Results for the six months ended 31 March 2018 #SageResults Safe - - PowerPoint PPT Presentation

results for the six months ended 31 march 2018
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Results for the six months ended 31 March 2018 #SageResults Safe - - PowerPoint PPT Presentation

Results for the six months ended 31 March 2018 #SageResults Safe harbour The following presentation is being made only to, and is only directed at, persons to whom predicting customer behaviour; customers may not respond as we expected to our


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#SageResults

Results for the six months ended 31 March 2018

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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

  • bserve, 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,

  • r 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

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3 #SageResults

Sage Group plc Interim Results 2018

Stephen Kelly

Chief Executive Officer

@SKellyCEO

  • Welcome
  • H2 18 delivery plan
  • CFO review
  • Strategy
  • Outlook
  • Q&A
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Sage Group plc Interim Results 2018

H2 18 Delivery Plan

1

Subscription

2

Enterprise Management

3

Leadership

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Sage Group plc Interim Results 2018

FY18 Outlook

Around 7%

  • rganic revenue

growth Around 27.5%

  • rganic
  • perating

margin

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Sage Group plc Interim Results 2018

Steve Hare

Chief Financial Officer

@SteveHareCFO

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Sage Group plc Interim Results 2018

H1 18 summary

1

Strong underlying business

2

Focus on subscription

3

Confidence in FY18 guidance

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8 #SageResults

Sage Group plc Interim Results 2018 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 definitions 2 In FY18, there is no difference between organic and underlying operating margin

Financial summary

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Sage Group plc Interim Results 2018 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 margin 2 See appendix for definitions 3 Non-GAAP EBITDA is based on the underlying operating profit, adjusted for underlying amortisation, depreciation and share-based payment charges
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Sage Group plc Interim Results 2018

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 revenue 17% 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
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Sage Group plc Interim Results 2018

+6%

H1 18 H1 17

Recurring revenue +25%

  • 11%

+7%

+6%

Other recurring SSRS Processing Software subscription +2%

Revenue categories

78%

Recurring mix

H1 17: 78%

44%

Software subscription penetration

H1 17: 37%

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Sage Group plc Interim Results 2018

Impact of subscription model

Licence contract Customer acquired H2 18 Revenue April 1st £1.1m September 1st £1.0m Subscription contract ARR H2 18 Revenue £500k £250k £500k £40k

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Sage Group plc Interim Results 2018

H2 18 Sources of growth

Progress in France Cloud connected Enterprise Management

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Sage Group plc Interim Results 2018

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

ASB (£m)

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Sage Group plc Interim Results 2018

Regional overview

North America International Europe

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Sage Group plc Interim Results 2018

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%

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Sage Group plc Interim Results 2018

H1 18 revenue growth

  • North America: software subscription 51%
  • USA: cloud connected revenue 89%
  • Canada: double digit revenue and recurring growth
  • Intacct: continued momentum, 31% ARR growth

Revenue H1 18 H1 17 Growth Recurring £230m £203m +13% 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

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Sage Group plc Interim Results 2018

H1 18 revenue growth

  • 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

Revenue H1 18 H1 17 Growth Recurring £100m £94m +8% 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

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Sage Group plc Interim Results 2018

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
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Sage Group plc Interim Results 2018

H1 18 summary

1

Strong underlying business

2

Focus on subscription

3

Confidence in FY18 guidance

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Sage Group plc Interim Results 2018

Stephen Kelly

Chief Executive Officer

@SKellyCEO

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Sage Group plc Interim Results 2018

Total addressable market

Source: IDC & Gartner , 2017

$16bn $12bn $14bn

$28bn $30bn

2018 13% 7% 2% 2019

Cloud On-premise $16bn

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Sage Group plc Interim Results 2018

Global reach Market breadth Trusted brand

Unique position in the market

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Sage Group plc Interim Results 2018

Cloud Products

Enterprise Management Accounting Financials Payments & Banking People Payroll Sage Intacct

Marketplace Applications Sage Developer Platform Platform Services

APIs Microservices Artificial Intelligence Pegg Bot Framework Collective Intelligence Machine Learning

Progress in strategy: Revolutionise Business

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Sage Group plc Interim Results 2018 Revenue H1 18 ARR Growth Cloud connected1 £205m 72% Cloud native2 £131m 37% Sage Business Cloud £336m 57%

Cloud Products

Enterprise Management Accounting Financials Payments & Banking People Payroll Sage Intacct

Progress in strategy: Customers for Life

1 Cloud connected versions of Sage 50 and Sage 200 families 2 Sage Accounting, Sage Financials, Sage People, Sage Intacct & cloud version of Sage Enterprise Management
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Sage Group plc Interim Results 2018

North America: Cloud connected playbook

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Sage Group plc Interim Results 2018 Revenue H1 18 ARR Growth Cloud connected1 £205m 72% Cloud native2 £131m 37% Sage Business Cloud £336m 57%

Cloud Products

Enterprise Management Accounting Financials Payments & Banking People Payroll Sage Intacct

Progress in strategy: Winning in the Market

1 Cloud connected versions of Sage 50 and Sage 200 families 2 Sage Accounting, Sage Financials, Sage People, Sage Intacct & cloud version of Sage Enterprise Management
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Sage Group plc Interim Results 2018

Winning in the market: ARR growth

62%

Sage People

31%

Sage Intacct

42%

Sage Accounting

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Sage Group plc Interim Results 2018

Summary

1

Confidence in FY18 guidance

2

Progress against strategy

3

Platform for success

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Sage Group plc Interim Results 2018

Q&A

#SageResults

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Sage Group plc Interim Results 2018

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

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Sage Group plc Interim Results 2018

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

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Glossary – Revenue types

Measure /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.