The Sage Group plc audited results for the year ended 30 September 2017

Wednesday 22 November 2017

Platform for acceleration - powered by Sage Business Cloud

Operating performance highlights

? Organic revenue growth ¹ of 6.6% (FY16: 6.7%), underpinned by recurring revenue growth of 9.0% and an improved SSRS performance with a decline of 1.4% (FY16: decline of 8.4%);

? Organic operating margin of 28.0% (FY16: 27.1%) and EBITDA margin of 30.3% achieved;

? Software subscription revenue growth of 30.3% (FY16: 32.1%), which now represents 37% of total revenue (FY16: 30%);

? Double digit organic revenue growth achieved in half of the eight regions in the year;

? Annualised cost savings of £59m (FY16: £51m) and associated non-recurring (exceptional) charge of £73m (FY16: £110m), both favourable to previously provided guidance and with significant improvement in payback period over FY16;

? Further general and administrative expense as a proportion of revenue (G&A ratio) reduction to 13.8% (FY16: 17.4%);

? Underlying cash conversion of 95% (FY16: 100%), increased capex investment for growth accounting for 400bps reduction, supporting free cash flow of £276m, (FY16: £254m) and the 9.0% increase in full year dividend to 15.42p (FY16: 14.15p);

? September 2017 net debt : EBITDA leverage of 1.6x and return on capital employed of 27%;

? Achieved 6% organic revenue growth including the North American Payments Business and an underlying operating margin (including FY17 acquisitions) of 27% (FY17 guidance achieved).

FINANCIAL SUMMARY	FY17	FY16	Change
Organic revenue ²³	£1,696m	£1,591m	6.6%
- Recurring revenue	£1,314m	£1,207m	9.0%
- Processing revenue	£83m	£81m	1.9%
- SSRS revenue	£299m	£303m	(1.4%)
Organic revenue including North American Payments	£1,815m	£1,713m	6.0%

Organic operating profit	£475m	£431m	10.3%
Organic operating profit margin	28.0%	27.1%	0.9%
Underlying operating margin	27.0%	27.0%	0.0%

Underlying basic EPS	31.90p	30.82p	3.5%
Underlying adjusted EPS ⁴	33.10p	30.82p	7.4%
Underlying cash conversion	95%	100%	(500bps)
Ordinary dividend per share	15.42p	14.15p	9.0%

STATUTORY SUMMARY	FY17	FY16	Change
Revenue	£1,715m	£1,439m	19.2%
Operating profit	£348m	£267m	30.3%
Profit before tax	£342m	£242m	41.3%
Basic EPS	27.80p	19.28p	44.2%

1 Unless otherwise stated, all revenue growth measures are stated on an organic basis at constant exchange rates. Refer to Appendix II on page 20 for full definitions on non-GAAP measures and note 3 of the financial statements for details of items excluded from underlying operating profit .

2 See full definition of organic revenue and underlying revenue in appendix II on page 20.

3 As a result of rounding throughout this document, it is possible that tables may not cast and change percentages may not calculate precisely.

4 Underlying adjusted EPS excludes the impact of acquisitions and disposals.

Transformation announced at the Capital Markets Day (CMD) June 2015 completed:

? In the transition to subscription, recurring revenue is now 78% of total revenue with software subscription revenue representing 37% of total revenue, up from 22% in FY14;

? Focus on customer obsession has driven net promoter scores (NPS) from a neutral score in Q1 FY15 to a high of +25 in Q4 FY17;

? In the cost transformation, G &A ratio has reduced from 19% to under 14% since FY14 with over £100m of annualised cost savings achieved and reinvested for growth;

? From virtually no cloud presence in FY14, Sage now has a comprehensive suite of cloud solutions, unified under Sage Business Cloud with £300m of annualised recurring revenue (ARR) in FY17, growing at over 80% in the year;

? Strengthened position as market leader in scale-up and enterprise through organic growth and the acquisitions of Sage Intacct and Sage People (Fairsail).

Progress in the acquisitions:

Significant focus has been placed on the successful integration of the acquired businesses with strong continuing momentum:

? Sage Intacct has surpassed $100m ARR and continues to grow in excess of 30%;

? Sage People had a record Q4 with the highest ever contract signed at over £300k;

? Sage Compass users have increased by 65% since acquisition.

Stephen Kelly, Chief Executive Officer said:

"FY17 marks the completion of the transformation of Sage outlined at the June 2015 Capital Markets Day. For each of the past three years we have delivered management's guidance for at least 6% organic revenue growth and 27% underlying operating margins, whilst fundamentally transforming Sage. We now have the leadership, organisational alignment, brand and comprehensive suite of cloud solutions, to accelerate momentum in our markets. The launch of Sage Business Cloud in October 2017 gives our customers the most comprehensive business management cloud platform in the market and provides the platform for this acceleration. We will continue to drive efficiencies and productivity throughout the organisation and this is now 'business as usual'."

Outlook

The organic revenue definition for FY18 will include acquired businesses from the beginning of the financial year following their date of acquisition⁵. During FY17, Sage acquired Fairsail (now Sage People) and Intacct (now Sage Intacct), which will now form part of organic revenue and, combined, are expected to add around 1% of revenue in FY18. On this basis Management expects organic revenue growth for FY18 to be around 8%.

We expect to continue to achieve cost efficiencies that will be more than sufficient to offset any losses in the acquired businesses as they scale. We are therefore confident of delivering an organic operating margin of around 27.5% in FY18.

We look forward to sharing the plans for Sage's future accelerated growth journey at the Capital Markets Day in London on 25 January 2018.

⁵ Adjustments are made to the comparative period to present acquired businesses as if these had been part of the Group throughout the period.

About Sage

Sage is the global market leader for technology that helps businesses of all sizes manage everything from money to people - whether they're a start-up, scale-up or enterprise. We do this through Sage Business Cloud - the one and only business management solution that customers will ever need, comprising Accounting, Financials, Enterprise Management, People & Payroll and Payments & Banking.

For more information, visit www.sage.com

Enquiries:

The Sage Group plc FTI Consulting

+44 (0) 191 294 3457 +44 (0) 20 3727 1000

Lauren Wholley, Investor Relations Charles Palmer

Amy Lawson, Corporate PR Dwight Burden

An analyst presentation will be held at 8.30am today at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD. A live webcast of the presentation will be hosted on www.sage.com/investors , dial-in number +44 (0) 20 3427 1903, pin code: 2018766 # . A replay of the call will also be available for one week after the event: Tel: +44 (0) 20 7984 7568 , pin code: 2018766#

Chief Executive Officer's review

Operating Performance

In FY17 Sage delivered organic revenue growth of 6.6% (6.0% including North American Payments) and an organic operating margin of 28.0% (27.0% underlying). These results meet all market guidance commitments, signalling three successive years of achieving at least 6% organic revenue growth and 27% underlying operating margin, whilst fundamentally transforming Sage.

In FY17 the Group delivered recurring revenue growth of 9% and software subscription growth of 30%: excluding the performance in France, recurring revenue for the full year was 11% and software subscription growth was 39%. A significantly lower SSRS decline of 1% reflects the planned migration to subscription, offset mainly by strong growth in Sage X3, which is still sold mainly on perpetual licence and has a higher professional services attach rate.

The strategy is working and the path to accelerating organic revenue growth is emerging, especially in the mid-size regions that have been more agile in adapting to the new operating model and cultural change. Half of the regions have shown double digit growth in FY17 (Central Europe⁶, Iberia⁷, Brazil, Africa & Middle East).

After a slower start to the year, North America has shown significant progress under the strengthened leadership team. France remained challenging throughout the year with new leadership now appointed in FY18. Northern Europe grew by 7%, in excess of the Group growth rate, as the region continues to drive growth through the transition to subscription and the Sage Business Cloud, especially through Sage 50c and, increasingly, Sage X3.

⁶ Germany, Switzerland and Poland

⁷ Spain and Portugal

Strong momentum in acquired businesses

Consistent with the strategy, during FY17 Sage announced and completed the acquisitions of Compass, the benchmarking and collective intelligence platform; Fairsail (rebranded Sage People), the cloud Human Capital Management solution; and Intacct (rebranded Sage Intacct), the Gartner Visionary for cloud Financial Management Solutions in North America. Significant emphasis has been placed on the successful integration of these acquisitions and, encouragingly, the businesses have showed strong momentum since joining the Sage family:

? Sage People's ACV has continued to increase with a record Q4 FY17 with the highest ever contract signed at over £300k;

? Sage Intacct has continued growing at over 30% and achieved over $100m ARR for the first time, strengthening Sage's position as market leader in the scale-up/enterprise segment in North America;

? Compass users have increased by 65% since acquisition.

Success in the cloud - Sage's position in the market

Sage is the market leader in the scale-up and lower enterprise segments. This continues to contribute the largest proportion of revenue, providing the sweet-spot of strong profitability in a market of fragmented competitors. The acquisition of Intacct further enhances Sage's position in upper scale-up and lower enterprise as Intacct provides a market-leading, cloud-first solution in the US, with the US representing over 50% of the total addressable market.

The start-up market, although smaller in revenue compared to the scale-up segment, also remains an important part of the strategy. The functionality in Sage One continues to increase, attracting higher contract values. Sage is also strengthening routes to market through the Sage Business Cloud ecosystem and the new e-commerce website, combined with continuing to establish strong relationships with accountants.

Sage Business Cloud

In October 2017, the Group launched Sage Business Cloud - the one and only business management platform that customers will ever need from start-up to enterprise. Sage Business Cloud offers a powerful set of cloud services, perfectly aligned to customer requirements, unifying the golden triangle of Accounting, People & Payroll and Payments & Banking cloud products.

Supporting core solutions, Sage is developing a thriving ecosystem with marketplace applications from ISV partners powered by a Sage developer platform for APIs and innovative platform services including artificial intelligence and the Pegg bot framework.

There is no other consistent global competitor who offers this breadth of cloud products across Sage's market segments and the golden triangle. It also accelerates the shift away from high-cost, hard to implement, monolithic ERP systems and positions Sage Business Cloud as compelling for new and existing customers, allowing them to join the platform and grow at any stage of their business journey.

Sage Business Cloud comprises revenue from the cloud and cloud-enabled elements of Sage One, Sage Live, Sage X3, Sage Intacct, Sage People and the Sage 50c and Sage 200c families. FY17 cloud ARR was £300m, growing at 83% in FY17.

Capital allocation

Throughout the first phase of the transformation in FY15 and FY16, the focus was on restructuring the core business to drive simplification and efficiency. With the second phase in FY17, Management was more active in accelerating the strategy through portfolio rationalisation with the disposal of North American Payments and the acquisitions of Compass, Fairsail and Intacct. Going forward, Sage will look to continue to invest and accelerate the execution of the strategy, with bolt-on acquisitions of complementary technology and partnerships to further reinforce the golden triangle and enhance the Sage Business Cloud market leadership position.

Acquisitions are always subject to stringent financial criteria. Sage is committed to maintaining rigorous financial discipline and delivering shareholder returns. Group return on capital employed (ROCE) at September 2017 is 27%, with net debt : EBITDA leverage of 1.6x, well within the corridor of 1-2x.

Progress in strategy and transformation

Sage has made significant progress since the transformation, first announced at the Capital Markets Day in June 2015. The market opportunity of $27bn was significant, however, after a 'root & branch' market and internal review, management recognised that Sage had been slow to innovate, was fragmented and poorly aligned and was missing the leadership and culture required to win or grow sustainably in the long term.

The journey started to recreate Sage as a customer obsessed, innovative technology company supported by an efficient and scalable operating model. This strategy served to enhance the business model to support high organic growth, superior operating margins and strong free cash flows to lead consolidation towards clear market leadership.

In phase one, management integrated formerly decentralised functions and started to: establish high performance market-facing regions served by strong functions; improve processes and systems (e.g. deploying Sage X3 internally); recruit and promote talent; and streamline the property portfolio. This drove the basis of the cost transformation which reduced expenditure in G&A functions to reinvest for growth. This phase of the transformation also continued the strategy towards a subscription model. By the end of FY16 management had established an organisational platform with leadership to acquire and integrate selected bolt-on acquisitions to accelerate the strategy.

FY17 has represented the second phase of the transformation. In this phase, management continued on the progress made in phase one and also completed three acquisitions important for the Sage Business Cloud. In FY17, following the appointment of Blair Crump as Sage President, management identified efficiencies, improvements and simplification in go-to-market functions. Progress in FY17 against each of our strategic pillars outlined as follows:

Customers for life (C4L)

In FY17, the focus for existing customers continued to remain on the migration to subscription relationships, with the value proposition now further strengthened by the roll-out of the cloud-enabled versions of the Sage 50 and Sage 200 families (comprising Sage 100, 200 and 300) in Sage's major geographies. Cloud enabled solutions provide the pathway for on-premise customers to enjoy the flexibility of the cloud, whilst maintaining the familiarity and functionality of desktop and these solutions will continue to drive strong revenue growth and expand the C4L base.

Continuing to strengthen the relationship with customers has also been a priority in FY17 and is vital under a SaaS 'born in the cloud' model. Sage is enhancing contact with customers, offering the choice between phone, digital or self-serve support and globalising the service team to flex resource worldwide to cover peak times. Net Promoter Scores (NPS)⁸ as a measure of customer advocacy have improved accordingly across the business.

Progress in FY17

? Significant momentum achieved in cloud enabled solutions with revenue increasing by 140% to £133m with an 87% increase in cloud enabled contracts to 172k, largely driven through the UK and North America.

? NPS scores in Q4 FY17 reached a high of +25, up 11 points from Q4 FY16.

