focus and innovation delivering results
TRANSCRIPT
Focus and innovation delivering results
The Sage Group plc
Results for the half year ended 31 March 2013
2
Overview Guy Berruyer Chief Executive Officer
Financial highlights A good performance
3 At constant exchange rates
Organic
revenue
growth of
3%
6% increase
in underlying
PBT
Proposed
£200m
special
dividend
Delivery on
1x net debt to
EBITDA
target
145,000 new
customers
74% of
contracts are
premium
Strategic highlights
Delivering on our drivers of growth
Focus on growth opportunities and disposals of
non-core products
Winning new small businesses with Sage One
Launching cloud versions of major ERP products
Continued international success with Sage ERP X3
Leveraging cross-sell opportunity of integrated payments
Early success with subscription pricing options
4
5
Financial Overview Paul Harrison Chief Financial Officer
Revenue sources Strong growth in recurring revenues
6
Total revenue
£446m £495m
£220m
£213m
H112 H113
SSRS
RecurringRevenue
3%
Organic
revenue
growth
6%
Organic
recurring
revenue
growth
3%
Organic SSRS*
revenue
contraction
33%
67%
30%
70%
*Software and software-related services
At constant exchange rates
Revenue trends Shift to recurring revenue continues
7
5%
-4%
2%
6%
-5%
2%
6%
-3%
3%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Recurring revenue SSRS Total
H112 FY12 H113
At constant exchange rates
Regional review Robust performance in variable market conditions
8
Europe A good performance in difficult markets
9
Regional highlights
Total revenue £403.2m (H1 2012: £396.5m), organic recurring revenue growth of 5% and organic SSRS
contraction of 5%
Good growth from the UKI, driven by changes to payroll filing legislation
Weakness in France continued, particularly at mid-market level
Germany contraction as a result of particularly strong prior period comparator
Rate of contraction in Spain decreased
Sage Pay continued to grow strongly
34%
32%
13%
10%
3% 8% France
UK
Spain
Germany
Sage Pay
Others
Revenue mix
H113 H112 FY12
France -1% 1% Flat
UK & Ireland 5% 4% 4%
Spain -4% -8% -7%
Germany -1% 7% 5%
Sage Pay 32% 23% 25%
Europe 2% 1% 1%
Organic revenue growth by country
At constant exchange rates
Americas Continuing to build momentum
10
Regional highlights
Total revenue £230.3m (H1 2012: £200.0m),
organic recurring revenue growth of 7%
and organic SSRS contraction of 4%
Strong demand for premium support
Good traction for Sage ERP X3
18% growth in integrated payments cross-
sell revenue
Brazil performed well despite slowdown in
economy
• Revenue of £24.6m
• EBITA of £5.9m
H113 H112 FY12
4% 1% 2%
Organic revenue growth
Proportion of contracts
which are premium in North America
51%
45%
50%
0%
10%
20%
30%
40%
50%
60%
FY12 Non-coredisposals
FY12restated
H113
At constant exchange rates
AAMEA African markets continued to drive growth
11
Regional highlights
Total revenue £74.6m (H1 2012: £69.2m), organic recurring revenue growth of
12% and organic SSRS growth of 4%
South Africa and African markets continued to show good growth
Strong performance from Sage ERP X3
Slowdown in Australia due to sluggish economy
59% 30%
11%
South Africa
Australia
Asia
Revenue mix
H113 H112 FY12
South Africa 14% 15% 16%
Australia 2% 8% 7%
Asia 1% 11% 4%
AAMEA 9% 12% 12%
Organic revenue growth by country/region
At constant exchange rates
Profitability Margin discipline continues
Margin discipline across all
regions
Supports reinvestment in
growth
12
28.2%
24.8%
25.7%
26.9%
28.3%
24.7%
26.8%
27.0%
Europe Americas AAMEA Group
H112 H113
At constant exchange rates
Cash flow Strong cash generation continues
£m £m £m
EBITA 190.9 Cash flow from
operations
208.9 Net debt
1 October 2012
(161.5)
Acquisition costs (0.1) Interest (5.3) Free cash flow 158.7
Dep’n/amort’n/profit on
disposal
15.9
Tax (41.8) Acquisitions (9.3)
Share-based payments 2.8 Net capex (3.1) Disposals 56.0
Working capital change (54.4) Dividends (79.3)
Deferred income change 50.6 Share buyback (179.0)
Exchange
movement/other
3.2
Exchange movement (14.1)
Other (2.3)
Cash flow from
operations
208.9 Free cash flow 158.7 Net debt
31 March 2013
(230.8)
Cash generation 112%^ Interest cover 29x FCF Dividend cover 3.6x
13 ^Cash conversion is cash flows from operating activities, adjusted for cash acquisition-related items and cash exceptional items of £4.0m, divided by EBITA.
