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The Sage Group plc unaudited results for the six months ended 31 March 2018

Slower H1 recurring revenue: stronger H2 outlook

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Operating performance overview

  • No material changes to the financial information or guidance contained in the announcement made on 13 April 2018, with the exception of cash conversion, which has improved to 99%;
  • Organic revenue growth of 6.3% (H1 17: 7.4%), reflecting recurring revenue growth of 6.4% (H1 17: 11.1%), underpinned by software subscription growth of 25.3% (H1 17: 30.6%) and software  subscription penetration of 44% (H1 17: 37%). SSRS revenue growth of 7.1% (H1 17: decline of 7.3%) and processing revenue growth of 2.1% (H1 17: 11.3%).
  • Continuing momentum in Sage Business Cloud, with annualised recurring revenue (ARR) of £336m, growing at 57%;
  • Organic operating profit margin of 24.5% consistent with front-loading investment in H1 and reduction in G&A expense to 13.8% (H1 17: 15.2%);
  • Strong cash conversion of 99%, with free cash flow of 17% of revenue, and interim dividend of 5.65p (8.2% increase), reinforcing business model fundamentals;
  • As announced on 13 April 2018, FY18 guidance revised to around 7% organic revenue growth from around 8% organic revenue growth and unchanged organic operating profit margin of around 27.5%, with clear plans in place to meet FY18 guidance.

 

 

FINANCIAL SUMMARY H1 18 H1 17 Change
Organic revenue £908m £854m 6.3%
- Recurring revenue £707m £665m 6.4%
- Processing revenue £43m £42m 2.1%
- SSRS revenue £158m £147m 7.1%
       
Underlying operating profit £222m £224m (0.7%)
Underlying operating profit margin 24.5% 25.3% (80bps)
       
Underlying basic EPS 14.25p 14.12p 0.9%
Underlying adjusted EPS 14.25p 12.33p 15.5%
Underlying cash conversion 99% 104% (500bps)
Ordinary dividend per share 5.65p 5.22p 8.2%

 

 

STATUTORY SUMMARY H1 18 H1 17 Change
Revenue £899m £840m 7.1%
Operating profit £186m £180m 3.1%
Profit before tax £171m £180m (5.0%)
Basic EPS (total operations) 12.50p 13.54p (7.6%)

 

Progress in the year to date

  • Revenue growth in H1 18 was impacted by inconsistent operational execution in driving recurring revenue growth, particularly in the UK, and some contract licence slippage in the Enterprise segment in Africa Middle East and USA;
  • The root causes of execution issues have been identified and management has already made changes, in order to drive subscription-based revenue acceleration in H2 18 and beyond, and improve visibility in the Enterprise segment;
  • Operational execution for the majority of geographies remains robust, with particular success in North America, delivering double digit growth, reflecting continuing progress across USA, Canada and Sage Intacct, balanced by slippage in Enterprise Management (formerly Sage X3) contracts in the USA;
  • Strong momentum in acquired businesses of Sage Intacct and Sage People reflects the carefully sequenced integration of these businesses;
  • The market opportunity for Sage, as outlined at Capital Markets Day 2018 (CMD), remains unchanged.

 

Outlook

On 13 April 2018, Sage announced that Group guidance for FY18 was being revised to around 7% organic revenue growth from around 8% organic revenue growth. There has been no change to organic operating profit margin guidance at around 27.5% for FY18.

The rolling mid-term guidance remains that organic revenue growth will reach 10% on a sustainable basis and organic operating profit margins will be at least 27%. Further cost savings of 500bps will be delivered over this period and either reinvested for growth or realised as an increase to operating profit margin. Over the long-term, Sage has an aim of achieving organic operating profit margins of at least 30%.

Stephen Kelly, Chief Executive Officer said:

“The significant market opportunity, as outlined at Capital Markets Day, is compelling and unchanged. Sage Business Cloud remains the most comprehensive cloud platform in the market to capitalise on this opportunity. Organic revenue growth in H1 18 was around £5m below our expectations, due to slower and more inconsistent sales execution than we had planned for. We have already started the implementation of robust plans to address these execution issues and to accelerate our growth through high-quality recurring revenue throughout the rest of FY18 and beyond. The revised revenue guidance for FY18 reflects the H1 18 performance, but also our absolute commitment to ensuring we focus on driving high-quality subscription revenue, aligned with the strategy.”

About Sage

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.  

Enquiries:

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

FTI Consulting
+44 (0) 20 3727 1000
Charles Palmer
Dwight Burden

An analyst presentation will be held at 8.30am today at 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) 330 336 9105, pin code: 1759100#.  A replay of the call will also be available for one week after the event: Tel: +44 (0) 808 101 1153, pin code:1759100#