The Sage Group plc

Good morning and welcome to Sage's results for the first half of the year. I'm pleased to be joined by Jonathan Howell, our CFO. I'm going to start with an overview of our key messages for today. Sage delivered strong results in the first half as we continue to pursue our ambition to create the world's most trusted, thriving network for small and mid-sized businesses powered by Sage Copilot. We achieved stable, broad-based revenue growth across all regions, driven by a sustained double-digit increase in ARR. Discipline cost control, together with operating leverage, supported strong operating profit, margin and EPS expansion. An ongoing strength in cash conversion led to robust cash flow generation. Now this performance is underpinned by our constant focus on driving value for customers. We continue to innovate, enhancing our core products and growing our network platform. Sage Copilot, launched just over a year ago, is delivering productivity and insights to thousands of customers and we're just getting started. Sage is at the forefront of AI innovation in accountancy, HR and payroll. And our aim is to leverage this position to revolutionise productivity and decision-making for SMBs and accountants. And finally, we are executing consistently and making good strategic progress. Macroeconomic conditions are volatile and uncertain, but Sage is resilient, underpinned by our subscription-based business model and secular growth drivers. In this environment, the need for SMBs to continue to digitalise, to unlock growth, efficiency and regulatory compliance is greater than ever. And Sage is well positioned for the growing market opportunity ahead of us. And I'm confident that whatever the short-term uncertainties, we will build on our advantages and deliver further long-term value to our stakeholders. 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 first half results and the outlook for the full year. In summary, it's been another strong period for Sage as we continue to execute in line with our plans. So let's start with the highlights. We've achieved total revenue growth of 9%, reflecting the strength of our subscription-based model. Our operating profit margin increased to 23.2%, an expansion of 140 basis points, as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 17%. And finally, we delivered cash conversion of 115%, 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 good growth from new customer acquisition. As a result, ARR increased by almost 240 million to 2.5 billion, up 11% at the first half. 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, demonstrating the high quality and resilient nature of the group. Operating profit grew by 16% to 288 million, reflecting continued top-line growth and margin expansion. Profit after tax increased by 15% to 206 million, leading to strong growth in underlying EPS of 17% to 20.8 pence. And we've increased the interim dividend to 7.45 pence, which is up 7%. Cloud products continue to be a significant driver of growth, with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 22%, driven by strong growth from new and existing customers, particularly in Sage Intact. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance, starting with North America, which represents just under half of group revenue. Here we delivered revenue growth of 11%, driven mainly by the medium segment. Sage Intact continued to perform well with strength across key industry verticals, including construction and not-for-profit. Growth in the region was also driven by Sage 200 and Sage 50. UKIA represents almost a third of group revenue and grew at 9% with a good performance across the portfolio. The UK and Ireland increased by 9%. Revenue from Sage Intact, the largest driver of growth in the region, increased by over 60%. And further growth was achieved in small business solutions, including Sage Accounting and Sage 50. In Africa and APAC, growth of 8% was driven by strength in Sage Accounting and Sage Payroll, together with Sage Intact. And finally in Europe, which represents over a quarter of group revenue, growth was 8%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Central Europe increased revenue by 8%, with strong growth in cloud HR and payroll. And in Iberia, growth of 10% was driven by Sage 200 and Sage 50, together with the acquisition of Force Manager in October last year. Now, 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 the first half, we achieved margin expansion of 140 basis points to 23.2%. This was underpinned by efficiencies, including in G&A, which is now running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. And investment in R&D at 15% remains a key priority for the group. Moving on to cash generation, which is a core strength of Sage. In the first half, the group generated 330 million of cash from underlying operations, resulting in continued strong cash conversion of 115%. And free cash flow was 246 million net of interest and tax. The group has a strong balance sheet with 1.2 billion of cash and available liquidity. our leverage ratio of 1.5 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 200 million extension to our share buyback program. This reflects our strong cash generation and robust financial position. Together with confidence in Sage's future prospects, Importantly, we retain significant capacity to support both organic and inorganic growth. So what does that mean for the full-year outlook? Against the background of a more uncertain macroeconomic environment, we currently continue to expect organic revenue growth for FY25 to be 9% or above. Operating margins are expected 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. Our strong performance is underpinned by our strategic framework for growth. This is grounded in our purpose to knock down barriers so that everyone can thrive. We serve our purpose through our ambition, which is to create the world's most trusted and thriving network for small and mid-sized businesses powered by Sage Copilot. And this is key to our success because it underpins the efficient delivery of advanced AI-powered solutions, driving value for customers. The framework is centered around our three strategic focus areas, connect, grow, and deliver. And I'll say more about these shortly. Through our strategy, we serve the interests of our stakeholders in line with our values. And this starts with our customers, small and mid-sized businesses. Together with accountants and our partners, we serve millions of SMBs globally, providing unique visibility into SMB trends and challenges. Our experience is that when faced with an uncertain economic outlook, they remain resilient, agile, and quick to adapt to adversity. and they continue to see investing in technology as a priority to help them make better decisions, be more streamlined and compliant. We provide solutions that enable this, boosting visibility, efficiency and growth. So, for example, Luna Companies, based in the US and shown here on the slide, told us that Sage Intact Construction gives them the dimensional reporting and data insights that they need to support and grow their business. Looking ahead, we're focused on making the latest generative and agentic AI accessible to SMBs so that they can benefit from the