30th Nov 2005 07:00
FOR IMMEDIATE RELEASE 30 November 2005 SAGE PRE-TAX PROFIT UP 13% TO ‚£205.4 MILLION FOR YEAR ENDED 30 SEPTEMBER 2005The Sage Group plc ("Sage"), a leading supplier of accounting and businessmanagement software solutions and related services for small to medium-sizedenterprises ("SMEs"), announces its unaudited results (prepared under UK GAAP)for the year ended 30 September 2005.Financial highlights* Turnover increased by 14%* to ‚£776.6m (2004: ‚£682.6m*)* Operating profit increased by 14%* to ‚£211.1m (2004: ‚£184.5m*)* Pre-tax profit increased by 13% to ‚£205.4m (2004: ‚£181.1m)* Earnings per share increased by 13% to 11.18p (2004: 9.90p)* Operating cash flow represented 114% of operating profit (2004: 120%)* Proposed total dividend raised to 2.875p per share (2004: 2.33p), consistent with our dividend policy announced in December 2004Operational and strategic highlights* Organic revenue growth of 6%*, with growth in all regions and in both software licences and services* Customer base expanded to 4.7m businesses (30 September 2004: 4.4m)* Strong revenue growth and improved margins from 2004 acquisitions - SP, Softline and ACCPAC - which contributed 17% of Group revenue* Established global CRM organisation to focus on development of our CRM products* ‚£101.0m invested in acquisitions in new and existing territories. Acquisition of Adonix after the year-end significantly expanded the French mid-market businessOperating margin maintained at 27%*Regional analysis* 2005 2004 ‚£m Turnover Operating profit Turnover Operating profit UK 195.8 74.5 185.8 71.7 Mainland Europe 189.3 46.5 172.6 40.6 North America 312.0 72.9 278.5 60.5 Rest of World 59.8 14.9 45.7 11.7 756.9 208.8 682.6 184.5 Acquisitions: Mainland Europe 15.9 1.4 - - North America 3.8 0.9 - - 19.7 2.3 - - Foreign exchange impact* - - 5.0 1.1 776.6 211.1 687.6 185.6 Chief Executive, Paul Walker, commented: "Our organic revenue growth continuesto demonstrate the value of our key assets - our expanding customer base of 4.7million businesses, our locally-developed software solutions and our network of23,000 reseller partners.Future growth will be based upon continued investment in locally-developedbusiness software solutions to meet the evolving needs of SMEs; supporting ourreseller partners; enhancing support for our customers with locally-deliveredservices; and acquisitions in both existing and new geographic markets. The start to 2006 has been encouraging and we therefore view 2006 withconfidence."*Foreign currency results for the year ended 30 September 2004 have beenretranslated based on the average exchange rates for the year ended 30September 2005 to facilitate the comparison of resultsA presentation for analysts will be held at 9.30am today at Deutsche Bank,Winchester House, 1 Great Winchester Street, London EC2N 2DB. The presentationwill also be available at www.sage.com. A live audio broadcast of thepresentation will also be available for analysts. The dial-in number is +44 (0)20 7162 0025. Enquiries:The Sage Group plc +44 (0) 191 294 3068 Tulchan Communications +44 (0) 20 7353 4200 Paul Walker, Chief Executive Julie Foster Paul Harrison, Finance Director Kirstie Hamilton Phil Branston, Investor Relations OverviewWe are pleased to report a strong performance, with turnover increasing 14%*and earnings per share increasing 13%. These results demonstrate that ourbusinesses have responded well to the competitive challenges they face. Wemaintained our strong market positions by providing locally- developedsolutions, by working closely with our high quality reseller partner channeland by supporting customers with locally-based services. This enabled us toincrease our customer base to 4.7 million businesses (30 September 2004: 4.4million).Fulfilling customers' needsAs a supplier of business software solutions to SMEs, our growth strategy hasbeen based on meeting their evolving business requirements with localisedsoftware and related services. Our SME customers buy business software toaddress a variety of needs, ranging from basic book-keeping for smallbusinesses, to business-wide solutions for larger, mid-market customers. Asthese needs change, our customers continue to enhance their solutions byselecting more advanced software from the broad range of products we offer.During the year, 70,000 customers purchased new mid-market solutions from Sage- either as new customers or by migrating from our small business solutions.This provides a significant opportunity to increase revenues from thesecustomers, since they are more likely to enhance their solution over time andso subscribe to our support and service offerings.In addition to providing more advanced "back office" software, we also offerour customers a range of software to help them manage processes elsewhere intheir businesses. Our customers have exhibited increasing demand for customerrelationship management ("CRM") software and, as a result, CRM, with organicrevenue growth of 9%*, was our fastest-growing category of solutions in theyear. Other software solutions - including payroll, human resources andindustry-specific products - also contributed to our growth. This wasstimulated by country-specific evolution of both government legislation andother business rules, which has increased the level of information thatbusinesses are required to produce. As our customers purchase more complex solutions, they increasingly opt to buymore of our services in order to run their systems more efficiently and produceuseful business information. These additional services include both new supportfor added software and higher levels of support for existing software. Inaddition, more customers are choosing our combined subscriptions to bothsoftware and services, including feature upgrades, technical and advisorysupport and data transmission to accountants and government bodies.Investing for growthWe continued our annual programme of upgrading our product portfolio inresponse to customer needs, releasing new and improved products in all of ourmarkets. New product releases included improved integration with other Sageproducts and more consistent and intuitive user interfaces. We also invested innew applications that will enable customers to expand their solutions infuture, such as business intelligence and payroll services. Our totalinvestment in research and development grew by ‚£8m*, or 11%*, and represented28% of software revenue (2004: 28%*).During the year, our CRM business delivered a product that enables customers tochoose freely between software that is either rented, and provided via the web,or purchased as a traditional desktop PC application. In recognition of thegrowth potential of CRM, a global organisation has been established within Sageto increase our focus on this market and to direct the development of all CRMproducts. We have established new global branding for all CRM products and haveset up a localisation centre to ensure advances in our CRM solutions areresponsive to local needs. These initiatives will accelerate the development ofCRM opportunities in new regions, whilst also adding focus to the developmentof our existing CRM businesses in North America and the UK.Our investment activity also extended to our network of high-quality resellerand recommender partners. We provided more support for the sales and marketingactivities of our 23,000 reseller partners. We also extended our salesactivities with key influencers such as accountants and sales consultants.Acquisition in high-growth segments of the SME market remains an important partof Sage's growth strategy. As part of this strategy, we made a number ofacquisitions during the year. These acquisitions took us into new markets andalso enhanced our position in existing markets. Financial reviewRevenue and profitabilityRevenues grew 14%* to ‚£776.6m (2004: ‚£682.6m*). Operating profit rose by 14%*to ‚£211.1m (2004: ‚£184.5m*) and pre-tax profit increased by 13% to ‚£205.4m(2004: ‚£181.1m). Earnings per share grew 13% to 11.18p (2004: 9.90p).Organic revenue growth was 6%*. Organic revenue growth excludes thecontributions of current- and prior-year acquisitions (together, 21% ofrevenues) and non-core products (3% of revenues).Software revenues were ‚£290.0m (2004: ‚£258.2m*), showing organic growth of 6%*.During the year, over 300,000 businesses purchased Sage products for the firsttime. In addition, our existing customers continued either to upgrade theirproducts or migrate to more sophisticated Sage solutions.Services revenues, principally related to the provision of support services,were ‚£486.6m (2004: ‚£424.4m*), representing organic growth of 6%*. Supportrevenue grew by ‚£48.9m*, or 14%*, to ‚£391.4m and represented 50% of Grouprevenues. On an organic basis, support revenue grew 6%*, principally as aresult of an increase in spend per customer. This increase resulted both fromnew support contracts associated with migration to more sophisticated softwareand from further take-up of premium support provided with existing contracts.The number of support contracts remained at 1.3 million (2004: 1.3 million).This included a growing proportion of recurring high-value mid-market contractsassociated with continuous support subscriptions. The Group's operating margin was maintained at 27% (2004: 27%*).AcquisitionsDuring the year, we completed a number of significant acquisitions, for a totalconsideration of ‚£101.0m. Details of the principal acquisitions are shownbelow. Date Business Country Enterprise Value (‚£m) November 2004 Federal Liaison Services, Inc. US 10.4 December 2004 C2G Informatique S.A. France 5.3 January 2005 Simultan AG Switzerland 9.5 April 2005 Symfonia Poland 10.5 July 2005 Logic Control S.A. Spain 54.7 September 2005 Cogestib France 7.3 Other small acquisitions 3.3 TOTAL 101.0 After the end of