revenue growth momentum maintained, with …/media/group/files/investors/...revenue growth momentum...

Revenue growth momentum maintained, with subscription a key driver

The Sage Group plc

Results for the six months ended 31 March 2014

2

Overview Guy Berruyer Chief Executive Officer

Highlights High quality revenue growth…

3

Organic

revenue

growth

maintained

at 5%

27% margin

reflects good

discipline

Organic

recurring

revenue

growth

increased to

7%

Renewal rate

on contracts

increased to

83%

Underlying

basic EPS

growth of 8%

Highlights …with good progress on our strategic KPIs

4

24% growth in

annualised value

of software

subscriber base

Strong market

position in UKI

with 33,000

Sage One

subscriptions

22% organic

revenue growth

in Sage ERP X3

outside of

France

Hybrid cloud

rollout continues

in France and

North America

15% growth in

integrated

payments

customers

5

Financial overview Steve Hare Chief Financial Officer

Financial KPIs Disciplined growth

6

5% organic

revenue

growth

27.4% organic

operating

profit margin

8% underlying

basic EPS

growth

110% underlying

cash

conversion

0.9x net debt

leverage

15% growth in

Invest product

spend*

*Research and development (“R&D”) and sales and marketing (“S&M”) spend

Revenue sources Increase in organic recurring revenue growth…

7

5% organic

revenue

growth

Flat organic

SSRS*

revenue

7% organic

recurring

revenue

growth

3% organic

revenue

growth

-3% organic

SSRS*

revenue

6% organic

recurring

revenue

growth

H1 2014

H1 2013

*Software and software-related services

708

626

657

17

9 4

29

53

H1 2013statutory

revenue (asreported)

Foreignexchange

Non-coredisposals

H1 2013organicrevenue

SSRS Softwaresubscription

Maintenanceand support

Payments Otherrecurring


£m

Key organic revenue movements H1 2013 to H1 2014

-

-

Revenue sources …with software subscription the primary driver

8 May not cast precisely due to rounding

27.0%

26.4%

27.4%

3.4%

0.1% 0.5%

2.4%

H1 2013 underlyingoperating profit

margin (as reported)

Foreignexchange

Non-coredisposals

H1 2013 organicoperating profit

margin

Organic revenuegrowth

Costgrowth

H1 2014 organicoperating profit

margin

Group operating profit margin Margin trend maintained

9

Organic operating profit margin upside from organic revenue growth reinvested

• Margin upside from revenue

growth reinvested

• R&D and S&M reallocation

towards Invest product portfolio

has continued:

Investment Continued reallocation to Invest products

10

51% 52%

58% 59%

25%

35%

45%

55%

65%

R&D S&M

% of total spend on Invest products*

H1 2013 H1 2014

15% increase in R&D and

S&M spend on Invest

products versus prior

period

*Graph on an organic basis, excluding acquisitions, disposals and products held for sale. Reported H1

2013 Invest percentages were: R&D – 41%; S&M – 47%

Europe Organic revenue growth increases

11

Regional highlights

Software subscription driving good

growth, led by France and UKI

Regulatory change a feature in the UK

Spain revenue flat

Sage ERP X3 in France below

expectations but H2 expected to be

stronger

Revenue growth supports organic

operating margin increase to 28.3%

(H1 2013: 27.5%)

Also reflects successful

reduction of overheads

supporting non-core products,

whilst continuing to invest in

R&D, S&M and customer

support

403

370

382

H1 2013statutory


Foreignexchange

Non-coredisposals






Revenue bridge (£m)

3%

Americas Good organic revenue growth maintained

12

Regional highlights

Completion of tax-to-care premium

support up-selling initiative underpins

continued growth in the period

SSB1 achieved double-digit growth

offset by SMB2 softness

Payments growth slowed due to lower

volumes

Brazil achieved 9% organic revenue

growth, driven by strong software

subscription growth

Organic operating margin of 26.4% (H1

2013: 23.9%) reflects the disciplined

approach to resource allocation and

timing of new hires

230

194

206

H1 2013statutory


Foreignexchange

Non-coredisposals







6%

1Start-up and small businesses (“SSB”) 2Small to medium-sized businesses (“SMB”)

AAMEA South Africa drives double-digit revenue growth

13

Regional highlights

South Africa organic revenue growth

of 16% underpinned strong mid-

market performance, including

doubling of Sage ERP X3 revenue

22% growth from wider African market

Solid 5% organic revenue growth in

Australia

Organic operating margin of 25.6% (H1

2013: 27.9%) reflects investment in

new resources, expected to recover to

previously reported levels at full year

75

62

69

H1 2013statutory


Foreignexchange

Non-coredisposals




Payments H1 2014organicrevenue


12%

Cash flow Strong cash generation continues

14

£m £m £m

Statutory operating profit 174 Cash flow from operating

activities 197

Opening net debt

1 October 2013 (384)

Depreciation/amortisation/

profit on disposal 21 Net interest (9) FCF 120

Share-based payments 3 Tax paid (55) M&A (4)

Working capital change 9 Net capital expenditure (12) Share buy-back (24)

Exchange movement/other (10) Ordinary dividends (81)

Exchange movement 10

Other 2

Cash flow from operating

activities 197 Free cash flow (“FCF”) 120

Closing net debt

31 March 2014 (361)

Underlying cash conversion 110% Interest cover 19x Net debt leverage 0.9x

May not cast precisely due to rounding

Capital allocation Focus on value creation

15

Rigorous

capital and

resource

allocation

Business model change Subscription - where are we today?

