Update on financial reporting and disclosure

RNS Number : 7592U

Sage Group PLC

02 April 2019

 

The Sage Group plc.

2 April 2019

Update and simplification of financial reporting and disclosure

The Sage Group plc. ("Sage") today announces changes to the format of its financial reporting and disclosure in FY19 to simplify and improve clarity of reporting. The amended format will be introduced at the H119 results and subsequently used for future Sage financial reporting.

Key amendments to the reporting disclosure are as follows:

1.    Update to portfolio revenue reporting;

2.    Amendment to KPIs; and

3.    Simplification of the financial reporting structure and layout.

This announcement includes an explanation of these changes as well as financial tables which are either new or have substantively changed from Sage's previous reporting format. Where previously disclosed, historical information has been included in these tables for illustrative purposes.

This announcement contains no new financial information, no historical numbers have been restated and there is no change to revenue recognition definitions on an organic, underlying or statutory basis.

1.    Update to portfolio reporting

The portfolio view of organic total revenue was first introduced as part of Sage's FY18 results, breaking down our product portfolio into the following categories:

Portfolio View

Cloud native

Cloud connected

Sage Business Cloud

Products with potential to migrate

Future Sage Business Cloud Opportunity

Other

Organic total revenue

We will continue to provide this portfolio disclosure for organic total revenue and from H119 we will also add organic recurring revenue to this portfolio view.

Over time we expect the proportion of organic total revenue and organic recurring revenue within Sage Business Cloud categories to increase, driven by:

-     Acquisition of new customers and reactivation of off-plan customers onto cloud native and cloud connected solutions;

-     Migration of customers from their existing Sage product to a cloud connected or cloud native solution. Revenue from these customers is reported in Sage Business Cloud revenues from the point of migration onwards; and

-     Migration of a product to Sage Business Cloud as the product develops cloud functionality. Upon becoming a cloud or cloud connected solution, revenue from existing subscription customers of that solution is reported as Sage Business Cloud revenue from the start of the period in which the product first migrates to Sage Business Cloud.

Where applicable, our reporting will include a quantification of Sage Business Cloud revenue from customers using products that were not part of the Sage Business Cloud in the prior reporting period, to allow analysis of growth rates for a comparable set of products.

Our strategic focus and therefore the important metrics to consider in this regard are: recurring revenue growth of the Future Sage Business Cloud Opportunity; recurring revenue growth of the business as a whole; and Sage Business Cloud Penetration, which is defined below.

2.    Amendments to KPIs

We are adding a number of KPIs to provide enhanced insight into our strategic and financial progress:

Additions

-     Sage Business Cloud Penetration: Defined as organic recurring revenue from the Sage Business Cloud as a proportion of the organic recurring revenue of the Future Sage Business Cloud Opportunity. This metric measures progress in the transition of the business to the Sage Business Cloud.

-     Total annualised recurring revenue (ARR) growth: ARR is defined as the normalised reported recurring revenue in the last month of the reporting period, adjusted consistently period to period, multiplied by twelve. It represents the annualised value of the recurring revenue base that is expected to be carried into future periods, and its growth is a forward looking indicator of reported recurring revenue growth. Going forward, Sage will disclose total ARR as opposed to Sage Business Cloud ARR, which was a subset of the total number.

As the strategy evolves, a number of KPIs previously disclosed are no longer relevant and have been superseded by more appropriate KPIs:

Superseded KPIs

-     Free cash flow as a proportion of revenue: Cash conversion will remain a core element of Sage's strategic focus, and free cash flow in absolute terms will continue to be disclosed. However, to drive simplicity we will focus on Underlying Cash Conversion as the primary reported cashflow metric, removing free cash flow as a proportion of revenue;

-     Organic Operating Profit: To drive clarity and simplification, from FY20 onwards reporting will be focused on Statutory and Underlying Operating Profit. As guidance in FY19 was provided on the basis of Organic Operating Profit, it will remain in FY19 reporting;

-     G&A as proportion of revenue: Driving efficient back-office operations remains an important objective, but our focus is on delivering efficient growth across the entire business - measured by our recurring revenue growth and overall operating profit margins; and

-     Adjusted EPS: For similar reasons to Organic Operating Profit, Sage will no longer report Adjusted EPS. Statutory EPS and Underlying EPS will continue to be disclosed.