? Retention rates at 86% (FY16: 86%).

? Sage customers have moved £3 trillion through Sage software in the year, as solutions become more integrated and automated under Sage Business Cloud. FY17 has seen further product integrations to enhance the automation within the customer business.

Focus for FY18

Continuing to drive value through subscription and cloud enabled solutions with launches planned in 12 further countries in FY18, combined with an increased focus on customer obsession to continue to further increase NPS scores and improve retention rates.

⁸ NPS is measured by external company, Medallia, following the industry prescribed process. This is the first year that we have disclosed NPS and quarterly fluctuations may be expected.

Winning in the market

In new customer acquisition, the dual focus for FY17 has been to drive growth in the cloud and to deliver successful execution in the go-to-market functions to accelerate momentum.

Significant progress has been made in Sage's cloud capabilities from the investment in product development, technology partnerships and improved leadership capability. From virtually no cloud presence at all in FY14, Sage now has a comprehensive suite of cloud solutions from start-up to enterprise across the golden triangle in Sage's major geographies, with the launch of Sage Business Cloud unifying this extensive cloud portfolio and creating the most complete cloud platform in the market.

Throughout FY17 the Group has had success in driving the growth of its cloud-first solutions higher within their market segments and increasing revenue per contract as the functionality, user-experience and overall ecosystem continue to develop:

? Sage X3 grew at over 20% in the year and continues to push up further into enterprise with over 50 contracts signed for over £100k in the year and an increase in ACV of 9%;

? Sage Live average ACV has risen from under £1,000 to £3,900 in the year with focus on customers more suited to this functionally rich solution;

? Sage One average ACV has risen by 34% on the prior year to £81 with ARR increasing by 76% and a subscription contract number increase of 29%. The focus is on selling the full Sage One Accounts solution, now suitable for businesses with up to 50 employees.

The cloud elements of these solutions are all included within Sage Business Cloud, which is now our primary tool to win new customers in the cloud.

There has also been significant progress in go-to-market functions under the leadership of Sage President, Blair Crump. Five out of the eight Regional Managing Directors have changed in the past 18 months with a highly competent and effective team now in place.

Significant progress has also been made in the partner channel in the year with focus on building relationships with partners and accountants. The increased focus on accountants is enhanced with the innovative Sage Accountant Cloud platform. Sage is expanding its accountant network and enhancing its referral programme, boosting sales of Sage solutions to their customers, as well as recruiting an advisory board of accountants and book-keepers to advise on the product roadmap and strategy.

In marketing, the new Sage website has been rolled out, interacting seamlessly with Sage Business Cloud, to improve new customer acquisition by facilitating the buying process with a new e-commerce platform, as well as consolidating web domains and improving search engine optimisation.

Progress in FY17

? Sage Summit was taken on the road to eight locations with a particular focus on partners and accountants. There were approximately 30,000 registered attendees and over 550m social media impressions created.

? Partner revenue grew by 9% in the year and the number cloud partners increased by 125%.

? Accountant NPS in the UK rose by 30 points as Sage continues to develop its relationship with this crucial channel.

? Marketing campaigns are now focused on areas that will drive a significant conversion. A local campaign in September 2017 in San Francisco and Chicago resulted in a 41% rise in brand search queries and a rise of over 2,000% in web sessions.

Focus for FY18

Further progress is required in go-to-market functions to enable execution of sales of cloud solutions at scale. Management will continue to drive alignment, discipline and simplification in the sales function, as well as increasing the proportion of revenue through the partner channel to expand reach and market share, and continuing to deepen relationships with the accountant network.

Revolutionising business

In technology it is imperative that Sage continues to leap-frog the competition to grow its leadership position in the market. The Group has instilled a culture of innovation and continuous improvement within the business.

Progress in FY17

? The ISV network now has almost 500 partners.

? The payments strategy announced during FY17 has progressed at speed with partnerships signed with some of the most innovative Fintech companies including Stripe and Go Cardless.

? Sage solutions continue to win awards, including ICB Bookkeeping Software of the year, Practice Excellence Awards with Sage One + Pegg (Chatbot) and the Dynamites corporate award for 50c.

? Sage Intacct was named as 'visionary' within the Gartner magic quadrant.

? Sage continues to develop the latest features in its solutions with over 1,200 product releases in the year, including machine learning embedded within bank feeds and Pegg embedded within Sage 50 payroll.

? Kriti Sharma, VP of Bots and Artificial Intelligence, was named in the Forbes 30 under 30 for technology.

? The launch of the Sage Business Cloud unifies the cloud portfolio and truly revolutionises the way customers use Sage services.

Focus for FY18

The focus for FY18 is the deployment of Sage Business Cloud in all major Sage geographies, whilst continuing to innovate and develop features and functionality to continue to lead the market.

Capacity for growth

Identifying areas for cost savings has remained a focus in FY17, both in G&A functions, but also within go-to-market as management simplifies and aligns these functions.

Progress in FY17

? The G&A ratio has reduced from 17.4% in FY16 to 13.8% in FY17.

? Management has delivered annualised cost savings in FY17 of £59m, marking savings of over £50m for two consecutive years, with a significantly improved payback period in the year.

? The total organic headcount has reduced by 3%.

Focus for FY18:

Management will continue to identify areas for cost savings and efficiencies, whilst committing to no further non-recurring (exceptional) items related to the transformation that was announced at the CMD in 2015. Financial discipline will remain of crucial importance as management continues to embed a culture where colleagues treat Sage money as their own. The business will also continue to offset losses in high-growth businesses acquired in FY17 without impairing the overall Group operating margin. The organisational improvements, simplification of the business and efficiencies will continue as business as usual and, as the business continues to scale, the Group will start to achieve operating leverage.

One Sage

Throughout the transformation and beyond, instilling a positive, high-performance, customer centric culture is vital. Sage continues to invest in its colleagues, focusing on leadership development, training, engagement, diversity and inclusion and giving back to the community through the Sage Foundation.

Progress in FY17

? Over three training days taken per colleague on average

? The Sage share scheme was launched in the year with over 20% take up by colleagues worldwide.

- The Sage Foundation remains a powerful tool to recruit and retain Sage colleagues whilst allowing them to give back to the community. In FY17 23,000 Sage Foundations days were spent in the community with almost £2m of grants awarded.

? Sage served as a premier partner at the Invictus Games in Toronto and launched the Sage Serving Heroes Programme in Canada, working with a team from Invictus Team Canada competitors, providing them with mentoring, business support and Sage technology to help them start and grow their business.

The extended Executive Committee is now 33% female.

Priorities for FY18:

? Continuing to drive a strong, inclusive culture, listening to and acting on feedback from colleagues to achieve the ambition of making Sage the 'best place to work'.

Summary

The transformation announced at CMD is now complete. Management has created the leadership, organisational alignment, brand and comprehensive suite of cloud solutions, unified under Sage Business Cloud, to target more ambitious growth as Sage progresses into FY18 and beyond. There is always more to do in striving for customer obsession, fuelling growth through innovation and delivering efficiencies and operating leverage - the job of Management and Leadership is never 'done'. The key to achieving this acceleration is execution on the strategy, embedding the right culture and further improvements in go-to-market functions, and management will continue to drive greater effectiveness, efficiency and simplification to support growth.

The progress made in the transformation has reinforced the investment case of high quality, growing recurring revenue, superior operating margins, strong free cash flow and a progressive dividend. In the next phase of the growth journey, Sage's ambitions move towards accelerating revenue growth and margins trending upwards, with the investment case now stronger than ever.

Chief Financial Officer's review

Group performance

Sage achieved organic revenue growth of 6.6% (FY16: 6.7%) and an organic operating profit margin of 28.0% (FY16: 27.1%). Recurring revenue growth continues to drive revenue, growing at 9.0% in FY17 (FY16: 10.4%), including software subscription growth in FY17 of 30.3% (FY16: 32.1%).

The organic revenue definition for FY17 neutralises the impact of foreign currency fluctuations and excludes the contribution from current and prior period acquisitions, discontinued operations, disposals and assets held for sale. The underlying revenue definition neutralises the impact of foreign currency fluctuations but includes the contribution from current and prior period acquisitions, discontinued operations, disposals and assets held for sale.

From FY18 onwards, organic revenue will include acquired businesses from the beginning of the financial year following their date of acquisition. Adjustments will be made to the comparative period to present acquired businesses as if these had been part of the Group throughout the period. Acquisitions and disposals which occurred close to the start of the opening comparative period where the contribution impact would be immaterial will not be adjusted. A reconciliation of operating profit to statutory operating profit is shown on page 15.

Statutory performance has been impacted by favourable movements in key exchange rates during the year. Statutory figures are based on continuing operations and include the impacts of acquisitions and disposals.

Revenue

	STATUTORY			ORGANIC
	FY17	FY16	Change	FY17	FY16	Change
Northern Europe	£368m	£336m	10%	£363m	£338m	7%
Central and Southern Europe	£580m	£491m	18%	£579m	£547m	6%
North America	£492m	£405m	21%	£481m	£457m	5%
International	£275m	£207m	33%	£273m	£249m	10%
Group	£1,715m	£1,439m	19%	£1,696m	£1,591m	7%

Operating profit

	STATUTORY			ORGANIC			UNDERLYING
	FY17	FY16	Change	FY17	FY16	Change	FY17	FY16	Change
Group	£348m	£267m	30%	£475m	£431m	10%	£496m	£471m	5%
Margin	20.3%	18.6%	1.7%	28.0%	27.1%	0.9%	27.0%	27.0%	(0%)

Statutory operating profit is stated after non-recurring costs incurred relating to business transformation and recurring costs relating to amortisation of acquisition related intangible assets and other M&A activity related charges.

Throughout FY17, Sage has secured annualised savings of £59m (FY16: £51m), used to reinvest in go-to-market functions and to offset losses in high growth technology acquisitions. An associated non-recurring (exceptional) cost of £73m (FY16: £110m) has been recognised in the year.

Revenue mix

Segmental reporting

	RECURRING REVENUE			PROCESSING REVENUE			SSRS REVENUE
ORGANIC	FY17	FY16	Change	FY17	FY16	Change	FY17	FY16	Change
Northern Europe	£287m	£262m	9%	£37m	£35m	4%	£39m	£41m	(4%)
Central & Southern Europe	£449m	£424m	6%	-	£2m	(100%)	£130m	£121m	7%
Total Europe	£736m	£686m	7%	£37m	£37m	0%	£169m	£162m	4%
North America	£378m	£347m	9%	£32m	£31m	2%	£71m	£79m	(11%)
International	£200m	£174m	15%	£14m	£13m	7%	£59m	£62m	(5%)
Group	£1,314m	£1,207m	9%	£83m	£81m	2%	£299m	£303m	(1%)
% of total organic revenue	78%	76%		5%	5%		17%	19%

Recurring revenue

Sage delivered recurring revenue growth of 9% (FY16: 10%), driven by the year-on-year increase in subscription revenue of 30% (FY16: 32%), in line with the transition to a subscription model. The slight slow down of recurring revenue is due to performance in France: excluding this region, recurring revenue grew at 11% for the year. Contract renewal rates remain stable at 86% (FY16: 86%) and recurring revenue now represents 78% of organic revenue (FY16: 76%).

Processing revenue

Processing revenue has grown by 2% (FY16: 22%), reflecting growth in Northern Europe, North America and International.

SSRS revenue

SSRS revenue declined by 1% (FY16: decline of 8%) in line with the continued transition to subscription revenue, balanced by strong growth in Sage X3 and an increase in professional services and training revenue.

Performance - European regions

ORGANIC REVENUE GROWTH	FY17	FY16
Northern Europe	+7%	+7%
Central Europe	+12%	+4%
France	+1%	+6%
Iberia	+10%	+7%
Central & Southern Europe	+6%	+6%
Total Europe	+6%	+6%

Revenue in the European regions grew by 6% overall in FY17 (FY16: 6%). Within Europe, all major geographies excluding France have grown in excess of the organic group growth rate of 7% with double digit growth in Iberia (Spain and Portugal) and Central Europe (Germany, Switzerland, Poland).

Recurring revenue in Europe grew by 7% (10% excluding France), of which software subscription revenue grew by 19% (FY16: 27%). Software subscription revenue now represents 37% of total revenue in Europe (FY16: 33%).

Processing revenue was flat in Europe (FY16: 12%) reflecting growth in Sage Pay in the UK & Ireland, offset by slowing growth elsewhere.

SSRS revenue grew by 4% (FY16: decline of 8%) reflecting growth of Sage X3 and professional services, offset by the planned decline in licences.

Northern Europe

UK & Ireland - continuing momentum through C4L

UK & Ireland revenue grew by 7% (FY16: 7%) in the year, with recurring revenue growth of 9% underpinned by software subscription growth of 25%.

The main growth driver in FY17 was the 17% growth in Sage 50 Accounts, which remains a popular solution in the UK and Ireland, underpinned by growth of 86% in Sage 50c, the cloud enabled solution.

The Sage 200 franchise also performed well in the UK and Ireland, growing at 14%, as Sage continues to grow its position in the scale-up market.

Sage X3 revenue grew by 48% in the year in the UK and Ireland as the region continues to increase contract size, targeting bigger customers through the direct sales team. There were seven Sage X3 transactions signed over £100k in the year in the UK and Ireland.

Sage One revenue grew by 53% in the UK and Ireland driven by a 32% increase in ACV and increasing subscription numbers as the region continues to attract higher paying customers.

Processing growth of 4% was driven by Sage Pay as e-commerce continues to be popular in the UK and Ireland.

