Sage Group Plc · LSE:SGE
Sage — H1 2023 Earnings Presentation
41 slides from Sage's earnings presentation, May 17, 2023
Slide 1: Sage Half-Year Results
Sage Half-Year Results For the six months ended 31 March 2023 17 May 2023
Slide 2: Important notice
Important notice The following presentation is being made only to, and is only directed at, persons to whom such factors include, among others: inherent difficulty in predicting customer behaviour; customers presentation may lawfully be communicated (“relevant persons”). Any person who is not a rele
Slide 3: Steve Hare, CEO
Steve Hare CEO • Overview • Financial review and outlook • Strategic update • Q&A
Slide 4: Strong growth and margin expansion
Strong growth and margin expansion Broad-based growth • Growth driven through key franchises across the Group. and momentum • Robust demand and supportive industry dynamics. Accelerating • Rapidly expanding our global cloud solutions. innovation • Deploying AI-powered services across Sage’s digital
Slide 5: Jacqui Cartin, Group Financial Controller
Jacqui Cartin Group Financial Controller • Overview • Financial review and outlook • Strategic update • Q&A
Slide 6: Continued positive momentum
Continued positive momentum High quality recurring Expanding Strong cash revenue growth margin conversion 12% 20.8% 117% H1 22: 5% H1 22: 20.2% H1 22: 120% Unless otherwise stated, all references in this presentation to revenue, profit and margin are on an underlying basis. © 2023 The Sage Group plc
Slide 7: Strong growth drivers
Strong growth drivers ARR growth Cloud native Renewal by value ARR growth 12% 30% 101% H1 22: 7% H1 22: 51% H1 22: 100% © 2023 The Sage Group plc, or its licensors. All rights reserved. Page 7
Slide 8: Efficient growth driving earnings
Efficient growth driving earnings Underlying H1 23 H1 22 Change Organic change Total revenue £1,087m £989m +10% +10% Recurring revenue £1,039m £925m +12% +12% Operating profit £227m £199m +14% +19% Operating profit margin % 20.8% 20.2% +0.6 ppts +1.6 ppts EBITDA £275m £243m +13% EBITDA margin % 25.2
Slide 9: Sage Business Cloud fuelling growth
Sage Business Cloud fuelling growth Recurring revenue +£114m (+12%) +99 (64) (0) (16) 1,087 +79 989 Sage Business Cloud +£178m (+29%) © 2023 The Sage Group plc, or its licensors. All rights reserved. Page 9
Slide 10: Further growth in subscription
Further growth in subscription +10% £1,087m 78% software subscription Software penetration subscription £853m £724m +18% Recurring revenue £1,039m (+12%) 96% recurring revenue penetration £201m Other recurring £186m -7% £64m Other (SSRS) £48m -24% H1 22 H1 23 © 2023 The Sage Group plc, or its licens
Slide 11: Portfolio growth in line with strategy
Portfolio growth in line with strategy +12% £1,039m Cloud native £285m +38% £206m Future Sage Business Cloud Opportunity 82% Sage Business Cloud £403m connected £502m +25% £964m (+13%) Cloud penetration £241m To be migrated £177m -27% £75m Non-SBC £75m 0% H1 22 H1 23 © 2023 The Sage Group plc, or it
Slide 12: North America: broad-based growth
North America: broad-based growth Sage Intacct Sage Business Cloud penetration • Continued success in new customer acquisition. H1 23 84% +8 ppts H1 22 76% • Supported by sales to existing customers through cross-sell and up-sell. Software subscription penetration US H1 23 77% +7 ppts • Progress in
Slide 13: UKIA: continued strength
UKIA: continued strength UK & Ireland Sage Business Cloud penetration H1 23 88% • Cloud native growth driven by small business +12 ppts solutions, including Sage Accounting. H1 22 76% Software subscription penetration • Sage Intacct also starting to scale rapidly through both the direct and partner
Slide 14: Europe: accelerating
Europe: accelerating France Sage Business Cloud penetration H1 23 70% • Strong performance in cloud connected products, +9 ppts particularly Sage 200 cloud, together with growth in H1 22 61% cloud native solutions. Software subscription penetration Central Europe H1 23 69% +4 ppts H1 22 65% • Growth