3.    Simplification of financial reporting structure and layout

Presented below are the key financial tables in the revised reporting format to be implemented in H119. The layout of these tables includes all relevant KPIs. Therefore, the KPI table, formerly disclosed as an appendix to the financial reporting press release, will be removed from H119 onwards.  

All information presented below is as per data reported at the relevant reporting date. None of the financial information presented below has been restated and we have disclosed only information that has previously been published or is easily calculated from previously published information.

Historical data which has not been disclosed in this announcement is signposted in the tables below as follows:

-     TBD (to be disclosed) refers to data that has not been disclosed historically but will be disclosed in future periods; and

-     N/A (not applicable) refers to data that has not been disclosed historically and will not be disclosed in future periods.

Tables that have no substantive changes have not been re-presented and will be disclosed on a consistent basis with previous announcements.

Summary table

Alternative Performance Measures (APMs)1	FY18	FY17	Change
Organic Financial APMs
Organic Total Revenue2	£1,819m	£1,703m	6.8%
Organic Recurring Revenue	£1,441m	£1,352m	6.7%
Organic Operating Profit	£505m	£475m	6.3%
% Organic Operating Profit Margin	27.8%	28.0%	(20bps)
Underlying Financial APMs
Underlying Total Revenue	£1,857m	£1,795m	3.5%
Underlying Recurring Revenue	£1,448m	£1,305m	11.0%
Underlying Operating Profit	£504m	£490m	2.9%
% Underlying Operating Profit Margin	27.2%	27.3%	(10bps)
Non-Recurring Charge	£10m	£70m	(85.7%)
Underlying Basic EPS	32.51	31.45	3.4%
Strategic APMs
Renewal Rate by Value	101%	N/A	N/A
% Subscription Penetration	46%	39%	700bps
% Sage Business Cloud Penetration	TBD	N/A	N/A
Underlying Cash Conversion	96%	95%	100bps
Statutory Measures	FY18	FY17	Change
Revenue	£1,846m	£1,715m	7.6%
Operating Profit	£427m	£348m	22.7%
% Operating Profit Margin	23%	20%	300bps
Basic EPS (p)	27.21	27.80	(2.1%)
Dividend Per Share (p)	16.50	15.42	7.0%

¹ The appendix will provide guidance on the usage and definitions of the Alternative Performance Measures

² The purpose of Organic measures is to allow management and investors to understand the like-for-like performance of the continuing business. The Organic Operating Profit reporting does not fulfil this purpose as it is provided for the current period only. A like for like measure would require in some instances including operating costs of acquisitions prior to the acquisition date, where these may be unrepresentative of the cost structure under our ownership.

Portfolio tables³

Portfolio view	FY18 Revenue	% of Total
Cloud native	£144m	8%
Cloud connected4	£233m	13%
Sage Business Cloud	£377m	21%
Products with potential to migrate	£1,087m	60%
Future Sage Business Cloud Opportunity5	£1,465m	81%
Growth, %	8%	-
Other6	£354m	19%
Organic Total Revenue	£1,819m	100%
Growth, %	7%	-

3 As disclosed above, a column for recurring revenue will be added to this table from H1 19 onwards.

4 Revenue from subscription customers using products that are part of Sage's strategic future product portfolio, where that product is based on an originally on-premise offering for which a substantial part of the customer value proposition is now linked to functionality delivered in or through the cloud.

5 Revenue from customers using products that are currently part of - or that management currently believe have a clear pathway to -  Sage Business Cloud.

6 Revenue from customers using products for which management does not currently envisage a path to Sage Business Cloud, either because the product addresses a segment outside Sage's core focus, or due to the complexity and expense involved in a migration.

Financial Results

Financial Results	Statutory			Underlying
	FY18	FY17	% Change	FY18	FY17	% Change
Northern Europe	£380m	£368m	3.3%	£381m	£368m	3.4%
Central & Southern Europe	£625m	£580m	7.7%	£625m	£588m	6.3%
North America	£574m	£492m	16.7%	£584m	£582m	0.2%
International	£267m	£275m	(3.0%)	£267m	£257m	3.9%
Group Revenue	£1,846m	£1,715m	7.6%	£1,857m	£1,795m	3.4%
Operating Profit	£427m	£348m	22.7%	£504m	£490m	2.9%
% Operating Profit Margin	23.1%	20.3%	280bps	27.2%	27.3%	(10bps)
Profit Before Tax	£398m	£342m	16.4%	£475m	£442m7	7.5%
Net Profit	£295m	£257m	14.8%	£352m	£345m7	2.0%
Basic EPS	27.21p	27.80p	(2.1%)	32.51p	31.45p	3.4%

7 As reported

Underlying & Organic Reconciliations to Statutory

The format and disclosure of this table remain consistent with prior disclosure on organic to statutory reconciliations and is therefore not replicated below.

