Full Year 2017 Results
Platform for acceleration – powered by Sage Business Cloud
London (November 22, 2017)
Operating performance highlights
- Organic revenue growth 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;
- Annualized cost savings of £59m (FY16: £51m) and associated non-recurring (exceptional) charge of £73m (FY16: £110m), both favorable 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).
| - Recurring revenue
- Processing revenue
- SSRS revenue
|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%||27.0%||0.0%|
|Underlying basic EPS||31.90p||30.82p||3.5%|
|Underlying adjusted EPS4||33.10p||30.82p||7.4%|
|Underlying cash conservation||95%||100%||(500bps)|
|Ordinary dividend per share||15.42p||14.15p||9.0%|
|Profit before tax||£342m||£242m||41.3%|
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 annualized 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 annualized 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’.”
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.
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
The Sage Group plc
+44 (0) 191 294 3457
Lauren Wholley, Investor Relations
Amy Lawson, Corporate PR
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#
- 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.
- See full definition of organic revenue and underlying revenue in appendix II on page 20.
- As a result of rounding throughout this document, it is possible that tables may not cast and change percentages may not calculate precisely.
- Underlying adjusted EPS excludes the impact of acquisitions and disposals.
- Adjustments are made to the comparative period to present acquired businesses as if these had been part of the Group throughout the period..