Sage Interim Results
2020
13 May 2020
#SageResults
Safe Harbour
The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated ("relevant persons"). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. Information in the following presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments.
- This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in The Sage Group plc (the "Company") or any company which is a subsidiary of the Company
- The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about, and observe, such restrictions.
- Certain statements contained in this presentation constituteforward-looking statements. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding the Company's financial condition, business strategy, plans and objectives, are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. Such risks, uncertainties and other factors include, among others: Inherent difficulty in predicting customer behaviour; customers may not respond as we expected to our sales and marketing activities; the competitive environment; our ability to adapt to technological change; business interruption or failure of our systems architecture and communication systems; problems with implementing upgrades to our applications and supporting information technology infrastructure; any failure to properly use and protect personal customer information and data; our ability to manage and maintain third party business partnerships; increased regulation of our businesses; any failure to process transactions effectively; any failure to adequately
protect against potential fraudulent activities; any significant quality problems or delays; the global macroeconomic environment; our inability to attract, retain and develop talented people; our ability to repurchase shares; our inability to adequately protect our intellectual property rights; disruptions, expenses and risks associated with any acquisitions and divestitures; amortisation of acquired intangible assets and impairment charges; our use of debt to finance acquisitions or other activities; and the cost of, and potential adverse results in, litigation involving intellectual property, competition authority, shareholder and other matters. These forward-looking statements speak only as at the date of this presentation. Except as required by the Financial Conduct Authority, or by law, the Company expressly excludes any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. Nothing in the foregoing is intended to or shall exclude any liability for, or remedy in respect of, fraudulent misrepresentation.
-
Rounding
As a result of rounding throughout this document, it is possible that tables may not cast and change percentages may not calculate precisely. - Terminology
Unless stated otherwise all references to revenue are organic. - Materiality
Only figures over £1m are considered to be material for the purposes of this presentation.
#SageResults | Sage Group plc Interim Results 2020 | 2 | |
Steve Hare, CEO
Overview
Financial review
Strategic progress & outlook Q&A
#SageResults | Sage Group plc Interim Results 2020 | 3 |
Highlights of a strong first half
Financial | Strategic | Focus |
performance | execution | |
#SageResults | Sage Group plc Interim Results 2020 | 4 | |
Our response to COVID-19
Colleague | Support for | Executing |
wellbeing | customers | our strategy |
#SageResults | Sage Group plc Interim Results 2020 | 5 | |
Jonathan Howell, CFO
Overview
Financial review
Strategic progress & outlook Q&A
#SageResults | Sage Group plc Interim Results 2020 | 6 |
Financial highlights
High quality | On target | Strong cash | Resilient |
recurring | |||
margin | conversion | balance sheet | |
revenue growth | |||
10.3% | 22.8% | 127% | £1.3bn1 |
1. Cash and available liquidity as at 31 March 2020
#SageResults | Sage Group plc Interim Results 2020 | 7 | |
P&L summary
H1 20 | H1 19 | Change | |
£m | £m | % | |
Total Organic Revenue | £935m | £885m | +5.7% |
Recurring revenue | £826m | £749m | +10.3% |
Organic operating profit | £213m | £207m | +3.0% |
