Interim Results

FOR IMMEDIATE RELEASE 10 May 2005 SAGE PRE-TAX PROFIT UP 16% TO Â£100.6 MILLION FOR HALF-YEAR ENDED 31 MARCH 2005 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 half-year ended 31 March 2005. Financial highlights Turnover increased by 17%* to Â£381.6m (2004: Â£326.5m*) Pre-tax profit increased 16% to Â£100.6m (2004: Â£86.7m) Earnings per share up 18% to 5.49p (2004: 4.67p) Operating cash flow represented 127% of operating profit (2004: 136%) Interim dividend raised to 0.922p per share (2004: 0.611p), consistent with our dividend policy announced in December 2004 Operational and strategic highlights Organic revenue growth of 6%* North American business grew organic revenue by 7%* 149,000 new customers, bringing the customer base to 4.5m businesses (31 March 2004: 4.3m), excluding Customer Relationship Management ('CRM') customers 1.3m support contracts, contributing 50% of revenues Businesses acquired last financial year - SP, Softline and ACCPAC - showed revenue growth and significantly improved margins Regional analysis* 2005 First half 2004 First half Â£m Turnover Operating profit Turnover Operating profit UK 96.7 36.3 90.8 35.9 Mainland Europe 101.3 24.0 90.2 21.1 North America 155.4 37.3 128.6 29.1 Rest of World 28.2 5.5 16.9 2.6 381.6 103.1 326.5 88.7 Foreign exchange impact* - - 6.0 1.4 381.6 103.1 332.5 90.1 Chief Executive, Paul Walker, commented: 'These results show that the improved organic revenue growth of last year has continued into 2005. Our growth demonstrates the value of our key asset - our expanding customer base of 4.5 million businesses. Throughout the Group, all of our divisions have shown growth during the first half by continuing to provide locally-developed and locally-supported solutions. Our focus will remain on growing our customer base, improving our products and services and developing our recently acquired businesses. We continue to seek acquisition opportunities which help us meet the needs of customers, whilst meeting our investment criteria. We continue to view 2005 with confidence.' *Foreign currency results for the period ended 31 March 2004 have been retranslated based on the average exchange rates for the six months ended 31 March 2005 to facilitate the comparison of results. A presentation for analysts will be held at 9.30am today at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. The presentation will also be available at www.sage.com. A live audio broadcast of the presentation will also be available for analysts. The dial-in number is +44 (0) 207 162 0180. Enquiries: The Sage Group plc +44 (0) 191 294 3000 Tulchan Communications +44 (0) 20 7353 4200 Paul Walker, Chief Executive Kirstie Hamilton Paul Harrison, Finance Director Kate Inverarity Phil Branston, Investor Relations Overview We are pleased to report a strong performance, with turnover increasing 17%* and earnings per share increasing 18%. During the period, our customer base expanded to 4.5 million businesses (31 March 2004: 4.3 million). Our growth resulted from serving these customers with an expanded range of locally-delivered products and services and from strong early contributions by recently acquired businesses. Our customers' IT spending priorities continue to evolve to meet their requirements. Businesses need to remain compliant with local fiscal and business regulations. In addition, they want to use accounts data to provide insights into their business through reporting and analysis. Increasingly, they want their systems to meet the compliance, reporting and analysis needs of their particular industry. Businesses want to achieve these objectives in a cost-effective manner. This means that they prefer to avoid potential extra cost and disruption by adding progressively to existing solutions, rather than replacing them with entirely new solutions. It also leads businesses to consider both the further automation of business processes and outsourcing alternatives. In order to make the best use of their software investment, many businesses choose to retain support services. We have continued to develop new and upgraded products and services to meet these requirements, reinvesting 28% of software revenue (2004: 27%*) in research and development. We have introduced innovative new services such as payroll outsourcing in North America, which provides opportunities for managing progressively more payroll functions for our customers. In support services, we have been extending the range and level of services in the fields of regulatory compliance, management reporting and information technology. Our high-quality, localised solutions, supported by our 22,000 reseller partners and our locally-based customer support, enabled us to attract 149,000 new customers in the period (2004: 146,000), whilst the rest of our 4.5m customers