Slide 15: Investment driving growth and margin
Investment driving growth and margin ARR growth and underlying operating margin Progression over last two years Sales and Marketing £411m (H1 22: £395m) 40% ARR growth1 +4% +7% +12% +12% as % of recurring revenue Underlying operating Research and Development £175m 20.2% 20.8% margin2 18.9% 19.2% (H1
Slide 16: Strong cash generation
Strong cash generation 117% Underlying cash conversion +20 +2 (10) 266 (72) +27 227 194 See appendix for definitions © 2023 The Sage Group plc, or its licensors. All rights reserved. Page 16
Slide 17: Robust financial position
Robust financial position Net debt leverage Net debt Cash and liquidity 1.3x £691m £1.2bn • Issued €500m 5-year Notes under new EMTN programme in February, used to repay outstanding US private placement loan notes, extending debt maturity profile and diversifying funding sources. • Net debt leverage
Slide 18: Outlook
Outlook Building on good momentum from the first half, for FY23 we now expect: • Organic recurring revenue growth to be in the region of 11%. We continue to expect: • Other revenue (SSRS) to continue to decline, in line with our strategy. • Operating margins to trend upwards in FY23 and beyond, as w
Slide 19: Steve Hare, CEO
Steve Hare CEO • Overview • Financial review and outlook • Strategic update • Q&A
Slide 20: Strategic framework for growth
Strategic framework for growth Purpose To knock down barriers so everyone can thrive Ambition To be the trusted network for small and mid-sized businesses Strategic priorities Scale Expand medium Build the small Scale the network Learn and disrupt Sage Intacct beyond financials business engine Stake
Slide 21: Focusing on our customers
Focusing on our customers SMB confidence is increasing 84% are confident in their future success, up from 69% last year. Majority of SMBs intend to increase their technology spend Average expected increase of 16% over the next year. Number of SMBs continues to grow One million more SMBs expected in
Slide 22: Innovating through the digital network
Innovating through the digital network Our customers Smart Transactions Suppliers Service Smart Transactions Service Buyers Collaboration Collaboration Service Service Payments Payments Out Acceptance Service Service Collaboration Service Banking Service Compliance Service Accountants Financial Inst
Slide 23: Scale Sage Intacct
Strategic priority 1 Scale Sage Intacct Accelerate the expansion of Sage Intacct in existing and new markets. Progress update • Sage Intacct ARR grew by 30% in the US and doubled outside the US. • Strong growth in Sage Intacct Construction and Real Estate; major new release of Sage Intacct Manufactu
Slide 24: Expand medium beyond financials
Strategic priority 2 Expand medium beyond financials Broaden the value proposition for mid-sized businesses. Progress update • Accounts payable automation rapidly gaining traction. – Same service provided via the digital network for Sage Intacct US, Sage 50 France and Sage Accounting UK. ““AP Automa
Slide 25: Build the small business engine
Strategic priority 3 Build the small business engine Create a scalable digital ‘engine’ to acquire and serve small business customers. Progress update • Good levels of growth from small business solutions. • Strong focus on accountants – Sage for Accountants adopted by almost 5,000 practices in the
Slide 26: Scale the network
Strategic priority 4 Scale the network Increase participation in the digital network and accelerate the network effect. Progress update • Enabling more digital network participation by rapidly growing Sage Business Cloud. • Expanding availability of cloud solutions; launched Sage Active in France. “
Slide 27: Learn & disrupt
Strategic priority 5 Learn & disrupt Build innovative solutions underpinned by a culture of continuous learning and disruption. Progress update • Strong partnerships with Microsoft and Amazon. • Microsoft partnership delivered key integrations with Sage Intacct, Sage People and Sage Active. • Buildi
