The Sage Group plc

Good morning and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO. Now I'm going to start with an overview of our key messages. FY24 was a successful year for Sage as we continue our strong trajectory of growth. We achieved double-digit ARR growth for the third consecutive year, and this drove robust broad-based revenue growth with good performance in all regions. Disciplined cost control together with operating efficiencies enabled us to deliver a record operating profit with margin expansion being particularly strong. An excellent cash conversion drove a significant uplift in free cash flow. This strong growth is underpinned by our resilient business model as more small and mid-sized businesses turn to Sage to become more productive and efficient. Secondly, our progress is supported by continued development and innovation, enhancing productivity and insights for customers as well as for ourselves. We're investing in our core products, providing better functionality that's more tailored to customer needs. And we're integrating our solutions into suites to simplify our proposition and drive greater value. And we're building AI into more business workflows. This year, we introduced Sage Copilot, our GenAI-powered digital assistant, and we're already seeing strong engagement and adoption. And finally, our performance is driven by consistent strategic execution. we continue to focus on efficiently scaling the group, driving top line growth to enable more investment whilst at the same time expanding the margin. This is helping us build a scalable platform for strong, sustainable growth. And as our market evolves, we've simplified our strategic framework to ensure a continued sharp focus on our key growth drivers. and we're well positioned for the opportunity ahead of us. So I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review.

Thanks Steve, and good morning everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we've delivered strong financial results, and we've built good momentum for FY25. So let's start with the highlights. We've achieved revenue growth of 9%, reflecting the continued strength of our subscription-based model. Our operating profit margin was 22.7%, with strong expansion of 220 basis points. as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 23%. And finally, we delivered excellent cash conversion of 123%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen sustained levels of growth from new customer acquisition. As a result, ARR increased by almost 230 million to 2.3 billion. That's up 11% compared to last year. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P&L, total revenue growth of 9% was underpinned by recurring revenue, which grew by 10%. Sage is a 97% recurring revenue business. And this shows the high quality and resilient nature of the group. Operating profit grew by 21% to £529 million, reflecting continued top-line growth and strong margin expansion. As Steve said earlier, this represents a record operating profit for Sage. Profit after tax increased by 21% to £382 million. leading to strong growth in underlying EPS of 23% to 37.9 pence. And we've increased the final dividend to 13.5 pence, taking the full-year dividend to 20.45 pence, which is up 6%. Cloud products continue to be a significant driver of growth, with Sage Business Cloud revenue increasing by 16%. This reflects good strategic progress as we further expand our global cloud solutions. Within this, cloud native revenue increased by 23%, driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase, and now stands at 82%. Moving now to our regional performance, starting with North America, which represents just under half of group revenue. Here we delivered revenue of more than one billion for the first time, following growth of 12%, driven mainly by the medium segment. Sage Intact continued to deliver significant growth, reflecting further success in new customer acquisition, together with strong sales to existing customers. Our performance was also driven by Sage 200 and Sage 50. The UK IA region represents almost a third of group revenue and grew at 8%, with a good performance across the portfolio. the UK and Ireland increased by 7%. Revenue from Sage Intacct grew by two-thirds compared with the prior year, reflecting continued strong new customer wins. Further growth was achieved in small business solutions, including Sage Accounting, and this was supported by a good performance in both Sage 50 and Sage 200. In Africa and APAC, Growth of 11% was driven by strength in Sage accounting and payroll, together with Sage Intact. And finally in Europe, which now represents over a quarter of group revenue, growth was 6%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage 200 and Sage X3. Central Europe also increased revenue by 6%, with strong growth in cloud HR and payroll. And in Iberia, growth of 7% was driven mainly by Sage 200 and Sage 50. As we've said previously, our focus is on efficiently scaling the group. As we grow the top line, Operating leverage together with disciplined cost control means we can invest more and expand the margin. This in turn leads to sustainable growth. In FY24, we achieved strong margin growth of 220 basis points to 22.7%. This was driven by significant operating cost savings, especially in G&A, which is now running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 39% of total revenue. An investment in R&D, which is at 15%, is a key priority for the group. Moving on to cash generation, which remains a core strength of Sage. Here you can see how the higher profits flow through to cash flow. During the year, the group generated 649 million of cash from underlying operations, resulting in excellent cash conversion of 123%. And free cash flow was 524 million net of interest and tax. That's up 30% on the prior year. The group has a strong balance sheet with 1.1 billion of cash and available liquidity. Our leverage ratio of 1.2 remains well within our mid-term target range of one to two times. In line with our disciplined approach to capital, This morning, we announced a share buyback programme of up to 400 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth. We will do this in line with our capital allocation policy, which remains unchanged. So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY25 to be 9% or above. And we expect operating margins to trend upwards in FY25 and beyond as we focus on efficiently scaling the group. Thank you. And now back over to Steve.

