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Sage confirms sale of US trading unit

By Sage

The Sage Group plc unaudited results for the six months ended 31 March 2017.

Operating performance

Achieved:
H1 17 organic1 revenue growth of 6.4% (excluding North American Payments) with stronger organic revenue growth in Q2 of 7.0% (H1 16: 6.6%);
H1 17 underlying1 revenue growth (including North American Payments) of 5.7% with underlying growth in Q2 of 6.3% (H1 16: 6.2%);
Organic recurring revenue growth of 9.9% (H1 2016: 10.0%) and software subscription growth of 30.5% (H1 16: 34.8%), with managed 7.5% decline in SSRS revenue in line with the planned migration to subscription (H1 16: SSRS decline of 6.2%);
Organic operating margin of 25.2% (H1 16: 25.6%) achieved, in line with front-loading investment into H1 which will support accelerating momentum in H2;
Underlying cash conversion at 104% (H1 16: 111%), supporting free cash flow of £166m (H1 16: £142m) and the 8.8% increase in interim dividend to 5.22p;
General and administrative (G&A) expense as a proportion of revenue has reduced to 15.2% (H1 16: 19.7%);
Non-recurring items (exceptional costs) of £19m (H1 16: £29m) have secured annualised cost savings of £28m in the first six months of the year (H1 16: £17m), to be reinvested into growth, particularly sales and marketing. On track for full year annualised savings in excess of £50m.

Statutory performance has been positively impacted by movements in key exchange rates during the year in all major currencies.

Building our business model for accelerating growth

New customer acquisition is starting to gain traction through the “Cloud First” initiative:
Sage One annual recurring revenue (ARR) increased by 88% to £22m with an average annual contract value (ACV) of £70;
Sage Live customers at 889 with a March average ACV of £1,800;
Sage X3 revenue increased by 17% with 200 new customers added in H1;
Rolling out our cloud accounting products in our major geographies, with 52 product launches planned in FY17;
Acquisitions of Fairsail and Compass announced in H1 17;
Strategic review of Payments concluded and North American Payments business now classified as an asset held for sale and a discontinued operation. The Sage Pay UK & Ireland and Sage Pay South Africa businesses will be retained as they are delivering integrated solutions core to the strategy.

Stephen Kelly, Chief Executive Officer said:

“These are positive results in line with market expectations and there are clear signs our strategy is working, with seven of our nine largest geographies, that collectively generate 95% of our revenues5, now delivering growth in excess of our revenue guidance. The investments in our go-to-market functions are starting to bear fruit: our cloud-enabled products are growing strongly and we have made progress in our new customer acquisition strategy, driving momentum in Q2 that will continue throughout H2 and as we exit FY17.

Our updated payments and banking strategy and the acquisition of Fairsail, show our commitment to the golden triangle of accounting, people & payroll and payments & banking, reinforced by our cloud capabilities. We are focused on Sage continuing to invest in growth, predominantly through new customer acquisition with cloud-products, and supported by bolt-on acquisitions that accelerate the strategy.”

Outlook
The business as defined and constituted at the time of publishing FY17 guidance included North American Payments and excluded the contributions from FY17 acquisitions. On this basis we are very confident of exceeding our full year guidance of 6% revenue growth. In addition we reconfirm our guidance of at least 27% operating margin on an underlying basis with acquisitions having no dilutive impact. We confirm there will be no further transformation-related exceptional charge post FY17 and the exceptional charge for current year is not expected to exceed £75m. We expect our strong Q2 performance to continue into H2 with accelerating momentum as we exit FY17.

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