Final Results
FOR IMMEDIATE RELEASE
3 December 2002
SAGE PRE-TAX PROFIT UP 11% TO £135.2 MILLION FOR YEAR ENDED 30 SEPTEMBER 2002
The Sage Group plc ('Sage'), a leading supplier of accounting and business
management software solutions and related services for small to medium-sized
enterprises (SMEs), announces its unaudited results for the year ended 30
September 2002.
Highlights
Turnover increased by 14% to £551.7m (2001: £484.1m)
Pre-tax profit grew 11% to £135.2m (2001: £121.3m), before one-off £6m expense*
Operating cash flow grew 26% to £151.2m (2001: £119.6m), before one-off £6m
expense*
Earnings per share, grew 11% to 7.32p (2001: 6.59p), before one-off expense*.
Earnings per share, after one-off expense, of 6.99p
Dividend for the year rebased to 1.5p (2001: 0.425p)
Over 200,000 new customers added (excluding Interact), bringing the total to
3.0m (2001: 2.8m)
Support contract revenue grew 18% whilst support contract units increased 7% to
956,000 (2001: 897,000)
Strong financial performance by Interact: operating margin of 14% (2001: 0%) on
revenues of £54m
Geographical analysis:
2002 2001
£m Turnover Operating Turnover Operating
profit*
profit
UK 156.0 57.6 148.8 56.3
Mainland Europe 118.8 28.6 105.0 26.6
US 276.9 57.5 226.3 44.7
551.7 143.7 480.1 127.6
Impact of foreign - - 4.0 0.8
exchange
551.7 143.7 484.1 128.4
Foreign currency results for the year ended 30 September 2001 have been
retranslated at current year exchange rates to facilitate comparison of results
in the table above and in the text below.
*The impact of the one-off £6m (£4m after tax) expense of sponsorship of 'The
Sage Gateshead' is excluded here and throughout this announcement unless
otherwise stated.
Michael Jackson, Chairman, commented: 'The Group continues to win significant
numbers of new customers - more than 200,000 this year. Our strategy of
marketing an expanding range of relevant products and services to our growing
installed base of customers remains our clear focus.
Our ability to continue to win new business from our entry-level and mid-market
customer bases, as well as to realise the full potential of our CRM business,
provides a platform for sustained long-term growth. In addition, we will
continue to seek appropriate acquisitions in both existing and new markets. We
therefore look forward to 2003 with confidence'.
Enquiries
The Sage Group plc 0191 255 3000 Financial Dynamics 020 7831 3113
Paul Walker, Chief Executive Giles Sanderson / Harriet Keen
Paul Harrison, Finance Director
Phil Branston, Investor Relations
Notes to editors
The Sage Group plc is a leading international supplier of accounting and
business management software solutions and related products and services for
small to medium-sized enterprises. Formed in 1981, Sage was floated on the
London Stock Exchange in 1989 and the Group now employs over 5,000 people
worldwide.
Introduction
We are pleased to report another year of strong performance with turnover
growth of 14% and pre-tax profit growth of 11%. These results demonstrate the
strength of our business model and, in particular, the importance of servicing
effectively our large and growing customer base of 3 million SMEs.
The year has been characterised by the comparative strength of the entry-level
segment of the market where we continue to add large numbers of new customers.
With our strong product portfolio, spanning both the entry-level and mid-market
segments, we are able to target those customers from our entry-level businesses
who are ready to move to more sophisticated products. This drives activity in
our mid-market businesses where customers have otherwise adopted a cautious
approach to spending.
Strong progress has been made with Interact, our customer relationship
management (CRM) business, in its first full year in the Group. Its operating
margin of 14% on revenues of £54m represents a significant improvement over
prior years. These results reflect the benefits of repositioning the CRM
product range more closely for the SME market, improved channel management and
a stronger focus on profitability.
Operational Review
One of our principal objectives is to attract large numbers of new customers to
our businesses. Once a business has become a Sage customer, our goal is to
support that business throughout its life cycle. Retaining customers and
providing them with a range of products and services (referred to as our
installed base model), will continue to be key to delivering strong financial
performance.
