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.
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.
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