have predominantly maintained their preference for retaining Sage as their supplier. Financial review Revenue and profitability Revenues grew 17%* to Â£381.6m (2004: Â£326.5m*). Operating profit rose by 16%* to Â£103.1m (2004: Â£88.7m*) and pre-tax profit increased by 16% to Â£100.6m (2004: Â£86.7m). Earnings per share grew 18% to 5.49p (2004: 4.67p). Organic revenue growth was 6%*. Organic revenue growth excludes the contributions of current- and prior-year acquisitions (together, 19% of revenues in this period) and non-core products (3% of revenues in this period). Throughout the Group, both the small business and mid-market divisions showed encouraging organic growth. Software revenues were Â£144.6m (2004: Â£122.4m*), representing organic growth of 8%*. Attracted by our innovative new and upgraded products, growing numbers of customers either upgraded their current products or migrated to higher-value products. Services revenues were Â£237.0m (2004: Â£204.1m*), representing organic growth of 6%*. 80% of services revenue related to support services. These grew 7%* organically. In the six months to 31 March 2005 support contracts grew 52,000 to 1.3m (31 March 2004: 1.3m). Support revenue growth arose both from an increase in the volume of sales and as a result of an increase in spend per customer. This increased spend resulted both from new support contracts associated with migration to more sophisticated software solutions and from further take-up of premium support services provided with existing contracts. During the period, the number of premium support contracts grew to 272,000 (31 March 2004: 258,000). The Group operating margin was maintained at 27% (2004: 27%*). Investments in infrastructure and marketing were offset by revenue growth in high-margin businesses and margin improvements in recent acquisitions. Recent acquisitions The three principal acquisitions completed in the prior-year period showed improved results against comparable prior-year periods. SP (Spain) showed revenue growth of 4%* and improved its operating margin to 28% (2004: 20%). ACCPAC (principally North America) showed revenue growth of 4%* and improved its operating margin to 27% (2004: 14%*). Softline (principally South Africa and Australia) showed revenue growth of 16%* and improved its operating margin to 19% (2004: 18%*). Cash flow The Group remains highly cash generative with operating cash flow of Â£131.3m representing 127% of operating profit. This strong cash flow meant that, after expenditure on acquisitions of Â£29.4m, net debt stood at Â£85.2m at the period end (31 March 2004: Â£179.7m). Dividend In line with the Group's policy, announced in December 2004, of reducing dividend cover to 3.5 times earnings over the next two to three years, the interim dividend is being raised to 0.922p per share (2004: 0.611p). The dividend will be payable on 17 June 2005 to shareholders on the register at close of business on 20 May 2005. International Financial Reporting Standards The Group will report for the first time under International Financial Reporting Standards (IFRS) for the half-year ending 31 March 2006. There will be three principal impacts for the Group. Firstly, the requirement to expense share-based payments to employees. Secondly, the requirement to capitalise (and amortise) different classes of intangible assets with respect to acquisitions completed since 1 October 2004. Thirdly, the requirement to capitalise (and amortise) certain expenditure associated with the development of new software products. In advance of publishing the first financial statements under IFRS, the Group will provide guidance on expected reporting changes in a presentation for investors and analysts, to be held in September 2005. Regional review UK UK revenues were Â£96.7m (2004: Â£90.8m). Organic revenue growth of 5% resulted principally from the sale of upgrades of our accounting and payroll products. Strong underlying profitability was sustained through high-margin sales to the customer base and through effective cost management. However, the operating margin was reduced to 38% (2004: 40%) as a result of increased costs arising from office relocations, undertaken in order to improve service for both our small business and accountant customers. Mainland Europe Revenues in Mainland Europe were Â£101.3m (2004: Â£90.2m*). Organic revenue growth of 6%* resulted chiefly from customers, particularly in the French mid-market, migrating to more sophisticated software and subscribing to premium support services. In addition, innovative new products attracted additional businesses into the customer base. Sales of both support contracts and complementary software were positively impacted by changes in payroll legislation, particularly in France. The principal acquisition completed during