significant advantages that this technology will bring. By making businesses more resilient and productive, we're helping our customers thrive. So let's turn to our strategic focus areas, starting with Connect. The Sage network is our platform of cloud products and services that digitally transform customer workflows across their ecosystems. It enables us to unify our solutions, improve the user experience and connect customers to value-added network services. These services include accounts receivable and accounts payable automation, helping entrepreneurs and finance professionals streamline their day-to-day operations. In January, Sage was named as a major player by IDC in their latest MarketScape report on accounts receivable automation for SMBs. while our accounts payable automation service is expanding rapidly with the monthly value of invoices processed rising threefold over the last 12 months to $1.3 billion. We're also building momentum in embedded payment services, driving growth by expanding key partnerships such as Stripe, GoCardless and Versapay. and we're enabling new services like e-invoicing to prepare businesses in multiple markets for government requirements. In addition, we're using the network to integrate new services across the Sage portfolio. So for example, we've made Sage sales management acquired in October last year as force manager available to Sage 50 customers in Spain, the UK and France. And this has helped customers such as Iberdeli Premium Products in Spain, shown here on the slide, to boost sales and optimize their processes. So looking ahead, our aim for this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting existing ones. Our overarching aim is to expand revenue across all products and services. In the mid-market segment, Sage Intac continued to perform strongly, adding well over £100 million of ARR across the group in the last 12 months. In the US, ARR growth in Sage Intacct was over 20% with continued strength across key industry verticals. While outside the US, ARR growth was over 50% as the solution scales rapidly with customers in the UKIA region, such as AKTV, a non-profit in South Africa, shown here on the slide, as well as in Canada and good early traction in France and Germany. This performance was supported by the successful introduction of industry suites. We also saw strong growth in Sage X3, our ERP solution for upper mid-market customers, driven in particular by manufacturing and distribution. In the small segment, Sage active growth accelerated in Europe following recent enhancements. And we continue to build out the small business suite so that customers can add more functionality seamlessly when they need it. and we remain focused on reinforcing our relationships with accountants, including at Accountex here in London this week, where we're showcasing our strength in AI accounting. And finally, we are driving cross-sell and up-sell to grow sales to existing customers through add-ons and deeper functionality. Our future focus in this area is to drive further momentum with new and existing customers and continue to make it easier for them to access products and services through suites. Our third focus area is to deliver productivity and insights driven by AI. Over the last year, we've developed and scaled Sage Copilot to customers of key products across our markets, focusing tightly on the use cases that SMBs find most valuable. Today, Sage Copilot is generally available and driving revenue in the UK, supporting thousands of customers of Sage Accounting, as well as early adopters in Sage 50. With features like invoice management, email generation and business insights, we're saving customers time and money, boosting their productivity. And the ability of Sage Copilot to show its workings helps build customer confidence and trust. For Sage Intacct, early adopter customers can use Sage Copilot to streamline their monthly close process and gain real-time insight into their business performance. While for accountants, Sage Copilot enhances client collaboration and practice management. All of these features are designed to eliminate friction in critical finance workflows. Gareth Pedley of Watson's Anodizing, based here in the UK and shown on the slide, told us that Sage's business tools and AI capabilities are revolutionizing their business operations. Looking forward, we continue to rapidly develop and roll out Sage Copilot across the group, supported by our ongoing collaboration with AWS. Importantly, Sage Copilot paves the way for the development of more sophisticated agentic capabilities, embedding always-on intelligence into our customers' workflows. These will enable it to manage multi-step end-to-end processes with less human oversight, accelerating close times, reducing risk and unlocking significant ROI for our customers. Now our success depends on our ability to deliver for our stakeholders. For our customers, the value they get from our solutions is demonstrated through recognition like the 2025 Buyer's Choice Awards from TrustRadius, where Sage Intact and Sage Accounting were both winners earlier this year. And we're also proactively championing customer interests. For example, we're working with the UK government as we speak, supporting policy and technology solutions to address the challenges SMBs face, such as late payments. For partners, we're investing in our relationships, delivering tools to help drive new customer leads and simplifying the way we do business with them via a single global framework. For colleagues, we foster a high performance culture and an experimental mindset. In February, the Financial Times ranked Sage among the UK's best employers for 2025, based on independent surveys. And we're supporting colleagues by investing in our workspaces with next generation offices recently opened in centres such as Atlanta, Beaverton and San Jose in the US, Toronto and Vancouver in Canada, Winnish here in the UK and Porto in Portugal. Onto society, where we aim to multiply our impact by helping SMBs to be more sustainable and successful. For example, we recently launched the Sage Impact Entrepreneurship Scheme, supporting over 150 startups across our markets with mentorship, training and grants. And for shareholders, Our objective is to create sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. Our strategy is delivering growth in all regions. We're leveraging our scale by rolling out global solutions. We're enhancing our industry 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. And we work with an extensive network of partners, accountants, resellers, ISVs, who expand our reach and enrich our ecosystem. And finally, as we grow, we're creating the headroom to increase investment and expand margins, driving sustained, efficient growth. So in conclusion, Sage achieved a strong performance in the first half. We continue to deliver significant top-line growth with cost discipline leading to margin expansion. We're investing in innovation to drive value for customers, powering Sage's success now and in the future. And despite the uncertain macro, we're executing well and making consistent progress towards our strategic priorities. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would now be happy to take your questions.