Organic revenue overview

Organic Revenue Mix	FY18		FY17		% Change
	£m	% of Total	£m	% of Total
Software Subscription Revenue	£839m	46%	£670m	39%	25.2%
Other Recurring Revenue	£602m	33%	£681m	40%	(11.6%)
Organic Recurring Revenue	£1,441m	79%	£1,352m	79%	6.7%
SSRS Revenue Processing Revenue	£323m £55m	18% 3%	£300m £51m	18% 3%	7.6% 6.2%
Organic Total Revenue	£1,819m	100%	£1,703m	100%	6.8%

Regional reporting tables

Northern Europe
Organic Revenue by Category	FY18	FY17	Change
Organic Total Revenue	£381m	£373m	2.5%
Organic Recurring Revenue	£298m	£294m	1.6%
% Subscription Penetration	47%	38%	900bps
% Sage Business Cloud Penetration	TBD	N/A	N/A

Central & Southern Europe
Organic Revenue by Category	FY18	FY17	Change
Organic Total Revenue	£625m	£587m	6.5%
Organic Recurring Revenue	£475m	£455m	4.4%
% Subscription Penetration	39%	36%	300bps
% Sage Business Cloud Penetration	TBD	N/A	N/A
Organic Total Revenue	FY18	FY17	Change
France	TBD	N/A	3%
Central Europe	TBD	N/A	10%
Iberia	TBD	N/A	9%

North America
Organic Revenue by Category	FY18	FY17	Change
Organic Total Revenue	£546m	£489m	11.6%
Organic Recurring Revenue	£471m	£417m	12.9%
% Subscription Penetration	48%	35%	1300bps
% Sage Business Cloud Penetration	TBD	N/A	N/A
Organic Total Revenue	FY18	FY17	Change
US	TBD	N/A	8%
Canada	TBD	N/A	12%

International
Organic Revenue by Category	FY18	FY17	Change
Organic Total Revenue	£267m	£254m	4.7%
Organic Recurring Revenue	£197m	£186m	6.2%
% Subscription Penetration	59%	56%	300bps
% Sage Business Cloud Penetration	TBD	N/A	N/A
Organic Total Revenue	FY18	FY17	Change
Australia & Asia	TBD	N/A	6%
Africa & Middle east	TBD	N/A	5%
Latin America	TBD	N/A	3%

Operating profit

	FY18	FY17	% Margin
Underlying Operating Profit	£504m	£490m	27.3%
Depreciation & amortisation	£33m	£33m	-
Share based payments	£5m	£6m	-
EBITDA	£542m	£529m	29.2%

Earnings per share

	FY18	FY17	% Change
Statutory Basic EPS	27.21p	27.80p	(2.1%)
Recurring and non-recurring items	5.30p	4.10p	-
Impact of Foreign Exchange	-	(0.45p)	-
Underlying Basic EPS	32.51p	31.45p	3.4%

Cash Flow

The format and disclosure of this table remain consistent with prior disclosure and is therefore not replicated below.

Debt

	FY18	FY17 (as reported)
Net Debt	£668m	£813m
EBITDA (Last Twelve Months)	£542m	£505m
Net Debt/EBITDA Ratio	1.2x	1.6x

Foreign exchange

The format and disclosure of this table remain consistent with prior disclosure and is therefore not replicated below.

For enquiries:

The Sage Group plc

[phone]

Lauren Wholley, Investor Relations

About Sage

Sage is the global market leader for technology that helps businesses of all sizes manage everything from money to people - whether they're a start-up, scale-up or enterprise. We do this through Sage Business Cloud - the one and only business management solution that customers will ever need, comprising Accounting, Financials, Sage Intacct, Enterprise Management, People & Payroll and Payments & Banking.

ENDS

 

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