The Sage Group plc unaudited results for the six months ended 31 March 2016

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Operating performance

• Improved organic revenue growth to 6.2% (H1 2015: 5.0%), achieving double digit recurring revenue growth of 10.0% (H1 2015: 8.1%);
• Accelerated software subscription growth to 35.3% (H1 2015: 25.4%) in line with planned transition and corresponding decline in SSRS revenue of 6.3% (H1 2015: -2.0%);
• Customers embracing closer relationships with a 50% increase in subscription contracts to 842,000 (H1 2015: 561,000);
• Strong results in Europe, North America and Africa were balanced by a slower performance in Asia, which benefitted from non-repeating revenues in the prior period;
• Progress made on areas targeted for improved performance (Enterprise Europe, Payments North America and Small and Medium Business North America).

 

FINANCIAL SUMMARY1	H1 16	H1 15	Change
Organic revenue	£747m	£703m	+6.2%
- Recurring revenue	£513m	£466m	+10.0%
- Processing Revenue	£97m	£91m	+6.6%
- SSRS Revenue	£137m	£146m	-6.3%
Organic operating profit	£189m	£186m	+1.9%
Organic operating profit margin	25.4%	26.4%
Underlying base EPS	12.09p	12.8p	-1.5%
Underlying cash conversion	111%	114%
Ordinary dividend per share	4.80p	4.45p	+8%

 

STATUTORY SUMMARY2	H1 16	H1 15	Change
Revenue	£747m	£717m	+4.1%
Operating profit	£152m	£179m	-15.1%
Profit before tax	£142m	£168m	-15.6%
Basic EPS	9.88p	11.65p	-15.2%

1 - Organic operating profit is stated before non-recurring items (exceptional costs).Unless otherwise stated, all revenue growth measures referred to in the CEO report are stated on the constant exchange organic basis.  Refer to Appendix II on page 16 for information on Non-GAAP measures and note 3 of interim financial statements for details of items excluded from underlying operating profit.
2 - All H1 15 comparatives and growth rates in the Chief Executive Officer’s Review and Chief Financial Officer’s Review have been stated after the revenue reporting changes described in the FY15 full year results. Refer to notes 1 and 2 of interim financial statements for further details.

 

Investing for accelerated growth

• Organic operating margin of 25.4% reflects previously communicated first half strategic investment bias in sales and marketing;
• Underlying cash conversion remains strong at 111%, supporting free cash flow of £142m and the 8% increase of the interim dividend to 4.80p;
• Consistent focus on improving the quality organic growth, superior operating margins, strong free cash flow conversion and progressive dividends;
• Reaffirm confidence in achieving full year organic operating margin of at least 27% and delivering at least 6% organic revenue growth;

 
Business transformation

• Remain on-track to secure annualised savings of c.£50m from General & Administrative (G&A) functions by the end of FY16 with a target payback of under two years; Actions taken to deliver £17m of annualised G&A savings taken by end of H1, with an associated exceptional cost of £22m at the half year;
• Notices served on 46 property leases, which will take locations down to fewer than 100, with 25 exits by end of March 2016;
• Continued to strengthen management to accelerate growth, with over a dozen new joiners to the top 100 leadership team.

 

Technology driving growth

• Achieved 17% (H1 2015: 10%) revenue growth for Sage X3, the solution for larger businesses; Highlights include in excess of 60% growth from International; 20% growth in France; and 25% growth in UK & Ireland;
• Increased paying subscriptions for Sage One, the cloud solution for small businesses, by 100% year-on-year to 230,000;
• Sage 50 Cloud, our market leading accounting solution for small businesses, supported software subscription growth of 31% in Europe and just under 100% in North America.

Stephen Kelly, Chief Executive Officer said: "Sage continues to perform and transform.  We made a good start to FY16 with double digit recurring revenue growth as validation that customers are embracing closer subscription relationships.  High quality organic revenue growth continued to accelerate H1 over H1

“In this phase of the transformation, we have been very focussed on improving the capability of our management and creating a culture where customer obsession and innovation becomes a way of life at Sage.  Our customers are the entrepreneurs who drive economic growth and prosperity.  These entrepreneurs deserve awesome technology that is an enabler to their growth and success. The Sage cloud and partner ecosystem places the customer at the centre to provide a complete business solution from business start-up through scale-up to vibrant enterprise businesses.

“We are pleased with the early progress made and recognise there is still much to do in the transformation.  We remain confident in achieving our full year targets of at least 6% organic revenue growth and organic operating margin of 27%.”

Enquiries:

The Sage Group plc
+44 (0) 191 294 3457
Simon John, Investor Relations
Amy Lawson, Corporate PR

Tulchan Communications
+44 (0) 20 7353 4200
David Shriver
Jonathan Sibun

An analyst presentation will be held at 8.45am today at the London Stock Exchange plc, 10 Paternoster Square, London, EC4M 7LS.  A live webcast of the presentation will be hosted on www.sage.com/investors, dial-in number +44 (0) 203 427 1908, pin code: 7939458.  A replay of the call will also be available for two weeks after the event: Tel: +44(0)20 3427 0598, pin code: 7939458#

Rounding
As a result of rounding throughout this document, it is possible that tables may not cast and change percentages may not calculate precisely.