The Sage Group plc (LON:SGE) has announced its unaudited results for the six months ended 31 March 2021.
– Organic recurring revenue growth of 4.4%
– Organic operating margin of 20.2%, in line with expectations
– Strategic investment to accelerate growth progressing in line with plan
– Sustained strong cash generation, with underlying cash conversion of 133%
– ARR growth of 4.2%, underpinned by cloud native ARR growth of 36%
| Alternative Performance Measures (APMs)1 | H1 21 | H1 202 | Change |
| Organic Financial APMs | |||
| Organic Total Revenue | £890m | £877m | +1% |
| Organic Recurring Revenue | £811m | £777m | +4% |
| Organic Operating Profit | £180m | £204m | -12% |
| % Organic Operating Profit Margin | 20.2% | 23.2% | -3.0 ppts |
| Underlying Financial APMs | |||
| EBITDA | £232m | £254m | -9% |
| Underlying Operating Profit | £191m | £216m | -11% |
| % Underlying Operating Profit Margin | 20.4% | 22.5% | -2.1 ppts |
| Underlying Basic EPS | 12.14p | 13.57p | -11% |
| Underlying Cash Conversion | 133% | 127% | +6 ppts |
| KPIs | |||
| Annualised Recurring Revenue (ARR) | £1,595m | £1,530m | +4% |
| Renewal Rate by Value | 97% | 101% | -4 ppts |
| % Subscription Penetration | 68% | 63% | +5 ppts |
| % Sage Business Cloud Penetration | 65% | 59% | +6 ppts |
| Statutory Measures | H1 21 | H1 20 | % Change |
| Revenue | £937m | £975m | -4% |
| Operating Profit | £203m | £289m | -30% |
| % Operating Profit Margin | 21.7% | 29.7% | -8.0 ppts |
| Basic EPS (p) | 13.29p | 20.56p | -35% |
| Dividend Per Share (p) | 6.05p | 5.93p | +2% |
Please note that tables may not cast and change percentages may not calculate precisely due to rounding.
Commenting on the results, CEO Steve Hare said:
“Sage performed strongly in the first half against tough comparators, with continued recurring revenue growth and increasing levels of new customer acquisition, principally in cloud native solutions. Our deep sense of purpose and experience of supporting small and medium-sized businesses through change has equipped us well to play a vital role throughout the pandemic, and I am proud of the way our colleagues around the world have shown dedication to our customers and partners. We believe that small and medium-sized businesses will lead the recovery, and I am confident that our strategic investment in Sage Business Cloud will continue to accelerate growth, as customers become stronger and more digitally-enabled.”
Financial highlights
– Organic recurring revenue increased by 4.4% to £811m, underpinned by software subscription revenue growth of 11% to £608m. This was offset by a 21% decrease in other revenue (SSRS and processing) to £79m. Total organic revenue grew by 1.4% to £890m.
– Growth in recurring revenue reflects Sage’s focus on acquiring new customers and migrating existing customers to Sage Business Cloud, supported by strong customer retention.
– Decrease in other revenue (SSRS and processing) is in line with our strategy to transition away from licence sales and low margin professional services implementations.
– Organic operating profit of £180m represents a margin of 20.2% (H1 20: 23.2%). This reflects our planned additional strategic investment to accelerate growth across Sage Business Cloud with a focus on cloud native solutions, as outlined in our full year results announcement on 20 November.
– Statutory operating profit reduced to £203m (H1 20: £289m), principally reflecting a lower net gain on disposal of subsidiaries of £41m (H1 20: £141m, mainly from the disposal of Sage Pay in March 2020).
– Strong underlying cash conversion of 133% (H1 20: 127%) reflects continued growth in subscription revenue and sustained improvements in working capital, including strength in receivables collection.
– Resilient balance sheet, with c. £1.4bn of cash and available liquidity (comprising £718m of cash and cash equivalents, and £656m of undrawn facilities), and net debt to EBITDA of 0.2x.
– Interim dividend up 2% to 6.05p, in line with our policy of maintaining the dividend in real terms.
1 Please see Appendix 1 for guidance on the usage and definitions of the Alternative Performance Measures.
2 Organic revenue and operating profit for H1 20 have been restated to aid comparability with H1 21. The definition of organic measures can be found in Appendix 1 with a full reconciliation of organic, underlying and statutory measures on page 8. Unless otherwise specified, all references to revenue, profit and margins are on an organic basis.
Strategic and operational highlights
– Annualised recurring revenue (ARR) up 4.2% to £1,595m, driven by £110m of ARR added through new customer acquisition and reactivations, with growth accelerating during the period.
– Renewal by value of 97% (H1 20: 101%) is in line with the second half of last year, reflecting our focus on customer retention, with churn remaining stable and in line with pre-Covid levels.
– Cloud native ARR increased by 36% to £286m, underpinned by growth from new customers and supported by migrations from cloud connected and desktop products.
– Building momentum with Sage Accounting, particularly in the UK where our focus on growth supported by investment in marketing has accelerated new customer acquisition.
– Good progress in growing solutions for medium-sized businesses in North America, led by Sage Intacct.
– Expanded the Sage ecosystem with new partnerships including Tide, BrightPearl and CountingUp.
– Completed the disposal of Sage’s Polish business and announced agreements for the disposal of Sage’s businesses in Switzerland, Australia and Asia, to increase the focus on core geographies.
Outlook
Following a strong performance in the first half, we now expect organic recurring revenue growth for FY21 to be towards the top end of our guidance range of 3% to 5%. We also expect other revenue (SSRS and processing) to continue to decline, in line with our strategy. As previously communicated, organic operating margin is expected to be up to three percentage points below FY20, reflecting the additional strategic investment we are making in the business.
Looking beyond FY21, The Sage Group expect margins to trend upwards over time, as this additional investment drives recurring revenue growth and operating efficiencies.
