Sage Group Plc · LSE:SGE
Sage — H1 2022 Earnings Presentation
39 slides from Sage's earnings presentation, May 13, 2022
Slide 1: Sage Half Year Results
Sage Half Year Results Sage Half Year Results For the six months ended 31 March 2022 13 May 2022
Slide 2: Important notice
Important notice The following presentation is being made only to, and is only directed at, persons to whom such predicting customer behaviour; customers may not respond as we expected to our sales and presentation may lawfully be communicated (“relevant persons”). Any person who is not a relevant m
Slide 3: Steve Hare, CEO: agenda
Steve Hare CEO • Overview • Financial review and outlook • Strategic update • Q&A
Slide 4: Delivering a faster-growing business
Delivering a faster-growing business • Strong first half performance Performance • Accelerating growth and increasing margin • Robust, growing market opportunity driven by digitisation Opportunity • SMBs investing in efficiencies, business insights and compliance • Good progress against our strategi
Slide 5: Jonathan Howell, CFO: agenda
Jonathan Howell CFO • Overview • Financial review and outlook • Strategic update • Q&A
Slide 6: H1 22 Financial highlights
H1 22 Financial highlights High quality recurring On-target Strong cash revenue growth margin conversion 8% 19.9% 120% H1 21: 4% H1 21: 20.2% H1 21: 133% © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 6
Slide 7: Growth drivers
Growth drivers ARR growth Cloud native Renewal by value ARR growth 10% 43% 100% H1 21: 4% H1 21: 35% H1 21: 97% © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 7
Slide 8: P&L summary
P&L summary H1 22 H1 21 Change Total organic revenue £924m £877m +5% Recurring revenue £866m £800m +8% Organic operating profit £184m £177m +4% Organic operating profit margin % 19.9% 20.2% -0.3 ppts Underlying operating profit £183m £188m -3% Underlying operating profit margin % 19.6% 20.4% -0.8 pp
Slide 9: Revenue bridge
Revenue bridge Recurring revenue +£66m (+8%) +44 (24) (11) (19) +57 924 877 Sage Business Cloud +£101m (+21%) © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 9
Slide 10: Revenue categories
Revenue categories +5% £924m 74% Software £600m subscription £682m +14% Recurring revenue Software £866m (+8%) subscription penetration £200m Other recurring £184m -8% £77m Other (SSRS) £58m -24% H1 21 H1 22 © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 10
Slide 11: Portfolio view of recurring revenue
Portfolio view of recurring revenue +8% £866m Cloud native £187m +44% £130m £341m Cloud £385m +13% Future Sage Business Cloud Opportunity 72% connected Sage Business £797m (+11%) Cloud penetration To be £249m migrated £225m -10% £80m Non-SBC £69m -14% H1 21 H1 22 © 2022 The Sage Group plc, or its li
Slide 12: North America
North America Sage Intacct Sage Business Cloud penetration • Continued strength in new customer acquisition H1 22 75% +2 ppts • Higher renewal rate reflecting strong sales growth H1 21 73% from existing customers Software subscription penetration US H1 22 70% • Progress in Sage Intacct and continued
Slide 13: Northern Europe
Northern Europe Recurring revenue growth Sage Business Cloud penetration • Reflects strong and accelerating growth in cloud native H1 22 89% solutions +4 ppts H1 21 85% • Supported by further growth in Sage 50 cloud connected Software subscription penetration Cloud native growth H1 22 91% • Cloud na
Slide 14: International
International France Sage Business Cloud penetration • Good performance in cloud connected products, supported H1 22 56% +13 ppts by further growth in cloud native solutions 43% H1 21 Central Europe Software subscription penetration • Reflects strong growth from cloud connected and local products H1
Slide 15: Investment driving growth and margin
Investment driving growth and margin ARR growth and organic operating margin Progression over last two years Sales & marketing £369m ARR growth +5% +4% +8% +10% (H1 21: £337m) 43% as % of recurring revenue Organic operating 20.8% 20.2% 19.9% 18.4% Research & Development £140m margin (H1 21: £132m) 1
Slide 16: Strong cash generation
Strong cash generation 120% Underlying cash conversion +16 +3 (8) 220 (53) +26 183 167 See appendix for definitions © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 16
Slide 17: Robust financial position
Robust financial position Net debt leverage Net debt Cash and liquidity 1.5x £650m £1.2bn • Net debt leverage of 1.5x following £600m share buyback and £225m acquisition of Brightpearl – now within medium term target range of 1-2x, with flexibility to move outside the range as business needs require
Slide 18: Full year outlook
Full year outlook Our full year outlook remains unchanged: • Organic recurring revenue growth in the region of 8% to 9% • Other revenue (SSRS) to continue to decline, in line with our strategy • Organic operating margin to trend upwards in FY22 and beyond, as we focus on scaling the Group © 2022 The
Slide 19: Steve Hare, CEO: agenda
Steve Hare CEO • Overview • Financial review and outlook • Strategic update • Q&A © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 19
Slide 20: Strategic framework for growth
Strategic framework for growth Purpose To knock down barriers so everyone can thrive Ambition To be the trusted network for small and mid-sized businesses Strategic priorities Scale Expand medium Build the small Scale the network Learn and disrupt Sage Intacct beyond financials business engine Stake
Slide 21: Delivering on our stakeholder promises