16

2%

14%

8%

Revenue split by revenue segment

Non-software subscription Software subscription Payments

24% of

revenue

already on

“pay-to-play”

basis


17

24% of

revenue

already on

“pay-to-play”

basis

72% of total

Group revenue

is already

recurring in

nature

2%

14%

8%

48%


Non-software subscription Software subscription

Payments Maintenance and support


18

24% of

revenue

already on

“pay-to-play”

basis

72% of total

Group revenue

is already

recurring in

nature

28%

2%

14%

8%

48%


SSRS Non-software subscriptionSoftware subscription PaymentsMaintenance and support

Business model change Software subscription - where have we come from?

19

£201m

145

155

165

175

185

195

205

FY 2012 H1 2013 FY 2013 H1 2014

£m

Annualised value of software subscriber base

LTM*

24%

growth

*Last 12 months

Business model change Building on over 400,000 software subscription contracts

20

Off-plan

On-plan

New Greater addressable

market

Migrations

Reactivation

Summary

21

Profitable growth momentum

Subscription opportunity

Disciplined resource capital allocation

Strong foundation underpins options for investment

Cash efficiency

Cost efficiency

22

Guy Berruyer Chief Executive Officer

Our goal Accelerating growth

23

Geography Europe UKI North America

Market overview Putting the move to the Cloud in context

Segment Mid-market 100 – 500 employees

SMB 10 – 200 employees

SSB 1 – 20 employees

Application ERP CRM1 & HRM2 Small business

accounting &

payroll

Propensity to move to the Cloud

Less More

24 1Customer relationship management (“CRM”) 2Human resource management (“HRM”)

Our technology strategy… …the right technology for our segments

Core

application Sage

One Hybrid cloud Sage ERP X3

Sage

50

Segment SSB 1 – 20 employees


Mid-market 100 – 500 employees

25

Connected services and mobility


Core

application Sage


Sage

50




26


Sage One Our SaaS solution for SSB

27

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY 2011 H1 2012 FY 2012 H1 2013 FY 2013 H1 2014

Sage One paying subscriptions in UKI


Core

application Sage


Sage

50




28


Sage

50

Sage

One


Core

application Sage


Sage

50




29



Hybrid cloud

SSB 1 – 20 employees


Core

application Sage


Sage

50




30



Sage ERP X3

31

Connected services strategy Bringing connected services and mobility to all our customers

Connected services

Integrated

payments

Auto-

enrolment

Mobility

Sage Mobile

Sales

Sage Mobile

Billing

Sage Mobile

Service

32

Connected services strategy Bringing connected services and mobility to all our customers

Connected services

Integrated

payments:

15% increase to

15,200

customers

£20m annual

cross-sell

revenue

Auto-

enrolment

Mobility

Sage Mobile

Sales

Sage Mobile

Billing

Sage Mobile

Service

Differentiated value proposition Holistic offering to drive growth

33

New customer

acquisition

Share of wallet

Customer

lifetime value

Growth drivers

Core

application

34

Summary and outlook

Confident in achieving 6% organic revenue growth in 2015

Continued transition to software subscription supports organic recurring revenue

growth

The right technology for both existing and new customers

Questions?

35

Non-GAAP measures

36

Measure Description Why we use it

Underlying Prior period underlying measures are retranslated at the current

period exchange rates to neutralise the effect of currency

fluctuations.

Underlying operating profit excludes:

• Amortisation of acquired intangible assets;

• Acquisition-related items;

• Goodwill impairment and fair value adjustments; and

• Exceptional items.

Underlying profit before tax excludes:

• All the items above; and

• Imputed interest.

Underlying profit after tax and earnings per share excludes:

• All the items above net of tax.

Underlying measures allow management and investors to compare

performance without the potentially distorting effects of foreign

exchange movements, one-off items or items that are not under the

operational control of the business.

By including part-period contributions from acquisitions, disposals

and products held for sale in the current and/or prior periods, the

impact of M&A decisions on earnings per share growth is clearer.

Organic In addition to the adjustments made for underlying measures, organic

measures exclude the contribution from acquisitions, disposals and

products held for sale in the current and prior period.

Organic measures allow management and investors to understand

the like-for-like performance of the business.

Underlying cash conversion Cash flows from operating activities, adjusted for cash acquisition-

related items and cash exceptional items, divided by underlying

operating profit.

Underlying cash conversion informs management and investors

about the cash operating cycle of the business and how efficiently

operating profit is turned into cash.

Segmental analysis Six months ended 31 March 2014

37

Europe Americas AAMEA Group

Organic recurring revenue £265m £167m £40m £472m

Organic SSRS revenue £117m £39m £29m £185m

Total revenue £382m £206m £69m £657m

Organic revenue growth +3% +6% +12% +5%

Europe Americas* AAMEA Group

Opening contracts at 1 October 2013 1,119,000 536,000 212,000 1,867,000

Net new contracts 41,000 (6,000) 9,000 44,000

Closing contracts at 31 March 2014 1,160,000 530,000 221,000 1,911,000

*Opening position restated

38

Strategic KPIs

KPI Measure H1 2014 H1 2013

Focusing our business

Resource optimisation R&D %: split by ‘Invest’:’Harvest’:’Sunset’ 58:38:04 41:47:12

S&M %: split by ‘Invest’:’Harvest’:’Sunset’ 59:38:03 47:46:07

Capturing the technology opportunity

Adoption of cloud products Number of Sage One paying subscriptions 35,000 11,500

Number of hybrid cloud paying subscriptions 850 500

Mid-market Sage ERP X3 organic revenue growth 7% 8%

Integration of payments Number of customers adopting integrated

payments solutions 15,200 13,200

The benefits of subscription

Customer adoption Organic annualised value of the software

subscriber base £201m £162m

Customer loyalty

Recurring contract renewal

rate

Number of contracts successfully renewed as a

percentage of those due for renewal 83% 81%

revenue growth momentum maintained, with …/media/group/files/investors/...revenue growth momentum...

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