Organic operating profit margin % | 22.8% | 23.4% | -0.6% pts |
Underlying operating profit | £218m | £216m | +0.9% |
Underlying operating profit margin % | 22.4% | 22.9% | -0.5% pts |
Underlying basic EPS | 13.75p | 13.78p | -0.2% |
Dividend per share | 5.93p | 5.79p | +2.5% |
Annualised Recurring Revenue (ARR) | £1,693m | £1,541m | +9.8% |
#SageResults | Sage Group plc Interim Results 2020 | 8 | |
Revenue categories
£935m +5.7%
Software | £464m | |
subscription | +26% | |
£582m |
+10.3%
Recurring
revenue
Other recurring | £285m | -15% | |||
£244m | |||||
Other (SSRS and | |||||
£136m | £109m | -20% | |||
processing) | |||||
H1 19 | H1 20 |
Recurring
revenue
penetration
88%
Software
subscription penetration
62%
Renewal by value
101%
#SageResults | Sage Group plc Interim Results 2020 | 9 | |
Portfolio view of recurring revenue
£826m +10.3%
Cloud native
Cloud connected
To be migrated
Non-Sage Business Cloud
£105m | +31% | ||||
£80m | |||||
Sage | |||||
£210m | £307m | +46% | |||
Business Cloud | |||||
+12% | penetration | ||||
56% | |||||
Future Sage | |||||
£362m | -12% | Business | |||
£319m | Cloud | ||||
Opportunity | |||||
£97m | £95m | -2% |
H1 19 | H1 20 |
#SageResults | Sage Group plc Interim Results 2020 | 10 | |
Regional overview
#SageResults | Sage Group plc Interim Results 2020 | 11 | |
North America
H1 20 performance
US (excluding Sage Intacct)
- 7% recurring revenue growth
- Cloud connected growth driven by Sage 200 migrations
Canada
- 10% recurring revenue growth
- Sage 50 cloud connected solutions driving growth
Sage Intacct
- Recurring revenue growth 31%
- Strength from both new customer acquisition and existing customers
70% | 59% | ||||
Software | |||||
subscription | |||||
penetration | |||||
H1 19: 55% | |||||
Sage Business Cloud | |||||
penetration | |||||
H1 19: 64% | |||||
Organic Revenue by Category | H1 20 | H1 19 | Growth | ||
Organic total revenue | £343m | £314m | +9% | ||
Organic recurring revenue | £311m | £278m | +12% | ||
Sub-region view - recurring revenue | H1 20 | H1 19 | Growth | ||
US (excluding Sage Intacct) | £196m | £183m | +7% | ||
Canada | £46m | £42m | +10% | ||
Sage Intacct | £69m | £53m | +31% | ||
#SageResults | Sage Group plc Interim Results 2020 | 12 | |
Northern Europe
H1 20 performance
- Recurring revenue growth 13%
- Sage Business Cloud penetration now at 80%
- Reflecting strong growth in H2 19 and new Sage 50 cloud connected contracts added in H1 20
- Encouraging early performance of Sage Intacct in the UK
84%
80%
Software
subscription penetration
H1 19: 63%
Sage Business Cloud
penetrationH1 19: 59%
Organic Revenue by Category | H1 20 | H1 19 | Growth |
Organic total revenue | £198m | £179m | +10% |
Organic recurring revenue | £187m | £165m | +13% |
#SageResults | Sage Group plc Interim Results 2020 | 13 | |
Central and Southern Europe
H1 20 performance
France
- 4% recurring revenue growth
- Growth driven by cloud connected products in FY19 aided by new contracts in H1 20
Central Europe
- 9% recurring revenue growth Iberia
- 8% recurring revenue growth
- Growth in Sage 50 and Sage 200 cloud connected portfolio and local products
35% | 52% | ||||
Software | |||||
subscription | |||||
penetration | |||||
H1 19: 43% | |||||
Sage Business Cloud | |||||
penetration | |||||
H1 19: 21% | |||||
Organic Revenue by Category | H1 20 | H1 19 | Growth | ||
Organic total revenue | £297m | £298m | 0% | ||
Organic recurring revenue | £250m | £236m | +6% | ||
Sub-region view - recurring revenue | H1 20 | H1 19 | Growth | ||
France | £120m | £116m | +4% | ||
Central Europe | £68m | £63m | +9% | ||
Iberia | £62m | £57m | +8% | ||
#SageResults | Sage Group plc Interim Results 2020 | 14 | |
International
H1 20 performance
Africa and Middle East
- 15% recurring revenue growth
- Local products and continued strong performance in Sage Accounting
Australia and Asia
- 2% recurring revenue growth
12% | 62% | |||
Software | ||||
subscription | ||||
penetration | ||||
H1 19: 56% | ||||
Sage Business Cloud | ||||
