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. I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit, margin, and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment, and enabling strong shareholder returns. Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intact Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting, with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes. And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, We have around a billion pounds of cloud native ARR growing over 20%. We've enhanced go to market with new systems and processes to drive efficient growth. And we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term. 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 delivered strong financial results and we enter FY26 well positioned for further success. Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%. Moving on to the highlights for FY25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points, as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, 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 levels of growth from new customer acquisition. As a result, ARR increased by 245 million to 2.6 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 10% was underpinned by recurring revenue, which also grew by 10%. Sage is a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to $600 million, reflecting continued top-line growth and strong margin expansion. Profit after tax increased by 14% to 423 million, leading to strong growth in underlying EPS of 18% to 43.2 pence. And we've increased the final dividend to 14.4 pence, taking the full-year dividend to 21.85 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 23%, 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 12%, driven mainly by the medium segment. Sage Intact continued to perform well, with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region. The UKIA region represents almost a third of group revenue, and grew at 9%, with a good performance across the portfolio. The UK and Ireland increased by 10%, as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50. And this was supported by a good performance in Sage 200. In Africa and APAC, growth of 7% was driven by strength in Sage accounting and payroll, together with Sage Intacct. And finally in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of Force Manager in October last year. And in Central Europe, growth of 6% was driven mainly by cloud HR and payroll. 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 FY25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continued 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. Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance while the effective tax rate remained constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2 pence. Moving on to cash generation, which remains a core strength of SAGE. During the year, the group generated $660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%, and free cash flow was $517 million net of interest and tax. The group has a strong balance sheet with one billion of cash and available liquidity. Our leverage ratio of 1.7 remains 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 300 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. 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 FY26 to be 9% or above. And we expect operating margins to continue trending upwards in FY26 and beyond as we focus on efficiently scaling the group. Thank you. And now back over to Steve.

Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas, connect, grow and deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and mid-sized businesses. SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Arsenal Business Tracker analyzes data from 140,000 SMBs, and it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments, with the challenge of remaining competitive and compliant. They want effective, integrated solutions from a trusted vendor. And Sage provides these solutions, helping SMBs to knock down barriers, automating processes, speeding up cash flows, and delivering business insights. LA Opera, shown here on the slide, told us that Sage Intact has completely transformed their finance function, with its AI capabilities helping to save 10 to 15 hours a week. And as we roll out Sage Copilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits. The way we're doing this is through the Sage platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI Factory, the infrastructure that drives Sage Copilot, powered by our LLM-backed proprietary intelligence engine. And it's supported by our data hub, and core experience and network services that enhance security and automate workflows. The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage Copilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in agentic AI, both by launching our own agents and by integrated, trusted, third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust. We've been building AI into our products for years through successive technologies, first predictive, then generative, and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition. combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage Copilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses. This specialism makes them more accurate and efficient than off-the-shelf models, while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs. So let's now turn to look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect where every connection and every transaction that flows across the platform makes the system smarter for everyone. During the year, we scaled services such as accounts payable automation with monthly transaction value tripling over the past 12 months to $2.3 billion, thanks to continued adoption by customers such as Greenwich in the US, shown here on the slide. They told us that Sage AP Automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of file and criterion, we expanded in expense management and HCM. enabling us to streamline and automate these critical processes for SMBs. We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for carbon accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate. Looking ahead, our aim in 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 our existing ones. And the biggest contributor to growth is Sage Intact, our flagship mid-market solution. In the US, Sage Intech grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the US, ARR increased by around 50% with standout momentum in the UK, where Sage Intacct now serves over 1,600 customers. During the year, we re-platformed Sage X3 to deliver a full cloud native experience, where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business. Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services. Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage Copilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers, including Adam Williams of Tyne Cheese shown here on the slide. I met with Adam earlier this year and he told me that Sage Copilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier. Other customers have told us it's doubled productivity in accounts payable while reducing manual data entry by up to 90%. We've also expanded Sage Copilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far accessed features such as Search Help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant. These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now, we expect that this over time will create monetizable opportunities for Sage through features, pricing, and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating code generation, saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify, and convert sales leads. We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. and with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage Copilot, embedding it into the core user experience across our portfolio, while further developing our agentic capabilities, accelerating benefits, and unlocking ROI for customers and for Sage. Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence, with Sage ranked by G2 as the number one software company in the UK for 2025 and in the top 25 globally based on user reviews. And we continue to champion policies that our customers care about. from partnering with the UK government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage. For colleagues, we foster a high performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers. Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY25, we launched our entrepreneurship program to support purpose-driven startups around the world. And Sage Foundation celebrated a decade of impact, during which time we've raised over $5 million and enabled 1.4 million volunteering hours. And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders. We're differentiated from competitors by our AI-powered platform, global products and geographic reach, with deep domain expertise across financials, payroll, and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin. So in conclusion, Sage delivered a strong performance in FY25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY26 with confidence and momentum. Now, before we move to Q&A, I'd like to say a big thank you to Jonathan. who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jackie Carton in great shape, and I'm looking forward to welcoming Jackie to the CFO role from the 1st of January. 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.