Focus for FY18 in the UK and Ireland is on the continued migration to subscription through cloud enabled solutions as well as driving growth in ACV and subscription numbers in Sage One and Sage Live.

Central and Southern Europe

France - challenges with up-front fees and partners

France revenue growth of 1% (FY16: 6%) was below the Group's ambitions for the country, largely due to a first year premium charged in prior years as customers were migrated to subscription. This is now being phased out but is expected to impact revenue growth in H1 18 with an improvement in performance expected in H2 18. There were also challenges in driving recurring revenue in the partner channel as significant upgrades had already been implemented in FY16 under the i7 migration.

Conversely, SSRS grew by 1%, driven by strong Sage X3 growth of 22% in the year with 18 contracts for over £100k signed in the year.

Focus in France for FY18 is on re-energising the partner channel and focusing on driving growth through Sage Business Cloud and the updated e-commerce website. Sage has also announced the appointment of new leadership in the country.

Iberia - revenue acceleration in the year

Strong revenue growth of 10% (FY16: 7%) was driven by growth in both recurring and SSRS revenue. The two largest solutions, Sage 200 (locally known as Murano) and Sage 50 (locally known as Contaplus), grew by 17% and 9% respectively, driven by cloud enabled launches in the year.

SSRS revenue growth has been driven, in part, from early adoption of functionality in Sage software to comply with a VAT legislative change - well ahead of the competition.

The focus for Iberia in FY18 is to continue to grow recurring and SSRS revenue through cloud solutions and driving growth in the partner channel.

Central Europe - significant acceleration in the year

Central Europe delivered revenue growth of 12% (FY16: 4%), a significant acceleration on the prior year, growing both recurring and SSRS revenue.

In Germany, growth of 14% was largely driven by the Sage 200 family (locally known as Office Line) which grew by 34%, driven by a strong partner channel. SSRS growth has been driven by Sage X3 growth and success in professional services.

The smaller Central European regions of Poland and Switzerland grew by 16% and 2% respectively with the Sage 50 family driving growth in each country.

The focus for Central Europe in FY18 is to drive growth in the cloud and on subscription.

Performance - North American region

ORGANIC REVENUE GROWTH	FY17	FY16
USA	+4%	+6%
Canada	+10%	+10%
North America	+5%	+6%

Growth of 5% in North America reflects 9% growth in recurring revenue (FY16: 9%), underpinned by software subscription growth of 97% (FY16: 85%): software subscription revenue is now 25% of total revenue (FY16: 14%).

Processing revenue growth of 2% (FY16: 25%) reflects a slow-down on the prior year due to some turnover of staff in the year with plans in place to recruit in Q1 FY18.

SSRS decline of 11% (FY16: 8%), reflects the planned decline of licences in line with the transition to subscription. Note this decline is more marked than other geographies, due to the lower relative subscription penetration rate in North America, offset by rapid acceleration of software subscription revenue.

US - success in cloud enabled solutions

Following a slow start to the year, new leadership has turned around the performance of the region by driving accountability and clearer targets in the salesforce and building partner relationships, leading to four quarters of successive acceleration in recurring revenue, with an exit rate of over 10% in Q4 FY17 and with subscription revenue doubling in the year.

Growth in the year was driven through the migration to cloud enabled solutions in the Sage 50 and Sage 200 families with triple digit software subscription revenue in both product lines, with particular success in selling the Sage 200 family through the reinvigorated channel.

Sage X3 was also successful, growing at 20%, as the product continues to expand geographically and vertically. The US achieved Sage's biggest X3 contract in the year at $600k.

Canada - double digit organic and recurring revenue growth

In Canada, both organic and recurring revenue achieved double digit growth with accelerating growth in each successive quarter in the year. Success in Canada reflects double digit growth in Sage X3 and Sage 50c.

In North America the focus in FY18 is to continue to increase the penetration of cloud enabled solution adoption in the Sage 50 and 200 families, as well as continuing to drive growth in Sage X3. Intacct will form part of North American revenue in FY18 so continuing to drive momentum in this solution, as well as encouraging collaboration and learning between the North American teams, is also a priority.

Performance - International region

ORGANIC REVENUE GROWTH	FY17	FY16
Africa and Middle East	+12%	+18%
Brazil	+12%	+12%
Australia & Asia	+4%	-7%
International	+10%	+9%

Organic revenue in the International region grew by 10% year-on-year (FY16: 9%), with recurring revenue growth of 15% (FY16: 16%), processing revenue growth of 7% (FY16: 48%) and SSRS decline of 5% (FY16: decline of 11%). Software subscription revenue in International is now 56% of total revenue (FY16: 50%).

Growth in the region has been driven by strong performance in Brazil, Africa & Middle East and Australia, balanced a decline in the much smaller Asia region.

Africa and Middle East - winning in the market with Sage X3 and Sage One

Growth in Africa Middle East of 12%, reflects growth of Sage X3 of 8% with strong growth in Africa in the Sage 200 family of 13% and 66% growth in Sage One.

Africa continues to embrace a strong relationship with customers, with the highest NPS score of all regions at +53 and retention rates of 87%. Africa's growth has slowed slightly from H1 17 reflecting challenging market conditions in the region.

Focus for the region in the year is to drive strong growth through new customer acquisition and services.

Brazil - success in new customer acquisition

Growth in Brazil of 12% was driven by recurring revenue growth of 17%, offset by an increase in slow and non-payment due to the on-going recession in the country. Sage One revenue grew by over 400% in the country, driven by increasing contract value and subscription numbers, and Sage X3 grew by 48%.

The focus in FY18 is to improve retention rates and debt collection as well as expanding the partner channel.

Australia and Asia

In Australia, revenue growth of 7% is underpinned by recurring revenue growth of 9%, driven by local Sage One, which doubled in the year and local growth products.

Asia revenue (accounting for 1% of total revenue) declined by 6% in the year due to challenges in sales of local products but with Sage X3 revenue doubling in the region.

The focus for FY18 is to build the salesforce and partner channel to boost retention rates and win in the cloud.

Financial review

	FY17			FY16
ORGANIC TO STATUTORY RECONCILIATIONS	Revenue	Operating profit	Margin	Revenue	Operating profit	Margin
Organic	£1,696m	£475m	28.0%	£1,591m	£431m	27.1%
Organic adjustments ⁹	£24m	(£8m)		£5m	£1m
Underlying - Continuing	£1,720m	£467m	27.2%	£1,596m	£432m	27.1%
Discontinued operations	£119m	£29m		£146m	£39m
Underlying	£1,839m	£496m	27.0%	£1,741m	£471m	27.0%
Discontinued operations	(£119m)	(£29m)		(£146m)	(£39m)
Impact of foreign exchange ¹⁰	-	-		(£157m)	(£39m)
Underlying (as reported) - Continuing	£1,720m	£467m	27.2%	£1,439m	£393m	27.3%
Recurring items ¹¹	(£5m)	(£49m)			(£18m)
Non-recurring items ¹²		(£70m)			(£108m)
Statutory	£1,715m	£348m	20.3%	£1,439m	£267m	18.6%

Revenue

Statutory revenue grew by 19% to £1,715m (FY16: £1,439m), reflecting organic growth, foreign exchange movements experienced throughout the year and the revenue contribution from acquisitions of Fairsail and Intacct, net of the adjustment to acquired deferred income. The impact of foreign exchange of £157m in FY16 reflects a currency tailwind during the period.

Operating profit

Organic operating profit increased by 10% to £475m (FY16: £431m) in line with organic revenue and the 1% increase in margin. Statutory operating profit increased by £81m, with the operating profit margin rising by 1.7% due to the impact of foreign exchange in FY16, combined with recurring and non-recurring items in FY17.

Adjustments between underlying and statutory operating profit

Non-recurring items excluded from the underlying operating profit of £467m include £73m costs in relation to the business transformation comprised of people organisation charges of £32m, net property exit costs of £14m and other directly attributable costs of £27m, offset by £3m gain on sale of Syska GmbH, a subsidiary held in Germany. Recurring items of £49m represents amortisation of acquisition related intangible assets and M&A activity related charges.

⁹ Organic adjustments are as per note 2 of the financial statements

¹⁰ Impact of retranslating FY16 results at FY17 average rates

¹¹ Recurring items comprise amortisation of acquired intangible assets, M&A activity-related items (including adjustments to acquired deferred income) and fair value adjustments

¹² Non-recurring items comprise items that management judge to be one-off or non-operational including business transformation costs

Net finance cost

The statutory net finance cost for the period was £18m (FY16: £24m) and the underlying net finance cost was £25m (FY16: £21m). The difference between underlying and statutory net finance costs for the period reflects a gain of £7m (FY16: nil) from valuation adjustments of financial assets and a gain of £1m (FY16: charge of £6m) on FX movements on intercompany balances, offset by a fair value adjustment to a debt related instrument charge of £1m (FY16: income £3m).

Taxation

The statutory income tax expense was £98m (FY16 £67m). The effective tax rate on statutory profit before tax was 25% (2016: 24%), whilst the underlying tax rate on continuing operations was 26% (2016: 25%).

The difference between the statutory effective tax rate and the underlying tax rate relates to non-recurring items which are deductible in countries with a tax rate higher than the UK.

Earnings per share

Underlying basic earnings per share increased by 4% to 31.90p (FY16: 30.82p) and statutory basic earnings per share increased to 27.80p (FY16: 19.28p) due to increased operating profit benefitting from the weakening of sterling, and lower non-recurring charges. Adjusted for transactions underlying earnings per share increased by 7% reflecting a 3% impact from the losses contributed by acquired businesses and the disposal of the North America Payments business.

Cash flow and net debt

CASH FLOW	FY17	FY16
Underlying operating profit	£496m	£471m
Exchange rate translation movements	-	(£44m)
Underlying operating profit (as reported)	£496m	£427m
Recurring & non-recurring items	(£94m)	(£58m)
Depreciation/amortisation/profit on disposal	£36m	£30m
Share-based payments	£6m	£8m
Working capital and balance sheet movements	(£18m)	(£10m)
Exchange rate translation movements	£2m	£1m
Statutory cash flow from operating activities	£428m	£398m
Net interest paid	(£20m)	(£20m)
Tax paid	(£102m)	(£92m)
Net capital expenditure	(£52m)	(£32m)
M&A & integration related expenditure	£22m	-
Free cash flow	£276m	£254m

CASH FLOW	FY17	FY16
Statutory cash flow from operating activities	£428m	£398m
Recurring & non-recurring items	£94m	£58m
Net capital expenditure	(£52m)	(£32m)
Working capital adjustment	£2m	-
Eliminate exchange rate translation movements	(£2m)	£1m
Underlying cash flow from operating activities	£470m	£425m
Underlying cash conversion	95%	100%

The Group remains cash generative with underlying cash flows from operating activities of £470m, which represents underlying cash conversion of 95%, down slightly from FY16, reflecting an increase in capex of £20m as the Group invests for growth, combined strong Sage X3 performance which attracts longer payment terms.

A total of £157m was returned to shareholders through ordinary dividends paid. Net debt stood at £813m at 30 September 2017 (30 September 2016: £398m) with the increase reflecting cash spent on acquisitions, offset by disposal proceeds and exchange differences.

Treasury management

The Group continues to be able to borrow at competitive rates and currently deems this to be the most effective means of raising finance. The Group's syndicated bank multi-currency Revolving Credit Facility (RCF), expires in June 2019 with facility levels of £603m (US$551m and €218m tranches). At 30 September 2017, £318m (FY16: Nil) of the RCF was drawn. Current year RCF drawings were used principally to fund the Fairsail and USPP note repayment in March 2017 and partly fund the Intacct acquisition in August 2017. A new term loan was arranged in July 2017 to partially fund the Intacct acquisition. This term loan was initially for $390m (£291m), with $240m (£179m) repaid at the end of August 2017 following the receipt of disposal proceeds from the North American payments business. The balance, $150m (£112m), remained outstanding at 30 September 2017, the term loan is initially for a 12 month term, with an unconditional option to extend for a further 12 months.

Total USPP loan notes at 30 September 2017 were £523m (US$600m and EUR€85m), (FY16: £575m (US$650m and €85m). Approximately £40m (US$50m) of maturing USPP notes were repaid in March 2017 from free cash flow and RCF drawings.

Foreign 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 and organic figures are as follows:

AVERAGE EXCHANGE RATES (EQUAL TO GBP)	FY17	FY16	Change
Euro (€)	1.15	1.28	(10%)
US Dollar ($)	1.27	1.42	(11%)
South African Rand (ZAR)	16.95	21.05	(19%)
Australian Dollar (A$)	1.66	1.94	(14%)
Brazilian Real (R$)	4.06	5.18	(22%)

Capital structure and dividend

With consistent and strong cash flows, the Group retains considerable financial flexibility going forward. The Board's main strategic policy remains an acceleration of growth, both organically and through targeted bolt-on acquisitions. The growth underpins the Board's sustainable, progressive dividend policy. Consistent with this policy, the Board is proposing a 9.0% increase in the total ordinary dividend per share for the year to 15.42p per share (FY16: 14.15p per share).