penetration | ||||
H1 19: 8% | ||||
Organic Revenue by Category | H1 20 | H1 19 | Growth | |
Organic total revenue | £97m | £94m | +3% | |
Organic recurring revenue | £78m | £70m | +11% | |
Sub-region view - recurring revenue | H1 20 | H1 19 | Growth | |
Africa & Middle East | £53m | £46m | +15% | |
Australia & Asia | £25m | £24m | +2% | |
#SageResults | Sage Group plc Interim Results 2020 | 15 | |
Strong cash flow and financial position
Underlying | £218m |
operating profit | |
Depreciation and | £29m |
amortisation | |
Share-based payments | £9m |
Net changes in working | £36m |
capital | |
Net capital expenditure | (£16m) |
Underlying cash flow | |
from operating | £276m |
activities |
See appendix for definitions
Underlying cash | |
flow from operating | £276m |
activities | |
Non-recurring items | (£2m) |
Net interest paid | (£12m) |
Income tax paid | (£39m) |
Foreign exchange | £4m |
movements | |
Free cash flow | £227m |
Key metrics
Underlying cash | 127% | |
conversion | ||
Cash and available | £1.3bn | |
liquidity | ||
Closing net debt | (£238m) | |
Net debt leverage | 0.5x | |
ROCE | 20.5% | |
#SageResults | Sage Group plc Interim Results 2020 | 16 | |
Capital allocation
To become a great SaaS company for customers and colleagues alike
1 | 2 | 3 | 4 |
Organic | M&A and portfolio | Maintain the ordinary | Additional |
investment | rationalisation | dividend in real terms | returns |
Strong and stable financial position
Broad range of 1.0x - 2.0x net debt: EBITDA over the medium term Comfortable with our current position given uncertain environment
#SageResults | Sage Group plc Interim Results 2020 | 17 | |
Summary
High quality | On target | Strong cash | Resilient |
recurring | |||
margin | conversion | balance sheet | |
revenue growth | |||
10.3% | 22.8% | 127% | £1.3bn1 |
1. Cash and available liquidity as at 31 March 2020
#SageResults | Sage Group plc Interim Results 2020 | 18 | |
Steve Hare, CEO
Overview
Financial review
Strategic progress & outlook
Q&A
#SageResults | Sage Group plc Interim Results 2020 | 19 |
Transitioning the business
Software | ||||
subscription | Software | |||
44% | ||||
subscription | ||||
Recurring | ||||
Recurring | 62% | Recurring | Software | |
revenue 78% | ||||
revenue 88% | revenue >90% | subscription | ||
>90% |
Maintenance
- Support 34%
Maintenance
& Support
26%
Other | Other | |
22% | Other | |
12% | <10% | |
FY 18 | H1 20 | Future |
#SageResults | Sage Group plc Interim Results 2020 | 20 | |
Building ARR
Opening ARR1 | 100% | £1.54bn |
Existing customers
Churn
Migration, upsell & cross-sell
Renewal by value | 101% | £1.56bn |
New customers
Reactivations
New customer acquisition
Closing ARR | 110% | £1.69bn |
1. As at the end of the comparative period (31 March 2019)
#SageResults | Sage Group plc Interim Results 2020 | 21 | |
Customer success
Taking a customer-centric approach to everything we do
H1 20 progress - Small
- Focus onend-to-end experience and product integration
- Focus on accountants
H1 20 progress - Medium
- Simplified industry vertical focus
- Partner engagement
COVID-19
- Coronavirus hubs and webinars
- Help access government funding
- New software module
KPIs:NPS, renewal by value
#SageResults | Sage Group plc Interim Results 2020 | 22 | |
Colleague success
Culture that values individuals & encourages collaboration
H1 20 progress
- Investment in leaders and colleagues
- Embedded values and behaviours
- Sage Foundation support
COVID-19
- All colleagues working from home
- Networking groups and eLearning
- Support for physical and mental wellbeing
KPIs: eNPS, which in turn drives customer NPS
#SageResults | Sage Group plc Interim Results 2020 | 23 | |
Innovation - Sage Business Cloud vision
Enabling organizations to thrive in the era of digital transformation
MARKETPLACE
SAGE DESIGN SYSTEM | ||
APPLICATIONS | SERVICES | DIGITAL EXPERIENCE SERVICES |
CUSTOMER JOURNEY |
PLATFORMS
SAGE ID AND DIRECTORY
#SageResults | Sage Group plc Interim Results 2020 | 24 | |
Innovation - highlights
