The Sage Group plc audited results for the year ended 30 September 2016

Continuing strong performance and business transformation

LONDON (November 30, 2016)

 

Strong performance

  • Achieved organic revenue growth of 6.1% (FY15: 6.0%) and the fastest rate of recurring revenue growth for a decade of 10.4% (FY15: 9.0%);
  • Software subscription growth of 32.3% (FY15: 28.9%), in line with the planned transition and planned decline in SSRS revenue of 8.5% (FY15: decline of 0.7%);
  • Customers embracing closer subscription relationships with 46% increase in software subscription contracts to just over one million (FY15: 690,000) and an increase in retention rates to 86% (FY15: 84%);
  • Accelerating revenue growth in Europe, Africa and Brazil; slower performance in Asia (one off regulatory change in the prior year); growth in North America consistent with last year;
  • Underlying cash conversion at 100%, supporting free cash flow of £254m and the 8% increase in full year dividend to 14.15p.

 

                   
FINANCIAL SUMMARY1   FY16     FY15     Change  
Organic revenue   £ 1,567m     £ 1,477m     +6.1 %
    - Recurring revenue   £ 1,092m     £ 989m     +10.4 %
    - Processing Revenue   £ 204m     £ 192m     +6.1 %
    - SSRS Revenue   £ 271m     £ 296m     -8.5 %
Organic operating profit   £ 427m     £ 391m     +9.2 %
Organic operating profit margin     27.2 %     26.5 %   +70bps  
                       
Underlying basic EPS     27.8p       25.5p     +9.0 %
Underlying cash conversion     100 %     106 %   -6.0 %
Ordinary dividend per share     14.15p       13.10p     +8.0 %
                       
STATUTORY SUMMARY     FY16       FY15     Change  
Revenue   £ 1,569m     £ 1,436m     +9.3 %
Operating profit   £ 300m     £ 297m     +1.1 %
Profit before tax   £ 275m     £ 276m     -0.4 %
Basic EPS     19.28p       18.11p     +6.4 %

1 Organic operating profit is stated before non-recurring items (exceptional costs). Unless otherwise stated, all revenue growth measures referred to in the CEO report are stated on the constant exchange organic basis. Refer to Appendix II on page 18 for information on non-GAAP measures and note 3 of the financial statements for details of items excluded from underlying operating profit.

Business Transformation
  • The transformation remains on track and progress has been made in FY16 with a targeted organic operating margin of 27.2% (FY15: 26.5%) achieved for the full year;
  • Phase one of the transformation is now complete:
    • General and administrative (G&A) expense as a proportion of revenue has reduced to 16.5% (FY15: 18.7%);
    • Annualised savings of £51m secured within G&A which are being reinvested into go-to-market functions of sales and marketing, with an exceptional cost of £110m recognised in FY16 (£76m of which is associated to G&A savings);
    • Senior Management Team is now established to drive forward the next phase of the transformation.
  • Phase two of the transformation begins in FY17:
    • Increased focus on new customer acquisition through innovative new product launches and continued user experience improvements;
    • Continued investment for growth through sales and marketing: we are expanding the Customer Business Centres (CBC) to provide integrated digital marketing, sales and services;
    • FY17 annualised cost savings of at least £50m identified with payback of less than two years.
Success in our technology strategy
  • Sage One paying subscriptions increase of 81% to 313,000 subscriptions. 54% increase in Sage One revenue in the year;
  • X3 revenue growth of 18% in the year and an increase in paying customers of 25%;
  • Sage Live launched in two countries in February 2016 and was awarded most innovative product of 2016 by Salesforce.com;
  • Sage 50 Accounts delivered triple digit organic subscription software revenue growth in the UKI, US and Canada;
  • Sage 50, 100 and 300 cloud innovation and product delivered to market;
  • Sage Pegg launch with users in 125 countries - the world's first Chatbot for an accounting engine.

 

Stephen Kelly, Chief Executive Officer said:
"FY16 saw Sage continue to deliver on the commitment made at our June 2015 Capital Markets Day to perform and transform. The organic revenue growth of 6% is driven by higher quality recurring revenue, which grew at the fastest rate in a decade. The strategy is working – with customers embracing closer relationships with Sage, evidenced by a 46% increase in the number of subscription contracts and a contract retention rate of 86%.

Phase one of the transformation programme has been successfully delivered. For phase two we have ensured that we have the core management team, processes and culture to deliver the best technology ecosystem for our customers – those business builders that drive the world’s economy, creating jobs, growth and prosperity. Phase two of the transformation will continue to be non-linear and focus on driving more technology innovation with increasing focus on new customer acquisition as well as continuing to improve execution against the strategy for Business Builders. We are already starting to see Sage drive faster innovation, a more customer-obsessed DNA and colleagues making a difference in all of our communities through the Sage Foundation.

For FY17, the second full fiscal year of our transformation, our full year guidance for FY17 is for at least 6% organic revenue growth and at least 27% organic operating margin. We will continue to front-load investment in growth in H117, consistent with our execution last year. Consequently, we anticipate stronger H2 growth and accelerating momentum as we exit FY17."

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About Sage

Sage—the market and technology leader for integrated accounting, payroll and payment systems, powered by the cloud and supporting the ambition of the world's entrepreneurs and business builders. Because when business builders do well, we all do.

For more information, visit www.sage.com

Rounding
As a result of rounding throughout this document, it is possible that tables may not cast and change percentages may not calculate precisely.

Non-GAAP measures
Unless stated otherwise all references to revenue operating profit are organic.

Inquiries:

The Sage Group plc
+44 (0) 191 294 3897
Lauren Wholley, Investor Relations
Amy Lawson, Corporate PR

Tulchan Communications
+44 (0) 20 7353 4200
Jonathan Sibun

 

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