Appendix I - Key Performance Indicators ("KPIs") and other measures

		FY17	FY16
STRATEGIC KPIs	KPI DESCRIPTION
Customers for life: Contract renewal rate	As we focus on providing exceptional customer experiences, we track the response of our customers by measuring the number of contracts successfully renewed for the last twelve months as a percentage of those that were due for renewal.	86%	86%
Winning in the market: Adoption of Sage One	The number of paying subscriptions for our portfolio of Sage One products.	405,000	313,000
Winning in the market: Adoption of Sage One	The Annual recurring revenue (ARR) for our portfolio of Sage One products.	£34m	£19m
Winning in the market: Adoption of Sage X3	The percentage increase in underlying revenue derived from Sage X3.	21%	19%
Revolutionise business: Annualised software subscription base ("ASB")	Our latest technologies are delivered to customers via software subscription relationships which drives growth in the ASB, calculated as the amount of organic software subscription revenue recorded in the last month of the period multiplied by 12.	£705m	£535m
Capacity for growth: G&A%	Investing for growth is enabled by releasing efficiencies in General and Administrative ("G&A") expenses. We track progress by expressing G&A as a percentage of revenue (both on an organic basis).	13.8%	17.4%
One Sage: Foundation Days	Doing business the right way is important at Sage. Giving back to the community through Sage Foundation allows our colleagues to volunteer to work with charitable causes. This is the first year we have had a quantitative measure of One Sage which recognises the importance of Sage Foundation within our organisation	23,000	13,000

FINANCIAL DRIVERS	KPI DESCRIPTION	FY17	FY16
Organic revenue growth	Organic revenue neutralises the impact of foreign exchange in prior period figures and excludes the contribution of current and prior period acquisitions, disposals and assets held for sale of standalone businesses.	6.6%	6.7%
Organic operating profit margin	Organic operating profit excludes: ? Recurring items including amortisation of acquired intangible assets, acquisition-related items and fair value adjustments; ? Non-recurring items that management judge to be one-off or non-operational; and ? The contribution of current and prior period acquisitions, disposals and assets held for sale of standalone businesses. The impact of foreign exchange is neutralised in prior period figures.	28.0%	27.1%
Underlying basic EPS growth	Underlying basic EPS is defined as underlying profit after tax divided by the weighted average number of ordinary shares in issue during the period, excluding those held as treasury shares. Underlying profit after tax is defined as profit attributable to owners of the parent excluding: ? Recurring items including amortisation of acquired intangible assets, acquisition-related items, fair value adjustments and imputed interest; and ? Non-recurring items that management judge to be one-off or non-operational. All of these adjustments are net of tax. The impact of foreign exchange is neutralised in prior period figures.	3.5%	9.0%
Underlying cash conversion	Underlying cash conversion is underlying cash flow from operating activities divided by underlying operating profit. Underlying cash flow from operating activities is statutory cash flow from operating activities less net capital expenditure and adjusted for movements on foreign exchange rates, non-recurring working capital movements and non-recurring cash items.	95%	100%
Net debt leverage	The net value of cash less borrowings expressed as a multiple of rolling 12-month EBITDA. EBITDA is defined as earnings before interest, tax, depreciation, amortisation of acquired intangible assets, acquisition-related items, fair value adjustments and non-recurring items that management judge to be one-off or non-operational.	1.6:1	0.9:1

Interest cover	Statutory operating profit for the last twelve months excluding non-recurring items that management judge to be one-off or non-operational, expressed as a multiple of finance costs excluding imputed interest for the same period.	27x	20x
Dividend cover	Underlying earnings per share (as reported) divided by the full year dividend per share.	2.1x	2.0x
Return on capital employed (ROCE)	ROCE is calculated as (Underlying operating profit - (minus) Amortisation of acquired intangibles) / (divided by) Capital employed. Capital employed is defined as net assets excluding net debt, provisions in relation to costs excluded from underlying activities and tax assets / liabilities.	27%	31%

Appendix II - Non-GAAP measures

MEASURE	DESCRIPTION	WHY WE USE IT
Underlying	Prior period underlying measures are retranslated at the current year exchange rates to neutralise the effect of currency fluctuations. Underlying operating profit excludes: ? Recurring items: · Amortisation of acquired intangible assets and purchase price adjustments made to reduce deferred income arising on acquisitions; · M&A activity-related items; · Fair value adjustments on non-debt-related financial instruments and foreign currency movements on intercompany debt balances ; and ? Non-recurring items that management judge are one-off or non-operational. Underlying profit before tax excludes: ? All the items above; and ? Imputed interest; and ? Fair value adjustments on debt-related financial instruments. Underlying profit after tax and earnings per share excludes: ? All the items above net of tax.	Underlying measures allow management and investors to compare performance without the potentially distorting effects of foreign exchange movements, one-off items or non-operational items. By including part-period contributions from acquisitions, discontinued operations, disposals and assets held for sale of standalone businesses in the current and/or prior periods, the impact of M&A decisions on earnings per share growth can be evaluated.
Organic	In addition to the adjustments made for underlying measures, organic measures exclude the contribution from acquisitions, discontinued operations, disposals and assets held for sale of standalone businesses in the current and prior period. Acquisitions and disposals which occurred close to the start of the opening comparative period where the contribution impact would be immaterial are not adjusted.	Organic measures allow management and investors to understand the like-for-like performance of the business.
Underlying cash conversion	Underlying cash conversion is underlying cash flow from operating activities divided by underlying operating profit. Underlying cash flow from operating activities is statutory cash flow from operating activities less net capital expenditure and adjusted for movements on foreign exchange rates, and non-recurring cash items.	Underlying cash conversion informs management and investors about the cash operating cycle of the business and how efficiently operating profit is converted into cash.
Underlying (as reported)	Where prior period underlying measures are included without retranslation at current period exchange rates, they are labelled as underlying (as reported).	This measure is used to report comparative figures for external reporting purposes where it would not be appropriate to retranslate. For instance, on the face of primary financial statements.
Underlying adjusted EPS	The underlying adjusted EPS excludes the impact of acquisitions and disposals.	The underlying adjusted EPS measure allows management and investors to compare performance without the distorting effects arising from acquisitions and disposals.

Revenue Type	DESCRIPTION
Recurring revenue	Recurring revenue is revenue earned from customers for the provision of a good or service, where risks and rewards are transferred to the customer over the term of a contract, with the customer being unable to continue to benefit from the full functionality of the good or service without ongoing payments. Recurring revenue includes both software subscription revenue and maintenance and service revenue.
Software subscription revenue	Subscription revenue is revenue earned from customers for the provision of a good or service, where the risk and rewards are transferred to the customer over the term of a contract. In the event that the customer stops paying, they lose the legal right to use the software and the Company has the ability to restrict the use of the product or service. (Also known as 'Pay to play').
Software and software related services ("SSRS")	SSRS revenue is for goods or services where 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.
Processing revenue	Processing revenue is revenue earned from customers for the processing of payments or where Sage colleagues process our customers' payroll.
Annual contract value	Annual Contact Value (ACV) is the value of bookings that will be generated over the ensuing year under a given contract or contracts.
Annual recurring revenue	Annual recurring revenue (ARR) is the value of all components of recurring revenue, annualised for the ensuing year.

Consolidated income statement

For the year ended 30 September 2017

	Note	Underlying 2017 £m	Adjustments* 2017 £m	Statutory 2017 £m	Underlying as reported 2016 Restated £m	Adjustments* 2016 Restated £m	Statutory 2016 Restated £m
Revenue	2	1,720	(5)	1,715	1,439	-	1,439
Cost of sales		(114)	-	(114)	(91)	-	(91)
Gross profit		1,606	(5)	1,601	1,348	-	1,348
Selling and administrative expenses		(1,139)	(114)	(1,253)	(955)	(126)	(1,081)
Operating profit	2	467	(119)	348	393	(126)	267
Share of loss of an associate		-	(1)	(1)	-	(1)	(1)
Gain on remeasurement of existing investment in an associate		-	13	13	-	-	-
Finance income		2	8	10	2	3	5
Finance costs		(27)	(1)	(28)	(23)	(6)	(29)
Profit before income tax		442	(100)	342	372	(130)	242
Income tax expense	4	(115)	30	(85)	(92)	38	(54)
Profit for the year - continuing operations		327	(70)	257	280	(92)	188
Profit on discontinued operations	11	18	25	43	20	-	20
Profit for the year		345	(45)	300	300	(92)	208

* Adjustments are detailed in note 3.

Earnings per share attributable to the owners of the parent (pence)
From continuing operations
Basic	6	30.28p		23.86p	25.90p		17.43p
Diluted	6	30.18p		23.78p	25.75p		17.33p
From continuing and discontinued operations
Basic	6	31.90p		27.80p	27.84p		19.28p
Diluted	6	31.79p		27.71p	27.67p		19.16p

Consolidated statement of comprehensive income

For the year ended 30 September 2017

	2017 £m	2016 £m
Profit for the year	300	208
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Actuarial loss on post-employment benefit obligations	4	(2)
Deferred tax credit on actuarial loss on post-employment benefit obligations	(1)	-
	3	(2)
Items that may be reclassified to profit or loss
Deferred tax credit on foreign currency movements	2	3
Exchange differences on translating foreign operations	(26)	117
Exchange differences recycled through income statement on sale of foreign operations	(32)	-
	(56)	120

Other comprehensive (expense)/income for the year, net of tax	(53)	118

Total comprehensive income for the year	247	326

The notes on pages 27 to 47 form an integral part of this condensed consolidated yearly report.

Consolidated balance sheet

As at 30 September 2017

	Note	2017 £m	2016 £m
Non-current assets
Goodwill	7	2,023	1,659
Other intangible assets	7	274	109
Property, plant and equipment	7	133	123
Fixed asset investment		15	-
Investment in associate		-	9
Other financial assets		2	3
Deferred income tax assets		61	58
		2,508	1,961
Current assets
Inventories		3	2
Trade and other receivables		466	420
Current income tax asset		14	8
Cash and cash equivalents (excluding bank overdrafts)	10	231	264
Assets classified as held for sale	11	1	1
		715	695

Total assets		3,223	2,656

Current liabilities
Trade and other payables		(337)	(350)
Current income tax liabilities		(18)	(21)
Borrowings		(55)	(43)
Provisions		(37)	(38)
Deferred income		(585)	(536)
Liabilities classified as held for sale	11	(1)	-
		(1,033)	(988)

Non-current liabilities
Borrowings		(914)	(535)
Post-employment benefits		(22)	(25)
Deferred income tax liabilities		(46)	(13)
Provisions		(31)	(29)
Trade and other payables		(5)	(8)
Deferred income		(4)	(5)
		(1,022)	(615)

Total liabilities		(2,055)	(1,603)
Net assets		1,168	1,053

Equity attributable to owners of the parent
Ordinary shares	9	12	12
Share premium	9	548	544
Other reserves		131	187
Retained earnings		477	310
Total equity		1,168	1,053

Consolidated statement of changes in equity

For the year ended 30 September 2017

	Attributable to owners of the parent
	Ordinary shares £m	Share premium £m	Other reserves £m	Retained earnings £m	Total equity £m
At 1 October 2016	12	544	187	310	1,053
Profit for the year	-	-	-	300	300
Other comprehensive income/(expense)
Exchange differences on translating foreign operations	-	-	(26)	-	(26)
Exchange differences recycled through income statement on sale of foreign operations			(32)		(32)
Deferred tax credit on foreign currency movements	-	-	2	-	2
Actuarial gain on post-employment benefit obligations	-	-	-	4	4
Deferred tax charge on actuarial loss on post-employment obligations	-	-	-	(1)	(1)
Total comprehensive income for the year ended 30 September 2017	-	-	(56)	303	247
Transactions with owners
Employee share option scheme:
- Proceeds from shares issued	-	4	-	-	4
- Value of employee services, net of deferred tax	-	-	-	9	9
- Value of employee services on acquisition	-	-	-	21	21
Purchase of treasury shares	-	-	-	(9)	(9)
Dividends paid to owners of the parent	-	-	-	(157)	(157)
Total transactions with owners for the year ended 30 September 2017	-	4	-	(136)	(132)
At 30 September 2017	12	548	131	477	1,168

	Attributable to owners of the parent
	Ordinary shares £m	Share premium £m	Other reserves £m	Retained earnings £m	Total equity £m
At 1 October 2015	12	541	67	242	862
Profit for the year	-	-	-	208	208
Other comprehensive income/(expense)
Exchange differences on translating foreign operations	-	-	117	-	117
Deferred tax credit on foreign currency movements	-	-	3	-	3
Actuarial loss on post-employment benefit obligations	-	-	-	(2)	(2)
Total comprehensive income for the year ended 30 September 2016	-	-	120	206	326
Transactions with owners
Employee share option scheme:
- Proceeds from shares issued	-	3	-	-	3
- Value of employee services, net of deferred tax	-	-	-	9	9
Purchase of treasury shares	-	-	-	(2)	(2)
Dividends paid to owners of the parent	-	-	-	(145)	(145)
Total transactions with owners for the year ended 30 September 2016	-	3	-	(138)	(135)
At 30 September 2016	12	544	187	310	1,053

Consolidated statement of cash flows

For the year ended 30 September 2017

	Notes	2017 £m	2016 Restated £m
Cash flows from operating activities
Cash generated from continuing operations		403	360
Interest paid		(24)	(21)
Income tax paid		(102)	(92)
Operating cash flows generated from discontinued operations		25	38
Net cash generated from operating activities		302	285

Cash flows from investing activities
Acquisitions of subsidiaries, net of cash acquired	11	(693)	(6)
Proceeds on settlement of debt investment		7	-
Purchases of intangible assets	7	(22)	(8)
Purchases of property, plant and equipment	7	(30)	(23)
Purchase of investment in an associate		-	(10)
Interest received		2	2
Disposal of discontinued operations	11	158	-
Net cash used in investing activities		(578)	(45)

Cash flows from financing activities
Proceeds from issuance of ordinary shares	9	4	3
Purchase of treasury shares		(9)	(2)
Finance lease principal payments		-	(1)
Proceeds from borrowings		662	69
Repayments of borrowings		(275)	(189)
Movements in cash held on behalf of customers		5	(4)
Borrowing costs		(1)	(2)
Dividends paid to owners of the parent	5	(157)	(145)
Financing cash flows generated from discontinued operations		4	(8)
Net cash generated from/(used in) financing activities		233	(279)

Net decrease in cash, cash equivalents and bank overdrafts (before exchange rate movement)	10	(43)	(39)
Effects of exchange rate movement	10	(4)	36
Net increase/(decrease) in cash, cash equivalents and bank overdrafts		47	(3)
Cash, cash equivalents and bank overdrafts at 1 October	10	260	263
Cash, cash equivalents and bank overdrafts at 30 September	10	213	260

Notes to the financial information

For the year ended 30 September 2017

1 Group accounting policies

General information

The Sage Group plc ("the Company") and its subsidiaries (together "the Group") is a leading global supplier of business management software to Small & Medium Businesses .

