accounting, Payroll & HR and Payments – through with open application programming interface (“API”), such as
solutions that are seamlessly integrated to automate Sage Live, so that independent software vendors (“ISVs”) can
workflow and the movement of money. Our ecosystem develop their applications to integrate with our core product
enables integration with our other applications, including as standard, maximising customer choice and driving
mobile applications and features as a service so that customer experience.
customers can tailor our offering to their needs.
More information online at
sage.com/products
Payroll & HR Payments
The Golden
Our Payroll & HR solutions are simple, Our payments offerings enable
secure and efficient, helping our Triangle our customers to take payments
customers to remain compliant, pay their through their websites, in person
employees accurately and on time, and to using a card reader, or directly
deliver a great employee experience. 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.
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SMALL & MEDIUM BUSINESSES O
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We are focused on delivering a consistently exceptional experience to all of our four million A
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customers, working to provide the most appropriate products and services to suit their needs. C
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We don’t believe in labelling customers but we do think it is helpful to understand the
characteristics of different sizes of business in order to better serve them:
0 to 9 employees 10 to 200 employees 200+ employees
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Ranging from sole traders to small employers, Ranging from small owner managed Larger businesses, where their scale and IN
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these entities constitute the vast majority of all businesses to larger entities with multiple organisational complexity mean they N
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businesses in our top geographies, numbering layers of organisational structure, adoption practically all use business management IA
around 68 million. It is estimated that only of software to manage finances is much solutions in some form. The packaged L S
around one in ten of these businesses uses  more common in this size range where the solutions used by these entities may be more TA
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a packaged software solution to manage population of entities is around four million extensive, performing additional functions EM
their business. Adoption of software in this in our top geographies. Businesses typically of business management and potentially EN
size range is being driven by affordable, rely on software to maintain appropriate required to deal with cross-border operations. TS
mobile ready, easy-to-use cloud solutions records and to perform multiple functions Sage X3 is our global product for businesses
like Sage One. with a number of packaged solutions being with these characteristics where modules
run, either independently or integrated. Data can be used to perform everything from
sharing between functions can be particularly monitoring the sales pipeline and customer
powerful in organisations of this size and relationships to managing inventory.
Sage Live is designed with that in mind.
OUR GLOBAL REACH
Our established market positions and presence in 23 countries around the world
53%
provides a platform to bring products and services to both new and existing customers.
Our investment focuses on our growth product portfolio which consists of our cloud Europe
deployable global products and our local growth products (see page 30 for more on product Total revenue £745m
portfolio management). 
Recurring revenue mix 75%
46%
15%
32%
North America International
Total revenue £450m Total revenue £206m
Recurring revenue mix 58% Recurring revenue mix 65%
* Charts represent regional proportion of group organic revenue
The Sage Group plc | Annual Report & Accounts 2015 3
Our business model
The model we apply to create value
Our business model is the means by which we can deliver on our strategic objectives. As with
everything we do, the customer is at the heart of our business model which aligns with the
customer journey and experience.
KEY INPUTS TO OUR BUSINESS MODEL
Our business model operates effectively utilising key inputs that are fundamental to our
success as follows:
Talented people Trusted brand Market and Resource allocation Local knowledge
We rely on the collaboration Small & Medium technology insight Focusing our resources on Our deep knowledge of
and technology expertise of Businesses are at the heart Our constant focus growth products enriches the regulatory landscapes
over 13,000 of our people of our economies and Sage on technology over the the functionality of our we operate in not only
around the world. is their champion. last 30 years has developed flagship products and ensures our customers
a deep understanding maximises the technology remain compliant but lets
of what is important to opportunity. us plan for new legislation
our customers. on the horizon.
VALUE CREATED FROM OUR BUSINESS MODEL
Group Organic Revenue Growth
Organic Revenue Organic Operating Profit
£1,400m £380m
Revenue streams:
Shareholder Returns
– Recurring: Revenue on a contract basis predominantly for
maintenance and support services or bundled subscription Dividends and share repurchases
services
£146m
– Software and related services (SSRS): Software licences and related
products and services (e.g. training, implementation or hardware)
– Processing: Revenue for processing services which is volume driven
(e.g. payments or payroll processing) 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
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ACTIVAT STATE
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Routes to market
Our multi-channel
approach is supported
by a network of direct Attract new customers by Develop deeper customer
sales channels, business winning in the market, relationships by bringing
partners and accountants. T offering customer choice, the latest technology
C supporting a strong and other benefits of
A partner and accountant subscription to inactive
R ecosystem and customers
T providing first
T class support
A
OUR
CUSTOMER
Create JOURNEY Grow with our
exceptional customers by W
customer revolutionising
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experiences to business,
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earn customers providing additional
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for life. features and services.
Identify when a customer
The lifecycle is supported
would benefit from
by our One Sage culture
migrating up to the next
and Capacity for Growth
product solution
strategic pillars
RETAIN
Read our strategy One Winning in the Revolutionise Customers for life Capacity for growth
on page 16 Sage market business
The Sage Group plc | Annual Report & Accounts 2015 5
Company fundamentals
Our investment case
We believe in delivering superior shareholder returns through a commitment 
to doing business the right way.
A GLOBALLY RECOGNISED BRAND 23 countries
We have established a strong and trusted local brand in
each of our markets as the champion of Small & Medium
Businesses, the lifeblood of our economies. Millions Supporting millions of customers globally from our
of customers trust Sage to support them based on our presence in 23 countries and generating revenues
of £1.4 billion
understanding of the Small & Medium Business space
and local regulatory landscapes, gained through over
30 years of operational experience.
IN A MARKET WITH ENORMOUS POTENTIAL 72 million potential customers
There are 72 million Small & Medium Businesses in our
current geographies* and an estimated 10% of them use
packaged software solutions to manage their business.
The opportunity to expand the addressed market through
0 – 9 10 – 199 200+
intuitive, smart technology solutions is vast. employees employees employees
68m 4m 150k
FOCUSING INVESTMENT IN OUR CUSTOMER R&D and S&M spend in FY15
VALUE PROPOSITION 90% Growth products
Heritage products
10%
Our product focus is on Accounting, Payroll & HR and
Payments solutions and we seek to maximise our customer
value proposition through our portfolio investment
strategy. By concentrating our resources on growth
products, including global products and local growth
products, we seek to ensure that functionally rich
solutions exist for all customers, regardless of how
they choose to deploy their software.
* A nalysis covering Sage current top ten geographies measured by physical presence
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GENERATING SUSTAINABLE REVENUE GROWTH 2% 6% FIN
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We have increased our organic revenue growth rate C
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since FY12 from 2% to 6% in FY15. As we continue to L S
transition towards a higher quality revenue model, FY12 FY15 TA
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we have confidence in maintaining our revenue growth M
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by attracting new customers and delivering greater value, N
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functionality and features to our existing customers.
STRONG FREE CASH FLOW FCF to revenue
20.6%
Our attention to underlying cash conversion and a
disciplined approach to capital expenditure yields strong
levels of free cash flow (“FCF”). Generating strong FCF
is important in order to fund shareholder returns and
14 16.9%
we aim to generate FCF as a proportion of revenue in
the 15% to 20% range.
15 20.6%
AND A PROGRESSIVE DIVIDEND 15 year dividend history
13.10p
We remain focused on shareholder returns and believe
that sustainable earnings growth, a disciplined approach
to capital allocation and progressive dividend policy, Growing the annual dividend
per share
will drive superior returns for shareholders. Central to
our shareholder returns is the annual dividend which
has increased every year since we joined the FTSE 100.
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
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