the financial year, the acquisition of Adonix S.A. (enterprisevalue ‚£78.4m, November 2005) extended our presence in France.The three principal acquisitions completed in the prior year showed improvedresults against comparable prior-year periods. SP (Spain) showed revenue growthof 5%* and improved its operating margin to 31% (2004: 23%). ACCPAC(principally North America) showed revenue growth of 13%* and improved itsoperating margin to 23% (2004: 14%*). Softline (principally South Africa andAustralia) showed revenue growth of 16%* and improved its operating margin to23% (2004: 21%*).Cash flowThe Group remains highly cash generative with operating cash flow of ‚£240.3mrepresenting 114% of operating profit. This strong cash flow meant that, afterexpenditure on acquisitions of ‚£101.0m, net debt stood at ‚£106.9m at the yearend (30 September 2004: ‚£131.3m).DividendIn line with the Group's policy, announced in December 2004, of reducingdividend cover, over time, to 3.5 times, the proposed final dividend is beingraised to 1.953p per share (2004: 1.719p), giving dividend growth for the fullyear of 23% to 2.875p (2004: 2.33p). Dividend cover will therefore reduce to3.9 times and it is the Board's intention to move this cover to 3.5 times forthe year ending 30 September 2006. The dividend will be payable on 8 March 2006to shareholders on the register at close of business on 10 February 2006.International Financial Reporting StandardsThe Group will report for the first time under International FinancialReporting Standards (IFRS) for the half-year ending 31 March 2006. In early2006, results for 2005, restated under IFRS, will be reported, together withthe Group's IFRS accounting policies. The principal impacts of IFRS on theGroup were illustrated in a presentation on 22 September 2005 (available atwww.sage.com), by way of an unaudited restatement of 2004 results. This showedestimated reductions in revenue of 2%, pre-tax profit of 3% and earnings pershare of 4%.Regional reviewUKUK revenues were ‚£195.8m (2004: ‚£185.8m). Organic revenue growth of 5% resultedprincipally from the sale of upgrades of accounting and payroll products toexisting customers. In addition, sales of both software and support wereincreased in key industry-specific solutions such as those for accountants.The UK CRM business contributed revenues of ‚£12m. Its 10% growth reflectsincreased adoption of Sage CRM products by our UK reseller partners. This hasenabled our under-penetrated UK customer base to be targeted more effectively. The operating margin improved in the second half of the year to 39% througheffective cost management. The operating margin for the full year was 38%(2004: 39%).Mainland EuropeRevenues in Mainland Europe were ‚£205.2m (2004: ‚£172.6m*). Organic revenuegrowth of 7%* resulted from customers migrating to more sophisticated softwareand from increased take-up of both premium support services and continuoussubscriptions combining software and support. Sales of both software andsupport were also favourably impacted by changes in payroll legislation. The acquisition of Simultan significantly expanded coverage of the mid-marketin Switzerland. The acquisition of Logic Control, a leading mid-market vendor,complemented our existing small business division in Spain. The acquisition ofSymfonia established a leading presence in the attractive Polish market. TwoFrench acquisitions, C2G Informatiqueand Cogestib, established leadingindustry-specific presences in the distribution sector.After the end of the financial year, the acquisition of Adonix extended ourpresence in the French mid-market. For the year ended 31 December 2004, itslast full year prior to acquisition, its revenue was ‚£42.6m** and its operatingprofit was ‚£9.6m**. Adonix will provide advanced solutions for our mid-marketcustomers, including industry-specific software for real estate andmanufacturing.** All financial information calculated on the basis of ‚£1 = Euro 1.480.The overall operating margin in Mainland Europe was 23% (2004: 24%*), havingbeen reduced by the initial impact of acquisitions completed during 2005. North AmericaRevenues in North America were ‚£315.8m (2004: ‚£278.5m*). Organic revenue growthwas 6%*.Revenues from the small business division were ‚£100.9m (2004: ‚£90.8m*),including the impact of acquisitions. Organic revenue growth of 4%* resultedfrom new and existing customers adopting premium versions of existing products,together with support services for these products. These products includeindustry-specific and multi-user features. Sales of all these productsbenefited from the development of sales channels comprising recommenders andconsultants.Revenues from the mid-market division were ‚£214.9m (2004: ‚£187.7m*), includingthe impact of acquisitions. Organic revenue growth of 7%* resulted fromcustomers purchasing both new solutions and adding to existing solutions,including new and renewed