Slide 28: Delivering for our stakeholders
Delivering for our stakeholders Customers Colleagues Society Shareholders • Focus on customer • Inclusive, high-performing • Progress towards climate • Targeting sustainable satisfaction. accountable culture. targets; supporting SMBs growth in shareholder value. • Driving positive brand • Improved g
Slide 29: Creating value through efficient growth
Creating value through efficient growth Strategic framework is delivering growth in all regions. Creating a scalable platform Differentiated by our leading technology, the to deliver sustained, breadth of our business and our human touch. efficient growth Growth creates headroom to increase investme
Slide 30: Key messages
Key messages Broad-based growth Accelerating Consistent and momentum innovation execution © 2023 The Sage Group plc, or its licensors. All rights reserved. Page 30
Slide 31: Q&A
Q&A • Overview • Financial review and outlook • Strategic update • Q&A © 2023 The Sage Group plc, or its licensors. All rights reserved. Page 31
Slide 32: Appendix
Appendix r
Slide 33: Building ARR
Building ARR Opening ARR1 100% £1.88bn Existing Churn customers Migration and expansion Renewal by value 101% £1.91bn New New customer +£190m customers acquisition ARR Closing ARR 112% £2.10bn 1. As at the end of the comparative period (31 March 2022), stated on an organic basis at current period en
Slide 34: Bridge from underlying to organic
Bridge from underlying to organic ARR Recurring revenue Total revenue Operating profit £m H1 23 H1 22 Growth H1 23 H1 22 Growth H1 23 H1 22 Growth H1 23 H1 22 Growth Underlying 2,100 1,878 +12% 1,039 925 +12% 1,087 989 +10% 227 199 +14% Acquisitions1 - 5 - 10 - 10 - (7) Disposals2 - - - (4) - (5) -
Slide 35: Sage Business Cloud portfolio
Sage Business Cloud portfolio Cloud Connected Cloud Native Accounting and Financials People and Payroll Mid-sized • Sage 200 cloud • Sage Intacct • Sage People • Sage X3 businesses Small • Sage 50 cloud • Sage Accounting • Sage HR businesses • Sage 50 Payroll • Sage Payroll Sage Digital Network © 20
Slide 36: Capital allocation
Capital allocation 4. Consider 3. Grow the 1. Organic returning 2. M&A dividend investment surplus over time capital Strong and stable financial position Broad range of 1.0x–2.0x net debt to EBITDA over the medium term, with flexibility to move outside this range as business needs require. © 2023 Th
Slide 37: Sustainability highlights
Sustainability highlights Protect the Planet Tech for Good Fuel for Business ESG Fundamentals • Pledged to achieve net zero • Tackling digital inequality for • Tackling economic inequality People by 2040 and to halve our innovation, enterprise and by supporting under- • Published first DEI impact em
Slide 38: Glossary
Glossary Measure/description Underlying (revenue and profit) measures Organic (revenue and profit) measures Underlying measures are adjusted to exclude items which in management’s In addition to the adjustments made for Underlying measures, Organic measures: judgement need to be disclosed separately
Slide 39: Glossary
Glossary Measure/description Underlying Cash Flow from Operations Renewal Rate by Value Underlying Cash Flow from Operations is Underlying Operating Profit adjusted for The ARR from renewals, migrations, upsell, and cross-sell of active customers at non-cash items, net capex (excluding business comb
Slide 40: Glossary
Glossary Revenue type Description Recurring revenue Recurring revenue is revenue earned from customers for the provision of a good or service over a contractual term, with the Subscription contracts customer being unable to continue to benefit from the full functionality of the good or service witho
Slide 41: About Sage
About Sage Sage exists to knock down barriers so everyone can thrive, starting with the millions of Small and Mid-Sized Businesses (SMBs) served by us, our partners and accountants. Customers trust our finance, HR and payroll software to make work and money flow. By digitising business processes and