Solving customer problems by doing things differently
H1 20 progress - Small
- Sage Accounting Professional soft launch in UK
- CakeHR cloud solution for small businesses
H1 20 progress - Medium
- Sage Intacct growth in new geographies
- Sage Intacct Construction launched
Sage Business Cloud environment
- Trust Fabric blockchain initiative with AWS
- Sage AI Labs created
- Sage Business Cloud Marketplace launched
KPIs:Sage Business Cloud penetration and availability of cloud native solutions
#SageResults | Sage Group plc Interim Results 2020 | 25 | |
Innovation - Sage Business Cloud portfolio
Cloud Connected | Cloud Native | ||||
People & Payroll | |||||
Accounting & Financials | |||||
Sage X3 | |||||
Sage Intacct | Sage People | ||||
Sage 200 Cloud |
MEDIUM
Sage 50 Cloud | CakeHR |
Sage Accounting | |
Sage 50 Payroll | Sage Payroll |
SMALL |
Sage Service Fabric
#SageResults | Sage Group plc Interim Results 2020 | 26 | |
FY20 guidance
As a result of COVID-19, we expect:
• Organic recurring revenue growth to be below the previously guided range of 8% to 9%
• Decline in other revenue (SSRS and processing) to accelerate significantly in the second half
• An associated impact on margin
#SageResults | Sage Group plc Interim Results 2020 | 27 | |
Key messages
Strong first | Resilient | Investing for |
the long | ||
half | business | |
term | ||
#SageResults | Sage Group plc Interim Results 2020 | 28 | |
Q&A
#SageResults
#SageResults | Sage Group plc Interim Results 2020 | 29 | |
Appendix
Strategic KPIs
ARR | Subscription | Sage Business | Renewal |
penetration | Cloud penetration | by value | |
+10% | 62% | 56% | 101% |
#SageResults | Sage Group plc Interim Results 2020 | 30 | |
Appendix
Balance sheet strength
Net debt | Cash and | Cash and cash | Undrawn |
leverage ratio | available liquidity | equivalents | facilities |
0.5x | £1.3bn | £912m | £413m |
Debt facilities:
- Syndicatedmulti-currency Revolving Credit Facility of £715m, expiring in February 2025, with £302m (H1 19: £274m) drawn as at 31 March 2020
- Syndicated Term Loan of £200m put in place in September 2019, expiring in September 2021 and fully drawn
- US private placement loan notes totalling £519m (H1 19: £497m), with a range of maturities between May 2020 and May 2025
#SageResults | Sage Group plc Interim Results 2020 | 31 | |
Glossary
Measure/Description
Underlying (revenue and profit) measures
Underlying measures are adjusted to exclude items which would distort the understanding of the performance for the year or comparability between periods:
- Recurring items include purchase price adjustments including amortisation of acquired intangible assets and adjustments made to reduce deferred income arising on acquisitions,acquisition-related items, FX on intercompany balances and fair value adjustments; and
- Non-recurringitems that management judge to be one-off or non-operational such as gains and losses on the disposal of assets, impairment charges and reversals, and restructuring related costs.
All prior period underlying measures (revenue and profit) are retranslated at the current year exchange rates to neutralise the effect of currency fluctuations.
Organic (revenue and profit) measures
In addition to the adjustments made for Underlying measures, Organic measures:
- Exclude the contribution from discontinued operations, disposals and assets held for sale of standalone businesses in the current and prior period; and
- Exclude the contribution from acquired businesses until the year following the year of acquisition; and
- Adjust the comparative period to present prior period acquired businesses as if they had been part of the Group throughout the prior period.
Acquisitions and disposals where the revenue and contribution impact would be immaterial are not adjusted.
Underlying cash flow from operating activities
Underlying Cash Flow from Operating Activities is Underlying Operating Profit adjusted for non-cash items, net capex (excluding business combinations and similar items) and changes in working capital.