Thanks, Jonathan. As I said earlier, our performance has been driven by consistent strategic execution. So I wanted to reflect on our achievements over the last few years. By focusing on the value that we deliver to customers, we're scaling Sage with ARR up by almost 40% since FY21. We've increased investment and capacity in R&D as the group has grown, enabling us to innovate and enhance the customer experience. This is reflected in high levels of growth across all of our cloud solutions. And we've delivered this growth efficiently with a headcount that is lower in FY24 than it was in FY21, driving a strong increase in operating profits and cash flows. So looking ahead, our focus is to scale our platform, investing for growth while increasing profits and creating value for all of our stakeholders. And this starts with our customers, small and mid-sized businesses, which are at the heart of our economy and vital for our communities. We recently spoke to over 12,000 SMBs across North America, Europe and South Africa, and we found that despite political and economic uncertainties, they remain resilient, agile and confident in their future success. They're investing more in digital technology to address challenges such as rising costs and recruitment, and to free up their time for higher value tasks. SR Vet Group, shown here on the slide, told us Sage for Small Business gives them the data that they need to make smart decisions about how they run their business. Entrepreneurs and finance professionals alike are eager to leverage new technologies in order to save time and elevate their work. So reflecting these customer needs and building on our progress to date, we've evolved and simplified our strategy to ensure a continued focus on our key growth drivers. Our purpose is unchanged, to knock down barriers so that everyone can thrive. And we do this for all of our stakeholders, starting with millions of SMB customers every day. We've updated our ambition, which is now to create the world's most trusted and thriving network for SMBs powered by Sage Copilot. This reflects the importance of our growing digital network and the increasing role of AI in driving customer value. And while consistent with our existing priorities, our evolved framework is centered on three strategic focus areas. Connecting SMBs through our trusted and thriving network, growing by winning new customers and delighting our existing ones, and delivering productivity and insights driven by AI. And finally, we've now included partners in our formal list of stakeholders. This recognises the crucial role that resellers, accountants and developers play in building our ecosystem and supporting our customers. So let's turn to look at each of our three focus areas in more detail. Firstly, Connect. The Sage Network is our platform of cloud products and services that digitally transform customers' workflows across their ecosystem. By connecting customers through our network to their training partners, suppliers, tax authorities and banks, we can streamline their interactions and save them time and money. During the year, we connected more customers to network services such as accounts payable automation. This service has grown threefold in the last 12 months. processing almost 300,000 invoices worth over a billion dollars for Sage Intacct customers in October alone. We enabled new services like e-invoicing to prepare businesses in multiple markets for government requirements. And we've expanded our partnership with Stripe, making it easier for SMBs to pay and get paid. Purple Creative, a Sage 50 customer shown here on the slide, uses the Sage network to reconcile transactions and improve their invoicing process. And they told us that Sage streamlines their day-to-day activities, saving them time and helping them to make more informed decisions. Looking ahead, our aim for this focus area is to drive the adoption of more network services, bringing scale to the network, productivity to customers, and data and insights to Sage. Onto the second focus area, which is grow. Our overarching aim is to expand revenue across all products and services. And in particular, we're focused on the following objectives. Further scaling Sage Intact in North America and UKIA. Growing our small business solutions, especially through accountants. Getting Sage Intact and Sage Active well established in Europe. And delivering more value to customers through cross-sell and up-sell. SageIntact is our largest contributor to growth, with ARR up by almost a quarter in the US and by 60% elsewhere in the group. Progress has been strong. We now have around 1,800 Intact customers outside the US, of which two-thirds are in the UK. And I spoke with one of them recently, Tom Lewis from Ullman Hall, and he told me how much he values the multidimensional ledger to track what's happening in his business. And we're seeing early momentum for Sage Intact and Sage Active in France and