The financial information set out above does not constitute the Company's Statutory Accounts for the year ended 30 September 2017 or 2016, but is derived from those accounts. Statutory Accounts for the year ended 30 September 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered in December 2017. The auditors have reported on both sets of accounts; their reports were unqualified and did not contain statements under section 498 (2), (3) or (4) of the Companies Act 2006.

Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union ("EU"), this announcement does not in itself contain sufficient information to comply with IFRSs. The financial information has been prepared on the basis of the accounting policies and critical accounting estimates and judgements as set out in the Annual Report & Accounts for 2017.

The Company is a limited liability company incorporated and domiciled in the UK. The address of its registered office is North Park, Newcastle upon Tyne, NE13 9AA. The Company is listed on the London Stock Exchange.

Basis of preparation

The consolidated financial statements of The Sage Group plc have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). The consolidated financial statements have been prepared under the historical cost convention, except where adopted IFRS require an alternative treatment. The principal variations from the historical cost convention relate to derivative financial instruments which are measured at fair value through profit or loss.

The prior year consolidated income statement, consolidated statement of cash flows and their related notes have been restated for the presentation of discontinued operations. For further information on discontinued operations see note 11. In line with the requirements of IFRS 5 'Non-current assets held for sale and discontinued operations', the statement of financial position has not been restated.

The financial statements of the Group comprise the financial statements of the Company and entities controlled by the Company (its subsidiaries) prepared at the end of the reporting period. The accounting policies have been consistently applied across the Group. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to benefit from its activities which is usually from date of acquisition.

Accounting policies

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2017 as described in those annual financial statements.

Future accounting standards

The directors also considered the impact on the Group of new and revised accounting standards, interpretations or amendments. The following revised and new accounting standards may have a material impact on the Group. They are currently issued but not effective for the Group for the year ended 30 September 2017:

? IFRS 9 "Financial Instruments"

? IFRS 15 "Revenue from Contracts with Customers"

? IFRS 16 "Leases"

IFRS 9 will be effective for the Group starting 1 October 2018 and will replace the current requirements of IAS 39 'Financial Instruments: Recognition and Measurement'. The main changes introduced by the new standard are new classification and measurement requirements for certain financial assets, a new expected loss model for the impairment of financial assets, revisions to the hedge accounting model and amendments to disclosures. The changes are generally to be applied retrospectively. Given the nature of the financial assets and liabilities currently held by the Group and its hedging arrangements, the changes are not expected to have a significant impact on the financial statements when the standard is first adopted.

IFRS 15 will be effective for the Group starting 1 October 2018. The Group does not plan to adopt IFRS 15 early. The standard permits a choice of two possible transition methods for the initial application of the requirements of the new standard: (1) retrospectively to each prior reporting period presented in accordance with IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors), or (2) retrospectively with the cumulative effect of initially applying the standard recognised on the date of initial application, being 1 October 2018 for the Group (the "cumulative catch-up" approach). The Group currently has not selected the transition method for applying the new standard.

The Group is in the process of developing its future IFRS 15 revenue recognition policies and adjusting the relevant business processes to adopt these new policies. A project has been established across Sage's main markets. This project covers the development of new revenue recognition policies as well as the identification of aspects of processes, data requirements and systems that need to be addressed in order to apply IFRS 15.

As part of this effort, several differences between current accounting policies and the future IFRS 15 based policies (as far as these have already been developed) have been identified. Based on the analyses performed so far, these differences include:

? IFRS 15 introduces a new concept of performance obligations. This will require changes to the way the transaction price is allocated to separately identiable components of a bundle, within a contract, which can impact the timing of recognising revenue.

? A revised recognition pattern is expected for certain on-premise software subscription contracts, which combine the delivery of software and support service and the obligation to deliver, in the future, unspecified software upgrades. Under current policies, the Group recognises the entire price on a straight line basis over the subscription term. In contrast, under IFRS 15, a portion of the transaction price will be recognised upon delivery of the initial software at the outset of the arrangement.

? IFRS 15 requires the establishment of standalone selling prices to be used as the basis for the apportionment of the transaction price to separate performance obligations. This is a new concept compared to current requirements and can impact timing of recognising revenue.

? The Group will have to assess whether to recognise revenue gross or net for business partner arrangements at the performance obligation level rather than at contract level.

? The Group is currently already capitalising costs to obtain a contract where revenue is recognised over time. The capitalisation amount is expected to increase under IFRS 15 due to a broader definition of what qualifies for capitalisation as costs to obtain a contract.

In addition to the effects on our Consolidated income statement, the Group expects changes to the Consolidated balance sheet (in particular, due to the recognition of contract assets/contract liabilities, the differentiation between contract assets and trade receivables, and an impact in retained earnings from the initial adoption of IFRS 15) and additional quantitative and qualitative disclosures in the notes to the financial statements. The quantitative impact of IFRS 15 on the Group's FY19 financial statements cannot currently be reasonably estimated, as the following have not yet been finalised:

? Decision on a transition method;

? Completion of the analysis of the volume of contracts that will be affected by the different policy changes upon adoption of IFRS 15;

? Establish standalone selling prices; or

? Estimation of the potential changes in business practices that may result from the adoption of the new policies.

The Group will continue to assess all the impacts that the application of IFRS 15 will have on its financial statements in the period of initial application, which will also significantly depend on its business and go-to-market strategy in the accounting year ending 30 September 2019 and beyond. The impacts, if material, will be disclosed, including statements on whether and how the Group plans to apply any of the practical expedients available in the standard.

IFRS 16 will change lease accounting mainly for lessees, and will replace the existing standard IAS 17. An asset for the right to use the leased item and a liability for future lease payments will be recognised for all leases, subject to limited exemptions for short-term leases and low-value lease assets. The costs of leases will be recognised in the income statement split between depreciation of the lease asset and a finance charge on the lease liability. This is similar to the existing accounting for finance leases, but substantively different to the existing accounting for operating leases under which no lease asset or lease liability is recognised and rentals payable are charged to the income statement on a straight-line basis.

The Group plans to adopt these standards in line with their effective dates. IFRSs 9 and 15 will be adopted for the financial year commencing 1 October 2018, and IFRS 16 for the financial year commencing 1 October 2019. The Group is continuing its assessment of the impact that the application of these standards will have on the Group's financial statements, but it remains too early to determine how significant any effect on actual financial results and financial position might be.

Critical accounting estimates and judgements

The preparation of financial statements requires the use of accounting estimates and assumptions by management. It also requires management to exercise its judgement in the process of applying the accounting policies. We continually evaluate our estimates, assumptions and judgements based on available information. The areas involving a higher degree of judgement or complexity are described below.

Revenue recognition

Approximately 40% of the company's revenue is generated from sales to partners rather than to end users. The key judgement in accounting for the three principal ways in which our business partners are remunerated is determining whether the business partner is a customer of the Group in respect of the initial product sale. The key criteria in this determination is whether the business partner has paid for and taken on the risks and rewards of ownership of the software product from Sage. An additional area of judgement is the recognition and deferral of revenue on bundled products, for example the sale of a perpetual licence with an annual maintenance and support contract.

The full revenue recognition policy is disclosed in the 30 September 2017 financial statements.

Goodwill impairment

The judgements in relation to goodwill impairment testing relate to two key areas. The first is the ongoing appropriateness of the cash-generating units ("CGUs") for the purpose of impairment testing. The second relates to the assumptions applied in calculating the value in use of the CGUs being tested for impairment.

The carrying value of goodwill and the key assumptions used in performing the annual impairment assessment are disclosed in the 30 September 2017 financial statements.

Tax provisions

The Group recognises certain provisions and accruals in respect of tax which involve a degree of estimation and uncertainty where the tax treatment cannot be finally determined until a resolution has been reached by the relevant tax authority. When making this assessment, we utilise our specialist in-house tax knowledge and experience of similar situations elsewhere to confirm these provisions. These judgements also take into consideration specialist tax advice provided by third party advisors on specific items.

Business combinations

When the Group completes a business combination, the consideration transferred for the acquisition and the identifiable assets and liabilities acquired are recognised at their fair values. The amount by which the consideration exceeds the net assets acquired is recognised as goodwill. The application of accounting policies to business combinations involves judgement and the use of estimates. During the year, the Group made two significant business combinations in which it acquired Sage Intacct (formerly Intacct Corporation) and Sage People (formerly Fairsail Limited). The aspects of these transactions that required particular judgement were the identification of acquired intangible assets that met the criteria for recognition in both transactions. Estimates were required in the measurement of the intangible assets recognised for both acquisitions and of deferred income for Sage Intacct. The Group engaged external experts to support these assessments. Management concluded that the intangible assets acquired that qualified for recognition separately from goodwill were customer relationships, technology and, additionally for Intacct, brands. The fair values of customer relationships were determined using the excess earnings method, technology and brands using the relief from royalty method, and deferred income using a bottom-up approach. These valuation techniques require a number of key assumptions including revenue forecasts and the application of an appropriate discount rate to state future cash flows at their present value.

The total fair value of intangible assets acquired with Intacct and Sage People was £179m. Deferred income acquired with Intacct was measured at £18m. Full analyses of the consideration transferred, assets and liabilities acquired and goodwill recognised in business combinations are set out in note 11. Amounts recognised for Intacct at 30 September 2017 are provisional due to the proximity of the acquisition date to the date of approval of the annual report, and will be finalised during the coming year.

Website

This condensed consolidated annual financial report for the year ended 30 September 2017 can also be found on our website : www.sage.com/investors/investor-downloads

2 Segment information

In accordance with IFRS 8, "Operating Segments", information for the Group's operating segments has been derived using the information used by the chief operating decision maker. The Group's Executive Committee has been identified as the chief operating decision maker in accordance with their designated responsibility for the allocation of resources to operating segments and assessing their performance, through the Quarterly Business Reviews chaired by the President and Chief Financial Officer. The Executive Committee use organic and underlying data to monitor business performance. Operating segments are reported in a manner which is consistent with the operating segments produced for internal management reporting .

With effect from 1 October 2016, the Group was organised into seven key operating segments: Northern Europe, Central Europe, Southern Europe, North America, Africa and the Middle East, Asia (including Australia) and Latin America. The structure reflected changes made to introduce a flatter, more focused structure to allow the Group to get closer to its customers. Since August 2017, the newly-acquired Intacct business has been managed separately as an additional operating segment, referred to as North America Intacct. Prior to these changes, the organisation structure reflected four operating segments (Europe, North America, Brazil and Africa and Australia, Middle East and Asia) and three reportable segments. For reporting under IFRS 8 for the year ended 30 September 2017, the Group has three reportable segments. These segments and their main operating territories or businesses are as follows:

· Northern Europe (UK and Ireland)

· Central and Southern Europe (Germany, Switzerland, Poland, France, Spain and Portugal)

· North America (the US, Canada and North America Intacct)

The remaining operating segments of Africa and the Middle East, Asia and Latin America do not meet the quantitative thresholds for presentation as separate reportable segments under IFRS 8, and so are presented together and described as International. They include the Group's operations in South Africa, UAE, Australia, Singapore, Malaysia and Brazil.

The reportable segments reflect the aggregation of the operating segments for Central Europe and Southern Europe, and also of those for North America (excluding Intacct) and North America Intacct. In each case, the aggregated operating segments are considered to share similar economic characteristics because they have similar long-term gross margins and operate in similar markets. Central Europe and Southern Europe both operate principally within the EU and the majority of their businesses are in countries within the euro area. North America (excluding Intacct) and North America Intacct share the same North American geographical market.

Segment information for the year ended 30 September 2016 has been restated to reflect the above organisation structure and discontinued operations as detailed in note 11. The UK is the home country of the parent.

The revenue analysis in the table below is based on the location of the customer, which is not materially different from the location where the order is received and where the assets are located.