In each of our territories there is a constant flow of new business formations
and we are winning a growing share of this market. Through targeted marketing
activity we attracted over 200,000 new customers to the Group during the year,
180,000 of which were at the entry-level. A number of these businesses will
become mid-market businesses to whom we can sell further products and services.
The provision of telephone-based support continues to be an important part of
our business, providing 46% of revenues in the year. This important revenue
stream has grown 18% this year, reflecting the critical nature of the service
we provide. This growth was partly achieved through increasing the number of
contracts by 7%. We continue to improve our offering, particularly through the
introduction of further tiers of service. At 30 September 2002 we had 956,000
support contracts (2001: 897,000).
During the year we took over 6 million calls from customers on support
contracts. This dialogue provides us with a unique insight into customers'
needs, ensuring our engineering efforts deliver the features customers want.
Over this period we invested £58m in research and development, representing 26%
of licence revenues.
We regularly update and expand the functionality of our products. This enables
us to pursue our objective of selling upgraded versions of our products and
services to existing customers. Upgrades, including new releases for each of
our core product lines, contributed 14% of revenue (2001: 14%).
In addition to upgrades, we sell new and more sophisticated products to
customers who have outgrown their existing software. Furthermore, we also sell
complementary products such as Human Resources and CRM software solutions to
existing accounting software customers. During the year 36,000 existing
customers purchased new products either by migrating to a more sophisticated
product, or by buying an additional product. This contributed £26.8m of new
licence revenue.
Our customers increasingly express a preference for software solutions tailored
to their particular industry. This trend presents new and substantial
opportunities for the Group in terms of providing our customers with
industry-specific or 'vertical' solutions. In each of our businesses we have
identified industry segments where we have large concentrations of customers.
We are addressing the needs of these segments through the development of
industry-specific versions of our core products, through close collaboration
with specialist value-added resellers, and through acquisition.
During the year we made good progress with MIP, acquired at the end of the last
financial year, a US business dedicated to providing software and services for
the large US 'not-for-profit' sector. In the US our Peachtree customer base
alone includes 40,000 not-for-profit organisations, many of whom represent
target customers for MIP solutions.
Similarly in the US and France respectively, this year we acquired CPASoftware
for £9.1m, and Coala SA, for £14.0m - businesses which serve the professional
accountants market. We now have accountants' divisions in our three major
regions, not only selling specialist products for professional accountants but
also encouraging accountants to recommend Sage products and services to their
clients.
We are at an early stage in implementing these new and important
industry-specific initiatives. Even so, sales of such vertical products
contributed 8% of revenues in the year.
During the year we took the opportunity to sponsor the new music centre
currently under construction in Gateshead. For a one-off cost of £4m (after
tax) we have secured perpetual naming rights for 'The Sage Gateshead' - a £60m
international music and cultural centre. This represents significant value
given the long-term branding and business benefits that will result from this
association.
Financials
In the year ended 30 September 2002, we increased turnover by 14% to £551.7m
(2001: £484.1m). Operating profit rose by 12% to £143.7m (2001: £128.4m) and
pre-tax profit improved by 11% to £135.2m (2001: £121.3m). Earnings per share,
before the one-off expense of £6m (£4m after tax) associated with The Sage
Gateshead, grew 11% to 7.32p (2001: 6.59p) and after this one-off expense were
6.99p.
The annual impairment review of the carrying value of goodwill on acquisitions
has been carried out, resulting in no impairment charges.
The Group's ability to generate strong cash flow is evidenced by the fact that
operating profit of £143.7m (2001: £128.4m) delivered operating cashflow of £
151.2m (2001: £119.6m). At 30 September 2002 the Group had net debt of £132.8m
(2001: £190.9m) with net interest covered 17 times by operating profit.
The Group's strong financial performance has led the Board to review its
dividend policy. Whilst dividends have consistently grown 10% per annum since
flotation in 1989, this growth has not kept pace with that of profit and cash
flow. The Board therefore considers it appropriate to increase the payout to
shareholders by rebasing the proposed final dividend to 1.343p per share (2001:
0.282p per share) taking the proposed full year dividend to 1.5p per share
(2001: 0.425p per share). Subject to shareholder approval, the proposed final
dividend will be payable on 14 March 2003 to shareholders on our register on 21
February 2003.