support services. These results reflected increasedsupport for the sales and marketing activity of our reseller partners.We introduced a range of additional payroll services, including full payrolloutsourcing, for our 270,000 North American payroll customers. During the year,5,000 customers subscribed to these services. This business was enhanced by theacquisition of Federal Liaison Services, a payroll services supplier, inNovember 2004.The operating margin increased to 23% (2004: 22%*) as a result of profitablegrowth in the core businesses and of improving margins in 2004's ACCPACacquisition. Rest of WorldThis region contributed revenues of ‚£59.8m (2004: ‚£45.7m*). The two largestbusinesses, in South Africa and Australia, showed strong revenue growth andraised margins through increased support penetration, improved payrollsolutions and migration of customers to mid-market solutions. In Asia,investments in marketing within the ACCPAC businesses acquired in 2004 reducedmargins in comparison with the prior year. The overall operating margin for theregion was 25% (2004: 26%*)PeopleWe now employ nearly 10,000 people (2004: 8,000), the increase resultingprincipally from acquisitions. The successful integration of acquiredbusinesses into our local operations has ensured that this year's acquisitionsare already combining effectively with our existing activities. In all ourbusinesses, our people have demonstrated commitment to meeting the needs of ourcustomers and their achievements have been reflected in numerous industryawards for product quality and customer service. We have also benefited fromnew ideas on business processes and products, thanks to the innovative approachof our people. We thank our people for their contribution to the year'sperformance.During the year, two non-executive directors, John Constable and Kevin Howe,retired from the Group Board. John Constable joined the Board in 1995 andchaired its Audit Committee from 1996. John played a key role in facilitatingand challenging the development of the Group's strategic vision. Kevin Howejoined the Board in 1992 as an executive director with responsibility for ourUS businesses. On retirement from his executive role in 2001, Kevin became anon-executive director. Kevin was an early and expert advocate of customer basemarketing. We thank John and Kevin for their valuable contributions to theBoard.In December 2004, Tamara Ingram joined the Board as a non-executive director.Tamara, a senior executive of WPP, has a wide range of experience in brandmarketing within service businesses.OutlookOur organic revenue growth continues to demonstrate the value of our key assets- our expanding customer base of 4.7 million businesses, our locally-developedsoftware solutions and our network of 23,000 reseller partners.Future growth will be based upon continued investment in developing localisedbusiness software solutions to meet the evolving needs of SMEs; supporting ourreseller partners; enhancing support for our customers with locally-deliveredservices; and acquisitions in both existing and new geographic markets. The start to 2006 has been encouraging and we therefore view 2006 withconfidence.CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 30 September 2005 Year Year ended 30 ended 30 September September 2005 2004 (Unaudited) (Audited) Note ‚£'000 ‚£'000 Turnover 1 776,621 687,585 Operating profit 1 211,056 185,607 Net interest payable (5,699) (4,463) Profit on ordinary activities before 205,357 181,144taxation Taxation on profit on ordinary 3 (61,769) (54,343)activities Profit on ordinary activities after 143,588 126,801taxation Equity minority interest (84) (65) Profit for the financial year 143,504 126,736 Equity dividends 6 (36,946) (29,876) Retained profit transferred to 106,558 96,860reserves Earnings per share (pence) - basic 5 11.18p 9.90p Earnings per share (pence) - diluted 5 11.10p 9.85p Dividend per share (pence) 6 2.875p 2.33p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 30 September 2005 Year Year ended 30 ended 30 September September 2005 2004 (Unaudited) (Audited) ‚£'000 ‚£'000 Profit for the financial year 143,504 126,736 Translation of foreign currency net 13,422 (39,278) investments and related borrowings Total recognised gains and losses relating to 156,926 87,458 the year CONSOLIDATED BALANCE SHEETAs at 30 September 2005 30 September 30 September 2005 2004 (Unaudited) (Audited) ‚£'000 ‚£'000 Fixed assets Intangible assets 1,127,722 994,804 Tangible assets 123,300 123,998 1,251,022 1,118,802 Current assets Stocks 3,549 3,217 Debtors 149,866 121,597 Deferred tax asset 8,959 9,028 Cash at bank and in hand 69,066 74,341 231,440 208,183 Creditors: amounts falling due within one year (228,348) (204,018) Net current assets 3,092 4,165 Total assets less current liabilities 1,254,114 1,122,967 Creditors: amounts falling due after more than one (176,257) (199,675)year Deferred