Sage Group Plc · LSE:SGE
Sage — H1 2024 Earnings Presentation
39 slides from Sage's earnings presentation, May 16, 2024
Slide 1: Sage Half-Year Results
Sage Half-Year Results For the period ended 31 March 2024 16 May 2024
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: agenda
Steve Hare CEO • Overview • Financial review and outlook • Strategic update • Q&A
Slide 4: Strong performance driven by innovation
Strong performance driven by innovation Efficient • Broad-based revenue growth across our portfolio and regions. growth • Strong margin expansion through cost discipline and operational efficiencies. Driving • Delivering new and improved solutions across our markets. innovation • Accelerating innova
Slide 5: Jonathan Howell, CFO: agenda
Jonathan Howell CFO • Overview • Financial review and outlook • Strategic update • Q&A © 2024 The Sage Group plc, or its licensors. All rights reserved.
Slide 6: Strong financial performance
Strong financial performance Revenue Operating Basic EPS Cash growth margin growth conversion 10% 22.0% 23% 127% H1 23: 10% H1 23: 20.4% H1 23: 13% H1 23: 117% Unless otherwise stated, all references in this presentation to revenue, profit and margin are on an underlying basis. © 2024 The Sage Group
Slide 7: Robust ARR growth
Robust ARR growth +11% +9% 2,253 ARR growth £m 2,034 +2% 102% 11% H1 23: +12% Renewal by value 102% 1 H1 23: 101% 1. Growth from existing customers including upsell, cross-sell and pricing, net of churn © 2024 The Sage Group plc, or its licensors. All rights reserved. Page 7
Slide 8: Efficient growth driving earnings
Efficient growth driving earnings Underlying H1 24 H1 23 Change Organic change Total revenue £1,152m £1,052m +10% +9% Recurring revenue £1,112m £1,005m +11% +11% Operating profit £254m £215m +18% +18% Operating profit margin % 22.0% 20.4% +1.6 ppts +1.6 ppts EBITDA £299m £262m +14% EBITDA margin % 2
Slide 9: Continued cloud expansion
Continued cloud expansion Sage Business Cloud Cloud native Subscription revenue growth revenue growth penetration 18% 25% 81% H1 23: 29% H1 23: 39% H1 23: 79% © 2024 The Sage Group plc, or its licensors. All rights reserved. Page 9
Slide 10: North America: broad-based growth
North America: broad-based growth US Underlying total revenue (£m) • Continued good performance in Sage Intacct. • Strong growth across multiple verticals, particularly not- 520 +13% for-profit and construction & real estate. 460 66 +10% 60 • Further success in NCA, together with strong sales to exi
Slide 11: UKIA: continued strength
UKIA: continued strength UK & Ireland Underlying total revenue (£m) • Strong growth in Sage Intacct reflected new customer wins, particularly through the partner channel. 328 +8% • Cloud native small business solutions, including Sage 304 Accounting, Sage Payroll and Sage HR, performing well. 79 +12
Slide 12: Europe: accelerating
Europe: accelerating France Underlying total revenue (£m) • Good performance in Sage 200 and X3 cloud, alongside growth in accountant and payroll solutions. Central Europe 304 +6% 288 74 +6% • Strong growth from cloud HR and payroll solutions, 70 supported by sales to existing Sage 200 customers. 72
Slide 13: Investment driving growth and margin
Investment driving growth and margin ARR growth and underlying operating margin Recent progression Sales and Marketing £450m (H1 23: £401m) 39% Underlying +12% +11% +11% as % of total revenue ARR growth Underlying Research and Development £169m 22.0% operating margin 19.3% 20.6% (H1 23: £169m) 15% a
Slide 14: Strong cash generation
Strong cash generation 127% Underlying (11) cash conversion (82) See appendix for definitions © 2024 The Sage Group plc, or its licensors. All rights reserved. Page 14
Slide 15: Robust financial position
Robust financial position Cash and liquidity Net debt Net debt leverage £1.1bn £811m 1.4x • Net debt leverage within medium term target range of 1-2x. • Significant capacity for future capital priorities to support organic and inorganic growth. • Completed c. £350m share buyback in April 2024. See a
Slide 16: Outlook
Outlook Looking ahead, we expect: • Organic total revenue growth for FY24 to be broadly in line with that achieved in the first half. • Operating margins to trend upwards in FY24 and beyond, as we focus on efficiently scaling the Group. Sonarworks Sage customer © 2024 The Sage Group plc, or its lice
Slide 17: Steve Hare, CEO: agenda
Steve Hare CEO • Overview • Financial review and outlook • Strategic update • Q&A
Slide 18: 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 19: Meeting the needs of our customers