Geographical Review
UK
The UK business grew revenues by 5% and attracted 54,000 new customers.
The UK operating margin for the second half of the year was 38% (2001: 36%)
which compares to 36% in the first half. This improvement reflects the
benefits flowing from the reorganisation of the Enterprise Division as well as
from the results of earlier investment in the support business.
The reorganisation of the Enterprise Division has resulted in improvements to
marketing and channel management activity and has facilitated much closer
co-ordination with the rest of the UK business.
Following several years of substantial growth, our UK business numbers 1,500
employees. The majority of these are situated in a number of locations in the
Newcastle area which creates organisational challenges. During the year we
therefore commenced construction of a new facility which will accommodate all
Newcastle-based employees. The total capital expenditure associated with this
building is expected to be £60m, with anticipated completion in mid-2004.
Mainland Europe
Our French business grew revenues by 17% in the year and added 62,000 new
customers.
There was a favourable impact on first half results from the introduction of
the Euro. In the second half, in the aftermath of the Euro, market activity
slowed, although profit levels were protected by tight cost control.
In October 2001 we acquired Coala SA. This business provides products and
services for accountants in practice and has formed the nucleus of our
accountants division in France, contributing operating profits of £0.7m on
turnover of £7.4m in the year.
Our German business grew revenues by 7% in the year and added 12,000 new
customers. We concluded the acquisition of Gandke & Schubert in the year, for
£3.0m, which added a further 36,000 customers and significantly improved our
presence at the entry-level. Gandke & Schubert broke-even on turnover of £
0.9m.
US
Our US business (excluding Interact) grew revenues by 10% in the year and added
80,000 new customers. Operating margins were maintained at 22%, despite the
impact of the lower margin of the MIP acquisition, reflecting continued
progress with the penetration of installed base products and services and the
benefits arising from focusing on a smaller number of core products.
Our Small Business Division performed well, delivering an operating margin of
23% (2001: 23%) on turnover which grew 10% to £71m (2001: £64m). Our market
share in the important 5-25 employee business segment remains strong, and
considerable progress has been made in selling support contracts into our large
US customer base. At 30 September 2002 there were 224,000 support contracts
(2001: 187,000).
Revenues at our Mid-market, Speciality and Not-for-profit Divisions were
underpinned by our success in migrating customers from our entry-level software
products as well as by cross-selling specialist products, such as FAS (fixed
asset management), to accounting software users. In all, 25% of new licence
sales were to existing customers.
Interact
Interact, in its first full year in the Group, contributed an operating profit
of £7.3m. Its operating margin of 14% on revenues of £53.6m reflects a
significantly improved financial performance this year in both its ACT! and
SalesLogix divisions.
Its products have been repositioned to address SME market needs. We released a
successful ACT! upgrade, the first for several years, with substantially
enhanced functionality. An upgraded version of SalesLogix was also released
and was well received by the market.
Since acquisition, considerable focus has been placed on the development of an
installed base sales model at Interact. Sound progress was made this year with
the release of a range of products and services targeted at Interact's existing
customers. In addition, the opportunity of selling ACT! and SalesLogix to our
existing accounting software customer base remains a clear long-term objective.
Interact has made strong progress this year. Its products have been enhanced,
its range of services to customers broadened and its channel management
significantly improved. It is well positioned as an important and growing part
of the Group.
People
The Group Board has been strengthened by two appointments this year. Tim
Ingram joined the Board as a non-executive director in March 2002 and brings
with him a wealth of public company experience. Ron Verni, who is CEO of our
US Operations, joined the Board in July 2002. Ron has successfully led the
process of integrating our US businesses in order that we present a unified
face to the customer and drive operational efficiencies. His promotion to the
Board reflects the growing importance of our US business to the Group.
Michael Robinson joined the Group as Company Secretary and Legal Affairs
Director in September 2002. As an experienced commercial lawyer, Michael
brings significant expertise to the Group.
