#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
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Information in the following presentation relating to the price at which relevant investments
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• This presentation does not constitute an offering of securities or otherwise constitute
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acquire securities in The Sage Group plc (the “Company”) or any company which is a
subsidiary of the Company
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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
3 #SageResults Sage Group plc Interim Results 2018
Stephen KellyChief Executive Officer
@SKellyCEO
• Welcome
• H2 18 delivery plan
• CFO review
• Strategy
• Outlook
• Q&A
4 #SageResults Sage Group plc Interim Results 2018
H2 18 Delivery Plan
1Subscription
2Enterprise
Management
3Leadership
5 #SageResults Sage Group plc Interim Results 2018
FY18 Outlook
Around 7%
organic revenue
growth
Around 27.5%
organic
operating
margin
6 #SageResults Sage Group plc Interim Results 2018
Steve HareChief Financial Officer
@SteveHareCFO
7 #SageResults Sage Group plc Interim Results 2018
H1 18 summary
1Strong
underlying
business
2Focus on
subscription
3Confidence in
FY18 guidance
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 definitions2 In FY18, there is no difference between organic and underlying operating margin
Financial summary
9 #SageResults 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 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
10 #SageResults 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
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
11 #SageResults Sage Group plc Interim Results 2018
+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%
12 #SageResults Sage Group plc Interim Results 2018
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
13 #SageResults Sage Group plc Interim Results 2018
H2 18 Sources of growth
Progress in
France
Cloud
connected
Enterprise
Management
14 #SageResults 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
AS
B (
£m
)
15 #SageResults Sage Group plc Interim Results 2018
Regional overview
North
America
International
Europe
16 #SageResults 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%
17 #SageResults 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
18 #SageResults 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
19 #SageResults 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
20 #SageResults Sage Group plc Interim Results 2018
H1 18 summary
1Strong
underlying
business
2Focus on
subscription
3Confidence in
FY18 guidance
21 #SageResults Sage Group plc Interim Results 2018
Stephen KellyChief Executive Officer
@SKellyCEO
22 #SageResults 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
23 #SageResults Sage Group plc Interim Results 2018
Global reach Market breadthTrusted brand
Unique position in the market
24 #SageResults Sage Group plc Interim Results 2018
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
25 #SageResults 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 PayrollSage Intacct
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
26 #SageResults Sage Group plc Interim Results 2018
North America: Cloud connected playbook
27 #SageResults 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 PayrollSage Intacct
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
28 #SageResults Sage Group plc Interim Results 2018
Winning in the market: ARR growth
62%Sage People
31%Sage Intacct
42%Sage Accounting
29 #SageResults Sage Group plc Interim Results 2018
Summary
1Confidence in
FY18 guidance
2Progress against
strategy
3Platform for
success
30 #SageResults Sage Group plc Interim Results 2018
Q&A#SageResults
31 #SageResults 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
32 #SageResults 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
33 #SageResults Sage Group plc Interim Results 2018
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.
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