Revenue by segment

	Year ended 30 September 2017
	Statutory £m	Underlying adjustments £m	Underlying £m	Organic adjustments £m	Organic £m	Change Statutory %	Change Underlying %	Change Organic %
Recurring revenue by segment
Northern Europe	292	-	292	(5)	287	12.1%	11.5%	9.4%
Central and Southern Europe	450	-	450	(1)	449	18.2%	5.8%	6.0%
North America	388	5	393	(15)	378	25.9%	13.3%	9.2%
International	201	-	201	(1)	200	40.2%	14.8%	15.1%
Recurring revenue	1,331	5	1,336	(22)	1,314	21.8%	10.5%	9.0%
Software and software related services ("SSRS") revenue by segment
Northern Europe	39	-	39	-	39	(2.7%)	(4.0%)	(4.0%)
Central and Southern Europe	130	-	130	-	130	19.6%	7.0%	7.2%
North America	72	-	72	(1)	71	1.7%	(9.6%)	(10.6%)
International	60	-	60	(1)	59	15.2%	(4.1%)	(4.6%)
SSRS revenue	301	-	301	(2)	299	10.8%	(1.1%)	(1.4%)
Processing revenue by segment
Northern Europe	37	-	37	-	37	5.5%	4.2%	4.2%
Central and Southern Europe	-	-	-	-	-	(100.0%)	(100.0%)	(100.0%)
North America	32	-	32	-	32	15.0%	2.3%	2.3%
International	14	-	14	-	14	31.3%	6.8%	6.8%
Processing revenue	83	-	83	-	83	10.7%	1.9%	1.9%
Total revenue by segment
Northern Europe	368	-	368	(5)	363	9.6%	8.9%	7.3%
Central and Southern Europe	580	-	580	(1)	579	18.2%	5.8%	6.0%
North America	492	5	497	(16)	481	21.0%	8.6%	5.3%
International	275	-	275	(2)	273	33.4%	9.7%	9.7%
Total revenue	1,715	5	1,720	(24)	1,696	19.2%	7.8%	6.6%

Revenue by segment (continued)

	Year ended 30 September 2016
	Statutory and underlying as reported £m	Impact of foreign exchange £m	Underlying £m	Organic adjustments £m	Organic £m
Recurring revenue by segment
Northern Europe	261	1	262	-	262
Central and Southern Europe	381	45	426	(2)	424
North America	308	39	347	-	347
International	143	32	175	(1)	174
Recurring revenue	1,093	117	1,210	(3)	1,207
Software and software related services ("SSRS") revenue by segment
Northern Europe	40	1	41	-	41
Central and Southern Europe	109	13	122	(1)	121
North America	70	9	79	-	79
International	53	10	63	(1)	62
SSRS revenue	272	33	305	(2)	303
Processing revenue by segment
Northern Europe	35	-	35	-	35
Central and Southern Europe	1	1	2	-	2
North America	27	4	31	-	31
International	11	2	13	-	13
Processing revenue	74	7	81	-	81
Total revenue by segment
Northern Europe	336	2	338	-	338
Central and Southern Europe	491	59	550	(3)	547
North America	405	52	457	-	457
International	207	44	251	(2)	249
Total revenue	1,439	157	1,596	(5)	1,591

Operating profit by segment

	Year ended 30 September 2017
	Statutory £m	Underlying adjustments £m	Underlying £m	Organic adjustments £m	Organic £m	Change Statutory %	Change Underlying %	Change Organic %
Operating profit by segment
Northern Europe	135	25	160	5	165	26.2%	22.6%	25.8%
Central and Southern Europe	129	33	162	(1)	161	121.4%	14.8%	15.2%
North America	65	44	109	4	113	(14.2%)	(5.6%)	(2.1%)
International	19	17	36	-	36	(27.6%)	(19.4%)	(18.7%)
Total operating profit	348	119	467	8	475	30.3%	8.2%	10.3%

	Year ended 30 September 2016
	Statutory £m	Underlying adjustments £m	Underlying as reported £m	Impact of foreign exchange £m	Underlying £m	Organic adjustments £m	Organic £m
Operating profit by segment
Northern Europe	107	22	129	2	131	-	131
Central and Southern Europe	59	66	125	16	141	(1)	140
North America	75	27	102	14	116	-	116
International	26	11	37	7	44	-	44
Total operating profit	267	126	393	39	432	(1)	431

Reconciliation of underlying operating profit to statutory operating profit

	2017 £m	2016 £m
Northern Europe	160	131
Central and Southern Europe	162	141
North America	109	116
Total reportable segments	431	388
International	36	44
Underlying operating profit	467	432
Impact of movement in foreign currency exchange rates	-	(39)
Underlying operating profit (as reported)	467	393
Amortisation of acquired intangible assets	(22)	(17)
Other M&A activity-related items	(27)	(1)
Non-recurring items	(70)	(108)
Statutory operating profit	348	267

3 Adjustments between underlying profit and statutory profit

	2017 Recurring £m	2017 Non- recurring £m	2017 Total £m	2016 Recurring £m	2016 Non- recurring £m	2016 Total £m
M&A activity-related items
Amortisation of acquired intangibles	22	-	22	17	-	17
Gain on disposal of subsidiary	-	(3)	(3)	-	-	-
Adjustment to acquired deferred income	5	-	5	-	-	-
Other M&A activity-related items	22	-	22	1	-	1
Other items
Business transformationcosts	-	73	73	-	110	110
Litigation-related items	-	-	-	-	(2)	(2)
Total adjustments made to operating profit	49	70	119	18	108	126
Fair value adjustments	(6)	-	(6)	(3)	-	(3)
Amortisation of acquired intangibles	1	-	1	1	-	1
Gain on remeasurement of existing investment in an associate	-	(13)	(13)	-	-	-
Foreign currency movements on intercompany balances	(1)	-	(1)	6	-	6
Total adjustments made to profit before income tax	43	57	100	22	108	130

Recurring items

Acquired intangibles are assets which have previously been recognised as part of business combinations. These assets are predominantly brands, customer relationships and technology rights.

The adjustment to acquired deferred income represents the additional revenue that would have been recorded in the year had deferred income not been reduced as part of the purchase price allocation adjustment made for business combinations. A further £12m will arise in FY18.

Other M&A activity-related items relate to completed transaction costs and include advisory, legal, accounting, valuation and other professional or consulting services as well as acquisition related remuneration and directly attributable integration costs. The main costs relate to the acquisitions in the year, see note 11.

The fair value adjustments comprises a £7m credit (2016: £nil) relating to a fair value adjustment of financial assets offset by a charge of £1m (2016: gain of £3m) in relation to an embedded derivative asset which relates to contractual terms agreed as part of the US private placement debt.

Amortisation of acquired intangibles below operating profit relates to the Group's share of the amortisation of intangible assets arising on the acquisition of an investment in an associate accounted for under the equity method.

Foreign currency movements on intercompany balances of £1m (2016: charge of £6m) occurs due to retranslation of intercompany balances other than those where settlement is not planned or likely in the foreseeable future. The balance arises in the current year due to fluctuation in exchange rates, predominately the movement in Euro and US Dollar compared to sterling.

Non-recurring items

Net charges in respect of non-recurring items amounted to £57m (2016: £108m).

Charges of £73m have been incurred in the current year as a result of the implementation of the business transformation. This is comprised of people-related reorganisation charges of £32m (2016: £51m), net property exit costs of £14m (2016: £40m) and other directly attributable costs, mainly relating to consultancy, contractor and asset write downs, of £27m (2016: £19m).

The people-related reorganisation charges comprise severance costs of £29m (2016: £44m) with the remaining cost largely arising from retention payments, transition and overlap costs whilst implementing the Group's new operating model. The property exit costs consist of net lease exit costs following consolidation of office space used and impairment and accelerated depreciation of leasehold improvement assets and other related assets that are no longer in use due to the property exits. The other costs include expenditure that is directly attributable to the business transformation, including advisory, legal, accounting, valuation and other professional or consulting services.

These charges are one-off in nature and directly linked to the business transformation undertaken in the current and prior year. No further related non-recurring costs are expected to arise in FY18 and subsequent financial years in relation to the business transformation.

Total cash paid in relation to the business transformation strategy totalled £72m (2016: £58m) in the year.

The gain on disposal of subsidiary relates to the sale of Syska, see note 11.

The gain on remeasurement of existing investment in an associate relates to the acquisition of Fairsail, see
note 11.

4 Income tax expense

The effective tax rate on statutory profit before tax was 25% (2016: 22% excluding discontinued operations), whilst the effective tax rate on underlying profit before tax was 26% (2016: 25% excluding discontinued operations). The difference between the statutory effective tax rate and the underlying tax rate relates to non-recurring items which are deductible in countries with a tax rate higher than the UK.

5 Dividends

	2017 £m	2016 £m
Final dividend paid for the year ended 30 September 2016 of 9.35p per share	101	-
(2016: final dividend paid for the year ended 30 September 2015 of 8.65p per share)	-	93

Interim dividend paid for the year ended 30 September 2017 of 5.22p per share	56	-
(2016: interim dividend paid for the year ended 30 September 2016 of 4.80p per share)	-	52
	157	145

In addition, the directors are proposing a final dividend in respect of the financial year ended 30 September 2017 of 10.20p per share which will absorb an estimated £110m of shareholders' funds. It will be paid on 2 March 2018 to shareholders who are on the register of members on 9 February 2018. These financial statements do not reflect this dividend payable.

6 Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to owners of the parent by the weighted average number of ordinary shares in issue during the period, excluding those held as treasury shares, which are treated as cancelled.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has dilutive potential ordinary shares consisting of share options granted to employees, where the exercise price is less than the average market price of the Company's ordinary shares during the period.

	Underlying 2017	Underlying as reported 2016	Underlying 2016	Statutory 2017	Statutory 2016
Earnings attributable to owners of the parent - Continuing operations (£m)
Profit for the year	327	280	308	257	188

Number of shares (millions)
Weighted average number of shares	1,080	1,077	1,077	1,080	1,077
Dilutive effects of shares	4	6	6	4	6
	1,084	1,083	1,083	1,084	1,083
Earnings per share attributable to owners of the parent - Continuing operations (pence)
Basic earnings per share	30.28	25.90	28.59	23.86	17.43
Diluted earnings per share	30.18	25.75	28.42	23.78	17.33
	Underlying 2017	Underlying as reported 2016	Underlying 2016	Statutory 2017	Statutory 2016
Earnings attributable to owners of the parent - Continuing and discontinued operations (£m)
Profit for the year	345	300	332	300	208

Number of shares (millions)
Weighted average number of shares	1,080	1,077	1,077	1,080	1,077
Dilutive effects of shares	4	6	6	4	6
	1,084	1,083	1,083	1,084	1,083
Earnings per share attributable to owners of the parent - Continuing and discontinued operations (pence)
Basic earnings per share	31.90	27.84	30.82	27.80	19.28
Diluted earnings per share	31.79	27.67	30.64	27.71	19.16

	Statutory 2017	Statutory 2016
Earnings attributable to owners of the parent - Discontinued operations (£m)
Profit for the year	43	20

Number of shares (millions)
Weighted average number of shares	1,080	1,077
Dilutive effects of shares	4	6
	1,084	1,083
Earnings per share attributable to owners of the parent - Discontinued operations (pence)
Basic earnings per share	3.94	1.85
Diluted earnings per share	3.93	1.83

Reconciliation of earnings - Continuing operations	2017 £m	2016 £m
Underlying earnings attributable to owners of the parent (after exchange movement)	327	308
Impact of movement in foreign currency exchange rates	-	(28)
Underlying earnings attributable to owners of the parent (as reported)	327	280
Amortisation of acquired intangible assets and adjustment to acquired deferred income	(28)	(18)
Fair value adjustments to debt-related financial instruments	6	3
Gain on disposal of subsidiary	3	-
Foreign currency movements on intercompany balances	1	(6)
Other M&A activity-related items	(22)	(1)
Transformation costs and litigation related items	(73)	(108)
Gain on remeasurement of existing investment in an associate	13	-
Taxation on adjustments	30	38
Net adjustments	(70)	(92)
Earnings statutory profit for period	257	188

Reconciliation of earnings - Continuing and discontinued operations	2017 £m	2016 £m
Underlying earnings attributable to owners of the parent (after exchange movement)	345	332
Impact of movement in foreign currency exchange rates	-	(32)
Underlying earnings attributable to owners of the parent (as reported)	345	300
Net adjustments - Continuing operations	(70)	(92)
Gain on disposal of subsidiaries - discontinued operations	25	-
Net adjustments	(45)	(92)
Earnings statutory profit for period	300	208

7 Non-current assets

	Goodwill £m	Other intangible assets £m	Property, plant and equipment £m	Total £m
Opening net book amount at 1 October 2016	1,659	109	123	1,891
Additions	-	22	30	52
Acquisition	593	185	6	784
Disposals of subsidiaries	(189)	(1)	(1)	(191)
Disposals	-	(1)	(2)	(3)
Depreciation, amortisation and other movements	-	(36)	(22)	(58)
Exchange movement	(40)	(4)	(1)	(45)
Closing net book amount at 30 September 2017	2,023	274	133	2,430

	Goodwill £m	Other intangible assets £m	Property, plant and equipment £m	Total £m
Opening net book amount at 1 October 2015	1,446	104	123	1,673
Additions	-	8	23	31
Acquisition	-	6	-	6
Disposals	-	(1)	-	(1)
Depreciation, amortisation and other movements	-	(29)	(28)	(57)
Exchange movement	213	21	5	239
Closing net book amount at 30 September 2016	1,659	109	123	1,891

Goodwill is not subject to amortisation, but is tested for impairment annually at the year-end or whenever there is any indication of impairment. At 30 September 2017, there were no indicators of impairment to goodwill. Full details of the outcome of the 2017 goodwill impairment review are provided in the 2017 financial statements.

Detail of the current period acquisitions and disposals has been provided in note 11.

8 Financial instruments

For financial assets and liabilities, the carrying amount approximates the fair value of the instruments, with the exception of US senior loan notes due to these bearing interest at fixed rates which are currently higher than floating rates. The fair value of borrowings is determined by reference to interest rate movements on the US $ private placement market and therefore can be considered as a level 2 fair value as defined within IFRS 13 with the respective book and fair values included in the table below.