the period was Simultan AG (Switzerland, January 2005). The acquisition of Symfonia (Poland) was completed in April 2005. The acquisition of Simultan, for an enterprise value ('EV') of Â£10.0m, significantly expands our coverage of the Swiss market, particularly in the mid-market. The acquisition of Symfonia, for an EV of Â£10.3m, establishes a leading presence in the attractive Polish market. The overall operating margin in Mainland Europe rose to 24% (2004: 23%*), due to improved margins in the Spanish business, which resulted from streamlined product development. North America Revenues in North America were Â£155.4m (2004: Â£128.6m*). Organic revenue growth was 7%*. Small Business Division revenues were Â£51.1m (2004: Â£42.5m*), including the impact of acquisitions. Growth resulted from existing customers adopting new and upgraded products together with support services for those products. The core accounting product, Peachtree, showed organic revenue growth of 6%*. The CRM (contact management) product, ACT!, grew revenues organically 15%*. Sales of both products benefited from the development of new sales channels. Mid-market Division revenues were Â£104.3m (2004: Â£86.1m*), including the impact of acquisitions. Growth resulted from customers purchasing both new solutions and adding to existing solutions, accompanied by new and renewed support services. Core accounting revenues (from MAS and related products), showed organic revenue growth of 6%*. The mid-market CRM product, SalesLogix, grew revenues organically 11%*. We have extended the payroll services available to our 250,000 North American payroll customers by introducing payroll outsourcing services, which were used by 5,000 of those customers. This business was enhanced by the acquisition of Federal Liaison Services, Inc., a payroll services supplier, in November 2004, for an EV of Â£9.7m. The operating margin increased to 24% (2004: 23%*) as a result of profitable growth in the core businesses and of improving margins in prior-year acquisitions. Rest of World This region contributed revenues of Â£28.2m (2004: Â£16.9m*) at an operating margin of 19% (2004: 15%*), principally from our businesses in South Africa and Australia. These businesses showed strong revenue growth and raised margins through increased support penetration and greater take-up by existing customers of complementary products such as payroll. Outlook Throughout the Group, all of our divisions have shown growth during the first half by continuing to provide locally-developed and locally-supported solutions. Our focus will remain on growing our customer base, improving our products and services and developing our recently acquired businesses. We continue to seek acquisition opportunities which help us meet the needs of customers, whilst meeting our investment criteria. We continue to view 2005 with confidence. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 31 March 2005 Six months ended Six months ended Year 31 March 31 March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) Note Â£'000 Â£'000 Â£'000 Turnover 1 381,616 332,501 687,585 Operating profit 1 103,052 90,058 185,607 Net interest payable (2,435) (3,385) (4,463) Profit on ordinary activities 100,617 86,673 181,144 before taxation Taxation on profit on 3 (30,185) (26,869) (54,343) ordinary activities Profit on ordinary activities 70,432 59,804 126,801 after taxation Equity minority interest - (3) (65) Profit for the financial 70,432 59,801 126,736 period Equity dividends 6 (11,841) (7,829) (29,876) Amount transferred to 58,591 51,972 96,860 reserves Earnings per share 5 5.493p 4.673p 9.90p (pence) - basic Earnings per share (pence) 5 5.460p 4.647p 9.85p - diluted Dividend per share 6 0.922p 0.611p 2.33p (pence) CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the six months ended 31 March 2005 Six months Six months Year ended 31 March ended 31 March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 Profit for the financial period 70,432 59,801 126,736 Translation of foreign currency net (17,172) (46,727) (39,278) investments and related borrowings Total recognised gains and losses 53,260 13,074 87,458 relating to the period CONSOLIDATED BALANCE SHEET As at 31 March 2005 31 March 30 September 2005 2004 (Unaudited) (Audited) Â£'000 Â£'000 Fixed assets Intangible assets 1,003,277 994,804 Tangible assets 124,356 123,998 1,127,633 1,118,802 Current assets Stocks 3,305 3,217 Debtors 131,983 121,597 Deferred tax asset 12,604 9,028 Cash at bank and in hand 77,872 74,341 225,764 208,183 Creditors: amounts falling due within one year (204,495) (204,018) Net current assets 21,269 4,165 Total assets less current liabilities 1,148,902 1,122,967 Creditors: amounts falling due after more than one year (157,129) (199,675) Deferred income (215,489) (190,926) Equity