Chart description

• *Foreign currency results for the prior year ended 30 September 2008 have been retranslated based on the average exchange rates for the year ended 30 September 2009 of $1.54/£1 and €1.14/£1 to facilitate the comparison of results.
• †EBITA is defined as earnings before interest, tax and amortisation of intangible assets.

Performance

Total revenues in North America contracted 10%* to £576.4m (2008: £637.3m*), reflecting the difficult economic conditions. Organic revenue contracted 8%*. Organic subscription revenues declined 2%*, while organic software and software-related services revenues
declined 23%*.

Phase 1 of the changes to our North American business has been successfully completed with the new management team in place and an appropriate reduction of the cost base. Operational improvements planned in Phase 2 are underway including reinvigoration of the channel, growth in premium support offers and several product launches. We are making good progress in these areas and have seen increases in customer satisfaction scores across our product lines.

Sage North America is organised into three divisions, Sage Business Solutions Division (“SBS”), Sage Payment Solutions Division and Sage Healthcare Division. SBS declined organically 11%*, the downturn particularly impacting our mid-market accounting products, CRM products and Sage Timberline Office which serves the construction industry. Our entry-level accounting products (Peachtree and Simply) delivered resilient performances with continued growth of Peachtree Quantum. Non-Profit Solutions performed well in the challenging market conditions and grew modestly. Sage Payment Solutions Division saw a 15% increase in the number of merchants served but lower volume per merchant leading to a fall in revenue of 4%*. Payments revenue from cross-sell to our existing customers grew, from a small base, by over 100%* in the year and we regard this as a substantial future opportunity for Sage.

Sage Healthcare Division has improved its EBITA† margin in the year to 17% (2008: 8%*). We have improved customer service levels and so reduced customer losses in our Medical Manager base. Although Healthcare revenues declined overall by 5%*, revenue from the Intergy product line, including Electronic Health Records (“EHR”) capability, grew by 13%* to £71.2m. Intergy, with its accredited, market-leading EHR solution, is well positioned to benefit from incentives within the American Recovery and Reinvestment Act for the adoption of EHR.

The EBITA† margin of Sage North America, including restructuring charges of £10.7m incurred in the year, was 18% (2008: 18%*). Excluding restructuring charges, it was 20%.

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Marketplace

Supporting customers through the downturn

Our North American customers felt the full impact of the downturn in mid to late calendar year 2008. To help them through this we introduced various payment and financing packages, free and low cost options as well as solutions to help them better manage their cash flow.

These included Peachtree by Sage which launched a six month instalment plan in December 2008. Approximately 20% of Peachtree upgrades are now sold with this option. MAS 90 introduced a monthly payment option for service contracts which has benefited over 1,000 customers. Simply Accounting by Sage rolled out a free downloadable version of its entry-level product, Simply Accounting First Step. So far approximately 3,000 businesses have downloaded this version. Further, a MAS 90 credit card processing module was given away for free to customers that also sign up for our merchant services. This “cash flow bundle” is positioned to help customers collect cash and 300 MAS 90 customers have taken advantage of it this year.

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Longer term opportunities

Preparing our business for growth

The US Healthcare market represents a significant opportunity for growth. Our market-leading, industry-accredited products positions us well to leverage future demand for EHR solutions. This is primarily being driven by funding for adoption of EHR in the American Recovery and Reinvestment Act. We are actively pursuing opportunities presented by the Act, concentrating on building brand awareness, sales effectiveness and the development of strategic relationships with purchasing organisations and government agencies.

Within our Payment Solutions Division, we are actively diversifying our current customer base, shifting from a high concentration of merchants in the retail space by selling merchant services to existing North America customers in other sectors. As the economy recovers it is likely we will see an increase in processing volumes from our merchant base as consumer confidence rebounds.

Emphasis is being placed on enhancing our premium support offerings to provide additional value to our customers while also growing average revenue per customer. Initiatives are underway to increase the penetration of support contracts into our customer base and expand our offerings to include other premium components such as business advice and extended hours support.

We have enhanced our channel partner compensation structure to drive and reward growth, are leveraging detailed partner segmentation models to identify better individual partner performance and are seeking to expand the channel in key areas to ensure appropriate geographical coverage and capacity to serve future demand.

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Customers

Our North American support organisation is being reshaped to ensure we resolve customer requests quickly and accurately while also continuing to increase the calls we make to our customers. A Customer Service Council has been created to focus on making it easier for customers to do business with Sage. Tangible improvements include the introduction of a live answer for our main “toll free” 800 number which gets customers to the right place the first time. A training programme called “Voice of Sage” has been rolled-out to our customer support staff, emphasising the key attributes that create a more satisfying and consistent customer experience.

Over the year significant investment was made in online customer communities. This included the launch of SageSpark and MyBizCounts – online communities which provide business owners and those considering starting a business with tools, education and community support. Sage North America also launched online communities for Sage MAS ERP and Sage FAS Fixed Assets customers, adding to more than a dozen other customer communities the company hosts.

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People

The passion, expertise and ideas of our people are one of our key strengths. We actively seek to leverage this, for example through employee surveys and round table sessions hosted with employees from all levels of the organisation. One such idea resulted in the development of “Ask Me”, a programme designed to share knowledge more effectively and answer customer questions about different parts of the business, as well as improve the cross-selling of our solutions.

We have created a “top down” coaching programme to provide leaders with a common approach to developing employees. This has been delivered to more than 60 senior leaders and will be rolled out to different levels of management over the coming year.

Our North American leadership team has also been strengthened through the recruitment of a Chief Technology Officer, Chief Information Officer and Presidents of SBS and our Payment Solutions Division. All bring industry expertise and experience to the business and will help ensure we are well positioned for the future.

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Innovation

The most significant innovations this year were the introduction of two free online services focused on helping new entrepreneurs. The first is a community site, www.SageSpark.com, where small businesses can tap into advice from experts and fellow entrepreneurs. The site provides free access to invaluable tools and services to help businesses save time and money. While on the site, members can also take advantage of fee-based services such as payment processing, live computer support and web page creation and promotion. The second is Billing Boss, a free online invoicing tool designed for small businesses and freelancers to create, send and track invoices helping them get paid faster and better manage their cash flow.

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Corporate responsibility

Sage North America continues to be focused on its local community. The business hosted an annual event celebrating Sage Day, where we partnered with other Sage locations around the world in support of charitable giving. Sage North America centred their activity on a theme of “Change One Thing”. During this event a food drive was conducted for Hunger Task Forces across the US and Canada with food donations totalling more than 17,000 pounds or 7,700 kilograms.

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