	At 30 September 2017		At 30 September 2016
	Book Value £m	Fair Value £m	Book Value £m	Fair Value £m
Long-term borrowing	914	924	535	559
Short-term borrowing	55	56	43	44

9 Ordinary shares and share premium

	Number of shares	Ordinary Shares £m	Share premium £m	Total £m
At 1 October 2016	1,119,480,363	12	544	556
Shares issued/proceeds	1,157,758	-	4	4
At 30 September 2017	1,120,638,121	12	548	560
		Ordinary Shares £m	Share Premium £m	Total £m
	Number of Shares	Ordinary Shares £m	Share Premium £m	Total £m
At 1 October 2015	1,118,298,748	12	541	553
Shares issued/proceeds	1,181,615	-	3	3
At 30 September 2016	1,119,480,363	12	544	556

During the year, the Group transferred 1,019,166 (2016: nil) of treasury shares to the Employee Benefit Trust in order to satisfy vested PSP awards.

During the year, the group purchased 1,376,583 (2016: 385,000) shares at a cost of £9m (2016: £2m) through the Employee Benefit Trust.

10 Cash flow and net debt

	2017 £m	2016 £m
Statutory operating profit - continuing operations	348	267
Recurring and non-recurring items	119	126
Underlying operating profit - continuing operations	467	393
Underlying operating profit - discontinued operations	29	34
Underlying operating profit (as reported)	496	427
Recurring and non-recurring items	(94)	(58)
Depreciation/amortisation/impairment/profit on disposal of non-current assets	36	30
Share-based payments	6	8
Net changes in working capital	(18)	(10)
Exchange rate translation movements	2	1
Underlying cash flow from operating activities	428	398
Net interest paid	(20)	(20)
Income tax paid	(102)	(92)
Net capital expenditure	(52)	(32)
M&A activity-related expenditure	22	-
Free cash flow	276	254
Net debt at 1 October	(398)	(425)
Acquisitions and disposals of subsidiaries, net of cash	(544)	(16)
Dividends paid to owners of the parent	(157)	(145)
Purchase of treasury shares	(9)	(2)
Share issue	4	3
Exchange movement	13	(65)
Other	2	(2)
Net debt at 30 September	(813)	(398)

Analysis of change in net debt (inclusive of finance leases)	At 1 October 2016 £m	Cash flow £m	Acquisitions £m	Disposal of subsidiaries £m	Non-cash movements £m	Exchange movement £m	At 30 September 2017 £m
Cash and cash equivalents	264	(6)	-	(23)	-	(4)	231
Bank overdrafts	(4)	(14)	-	-	-	-	(18)
Cash, cash equivalents and bank overdrafts	260	(20)	-	(23)	-	(4)	213
Loans due within one year	(39)	48	(9)	-	(37)	-	(37)
Loans due after more than one year	(535)	(435)	-	-	37	19	( 914 )
Cash held on behalf of customers	(84)	(9)	-	20	-	(2)	( 75 )
Total	(398)	(416)	(9)	(3)	-	13	(813)

Included in cash above is £75m (2016: £84m) relating to cash held on behalf of customers. This arises as a consequence of providing payment transaction processing and electronic fund transfer services. The balance represents cash in transit from third parties to Sage Customers. Accordingly, a liability for the same amount is included in trade and other payables on the balance sheet and is classified within net debt.

The Group continues to be able to borrow at competitive rates and currently deems this to be the most effective means of raising finance. The Group's current syndicated bank multi-currency revolving credit facility expires in June 2019 with facility levels of £603m (US$551m and €218m tranches). At 30 September 2017, £318m (FY16: Nil) of the multi-currency revolving debt facility was drawn, the increased drawings were due to the Intacct and Fairsail acquisitions.

Total US private placement ("USPP") loan notes at 30 September 2017 were £523m (US$600m and EUR€85m) (FY16: £575m, US$650m and EUR€85m). £41m (US$50m) of USPP borrowings were repaid in March 2017.

The Group arranged a £296m ($390m) term loan in July 2017 to partially fund the Intacct acquisition, £186m ($240m) was repaid on 31 August 2017 following receipt of consideration from the North American Payments business disposal. At 30 September 2017, £112m ($150m) remained outstanding.

11 Acquisitions and disposals

Acquisitions made during the period

Intacct Corporation

On 3 August 2017, the Group acquired 100% of the share capital of Intacct Corporation (Intacct) for total consideration of £627m. Intacct is a leading provider of cloud Financial Management Solutions in North America and is incorporated in the USA. Acquiring Intacct strengthens the Group's position as a leading cloud provider to customers throughout their development from start-up to global enterprise and in the short term provides a further platform for growth, with medium-term aspirations for geographical expansion. The combination of Sage and Intacct's existing product portfolio, brand, resources and partners, will put the Group in prime position to establish itself as the leading provider of cloud Financial Management Solutions in North America in its chosen segments.

Summary of acquisition	£m
Purchase consideration
Cash	607
Cost of replacement share-based payments	20
	627
Provisional fair value of identifiable net assets	104
Goodwill	523

Provisional fair value of identifiable net assets acquired	£m
Intangible assets	142
Property, plant and equipment	5
Cash	2
Trade and other receivables	14
Other financial assets	1
Trade and other payables	(10)
Deferred income	(18)
Borrowings	(9)
Deferred tax liability	(23)
Provisional fair value of identifiable net assets acquired	104
Goodwill	523
Total consideration	627

Provisional fair values have been determined as the initial accounting for acquired intangible assets and goodwill is incomplete because of the short period between the acquisition date and the approval of the annual report. Goodwill is expected to reflect benefits from the assembled workforce and growth opportunities through customer acquisition and cross-sell to the combined customer base. No goodwill is expected to be deductible for tax purposes.

The outflow of cash and cash equivalents on the acquisition is as follows:	£m
Cash consideration	607
Cash and cash equivalents acquired	(2)
Net cash outflow	605

As part of the purchase an additional £5m has been paid in relation to future services.

Costs of £9m directly relating to the completion of the business combination have been included in selling and administrative expenses in the consolidated income statement as other M&A activity-related items and relate to advisory, legal and other professional services.

Arrangements have been put in place for retention payments to remunerate employees of Intacct for future services. The costs of these arrangements will be recognised in future periods over the retention period. The amount recognised to date of £4m is included in selling and administrative expenses in the consolidated income statement as M&A activity-related items.

The consolidated income statement includes revenue of £8m and a loss after tax of £6m reported by Intacct for the period since the acquisition date. The revenue of the Group for the year ended 30 September 2017 would have increased by £78m and the profit would have reduced by £17m if Intacct had been included in the Group for the whole of the year.

Sage People Limited (formerly Fairsail Limited)

On 17 March 2017, the Group obtained control of Fairsail Limited (Fairsail) by acquiring the remaining share capital for a cash consideration of £89m and cost of replacement share based payments of £1m. This brought the Group's ownership interest to 100%. Subsequent to the acquisition, Fairsail changed its name to Sage People Limited. Sage People Limited is a leading Human Capital Management (HCM) cloud provider to mid-sized, multinational companies. It is a private entity incorporated in the UK and not listed on any public exchange. The Group became a minority shareholder in 2016 and subsequently launched a shared product, Sage People. Taking full ownership will build on the success of that product, and the resulting combined portfolio provides growth opportunities, particularly through new customer acquisition internationally, and cross-sell to the combined customer base.

Summary of identifiable net assets acquired	£m
Purchase consideration
Cash	89
Cost of replacement share-based payments	1
Fair value of previously-held interest	20
	110
Provisional fair value of identifiable net assets	(40)
Goodwill	70

Cost of replacement share-based payments consists of contingent share awards granted to employees of the acquired business under the Sage Group Restricted Share Plan in place of their existing unvested share option arrangements. The amount treated as consideration is the fair value of awards attributable to pre-acquisition service. The Group recognised a gain of £13m on the remeasurement to fair value of its existing investment in an associate. This gain is included on a separate line in the consolidated income statement.

Fair value of acquisition	£m
Intangible assets	37
Cash	10
Trade and other receivables	3
Trade and other payables	(2)
Deferred income	(3)
Deferred tax liability	(5)
Provisional fair value of identifiable net assets acquired	40
Goodwill	70
Total consideration	110

When the Group reported its results for the six months ended 31 March 2017, provisional fair values were used for accounting for the acquisition. Subsequently, the accounting has been finalised, resulting in an increase in the fair value of identifiable net assets acquired of £33m, with a corresponding decrease in the amount of goodwill. The increase in net assets acquired relates to the recognition of intangible assets of £37m, a deferred tax liability of £5m and a decrease in the liability for deferred income of £1m. Goodwill reflects benefits from the assembled workforce and growth opportunities through customer acquisition and cross-sell to the combined customer base. No goodwill is expected to be deductible for tax purposes.

The outflow of cash and cash equivalents on the acquisition is as follows:	£m
Cash consideration	89
Cash and cash equivalents acquired	(10)
Net cash outflow	79

Costs totalling less than £1m directly relating to the completion of the business combination have been included in selling and administrative expenses in the consolidated income statement as other M&A activity-related items and relate to advisory, legal and other professional services.

Immediately prior to the acquisition, the Group had recognised prepaid licences of £1m for products purchased from the acquired business by the Group prior to the acquisition. At the acquisition date, the Group recognised a loss equal to the carrying amount of the prepaid licences. The loss is included in selling and administrative expenses in the consolidated income statement as other M&A activity-related items.

Arrangements have been put in place for retention and performance-related payments to remunerate employees of the acquired business for future services. The costs of these arrangements will be recognised over the retention and performance periods. The amount recognised during the year is £2m.

In the period since the acquisition date, the acquired business has reported revenue of £7m and a loss of £5m. The revenue of the Group for the year ended 30 September 2017 would have increased by £12m and the profit would have reduced by £7m if the acquired business had been included in the Group for the whole of the year.

Startup Compass Inc.

On 3 April 2017, the Group acquired 100% of the equity capital of Startup Compass Inc. (Compass), the provider of a highly-innovative analytics and benchmarking platform, for cash consideration of £5m, of which £4m has been paid and £1m is deferred for up to two years. The value of net assets acquired was £5m, comprising intangible technology assets of £6m and a deferred tax liability of £1m. No goodwill was recognised. When the Group reported its results for the six months ended 31 March 2017, provisional fair values were used in the disclosure of the transaction as an event after the balance sheet date. The finalisation of the accounting has resulted in an increase in the fair value of identifiable net assets acquired of £5m attributable to intangible assets and deferred tax liabilities (£6m and £1m respectively), with a corresponding decrease in the amount of goodwill.

The intangible assets acquired as part of the above acquisitions is analysed as follows:

	Brands £m	Technology £m	Customer relationships £m	Total £m
Intacct Corporation	1	44	97	142
Sage People Limited (formerly Fairsail Limited)	-	28	9	37
Startup Compass Inc.	-	6	-	6
Total other intangible assets from the acquisition of subsidiaries	1	78	106	185

Costs relating to business combinations in the year

Costs directly relating to the completion of the business combinations in the year of £10m (2016: £1m) have been included in selling and administrative expenses in the consolidated income statement. These acquisition-related items relate to completed transactions and include advisory, legal, accounting, valuation and other professional or consulting services.

Disposals and discontinued operations

Discontinued operation: North American Payments business

On 1 August 2017, the Group completed the sale of the subsidiaries that formed its North American Payments business (Sage Payment Solutions, or SPS) to GTCR, LLC (GTCR), a leading private equity firm, for total proceeds of £196m, generating a gain on disposal of £25m. The assets and liabilities of SPS were presented as held for sale in the Group's interim financial statements for the six months ended 31 March 2017, and the business has been presented as a discontinued operation as it is considered to represent a separate major line of business for the Group given the nature of its business and its contribution to the Group's revenues. Profit from discontinued operations for the period from 1 October 2016 to disposal on 1 August 2017 and for the year ended 30 September 2016 is analysed as follows:

	Underlying 2017 £m	Adjustments 2017 £m	Statutory 2017 £m	Underlying as reported 2016 £m	Adjustments 2016 £m	Statutory 2016 £m
Revenue	119	-	119	130	-	130
Cost of sales	(11)	-	(11)	(12)	-	(12)
Gross profit	108	-	108	118	-	118
Selling and administrative expenses	(79)	-	(79)	(84)	-	(84)
Operating profit	29	-	29	34	-	34
Finance income	-	-	-	-	-	-
Finance costs	-	-	-	(1)	-	(1)
Profit before income tax	29	-	29	33	-	33
Income tax expense	(11)	-	(11)	(13)	-	(13)
Profit after income tax	18	-	18	20	-	20
Gain on disposal of discontinued operations	-	27	27	-	-	-
Tax on disposal	-	(2)	(2)	-	-	-
Profit on discontinued operations	18	25	43	20	-	20

Cash flow from discontinued operations is analysed as follows:

Cash flows from:	2017 £m	2016 £m
Operating activities	25	38
Investing activities	158	-
Financing activities	4	(8)
	187	30

The assets and liabilities sold, and the gain on disposal, is analysed as follows:

	Underlying 2017 £m
Assets
Goodwill	189
Other intangible assets	1
Property, plant and equipment	1
Trade and other receivables	41
Cash and cash equivalents (excluding bank overdrafts)	23
Deferred tax assets	6
Total assets	261
Liabilities
Trade and other payables	(66)
Finance costs	(1)
Total liabilities	(67)
Net Assets	194

Gain on disposal
Cash consideration received	181
Preferred equity consideration	15
Gross consideration	196
Transaction costs	(7)
Net consideration	189
Net assets disposed (as above)	(194)
Cumulative foreign exchange differences reclassified from other comprehensive income to the income statement	32
Gain on disposal of discontinued operations	27

Preferred equity consideration comprises a senior preferred equity instrument in GTCR-Ultra Holdings, LLC, SPS's indirect parent entity that is majority-owned by GTCR. The instrument will be held by Sage until paid in full ($20m face value plus any accrued interest thereon), or redeemed by GTCR either voluntarily in its discretion or mandatorily on a change of control of GTCR-Ultra Holdings LLC. This is presented in the balance sheet as a fixed asset investment within non-current assets.

