Results for the six months ended 31 March 2018 · Development Sage Intacct H1 17 H1 181 10% 15% 20%...

#SageResults

Results for the six months ended 31 March 2018

2 #SageResults Sage Group plc Interim Results 2018

The following presentation is being made only to, and is only directed at, persons to whom

such presentation may lawfully be communicated (“relevant persons”). Any person who is

not a relevant person should not act or rely on this presentation or any of its contents.

Information in the following presentation relating to the price at which relevant investments

have been bought or sold in the past or the yield on such investments cannot be relied

upon as a guide to the future performance of such investments.

• This presentation does not constitute an offering of securities or otherwise constitute

an invitation or inducement to any person to underwrite, subscribe for or otherwise

acquire securities in The Sage Group plc (the “Company”) or any company which is a

subsidiary of the Company

• The release, publication or distribution of this presentation in certain jurisdictions may

be restricted by law, and therefore persons in such jurisdictions into which this

presentation is released, published or distributed should inform themselves about, and

observe, such restrictions.

• Certain statements contained in this presentation constitute forward-looking

statements. All statements other than statements of historical facts included in this

presentation, including, without limitation, those regarding the Company’s financial

condition, business strategy, plans and objectives, are forward-looking statements.

These forward-looking statements can be identified by the use of forward-looking

terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”,

“intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or

comparable terminology. Such forward-looking statements involve known and

unknown risks, uncertainties and other factors, which may cause the actual results,

performance or achievements of the Company, or industry results, to be materially

different from any future results, performance or achievements expressed or implied

by such forward-looking statements. Such forward-looking statements are based on

numerous assumptions regarding the Company’s present and future business

strategies and the environment in which the Company will operate in the future. Such

risks, uncertainties and other factors include, among others: Inherent difficulty in

predicting customer behaviour; customers may not respond as we expected to our

sales and marketing activities; the competitive environment; our ability to adapt to

technological change; business interruption or failure of our systems architecture and

communication systems; problems with implementing upgrades to our applications

and supporting information technology infrastructure; any failure to properly use and

protect personal customer information and data; our ability to manage and maintain

third party business partnerships; increased regulation of our businesses; any failure

to process transactions effectively; any failure to adequately protect against potential

fraudulent activities; any significant quality problems or delays; the global macro-

economic environment; our inability to attract, retain and develop talented people; our

ability to repurchase shares; our inability to adequately protect our intellectual property

rights; disruptions, expenses and risks associated with any acquisitions and

divestitures; amortisation of acquired intangible assets and impairment charges; our

use of debt to finance acquisitions or other activities; and the cost of, and potential

adverse results in, litigation involving intellectual property, competition authority,

shareholder and other matters. These forward-looking statements speak only as at

the date of this presentation. Except as required by the Financial Conduct Authority, or

by law, the Company expressly excludes any obligation to update or revise publicly

any forward-looking statement, whether as a result of new information, future events,

or otherwise. Nothing in the foregoing is intended to or shall exclude any liability for, or

remedy in respect of, fraudulent misrepresentation.

• Rounding

As a result of rounding throughout this document, it is possible that tables may not

cast and change percentages may not calculate precisely.

• Terminology

Unless stated otherwise all references to revenue are organic.

• Materiality

Only figures over £1m are considered to be material for the purposes of this

presentation.

Safe harbour


Stephen KellyChief Executive Officer

@SKellyCEO

• Welcome

• H2 18 delivery plan

• CFO review

• Strategy

• Outlook

• Q&A


H2 18 Delivery Plan

1Subscription

2Enterprise

Management

3Leadership


FY18 Outlook

Around 7%

organic revenue

growth

Around 27.5%

organic

operating

margin


Steve HareChief Financial Officer

@SteveHareCFO


H1 18 summary

1Strong

underlying

business

2Focus on

subscription

3Confidence in

FY18 guidance


H1 18 H1 17 Growth

Organic1 revenue £908m £854m 6.3%

Sage Business Cloud revenue £164m £100m 64%

Sage Business Cloud ARR1 £336m £215m 57%

Underlying1 operating profit margin2 % 24.5% 25.3% (0.8%)

1 See appendix for definitions2 In FY18, there is no difference between organic and underlying operating margin

Financial summary


H1 18 H1 17 Change

Underlying operating profit margin1 % 24.5% 25.3% (0.8%)

Underlying basic EPS2 14.25p 14.12p 0.9%

Underlying adjusted EPS2 14.25p 12.33p 15.5%

Non-GAAP EBITDA3 margin % 26.9% 27.5% (0.6%)

Financial summary

1 In FY18, there is no difference between organic and underlying operating margin2 See appendix for definitions3 Non-GAAP EBITDA is based on the underlying operating profit, adjusted for underlying amortisation, depreciation and share-based payment charges


Opening net debt (£813m)

Free cash flow £157m

M&A (£8m)