Underlying cash conversion
Underlying Cash Flow from Operating Activities divided by Underlying (as reported) Operating Profit.
EBITDA
EBITDA is Underlying Operating Profit excluding depreciation, amortisation and share based payments.
Annualised recurring revenue
Annualised recurring revenue ("ARR") is the normalised organic recurring revenue in the last month of the reporting period, adjusted consistently period to period, multiplied by twelve. Adjustments to normalise reported recurring revenue include those components that management has assessed should be excluded in order to ensure the measure reflects that part of the contracted revenue base which (subject to ongoing use and renewal) can reasonably be expected to repeat in future periods (such as non-refundable contract sign-up fees).
Renewal Rate by Value
The ARR from renewals, migrations, upsell and cross-sell of active customers at the start of the year, divided by the opening ARR for the year.
#SageResults | Sage Group plc Interim Results 2020 | 32 | |
Glossary
Measure/Description
Free cash flow
Free Cash Flow is Cash Flow from Operating Activities minus non-recurring cash items, interest paid, tax paid and adjusted for profit and loss foreign exchange movements.
% Subscription Penetration
Organic software subscription revenue as a percentage of organic total revenue.
% Sage Business Cloud Penetration
Organic recurring revenue from the Sage Business Cloud (native and connected cloud) as a percentage of the organic recurring revenue of the Future Sage Business Cloud Opportunity.
Return on Capital Employed
ROCE is calculated as:
- Underlying Operating Profit; minus
- Amortisation of acquired intangibles; the result being divided by
- The average (of the opening and closing balance for the period) total net assets excluding net debt, provisions fornon-recurring costs and tax assets or liabilities (i.e. capital employed)
#SageResults | Sage Group plc Interim Results 2020 | 33 | |
Glossary - Revenue types
Measure/Description
Revenue Type | Description |
Recurring revenue | Recurring revenue is revenue earned from customers for the provision of a good or service over a contractual term, with the customer being unable to |
Subscription contracts | continue to benefit from the full functionality of the good or service without ongoing payments. |
Maintenance and support contracts | |
Subscription revenue is recurring revenue earned from customers for the provision of a good or service over a contractual term. In the event that the | |
customer stops paying, they lose the legal right to use the software and the Group has the ability to restrict the use of the product or service. | |
Subscription revenue and maintenance and support revenue are usually recognised on a straight-line basis over the term of the contract as control is | |
transferred to the customer (including non-specified upgrades, when included). An exception is revenue from term licences embedded within a | |
subscription contract for software with significant standalone functionality which are expected to recur upon renewal of the subscription offering. Revenue | |
for these term licences is recognised when control is transferred at inception of each subscription contract period. | |
Other revenue | Perpetual software licences with significant standalone functionality and specified upgrades revenue are recognised when the control relating to the |
Perpetual software licences | licence has been transferred. This is when the goods have left the warehouse to be shipped to the customer or when electronic delivery has taken place. |
Upgrades to perpetual licences | |
Professional services | Other product revenue (which includes hardware and stationery) is recognised as the products are shipped to the customer. |
Training | |
Hardware and stationery | Other services revenue (which includes the sale of professional services and training) is recognised when delivered, or by reference to the stage of |
completion of the transaction at the end of the reporting period. This assessment is made by comparing the proportion of contract costs incurred to date to | |
Payment processing services | |
the total expected costs to completion. | |
Payroll processing services | |
Processing revenue is revenue earned from customers for the processing of payments or where Sage colleagues process our customers' payroll. | |
Processing revenue is recognised at the point that the service is rendered on a per transaction basis. |
#SageResults | Sage Group plc Interim Results 2020 | 34 | |
Thank you
© 2020 The Sage Group plc or its licensors. Sage, Sage logos, Sage product and service names mentioned herein are the
trademarks of The Sage Group plc or its licensors. All other trademarks are the property of their respective owners.
Attachments
- Original document
- Permalink
Disclaimer
Sage Group plc published this content on 12 May 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 13 May 2020 07:49:11 UTC