Other disposal

On 6 April 2017, the Group sold its subsidiary Syska GmbH (Syska) for £2m. Net liabilities divested were £1m, resulting in a gain on disposal of £3m. The assets and liabilities of Syska were presented as held for sale in the Group's interim financial statements for the six months ended 31 March 2017. Prior to disposal, the business formed part of the Group's Central and Southern Europe reporting segment. This business is not accounted for as a discontinued operation.

Assets and liabilities held for sale

The assets and liabilities held for sale relate to the Group's subsidiary Sage XRT Brasil Ltda. The sale is expected to be finalised during the first part of the year ending 30 September 2018. The business forms part of the Group's International reporting segment. Assets held for sale comprise trade and other receivables of £1m (2016: £1m) and liabilities held for sale comprise trade and other payables of £1m (2016: £nil).

12 Related party transactions

The Group's related parties are its subsidiary undertakings and Executive Committee members. The Group has taken advantage of the exemption available under IAS 24, "Related Party Disclosures", not to disclose details of transactions with its subsidiary undertakings.

Key management compensation	2017 £m	2016 £m
Salaries and short-term employee benefits	5	7

Post-employment benefits	-	1
Share-based payments	3	3
	8	11

The key management figures given above include directors. Key management personnel are deemed to be members of the Executive Committee.

Managing Risk

Risk is inherent within our business activities, and we continue to prioritise and develop our risk management strategy and capability in recognition of this. Timely identification of risks, combined with their appropriate management and escalation, enables us to successfully run our business and deliver strategic change, while ensuring that the likelihood and / or potential impact associated with such risks is understood and managed within our defined risk appetite.

The Board continues to monitor the risk environment, and reviews the appropriateness of the principal risks to the business.

Currently there are ten principal risks which we monitor and report against. These risks are aligned to successful delivery of our Strategy and mapped against the strategic pillars to which they relate. A range of measures are in place to manage and mitigate these risks.

Other risks are analysed and mitigated via the normal embedded risk management process.

Principal Risk

Risk Background

Management and Mitigation

Licensing Model Transition

Sage does not successfully manage its ongoing transition to subscription licensing against defined timelines and targets or appropriately adapt its customer approach.

Strategic alignment:

Customers for Life

Sage is continuing its transition from a perpetual to a subscription based licensing model.

In addition to providing additional value for customers, this transition assists with cash flow; offers a platform for cross selling; and lowers attrition rates, which in turn aids revenue forecasting.

It also provides regular customer engagement and enhanced opportunities to develop these relationships.

The speed of transition needs to be balanced against any reduction in short term revenues.

· An approved licensing model transition strategy is in place

· A series of approved subscription revenue targets are defined, which span multiple years and support successful and balanced delivery of our strategy

· Ongoing monitoring and review of the approved targets takes place at country, regional and group levels to proactively manage the licence transition, and revenue targets

· New products are being offered on a subscription only basis

· Customer Business Centres (CBCs) are operating in North America and Europe to integrate digital marketing, sales and service operations for customers using Software-as-a-Service (SaaS), and support planned growth ambitions

Market Intelligence

Sage fails to understand and anticipate changes in the external environment, including customer needs, emerging market trends, competitor strategies and regulatory / legal requirements.

Strategic alignment:

Customers for Life
Winning in the Market

Sage continues to develop its market intelligence capability in support of a consolidated understanding of market and customer needs, and aligning this with competitive positioning and product development activities.

· A Market and Competitive Intelligence team is established, which has Group responsibility for Market Intelligence

· Market intelligence surveys are undertaken, to identify market opportunities

· Brand health surveys are undertaken to understand customer perception of the Sage brand and its products

· An approved internal communications plan is delivered, to share market intelligence and build brand awareness

· Market data is provided through a Market Data portal, allowing ease of access and improved analysis

In progress:

· Regular, targeted internal market data communications, which build awareness of the Market Data portal

· Ongoing refinement and improvement of market data through feedback from the business

Competitive Positioning and Product Development

Sage is unable to clearly identify the approach to market, or deploy competitive advantage, including product development.

Strategic alignment:

Winning in the Market
Capacity for Growth

The competitive environment in which Sage operates continues to see significant developments.

Sage must continually translate market intelligence into effective strategies targeting attractive market segments with appropriate products and continually work to reinforce competitive superiority.

During the transition to 'One Sage' products, we continue to manage the local product base and plan and evolve these in line with longer-term aspirations.

· A Product Marketing team is in place oversee competitive positioning and product development

· A Product Delivery team is in place to develop and deliver products

· Sage-wide templates are being used for Battlecards to ensure consistent information is provided

· Battlecards are in place for key products in all countries, which set out the strengths and weaknesses of competitors and their products

· Defined 'customer for life' roadmaps are in place, detailing how products fit together, and any interdependencies

· A BattleApp has been released which provides timely information to support the activities of sales channels

· Acquisitions of Fairsail (now Sage People) and Intacct to enhance Sage's product portfolio, and cloud offering

In progress:

· Prioritised product development based on 'customer for life' roadmaps

· Analysis of product investments is being enhanced to further consider anticipated return on investment

Business Model Delivery

Sage does not successfully deliver a global operating model that supports its growth ambitions.

Strategic alignment:

Capacity for Growth

Sage continues to embed its global operating model which provides enhanced governance, process harmonisation, efficiencies and scalability.

The effective interaction between all parts of the organisation is essential to allow Sage to grow at pace.

· The OneSage operating model has been in place from October 2016

· A Business Operations Forum is operating, providing governance over project activity in order to support the effective operation and enhancement of the operating model

· A formal gating process operates through which all projects must pass, and ensures a clear purpose and success criteria are established for each

· The Programme Management Office (PMO) provides oversight of and reports on project progress and potential conflicts

· Divestiture of Sage Payment Solutions in the US, and structure of an ongoing partnership agreement, consistent with our payments service strategy

In progress:

· Ongoing monitoring and management of projects through the Business Operations Forum, including measuring of success factors

Supporting Control Environment

Sage's control environment, business processes and technology infrastructure does not support the efficient and effective operation of the business.

Strategic alignment:

One Sage

Capacity for Growth

Sage's footprint has developed often through acquisition. Ongoing alignment and rationalisation of these systems and processes, is required to support the 'One Sage' operating model.

· Established Global and Regional Risk Committees drive accountability for risk, provide governance, and set the tone-from-the-top

· Shared Service Centres are established in Newcastle, Atlanta and Johannesburg enabling the creation of consistent and consolidated systems and processes

· Policy Approval Committee in place to supervise and approve policies within the Sage-wide policy suite

· Customer Business Centres (CBCs) are built around core systems to underpin operational consistency and expansion, including Salesforce CRM and Sage's own X3 for General Ledger activity. As volumes scale, all new customers for CBC supported products are being set-up in these systems

· A Governance, Risk and Compliance technology solution is in place

In progress:

· Migration of country General Ledgers onto X3 continues in line with plans

· Continuation of the Excellence in Controls initiative to enhance the supporting control environment across key business processes

· Definition and deployment of control frameworks for Shared Service Centres and for Sales as output from the Excellence in Controls initiative

· Implementation of Sage People as a single application to store and manage colleague data

Information Management and Protection (including cyber)

Sage fails to adequately understand, manage and protect information.

Strategic alignment:

One Sage

Sage's footprint has developed through a series of acquisitions, each arriving with its own processes, technologies and activities appropriate to a smaller business.

Harmonising and rationalising these, as necessary, is required to support the 'One Sage' operating model and to support a business view on all data being held and processed, including management and protection.

· Accountability is established within both OneIT and Product Services for all internal and external data being processed by Sage. OneIT and Product Services report to the Chief Information Officer and Chief Product Delivery Officer respectively

· A network of Information Security Officers supports the business

· Formal certification schemes are maintained, across appropriate parts of the business, and include internal and external validation of compliance

· Secure coding standards are in place to design security into new products

· A comprehensive information security policy suite is in place, defining the framework within which Sage operates

· Awareness training for Information Management and protection has been rolled-out across the organisation

· A new Information Security Risk Management Methodology has been designed, and deployed across defined critical assets

· The Incident Management framework include the rating of incidents and requirements for escalation has been embedded within all regions

· Structured IT internal audit activity is undertaken by Sage Assurance against an agreed plan, and supplemented by ad-hoc activity. Findings are reported to management and the Audit and Risk Committee

In progress:

· Information Security is being aligned with the existing Governance structures (Global and Regional Risk Committees), to establish clear accountability

· Deployment of the Information Security Risk Management Methodology more widely across business critical assets

· The Data Governance Committee provides direction around data and Data Protection, and our response to GDPR

Regulatory and Legal Framework

Sage does not understand and operate within the applicable regulatory and legal framework.

Strategic alignment:

One Sage

Sage's services operate within a complex regulatory and legal environment. Monitoring this evolving regulatory and legal environment enables timely and appropriate steps to ensure ongoing compliance.

· All legal resources across Sage report directly to the General Counsel and Company Secretary

· Legal services use internal and external resources to monitor planned and realised changes in legislation

· All product contracts are reviewed and approved through Legal Services

· A suite of policies is in place which supports key legislation, including Data Protection and anti-bribery

· A Code of Conduct is in place across the business which provides clarity over how colleagues are expected to behave. Completion of Code of Conduct training is mandatory for colleagues, and confirmation of understanding is recorded and monitored

· Sage Compliance function has been created to re-enforce the drive towards a 100% compliance culture

· Whistleblowing and Incident Management Policies and procedures are in place, which ensure appropriate treatment of identified events, and management visibility

In progress:

· Data Governance Committee providing direction around upcoming General Data Protection Regulations (GDPR)

Sage Brand

Sage does not deliver clear and consistent branding to the market.

Strategic alignment:

One Sage

Following several years of acquisition, work continues to develop and harmonise the Sage brand. Whilst it is well recognised and trusted by customers in many core markets, brand awareness remains inconsistent.

A clear and consistent brand enables customers to understand Sage values.

· A Brand team is in place which has overall responsibility for developing the Sage Brand

· All countries must comply with Sage's Brand Governance and Brand Guidelines, which are designed to execute the Sage Masterbrand Strategy. The timeframes for compliance of all products are defined, and any exceptions must be approved through the Brand team

· A Digital Asset Management (DAM) tool is in place which workflows requests and approvals, and acts as a single information repository

· The Brand Library is used as a repository for branded assets, and any exceptions from brand guidelines are reported to the Chief Marketing Officer

· Ongoing reviews of customer experience are performed (Net Promoter Scores), and output is reviewed across both countries and products to identify variance, and develop improvement plans

· Sage Summits were completed across eight cities during 2017 (Paris, Berlin, Johannesburg, Melbourne, London, Madrid, Atlanta and Toronto)

· A Brand awareness campaign is in place to improve Brand recognition

· The Sage Foundation is operating across Sage, aligned with our values and behaviours

In progress:

· A Compliance Programme is being rolled out, to assess and educate on compliance with Brand Governance and Brand Guidelines

· Rebranding of products

Partners and Alliances

Sage fails to identify, build, enable and maintain appropriate partnerships and alliances.

Strategic alignment:

Revolutionise Business

There are instances where leveraging partnerships and alliances can support the growth ambitions of Sage.

The governance and control around engagement and use must be defined, as well as management of the ecosystem.

· A Partner and Alliances team is established to oversee the selection and management of Sage's partners and alliances, including accountability for active management of relationships

· Definitions are in place to ensure clarity and consistency over partners and alliances, to enable appropriate and consistent management of these arrangements

· All contracts for partners and alliances require approval through legal services

· Defined legal provisions are required for inclusion in contracts. Any variance in provisions must be recorded as part of the formal contract approval process

In progress:

· Deployment of revised Sage Partner Programme in line with plan

Third Party Reliance

Sage does not understand and manage its third party ecosystem.

Strategic alignment:

Revolutionise Business

Several Sage customer service offerings are delivered or supported using third parties, whilst Sage remains accountable for quality of performance.

The third party ecosystem must be understood and effectively managed, in order to limit Sage's exposure.

· A Procurement function ensures key controls are applied in the selection and on-boarding of third parties

· The Procurement function supports the business with the selection of third parties and negotiation of contracts

· Legal resources are used in contract negotiation

· A Procurement Lifecycle Policy and Procedures are defined, agreed and published. These contain clear roles and responsibilities for colleagues and align with existing processes, including investment approval

In progress:

· All colleague training developed, to enhance colleague understanding and support process

· Automation of procurement requests is being developed in Service Now, to simplify colleague experience

Statement of Directors' Responsibilities

Responsibility statement of the Directors on the Annual Report & Accounts

The Annual Report & Accounts for the year ended 30 September 2017 includes the following responsibility statement.

The Directors as at the date of this report, whose names and functions are listed in the Board of Directors section of the Annual Report and Accounts, confirm that:

? To the best of their knowledge, the Group's financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

? To the best of their knowledge, the Directors' report and the Strategic report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

On behalf of the Board

S Hare

Chief Financial Officer

21 November 2017