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Chairman's statement

We remain on course to deliver the financial targets we have set for 2015, with organic revenue growth of 5% and organic operating profit margin of 27.5% reflecting continued progress towards our goals.

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Nothing ever stands still at Sage. We have seen another year of improved revenue growth in 2014 and have made significant progress towards our aim of delivering a step-change in both the level and sustainability of growth. We remain on course to deliver the financial targets we have set for 2015, reporting organic revenue growth of 4.9% and organic operating margin of 27.5% for the year. The acceleration of the move to subscription driving strong recurring revenue growth demonstrates the quality of this revenue growth.

We have appointed Stephen Kelly as Chief Executive Officer. We will now drive the next phase of our strategy. We are building on sound foundations.

Our portfolio – modern, innovative solutions addressing the needs of our customers
The key initiatives underpinning the strategy continue to progress well. We are capturing the benefits of a more global approach: “think globally whilst delivering locally.” Sage One and Sage ERP X3, as global products, demonstrate this change. Sage One is well established as our global cloud solution for smaller businesses, differentiated in the market by global breadth, delivery of a truly localised customer experience and 24/7 support. At the other end of our size spectrum, Sage ERP X3 continues to prove its attractiveness as our global solution for mid-market customers.

We continue to transform the value we offer customers by providing the benefits of online, connected and mobile experiences. Importantly, we do this through powerful technology that is non-disruptive for the customer, which supports their progressive move to the cloud. Our disciplined approach to portfolio management has seen investment prioritised to these key initiatives at the expense of legacy products. Effectively, the portfolio is self-funding the investment in growth.

Purposeful innovation is a feature across our portfolio. We have built cloud solutions and brought them to market across our three segments. We are investing in mobility, with a focus on applications that bring value to all our customers across a range of user requirements. For example, for micro businesses, we have launched the Sage One mobile app, whilst with Sage ERP X3 version 7, we have a mid-market solution with mobility at its core.

Our work on modernising existing products means that on-premise customers can benefit from mobility without compromising their core solution. We are also investing in remote collaboration, ensuring our customers can work efficiently with their accountants and across their businesses.

Business model transition to drive shareholder returns
There are many commentators who wonder how well Sage can transition its business model to cope with the cloud. Quietly, and without fanfare, Sage is doing this. By putting customer needs at the heart of all we do, the Company is showing in its rapid roll-out of cloud services, and related features, its responsiveness to change. The Company also has not forgotten its installed base of customers, not all of whom want to travel on this journey at the same pace. In offering customers choice in how they deploy their software, combined with customer support which is second to none, Sage is differentiated in the market. We consider customer satisfaction is a better measure of progress than simple cloud-based contract numbers.

Sage has built a subscription pricing capability that is making a tangible difference in the business, with more to come. Linking subscription to pricing, product and technology initiatives has proven an effective strategy to drive strong growth of Sage’s subscription base. The transition to a subscription-based model creates a more active and more valuable relationship with a customer for life. Subscription is a key driver for Sage, supporting both our customer-centric approach and our strategy for growth.

A focus on shareholder returns is at the heart of the strategy. The Board believes that high-quality and sustainable long-term revenue and earnings growth, combined with a disciplined approach to capital allocation and progressive dividend policy, will drive superior returns for shareholders.

In the past year, we have made new investment in payroll software in the United States with the acquisition of PayChoice. This acquisition strengthens Sage’s position in payroll and HR services in the US and accelerates Sage’s move to the cloud in this market. The acquisition is wholly consistent with our strategy of putting customers at the heart of what we do and provides greater service to our core customer base. We will continue, in a disciplined way, to seek such opportunities.

The Board
Early in the year, Guy Berruyer indicated his desire to retire from the Company. In the 21st century, natural retirement like this will become increasingly rare, and it is to his credit that Guy has reached the end of his 17-year career with the Company happily in this manner. He has made a major contribution to the Company and has established platforms and structures that will last long after he has retired. We all wish him well in his retirement.

Sage has only had three Chief Executives in its history and I am delighted that Stephen Kelly joins us as the fourth. He has a deep background in software success and in understanding the needs of SMEs. Whilst, of course, he will want to consider for himself Sage’s evolution, he has indicated his support for the key pillars of the Company’s strategy: increasing revenue growth through focusing our business, capturing the technology opportunity, and gaining the benefits of subscription. We welcome him to Sage.

We were also joined by Inna Kuznetsova, Drummond Hall and Steve Hare on the Board during the past year. They bring valuable and different perspectives to our deliberations. Finally, on Board-related matters, Drummond Hall has succeeded Ruth Markland as Chairman of the Remuneration Committee with effect from 5 December 2014. Ruth remains as Senior Independent Non-executive Director. I am grateful for all her diligence as Chair of the Remuneration Committee.

In summary
It has been a year of further progress – strategically, operationally and financially. There is, however, no complacency, and in such rapidly changing markets we continue to need to focus our energies on shorter decision timelines, rapid deployment and strong customer focus. We can only do this successfully with excellent people and, on behalf of the Board, I would like to thank all our employees and partners for their very considerable efforts in the past year. I look forward with confidence to your Company’s response to further changing customer demands in the year ahead.

Donald Brydon, Chairman