Delivering on our stakeholder promises Customers Colleagues Society Shareholders We build every experience We are committed to We tackle digital inequality, We target sustainable with human insight people, driven by economic inequality and the growth in and ingenuity innovation, energising climate c
Slide 22: Focusing on our customers
Focusing on our customers Adaptability and resilience are key themes Majority of SMBs remain confident in the future success of their business SMBs continue to face barriers Increasing cost pressures and labour shortages are the biggest obstacles 90% of SMBs say technology is key to their resilience
Slide 23: Refreshing our brand
Refreshing our brand Reflecting the changing needs of our customers: • Captures Sage’s commitment to fuel customer confidence by focusing on simplicity and insight with a human touch • Reflects the insights and experiences Sage customers can expect as part of the trusted network for SMBs New look an
Slide 24: Scale Sage Intacct
Strategic priority 1 Scale Sage Intacct Accelerate the expansion of Sage Intacct in existing and new markets Progress update • Continued investment in sales and marketing • Strong growth, with ARR in the US up by a third, and ARR outside the US tripling “ “What I love about Sage Intacct is that it’s
Slide 25: Expand medium beyond financials
Strategic priority 2 Expand medium beyond financials Broaden the value proposition for mid-sized businesses Progress update • Launched fully embedded automated accounts payable processing • Sage Intacct Planning continues to grow rapidly in the US, recently launching in Canada with other markets to
Slide 26: Build the small business engine
Strategic priority 3 Build the small business engine Create a scalable digital ‘engine’ to acquire and serve small business customers Progress update • Cloud native ARR from UK small business solutions up more than 50% year-on-year • Launched Sage for Accountants in the UK, attracting over 1,000 acc
Slide 27: Scale the network
Strategic priority 4 Scale the network Increase participation in the digital network and accelerate the network effect More customers Progress update • Enabling more digital network participation by rapidly growing Sage Business Cloud Better customer More network experiences activity • Enriching cus
Slide 28: Learn and disrupt
Strategic priority 5 Learn and disrupt Build innovative solutions underpinned by a culture of continuous learning and disruption Progress update • We continue to grow our team of data scientists and engineers • Progress with partnerships, including Experian and Tide • Continued investment in innovat
Slide 29: Key messages
Key messages Performance Opportunity Execution © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 29
Slide 30: Q&A
Q&A • Overview • Financial review and outlook • Strategic update • Q&A © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 30
Slide 31: Appendix
Appendix © 2022 The Sage Group plc, or its licensors. All rights reserved. Page 31
Slide 32: Building ARR
Building ARR Opening ARR1 100% £1.63bn Existing Churn customers Migration and Expansion Renewal by value 100% £1.63bn New New customer +£150m customers acquisition ARR Closing ARR 110% £1.78bn 1. As at the end of the comparative period (31 March 2021), stated on an organic basis at period end exchan
Slide 33: Bridge from underlying to organic
Bridge from underlying to organic ARR Recurring revenue Total revenue Operating profit £m H1 22 Growth H1 22 Growth H1 22 Growth H1 22 Growth Underlying 1,809 +7% 874 +4% 935 +1% 183 -3% Assets held for sale1 (1) 0 (2) (1) Acquisitions2 (24) (4) (4) 2 Disposals3 0 (4) (5) 0 Organic 1,784 +10% 866 +8
Slide 34: Sage Business Cloud portfolio
Sage Business Cloud portfolio Cloud Connected Cloud Native Accounting & Financials People & Payroll Mid-sized • Sage 200cloud • Sage Intacct • Sage People businesses Small • Sage 50cloud • Sage HR • Sage Accounting • Sage 50 Payroll • Sage Payroll businesses Sage Digital Network © 2022 The Sage Grou
Slide 35: Capital allocation
Capital allocation 4. Consider 3. Grow the 1. Organic returning 2. M&A dividend investment surplus over time capital Strong and stable financial position Broad range of 1.0x – 2.0x net debt to EBITDA over the medium term, with flexibility to move outside this range as the business needs require © 20
Slide 36: Glossary
Glossary Measure/Description Underlying (revenue and profit) measures Organic (revenue and profit) measures Underlying measures are adjusted to exclude items which would distort In addition to the adjustments made for Underlying measures, Organic measures: the understanding of the performance for th
Slide 37: Glossary
Glossary Measure/Description Underlying Cash Flow from Operations Renewal Rate by Value Underlying Cash Flow from Operations is Underlying Operating Profit adjusted for The ARR from renewals, migrations, upsell and cross-sell of active customers at non-cash items, net capex (excluding business combi
Slide 38: Glossary
Glossary Revenue type Description Recurring revenue is revenue earned from customers for the provision of a good or service over a contractual term, with the customer being unable to continue to benefit from the full functionality of the good or service without ongoing payments. Subscription revenue
Slide 39: About Sage
About Sage Sage exists to knock down barriers so everyone can thrive, starting with the millions of Small and Mid-Sized Businesses (SMBs) served by us, our partners and accountants. Customers trust our finance, HR and payroll software to make work and money flow. By digitising business processes and