Interim Results
FOR IMMEDIATE RELEASE
10 May 2005
SAGE PRE-TAX PROFIT UP 16% TO £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 £381.6m (2004: £326.5m*)
Pre-tax profit increased 16% to £100.6m (2004: £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
£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 £381.6m (2004: £326.5m*). Operating profit rose by 16%*
to £103.1m (2004: £88.7m*) and pre-tax profit increased by 16% to £100.6m
(2004: £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 £144.6m (2004: £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 £237.0m (2004: £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 £131.3m
representing 127% of operating profit. This strong cash flow meant that, after
expenditure on acquisitions of £29.4m, net debt stood at £85.2m at the period
end (31 March 2004: £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 £96.7m (2004: £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 £101.3m (2004: £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
£10.0m, significantly expands our coverage of the Swiss market, particularly in
the mid-market. The acquisition of Symfonia, for an EV of £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 £155.4m (2004: £128.6m*). Organic revenue growth
was 7%*.
Small Business Division revenues were £51.1m (2004: £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 £104.3m (2004: £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 £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 £28.2m (2004: £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 £'000 £'000 £'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)
£'000 £'000 £'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)
£'000 £'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 £'000 £'000 £'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)
£'000 £'000 £'000 £'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 £1=$1.89 and £1=€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
£'000 £'000 £'000 £'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)
£'000 £'000 £'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 £
70,432,000 (2004: £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 £
70,432,000 (2004: £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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