Ordinary

dividends(£110m)

Exchange movement on

net debt £31m

M&A related items (£1m)

Closing net debt (£744m)

Net debt leverage1 1.4:1

Underlying cash flow

from operating activities£221m

Net interest paid (£12m)

Income tax paid (£29m)

Non-recurring items (£21m)

Exchange movements (£2m)

Free cash flow £157m

Free cashflow as a % of

revenue17%

Underlying operating

profit£222m

Depreciation/

amortisation/impairment/

profit on disposal

£17m

Share-based payments £5m

Net changes in working

capital(£5m)

Net capital expenditure (£18m)

Underlying cash flow

from operating activities£221m

Key Metrics:

Underlying cash

conversion1 99%

Strong capital metrics

1 See appendix for definitions


+6%

H1 18H1 17

Recurring

revenue

+25%

-11%

+7%

+6%

Other

recurring

SSRS

Processing

Software

subscription

+2%

Revenue categories

78%

Recurring mixH1 17: 78%

44%

Software subscription

penetrationH1 17: 37%


Impact of subscription model

Licence contract

Customer

acquiredH2 18 Revenue

April 1st £1.1m

September 1st £1.0m

Subscription contract

ARR H2 18 Revenue

£500k £250k

£500k £40k


H2 18 Sources of growth

Progress in

France

Cloud

connected

Enterprise

Management


Growth in ASB of £187m to £820m in H1 18

30%

Software subscriber growth

633

820

89

36

62

500

550

600

650

700

750

800

H1 17 Cloud connected Cloud native Desktop H1 18

AS

B (

£m

)


Regional overview

North

America

International

Europe


H1 18 revenue growth

• Northern Europe:

• Revenue 4%; flat recurring

• Sage Accounting revenue 54%

• Sage People ARR 70%

• France: revenue and recurring both 1%

• Central Europe: revenue 11%; recurring 12%

• Iberia: revenue 7%

Focus for H2 18

• Subscription in the UK

• Continuing progress in France

Revenue H1 18 H1 17 Growth

Recurring £377m £368m +2%

Processing £19m £20m -3%

SSRS £97m £83m +17%

Total £493m £471m +5%

Europe

77%

H1 17: 78%

Recurring mix

H1 17: 36%

Software

subscription

penetration

40%



• North America: software subscription 51%

• USA: cloud connected revenue 89%

• Canada: double digit revenue and recurring growth

• Intacct: continued momentum, 31% ARR growth



Processing £16m £15m +3%

SSRS £36m £37m -2%

Total £282m £255m +10%

Focus for H2 18

• Continued migration to cloud connected

• Enterprise Management acceleration

• Continued momentum of Sage Intacct

82%

H1 17: 80%

42%

H1 17: 31%

Software

subscription

penetration

Recurring mix

North America



• Africa Middle East: revenue 5%;

recurring 11%

• Brazil: revenue decline 1%, impacted

by macro environment

• Australia: 12% revenue

Focus for H2 18

• Africa Middle East: Enterprise Management

• Continued momentum in subscription



Processing £8m £7m +16%

SSRS £25m £27m -10%

Total £133m £128m +4%

International

75%

H1 17: 73%

60%

H1 17: 56%

Software

subscription

penetration

Recurring mix


GTM Product

Development

Sage

Intacct

H1 17 H1 18 1

10%

15%

20%

25%

5%

25.3%

+140bps +20bps

-40bps

24.5%

Underlying Operating Profit Margin

-50bps-150bps

G&A Sage

People

1 In FY18, there is no difference between organic and underlying operating margin


H1 18 summary

1Strong

underlying

business

2Focus on

subscription

3Confidence in

FY18 guidance


Stephen KellyChief Executive Officer

@SKellyCEO


Total addressable market

Source: IDC & Gartner , 2017

$16bn

$12bn $14bn

$28bn$30bn

2018

13%

7%

2%

2019

Cloud

On-premise

$16bn


Global reach Market breadthTrusted brand

Unique position in the market


Cloud

Products Enterprise

Management

Accounting Financials Payments

& Banking

People PayrollSage Intacct

Marketplace Applications

Sage Developer Platform

Platform Services

APIs Microservices

Artificial

Intelligence

Pegg Bot

Framework

Collective

Intelligence

Machine

Learning

Progress in strategy: Revolutionise Business


Revenue H1 18 ARR Growth

Cloud connected1 £205m 72%

Cloud native2 £131m 37%

Sage Business Cloud £336m 57%

Cloud

Products Enterprise

Management


& Banking


Progress in strategy: Customers for Life

1 Cloud connected versions of Sage 50 and Sage 200 families2 Sage Accounting, Sage Financials, Sage People, Sage Intacct & cloud version of Sage Enterprise Management