income (219,994) (190,926) Equity minority interest (200) (178) Net assets 857,663 732,188 Capital and reserves Called up equity share capital 12,853 12,818 Share premium account 450,978 446,284 Merger reserve 61,111 61,111 Profit and loss account 332,721 211,975 Equity shareholders' funds 857,663 732,188 CONSOLIDATED CASH FLOW STATEMENTFor the year ended 30 September 2005 Year Year ended 30 ended 30 September September 2005 2004 (Unaudited) (Audited) Note ‚£'000 ‚£'000 Net cash inflow from operating activities 240,298 221,812 Returns on investments and servicing of finance Interest received 2,821 2,539 Interest paid (8,086) (6,510) Issue cost of loans - (1,428) Net cash outflow from returns on investments and (5,265) (5,399)servicing of finance Taxation Corporation tax paid (57,331) (23,818) Capital expenditure Payments to acquire fixed assets (20,747) (47,088) Receipts from sales of fixed assets 3,503 5,614 Net cash outflow from capital expenditure (17,244) (41,474) Acquisitions and disposals Purchase of subsidiary undertakings: Net cash consideration - current year (100,646) (159,771) acquisitions - prior year acquisitions (323) (10,897) Net cash outflow from acquisitions and disposals (100,969) (170,668) Equity dividends paid (33,885) (21,843) Cash inflow/(outflow) before financing and 25,604 (41,390)management of liquid resources Management of liquid resources Reduction/(increase) in short term 1,115 (3,756) deposits Financing Shares issued 4,582 3,064 Movement in loan funding (35,438) 15,479 Net cash (outflow)/inflow from financing (30,856) 18,543 Decrease in cash in the year 2 (4,137) (26,603) NOTESFor the year ended 30 September 20051. Analysis of results* 2005 2004 Turnover Operating Turnover* Operating profit* profit ‚£'000 ‚£'000 ‚£'000 ‚£'000 UK 195,744 74,529 185,728 71,665 Mainland Europe 189,281 46,464 172,615 40,623 North America 312,033 72,892 278,527 60,498 Rest of World 59,823 14,929 45,699 11,768 756,881 208,814 682,569 184,554 Acquisitions: Mainland Europe 15,933 1,392 - - North America 3,807 850 - - 19,740 2,242 - - Impact of foreign exchange - - 5,016 1,053 776,621 211,056 687,585 185,607 \* The 2005 trading results for businesses located outside the UK were translatedinto Sterling at the average exchange rates for the year. For our two mostsignificant foreign operating currencies, the US Dollar and the Euro, theresulting rates were ‚£1=$1.85 and ‚£1=¢â€š¬1.45 respectively. Results for the yearended 30 September 2004 have been retranslated at these exchange rates tofacilitate the comparison of results. The Group does not hedge thistranslational exposure.2. Analysis of change in net debt At 1 Exchange At 30 movement/ September October 2004 Cash other 2005 flow ‚£'000 ‚£'000 ‚£'000 ‚£'000 Net cash at bank and in hand 69,543 (4,137) - 65,406 Short term deposits 4,798 (1,115) (23) 3,660 Loans due within one year (6,184) 6,451 (488) (221) Loans due after more than one (199,475) 28,987 (5,254) (175,742)year (131,318) 30,186 (5,765) (106,897) 3. TaxationThe taxation charge for the year comprises: Year Year ended 30 September ended 30 September 2005 2004 ‚£'000 ‚£'000 Current taxation UK taxation 24,892 23,018 Overseas taxation 31,242 19,517 56,134 42,535 Deferred taxation 5,635 11,808 61,769 54,343 The taxation charge gives an effective rate of 30% (2004: 30%). 4. The unaudited financial information set out above does not constitute theCompany's statutory accounts for the year ended 30 September 2005. Theaccounting policies used as a basis for this results announcement areconsistent with the Company's statutory accounts for the year ended 30September 2004, which have been delivered to the Registrar of Companies. The Group results for the year ended 30 September 2004 have been extracted fromthose statutory accounts. The Auditors' Report on the accounts to 30September 2004 was unqualified and did not contain a statement under Section237 of the Companies Act 1985. Accounts to 30 September 2005 will be deliveredin due course.5. Earnings per shareThe calculation of basic earnings per ordinary share is based on earnings of ‚£143,504,000 (2004: ‚£126,736,000) being the profit for the year and on1,283,347,008 ordinary 1p shares (2004: 1,280,276,310) being the weightedaverage number of ordinary shares in issue during the year. The diluted earnings per ordinary share is based on profit for the year of ‚£143,504,000 (2004: ‚£126,736,000) and on 1,292,449,612 ordinary 1p shares (2004:1,286,153,099).6. DividendsThe final dividend of 1.953 pence per share will be paid on 8 March 2006 toshareholders on the register at the close of business on 10 February 2006. 7. Annual report The annual report and accounts will be posted to shareholders shortly andthereafter copies will be available from the Secretary, The Sage Group plc,North Park, Newcastle upon Tyne, NE13 9AA.ENDSAGE GROUP PLCRelated Shares:
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