Capital structure Meeting our leverage target
14
What we are doing
Special dividend of £200m
• EGM in June
Delivers on our through cycle
gearing target of 1x net debt
to EBITDA
Almost £1 billion returned to
shareholders since October
2011
Delivers on our commitment
to shareholders
£500m
£260m
£200m
Share buyback Ordinary dividends Special dividend
£960m
Capital structure Our rigorous approach to capital allocation remains
15
Increasing
EPS
Strong
cash flow
Growth
Increasing
dividend
Returns of
surplus
capital
+
+
Financial KPIs Measuring success
KPI
Measure
H113
H112
Financial performance
Growth Organic# revenue growth 3% 2%
Margin EBITA†/Revenue 27% 27%
Profitability Underlying* EPS growth 15% 2%
Cash generation Net cash from operations/EBITA† 112%^ 115%^
Financial strength
Balance sheet Net debt/EBITDA against stated target 0.6:1 n/a
Interest cover 29x 33x
16
KPI
Measure
H113
Focusing our business
Resource optimisation R&D %: split by ‘Invest’, ‘Harvest’ and ‘Sunset’ 41:47:12
Sales & Marketing %: split by ‘Invest’, ‘Harvest’ and ‘Sunset’ 47:46:07
*Underlying figures exclude amortisation of acquired intangible assets, acquisition-related items, imputed interest and exceptional items, with all adjustments net of tax. The impact of foreign exchange is neutralised in prior period
figures. #Organic revenue excludes the contributions of current and prior period acquisitions, disposals and assets held for sale. The impact of foreign exchange is neutralised in prior period figures. †EBITA is defined as earnings
before interest, tax, amortisation of acquired intangible assets, acquisition-related items and exceptional items. The impact of foreign exchange is neutralised in prior period figures. ^Cash conversion is cash flows from operating
activities, adjusted for cash acquisition-related items and cash exceptional items of £4.0m, divided by EBITA.
Our goal Accelerating growth
17
Cornerstones of our growth strategy
Focusing our business Enabling growth through focus
18
What we are doing:
Optimising the portfolio
Reallocating investment
Non-core disposals
Disposal of non-integrated CRM products Sage ACT! and Sage
SalesLogix
Disposal of five vertical products
• C&I, ATL and Automotive in France, Aytos in Spain, Sage Nonprofit
Solutions in North America
Disposed of UK Construction after the period end
Brazil
Completed acquisition of EBS
Focusing our business Enabling growth through focus
19
What we are doing:
Optimising the portfolio
Reallocating investment
Reallocating investment
Core products categorised as Invest/Harvest/Sunset
Re-allocation of resources to Invest products
• Invest R&D expenditure: 41% (FY12: 35%)
• Invest Sales & Marketing expenditure: 47% (FY12: 42%)
Leveraging the centralisation of R&D in NA, the UK and France
Our goal Accelerating growth
20
Cornerstones of our growth strategy
Capturing the technology opportunity Cloud solution for each core segment
21
Sage One
Start-up and
small businesses
1 – 20
employees
Hybrid cloud
Small and medium
sized businesses
10 – 200
employees
Sage ERP X3
Mid-market
businesses
100 – 500
employees
Capturing the technology opportunity Technology Advisory Group
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Rajat Taneja
• Chair of TAG
• CTO of Electronic Arts
• Formerly of Microsoft
Alex Gounares
• CEO of Concurix Corp.