North America: Cloud connected playbook


Revenue H1 18 ARR Growth

Cloud connected1 £205m 72%

Cloud native2 £131m 37%

Sage Business Cloud £336m 57%

Cloud

Products Enterprise

Management


& Banking


Progress in strategy: Winning in the Market

1 Cloud connected versions of Sage 50 and Sage 200 families2 Sage Accounting, Sage Financials, Sage People, Sage Intacct & cloud version of Sage Enterprise Management


Winning in the market: ARR growth

62%Sage People

31%Sage Intacct

42%Sage Accounting


Summary

1Confidence in

FY18 guidance

2Progress against

strategy

3Platform for

success


Q&A#SageResults


Glossary – Financial drivers

Organic

In addition to the adjustments made for underlying measures, organic measures exclude the contribution from discontinued operations, disposals and assets held for sale of

standalone businesses in the current and prior period and include acquired businesses from the beginning of the financial year following their year of acquisition. Adjustments are

made to the comparative period to present acquired businesses as if these had been part of the Group throughout the period. Contributions from acquired businesses are excluded in

the year of acquisition. Acquisitions and disposals which occurred close to the start of the opening comparative period where the contribution impact would be immaterial are not

adjusted.

Organic operating profit margin is presented for the current period only to allow comparability to current period underlying operating profit margin.

Underlying

Prior period underlying measures are retranslated at the current year exchange rates to neutralise the effect of currency fluctuations.

Underlying operating profit excludes:

• Recurring items:

- Amortisation of acquired intangible assets and purchase price adjustments made to reduce deferred income arising on acquisitions;

- M&A activity-related items;

- Fair value adjustments on non-debt-related financial instruments and foreign currency movements on intercompany debt balances; and

• Non-recurring items that management judge are one-off or non-operational.

Underlying profit before tax excludes:

• All the items above;

• Imputed interest; and

• Fair value adjustments on debt-related financial instruments.

Underlying profit after tax and earnings per share excludes:

• All the items above net of tax and non-recurring tax items that management judge are one-off or non-operational.

Underlying basic EPS

Underlying basic EPS is defined as underlying profit after tax divided by the weighted average number of ordinary shares in issue during the period, excluding those held as treasury

shares.

Underlying profit after tax is defined as profit attributable to owners of the parent excluding:

Recurring items including amortisation of acquired intangible assets, purchase price adjustments made to reduce deferred income arising on acquisitions, acquisition-related items,

fair value adjustments and imputed interest; and

Non-recurring items that management judge to be one-off or non-operational.

All of these adjustments are net of tax. The impact of foreign exchange is neutralised in prior period figures

Underlying adjusted EPS

The underlying adjusted EPS neutralises the impact of significant acquisitions and disposals by excluding current period acquisitions and current and prior period disposals and by

including prior year acquisitions in the comparable period based on the margin achieved by the acquired business in the prior year for the post-acquisition period.

Measure /Description


Glossary – Financial drivers

Underlying cash conversion

Underlying cash conversion is underlying cash flow from operating activities divided by underlying operating profit. Underlying cash flow from operating activities is statutory cash

flow from operating activities less net capital expenditure and adjusted for movements on foreign exchange rates, and non-recurring cash items.

Net debt leverage

The net value of cash less borrowings expressed as a multiple of rolling 12-month EBITDA. EBITDA is defined as earnings before interest, tax, depreciation, amortisation of acquired

intangible assets, acquisition-related items, fair value adjustments and non-recurring items that management judge to be one-off or non-operational.

Measure /Description


Glossary – Revenue typesMeasure /Description

Recurring revenue

Recurring revenue is revenue earned from customers for the provision of a good or service, where risks and rewards are transferred to the customer over the term of a contract, with

the customer being unable to continue to benefit from the full functionality of the good or service without ongoing payments. Recurring revenue includes both software subscription

revenue and maintenance and service revenue. .

Software subscription revenue

Subscription revenue is revenue earned from customers for the provision of a good or service, where the risk and rewards are transferred to the customer over the term of a

contract. In the event that the customer stops paying, they lose the legal right to use the software and the Company has the ability to restrict the use of the product or service. (Also

known as ‘Pay to play’).

Software and software related services (“SSRS”)

SSRS revenue is for goods or services where the entire benefit is passed to the customer at the point of delivery. It comprises revenue for software or upgrades sold on a perpetual

license basis and software related services, including hardware sales, professional services and training.

Processing revenue

Processing revenue is revenue earned from customers for the processing of payments or where Sage colleagues process our customers’ payroll.

Annual contract value

Annual contract value (ACV) is the value of bookings that will be generated over the ensuing year under a given contract or contracts.

Annual recurring revenue

Annual recurring revenue (ARR) is the value of all components of recurring revenue, annualised for the ensuing year.

Results for the six months ended 31 March 2018 · Development Sage Intacct H1 17 H1 181 10% 15% 20%...

Documents

Transcript of Results for the six months ended 31 March 2018 · Development Sage Intacct H1 17 H1 181 10% 15% 20%...