minority interest (205) (178) 776,079 732,188 Capital and reserves Called up equity share capital 12,837 12,818 Share premium account 448,737 446,284 Merger reserve 61,111 61,111 Profit and loss account 253,394 211,975 Equity shareholders' funds 776,079 732,188 CONSOLIDATED CASH FLOW STATEMENT For the six months ended 31 March 2005 Six months Six months Year ended 31 ended 31 March March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) Note Â£'000 Â£'000 Â£'000 Net cash inflow from operating 131,313 122,788 221,812 activities Returns on investments and servicing of finance Interest received 1,108 948 2,539 Interest paid (3,896) (4,218) (6,510) Issue cost of loans - (77) (1,428) Net cash outflow from returns on (2,788) (3,347) (5,399) investments and servicing of finance Taxation Corporation tax paid (33,658) (7,928) (23,818) Capital expenditure Payments to acquire tangible fixed (6,651) (26,792) (47,088) assets Receipts from sales of tangible 2,076 120 5,614 fixed assets Net cash outflow from capital (4,575) (26,672) (41,474) expenditure Acquisitions and disposals Purchase of subsidiary undertakings: Net cash consideration - current year (29,343) (152,742) (159,771) acquisitions - (78) (9,297) (10,897) prior year acquisitions Net cash outflow from acquisitions (29,421) (162,039) (170,668) and disposals Equity dividends paid (22,046) (14,018) (21,843) Cash inflow/(outflow) before 38,825 (91,216) (41,390) financing and management of liquid resources Management of liquid resources Reduction/(increase) in short term 2,362 (484) (3,756) deposits Financing Shares issued 1,782 1,581 3,064 Movement in loan funding (37,083) 109,006 15,479 Net cash (outflow)/inflow from (35,301) 110,587 18,543 financing Increase/(decrease) in cash in the 2 5,886 18,887 (26,603) period NOTES For the six months ended 31 March 2005 1. Analysis of results 2005 First half 2004 First half Turnover Operating Turnover Operating profit (Unaudited) (Unaudited) profit (Unaudited) (Unaudited) Â£'000 Â£'000 Â£'000 Â£'000 UK 96,673 36,253 90,790 35,889 Mainland Europe 101,343 24,032 90,165 21,071 North America 155,360 37,293 128,551 29,102 Rest of World 28,240 5,474 16,945 2,575 381,616 103,052 326,451 88,637 Impact of foreign - - 6,050 1,421 exchange 381,616 103,052 332,501 90,058 The 2005 trading results from businesses located outside the UK were translated into Sterling at the average exchange rates for the period. For our two most significant foreign operating currencies, the US Dollar and the Euro, the resulting rates were Â£1=$1.89 and Â£1=â‚¬1.44 respectively. Results for the period ended 31 March 2004 have been retranslated at these exchange rates to facilitate the comparison of results. The Group does not hedge this translational exposure. Analysis of change in net debt At 1 At 31 October Exchange March 2004 movement/ 2005 (Audited) Cash other (Unaudited) flow Â£'000 Â£'000 Â£'000 Â£'000 Net cash at bank and in hand 69,543 5,886 - 75,429 Short term deposits 4,798 (2,362) 7 2,443 Loans due within one year (6,184) (51) 280 (5,955) Loans due after more than one (199,475) 37,134 5,212 (157,129) year (131,318) 40,607 5,499 (85,212) Taxation The taxation charge for the period comprises: Six months ended 31 Six months ended 31 Year March March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) Â£'000 Â£'000 Â£'000 UK taxation 13,496 13,444 24,564 Overseas 16,689 13,425 29,779 taxation 30,185 26,869 54,343 The taxation charge is based on an effective rate of 30%. The unaudited financial information set out above does not constitute the Company's statutory accounts for the period ended 31 March 2005. The accounting policies used as a basis for this interim results announcement are consistent with the Company's statutory accounts for the year ended 30 September 2004, which have been delivered to the Registrar of Companies. The Group results for the year ended 30 September 2004 have been extracted from those statutory accounts. The Auditors' Report on the accounts to 30 September 2004 was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. Accounts to 30 September 2005 will be delivered in due course. Earnings per share The calculation of basic earnings per ordinary share is based on earnings of Â£ 70,432,000 (2004: Â£59,801,000) being the profit for the period, and on 1,282,275,455 ordinary 1p shares (2004: 1,279,750,031) being the weighted average number of ordinary shares in issue during the period. The diluted earnings per ordinary share is based on profit for the period of Â£ 70,432,000 (2004: Â£59,801,000) and on 1,289,959,970 ordinary 1p shares (2004: 1,286,848,759). Dividends The interim dividend of 0.922 pence per share will be paid on 17 June 2005 to shareholders on the register at the close of business on 20 May 2005.

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