Outlook
The Group continues to win significant numbers of new customers - more than
200,000 this year. Our strategy of marketing an expanding range of relevant
products and services to our growing installed base of customers remains our
clear focus.
Our ability to continue to win new business from our entry-level and mid-market
customer bases, as well as to realise the full potential of our CRM business,
provides a platform for sustained long-term growth. In addition, we will
continue to seek appropriate acquisitions in both existing and new markets. We
therefore look forward to 2003 with confidence.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 September 2002
2002 2001
(unaudited) (audited)
£'000 £'000
Turnover 551,731 484,137
Cost of sales (54,840) (50,731)
Gross profit 496,891 433,406
Selling and administrative (353,211) (305,025)
expenses
Selling and administrative expenses - sponsorship (6,000) -
arrangement
Total selling and administrative expenses (359,211) (305,025)
Operating profit 137,680 128,381
Interest receivable 1,519 3,192
Interest payable and similar (10,045) (10,256)
charges
Profit on ordinary activities before taxation 129,154 121,317
Taxation on profit on ordinary activities (40,038) (37,609)
Profit on ordinary activities after taxation 89,116 83,708
Equity minority interest (41) 32
Profit for the financial year 89,075 83,740
Equity dividends (19,143) (5,515)
Amount transferred to reserves 69,932 78,225
Earnings per share (pence) - basic 6.99p 6.59p
Earnings per share (pence) - basic (pre sponsorship 7.32p 6.59p
arrangement)
Dividend per share (pence) 1.500p 0.425p
Notes:
The sponsorship arrangement relates to a one-off sponsorship payment of £6m for
'The Sage Gateshead'.
CONSOLIDATED BALANCE SHEET
As at 30 September 2002
2002 2001
(unaudited) as adjusted
£'000 (see note 5)
£'000
Fixed assets
Intangible 830,908 793,913
Tangible 54,541 51,208
885,449 845,121
Current assets
Stocks 2,306 2,308
Debtors 108,219 95,248
Deferred tax asset 28,306 40,789
Cash at bank and in hand 58,795 42,764
197,626 181,109
Creditors: amounts falling due within one year (177,010) (138,828)
Net current assets 20,616 42,281
Total assets less current liabilities 906,065 887,402
Creditors: amounts falling due after more than one (157,194) (237,585)
year
Deferred income (127,019) (112,809)
Equity minority interest (121) (62)
621,731 536,946
Capital and reserves
Called up equity share capital 12,769 12,725
Share premium account 441,859 437,671
Merger reserve 61,111 61,111
Profit and loss account 105,992 25,439
Equity shareholders' funds 621,731 536,946
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 September 2002
2002 2001
(unaudited) (audited)
£'000 £'000
Profit for the financial year 89,075 83,740
Translation of foreign currency net investments and 12,218 3,463
related borrowings
Total recognised gains and losses relating to the year 101,293 87,203
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2002
2002 2001
(unaudited) (audited)
£'000 £'000
Net cash inflow from operating activities 145,178 119,576
Returns on investments and servicing of finance
Interest received 1,520 3,302
Interest paid (9,454) (9,023)
Issue cost of loans (180) (1,877)
Interest element of finance lease rental payments (3) (415)
Net cash outflow from returns on investments and (8,117) (8,013)
servicing of finance
Taxation
Corporation tax paid (22,645) (23,184)
Capital expenditure
Payments to acquire tangible fixed assets (19,130) (11,619)
Receipts from sales of tangible fixed assets 468 4,865
Net cash outflow from capital expenditure (18,662) (6,754)
Acquisitions and disposals
Purchase of subsidiary undertakings:
Net cash consideration - current year (28,185) (218,474)
acquisitions
- prior year (19,292) (11,781)
acquisitions
Net cash outflow from acquisitions and disposals (47,477) (230,255)
Equity dividends paid (5,595) (5,182)
Cash inflow/(outflow) before financing and management of liquid 42,682 (153,812)
resources
Management of liquid resources
(Increase)/decrease in short term deposits (1,367) 11,212
Financing
Shares issued 2,604 2,381
Movement in loan funding (29,104) 130,906
Repayment of capital element of finance leases (57) (2,758)
Net cash (outflow)/ inflow from financing (26,557) 130,529
Increase/(decrease) in cash in the year 14,758 (12,071)
NOTES
1. Analysis of results
2002 2001
Turnover Operating Turnover Operating
profit profit
(unaudited) (unaudited) (audited) (audited)
£'000 £'000 £'000 £'000
UK 155,986 57,625 148,839 56,316
France 87,411 24,025 74,970 22,115
Germany/Switzerland 31,420 4,588 30,037 4,496
US 223,285 50,118 203,138 44,486
Interact 53,629 7,324 23,117 148
551,731 143,680 480,101 127,561
Impact of foreign - - 4,036 820
exchange
Sponsorship - (6,000) - -
arrangement - The
Sage Gateshead
551,731 137,680 484,137 128,381
Foreign currency results for the year ended 30 September 2001 have been
retranslated at current year exchange rates to facilitate the comparison of
results.
