Half year 2023 results

17 May 2023

Download the full press release (PDF)

Consistent execution drives strong momentum

Steve Hare, Chief Executive Officer, commented:

“Sage performed strongly in the first half, accelerating revenue growth, increasing profitability and making further progress against our strategic priorities. Our investments in technology and in sales and marketing are continuing to drive results, as small and mid-sized businesses increasingly choose Sage as a valued partner to transform the way they work.

“Our purpose is to knock down barriers so everyone can thrive. We are committed to delivering innovative, AI-powered services that make our customers’ lives easier and their organisations more productive and resilient. Sage’s global platform, centred on our expanding digital network, is enabling us to leverage our scale and collective expertise to maximise the significant opportunities we see across our markets.

“Small and mid-sized businesses are continuing to digitise, despite the macroeconomic uncertainty, and through our trusted technology and human approach Sage is well positioned to support them. I am confident that our proven strategy will enable us to deliver further efficient growth.”

_{Please note that tables may not cast and change percentages may not calculate precisely due to rounding.}

Financial highlights

• Underlying recurring revenue increased by 12% to £1,039m, underpinned by strong Sage Business Cloud growth of 29% to £787m. Underlying total revenue grew by 10% to £1,087m.
• Underlying operating profit increased by 14% to £227m, with margin increasing by 60 basis points to 20.8% driven by operating efficiencies as we scale the Group.
• EBITDA increased by 13% to £275m, with margin increasing by 60 basis points to 25.2%.
• Statutory operating profit decreased by 23% to £157m due to the change in recurring and non recurring items, including a £49m one-off gain in the prior period relating to the disposal of Sage Switzerland.³
• Underlying basic EPS up 13% to 15.68p, reflecting the growth in underlying operating profit.
• Continued strong cash performance, with cash conversion of 117% reflecting growth in subscription revenue and continued good working capital management.
• Robust balance sheet, with £1.2bn of cash and available liquidity and net debt to EBITDA of 1.3x.
• Interim dividend up 4% to 6.55p, in line with our progressive policy.

Strategic and operational highlights

• Underlying annualised recurring revenue (ARR) up 12% to £2,100m (H1 22: £1,878m), reflecting a strong performance across all regions, with growth balanced between new and existing customers.
• £190m of ARR added through new customer acquisition on an organic basis since H1 22, up from £150m in the prior year.
• Cloud native ARR up 30% to £612m (H1 22: £470m), driven by new customers and supported by migrations from cloud connected and desktop products.
• Renewal rate by value of 101%, ahead of last year (H1 22: 100%), with continued good retention rates and strong sales to existing customers.
• Sage Business Cloud penetration of 82% (H1 22: 72%), enabling more customers to connect to Sage’s cloud services and ecosystem via Sage’s digital network.
• Subscription penetration of 78% (H1 22: 73%), reflecting continued focus on attracting new customers and migrating existing customers to subscription contracts.
• Strong strategic progress, as we expand the availability of global solutions across the Group and scale Sage’s digital network to power innovative features and AI-enabled services.

Outlook

Building on strong momentum in the first half, we now expect organic recurring revenue growth for FY23 to be in the region of 11%, driven by continued strength in Sage Business Cloud. We continue to expect other revenue (SSRS) to decline, in line with our strategy. Operating margins are expected to trend upwards in FY23 and beyond, as we focus on efficiently scaling the Group.

About Sage

Sage exists to knock down barriers so everyone can thrive, starting with the millions of small and mid-sized businesses (SMBs) served by us, our partners and accountants. Customers trust our finance, HR and payroll software to make work and money flow. By digitising business processes and relationships with customers, suppliers, employees, banks and governments, our digital network connects SMBs, removing friction and delivering insights. Knocking down barriers also means we use our time, technology and experience to tackle digital inequality, economic inequality and the climate crisis.

A presentation for investors and analysts will be held at 8.30am UK time. The webcast can be accessed via sage.com/investors or directly via the following link: https://edge.media-server.com/mmc/p/phr76hz5. To join the conference call, please register via https://register.vevent.com/register/BIe70cc49034ad4da4a1888cdaa81177a1.

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¹See Appendix 1 for full definitions and guidance on the usage of the Alternative Performance Measures.

²To aid comparability, underlying and organic measures for the prior period have been retranslated at current period exchange rates, while organic measures also adjust for the impact of acquisitions and disposals. A reconciliation of underlying and organic measures to statutory measures is set out on pages 6 and 9. In line with Sage’s financial reporting changes announced on 8th December 2022, all references to revenue, profit and margin are on an underlying basis unless otherwise stated.

³See page 9 for further details.