Germany. In small, we're building out solutions across the group, launching Sage for Small Business Suite and growing Sage for Accountants in multiple markets. We're also winning more customers earlier in their lifecycle through our partnership with Tide, the UK small business banking platform. And we're growing sales to existing customers through add-ons and deeper functionality. Our future focus in this area is to continue our momentum with new and existing customers and make it easier for them to access products and services through suites. So finally, our third focus area, deliver. Here, new AI capabilities are helping to bolster our customers' growth. Sage Copilot is our new human-centric, Gen-AI powered productivity assistant. It streamlines routine tasks, saving customers time and providing business insights when they need them. During the year, we focused on creating a strong value proposition with early adopters, trialing first of all with Sage accounting customers in the UK. and then expanding to Sage for Accountants and Sage Active. Next, we will focus on Sage Intact and Sage 50 customers. As we've developed Sage Copilot, we've been guided by detailed feedback from customers to make sure the solution really meets their needs. And so for small businesses, it helps manage invoices and payments and generates tailored insights and recommendations. And for mid-sized businesses, it transforms the month-end process and the sharing of financial data. We recently interviewed John Stapleforth from Don La Cuisine, an early adopter of Sage Copilot, who told us it really feels like having another person working with him in the office. So far, we've made Sage Copilot available to over 8,000 customers and accountants, and we're getting high engagement levels as it delivers real-time savings and cash flow benefits. We're also collaborating with AWS to launch a domain-specific large language model for accounting and compliance, which will further support our customers. And our future focus here is to roll out Sage Copilot more widely and invest further in AI, differentiating our products by focusing on real-world benefits, starting with saving time. Now our success depends on our ability to deliver for our stakeholders. For our customers, we deliver great technology, like Sage Intact, which was ranked first for customer satisfaction in the most recent G2 Fall report for accounting software. We support SMBs at all levels, for example, by offering a free solution for UK sole traders to make basic tax submissions under Making Tax Digital. And we champion SMBs' interests, such as lobbying for a more favourable small business environment, including e-invoicing, so that SMBs get paid faster. And for partners, we've made it simpler to work with Sage. For example, we've implemented Sage Partner Central, a single global platform that accelerates partner onboarding and speed to market. And for colleagues, we foster a high-performing, accountable and inclusive culture. As a result, we were recognised as one of the world's best employers by Forbes and as a diversity leader by the Financial Times. On to society, where we aim to multiply our impact by helping SMBs to be more sustainable as well as ourselves. Through the Sage Foundation, we've enabled loans and grants to thousands of entrepreneurs worldwide. And we made SageEarth, our carbon accounting tool, more widely available through the AWS marketplace. And for shareholders, our overriding objective is to create sustainable growth in shareholder value. The way we do this is by growing revenue and by doing so more efficiently over time. Our evolved strategy is delivering growth in all of our regions. We're leveraging our scale by rolling out global solutions. We're enhancing our vertical and functional capabilities and bringing them together in simplified integrated suites. And we're scaling the Sage Network platform to deliver innovative AI solutions like Sage Copilot, which helps our customers save time and gain valuable insights. Sage is differentiated by our leading technology. We have deep local expertise across financials, payroll and HR, serving a wide range of SMBs across diverse regions. We work with an extensive network of partners, accountants, resellers and ISVs who expand our reach and enrich our ecosystem. And we're proud of the human element in our customer service and support. And finally, as we grow, we're creating the headroom to increase investment and expand margins, driving sustained, efficient growth. So in conclusion, Sage had a successful FY24. We delivered strong, sustainable growth with disciplined cost management, driving a very significant uplift in margin. We continue to invest in innovation to lead our growth in the future. And we're making good strategic and operational progress, leaving us well positioned for continued delivery in FY25 and beyond. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be very happy to take your questions.