Analysis of change in net debt (inclusive of finance leases)
At 1 Cash flow Acquisi-tions Exchange Other At 30
October movement September
2001 2002
£'000 £'000 £'000 £'000 £'000 £'000
Net cash at bank 42,754 14,758 - - - 57,512
and in hand
Short term deposits - 1,367 - (84) - 1,283
Loans due within (7,584) 7,058 (200) 483 (38,833) (39,076)
one year
Finance leases due (57) 36 - - - (21)
within one year
Loans due after (226,039) 22,226 - 13,178 38,128 (152,507)
more than one year
Finance leases due (21) 21 - - - -
after
more than one year
(190,947) 45,466 (200) 13,577 (705) (132,809)
Taxation
The taxation charge for the year comprises:
2002 2001
£'000 £'000
Current taxation
UK 20,066 22,303
Overseas 9,902 15,306
29,968 37,609
Deferred taxation 10,070 -
40,038 37,609
The unaudited financial information set out above does not constitute the
Company's statutory accounts for the year ended 30 September 2002. Statutory
accounts for the year ended 30 September 2001 have been delivered to the
Registrar of Companies and those for the year ended 30 September 2002 will be
delivered in due course. The Group's results for the year ended 30 September
2001 have been extracted from those statutory accounts, subject to any
restatement required in connection with the adoption of FRS 19 (see note 5
below). The Auditors' Report on the accounts for the year ended 30 September
2001 was unqualified and did not contain a statement under Section 237 of the
Companies Act 1985.
Financial Reporting Standard No. 19: Deferred Tax (FRS 19) was published by the
Accounting Standards Board in December 2000 and applies to accounting periods
ending on or after 23 January 2002. Under FRS 19 the Group is required to
recognise deferred tax as a liability or asset if transactions or events giving
rise to an obligation to pay more tax in the future, or a right to pay less tax
in the future, have occurred by the balance sheet date. Previously the Group
provided for deferred tax using the liability method to the extent that it was
probable that liabilities would crystallise in the foreseeable future.
Deferred tax unprovided for as at 30 September 2001, and which is now required
to be provided for under FRS 19, has been provided for and shown as a prior
year adjustment. The impact on the profit and loss account for the year ended
30 September 2002 is £10,070,000. There was no impact on the profit and loss
account for the year ended 30 September 2001. Shareholders' funds at 30
September 2001 have been reduced by £1,976,000, with £42,416,000 being adjusted
to goodwill. As permitted by FRS 19, the Group has adopted a policy of not
discounting deferred tax assets and liabilities.
The calculation of basic earnings per share is based on earnings of £89.1m
(after the costs associated with the sponsorship of The Sage Gateshead) (2001:
£83.7m) and on 1,274,526,435 ordinary 1p shares (2001: 1,270,533,875) being the
weighted average number of shares in issue during the year.
Subject to shareholders' approval, the final dividend of 1.343 pence per share
will be paid on 14 March 2003 to shareholders on the register at the close of
business on 21 February 2003.
The annual report and accounts will be posted to shareholders shortly and
thereafter copies will be available from the Secretary, The Sage Group plc,
Sage House, Benton Park Road, Newcastle upon Tyne, NE7 7LZ.
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