Meeting the needs of our customers SMBs remain resilient and optimistic Reporting rising revenues and profits. But they continue to face barriers 40% of invoices paid late, causing cash flow issues. Sage helps to resolve their pain points Our solutions help SMBs get paid more quickly, reduce costs,
Slide 20: Enabling AI-powered business
Enabling AI-powered business Digitally transforming customer workflows through the Sage Network Sage Network connects business ecosystems and enables AI-powered services to be efficiently scaled across multiple products. • Enhancing services such as AP automation, outlier detection and time manageme
Slide 21: Scale Sage Intacct
Strategic priority 1 Scale Sage Intacct Accelerate the expansion of Sage Intacct in existing and new markets Progress update • Delivered innovative features and deeper vertical capabilities. • Building traction in France and introduced in Germany. ““We've only been using Sage Intacct for a short tim
Slide 22: Expand medium beyond financials
Strategic priority 2 Expand medium beyond financials Broaden the value proposition “ for mid-sized businesses Progress update • Extending solutions such as payroll, HR, planning and “SDMO enables us to look five weeks out. We can control analytics to customers across the Group. our costs and shorten
Slide 23: 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 • Launched the Sage for Small Business suite, with a unified customer experience and simplified pricing. • Sage for Accountants now adopted by 12,000
Slide 24: Scale the network
Strategic priority 4 Scale the network More customers Increase participation in the digital network and accelerate the network effect Progress update Better Sage More network customer Network activity experiences • Continued to grow Sage Business Cloud and develop connected services, driving network
Slide 25: Learn and disrupt
Strategic priority 5 Learn and disrupt Build innovative solutions underpinned by a culture of continuous learning and disruption Progress update • Collaborating with AWS to develop a domain-specific accounting and compliance LLM for SMBs. • Making Sage Earth available on the AWS Marketplace. ““I con
Slide 26: Delivering for our stakeholders
Delivering for our stakeholders Customers Colleagues Society Shareholders • Deliver great technology with • High-performance, accountable • Progress towards climate • Targeting sustainable growth human touch. and inclusive culture. targets; published Net Zero in shareholder value. • Champion SMBs ac
Slide 27: 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 28: Key messages
Key messages Efficient Driving Consistent growth innovation execution © 2024 The Sage Group plc, or its licensors. All rights reserved. Page 28
Slide 29: Q&A
Q&A • Overview • Financial review and outlook • Strategic update • Q&A © 2024 The Sage Group plc, or its licensors. All rights reserved. Page 29
Slide 30: Appendix
Appendix
Slide 31: 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 HR • Sage X3 • Sage People businesses Small • Sage 50 cloud • Sage Active • Sage HR businesses • Sage 50 Payroll • Sage Accounting • Sage Payroll S
Slide 32: 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. © 2024 Th
Slide 33: Bridge from underlying to organic
Bridge from underlying to organic ARR Recurring revenue Total revenue Operating profit £m H1 24 H1 23 Growth H1 24 H1 23 Growth H1 24 H1 23 Growth H1 24 H1 23 Growth Underlying 2,253 2,034 +11% 1,112 1,005 +11% 1,152 1,052 +10% 254 215 +18% Acquisitions1 - 2 - 1 - 1 - - Disposals - - - - - - - - Org
Slide 34: Cloud and subscription revenue mix
Cloud and subscription revenue mix Cloud revenue mix Subscription revenue mix Organic Organic £m H1 24 H1 23 Change £m H1 24 H1 23 Change change change Cloud native 353 283 +25% +24% Subscription 937 826 +14% +13% Cloud connected 562 494 +14% +14% Other recurring revenue 175 179 -2% -2% Sage Busines
Slide 35: Cloud mix over time
Cloud mix over time 21% 20% 27% 26% 25% 24% 36% 33% 38% 37% 45% 44% 42% 46% 53% 50% 55% 54% 63% 49% 49% 47% 47% 48% 46% 44% 42% 42% 42% 40% 41% 39% 40% 37% 33% 34% 35% 27% 28% 28% 30% 31% 27% 27% 20% 21% 22% 23% 15% 15% 16% 17% 10% 12% 12% 12% 13% Q419 Q120 Q220 Q320 Q420 Q121 Q221 Q321 Q421 Q122 Q2
Slide 36: Sustainability highlights
Sustainability highlights Protect the Planet Tech for Good Human by Design Pledged to get to net zero by 2040 Helping SMBs thrive by building Fostering a high-performing, and to halve emissions by 2030. inclusive networks and solutions. diverse and human-centred culture. • STBi-validated emission •
Slide 37: 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 38: 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 capital expenditure (excluding
Slide 39: 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