• Formerly of AOL
• Advisor to Bill Gates at Microsoft
Pierre Samec
• CTO of TriZetto
• Formerly CTO of Expedia
• Strong background in BI
External, independent industry leaders and internal Sage experts
Capturing the technology opportunity Sage One
The model is scaling well
23
Good momentum with adoption
Four-fold increase in Sage One
subscriptions to 11,500 and clear
momentum in UKI
Increasing the addressable market
• Accelerating launches into Germany
and Spain, France to follow
• Features added in North America
• Launch of Sage One Extra in UKI
later in the year
22,500 paying subscriptions for Sage
SaaS solutions in this segment
Sage One
Start-up and
small businesses
1 – 20
employees
Capturing the technology opportunity Hybrid cloud
Bringing our main products for the SMB segment to the cloud
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On track for commercial launch
Upcoming launch of cloud versions
of Sage 200 and Sage Murano
Development work enables:
• accelerated launch of new ERP
solutions in France, Germany
and North America
• Integration with mobile devices
Hybrid cloud
Small and medium
sized businesses
10 – 200
employees
Compelling offering for the mid-market customer
25
Capturing the technology opportunity Sage ERP X3
Successful product on a global scale
Improved performance during the
period
• 8% organic revenue growth with
26% organic revenue growth
outside of France
• 47% of global revenue now
generated outside of France
Internationalisation has been a key
part of success
Sage ERP X3
Mid-market
businesses
100 – 500
employees
At constant exchange rates
Capturing the technology opportunity Sage ERP X3
Compelling offering for the mid-market customer
20%
30%
40%
50%
FY09 FY10 FY11 FY12 H113
% of X3 revenue outside of France
% revenue outside France
Successful product on a global scale
Improved performance during the
period
• 8% organic revenue growth with
26% organic revenue growth
outside of France
• 47% of global revenue now
generated outside of France
Internationalisation has been a key
part of success
26 At constant exchange rates
Integration with core accounting application is our USP
27
Capturing the technology opportunity Payments
Strong performance continues across Sage’s payments businesses
Leveraging the cross-sell opportunity in North America
• 18% organic growth in cross-sell revenue in North America
• Over 12,000 customers adopting integrated payments
Build out of Sage Pay commercial model in Europe
• Good growth in Sage Pay in the UK
• Sage Pay launched successfully in Germany and Spain
At constant exchange rates
The benefits of subscription Premium support remains a core strength of Sage
10% organic revenue growth in premium contracts
74% of contracts now premium in nature
81% renewal rate on contracts
28 At constant exchange rates
The benefits of subscription Subscription pricing is the
emerging phase
Significant growth opportunity for Sage
Organic annualised value of subscriber base of £95m
• Measured transition
• Alongside existing traditional license offering
Launched a number of subscription pricing options in North America, Europe and AAMEA
• Sophisticated targeting of subscription to specific customer profiles to drive adoption:
‒ New customers
‒ Migration/upselling
‒ Off-plan customers
29 At constant exchange rates
Strategic KPIs Commercial appeal of our products and services drives 145,000 new customers in the period KPI
Measure
H113 FY12
Capturing the technology opportunity
Adoption of cloud products Number of Sage One paying subscriptionsᵝ 11,500 6,190
Number of hybrid cloud paying subscriptionsᵝ 500 115
Mid-market Sage ERP X3 organic# revenue growth 8% 5%
Integration of payments Number of customers adopting integrated payments
solutions
12,000 9,700
The subscription model
Customer adoption Organic# annualised value of subscriber base £95m £84m
Customers
Loyalty Renewal rate 81% 81%
30 #Organic revenue excludes the contribution of current and prior period acquisitions, disposals and assets held for sale. The impact of foreign exchange is neutralised in prior period figures.
ᵝAt 30 September 2012, the number of paying customers for Sage One and hybrid cloud were 6,100 and 115 respectively.
Summary
Our strategy is clear, our focus on execution is resolute and we have
momentum
We have delivered significant returns to shareholders whilst investing
for growth
We are confident we will deliver on our financial and strategic goals
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Questions?
32
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Appendix
Supplementary Information
Segmental analysis Half year ended 31 March 2013
Europe
Americas
AAMEA
Group
Recurring revenue £271.3m £181.6m £42.2m £495.1m
SSRS revenue £131.8m £48.7m £32.4m £213.0m
Total revenue £403.2m £230.3m £74.6m £708.1m
Organic# revenue growth +2% +4% +9% +3%
EBITA† £113.9m £57.0m £20.0m £190.9m
EBITA† margin +28% +25% +27% +27%
Opening support contracts 1,115,000 687,000 191,000 1,993,000
Non-core disposals (13,000) (29,000) - (42,000)
Restated opening position 1,102,000 658,000 191,000 1,951,000
New support contracts (4,000) 11,000 11,000 18,000
Total support contracts 1,098,000 669,000 202,000 1,969,000
34 #Organic revenue excludes the contribution of current and prior period acquisitions, disposals and assets held for sale. The impact of foreign exchange is neutralised in prior period figures. †EBITA is defined as earnings
before interest, tax, amortisation of acquired intangible assets, acquisition-related items and exceptional items.