10th May 2005 06:00
FOR IMMEDIATE RELEASE10 May 2005SAGE PRE-TAX PROFIT UP 16% TO ‚£100.6 MILLION FOR HALF-YEAR ENDED 31 MARCH 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 for the half-year ended31 March 2005.Financial highlightsTurnover increased by 17%* to ‚£381.6m (2004: ‚£326.5m*)Pre-tax profit increased 16% to ‚£100.6m (2004: ‚£86.7m)Earnings per share up 18% to 5.49p (2004: 4.67p)Operating cash flow represented 127% of operating profit (2004: 136%)Interim dividend raised to 0.922p per share (2004: 0.611p), consistent with ourdividend policy announced in December 2004Operational and strategic highlightsOrganic revenue growth of 6%* North American business grew organic revenue by 7%*149,000 new customers, bringing the customer base to 4.5m businesses (31 March2004: 4.3m), excluding Customer Relationship Management ("CRM") customers1.3m support contracts, contributing 50% of revenuesBusinesses acquired last financial year - SP, Softline and ACCPAC - showedrevenue growth and significantly improved marginsRegional analysis* 2005 First half 2004 First half ‚£m Turnover Operating profit Turnover Operating profit UK 96.7 36.3 90.8 35.9 Mainland Europe 101.3 24.0 90.2 21.1 North America 155.4 37.3 128.6 29.1 Rest of World 28.2 5.5 16.9 2.6 381.6 103.1 326.5 88.7 Foreign exchange impact* - - 6.0 1.4 381.6 103.1 332.5 90.1 Chief Executive, Paul Walker, commented: "These results show that the improvedorganic revenue growth of last year has continued into 2005. Our growthdemonstrates the value of our key asset - our expanding customer base of 4.5million businesses. Throughout the Group, all of our divisions have showngrowth during the first half by continuing to provide locally-developed andlocally-supported solutions.Our focus will remain on growing our customer base, improving our products andservices and developing our recently acquired businesses. We continue to seekacquisition opportunities which help us meet the needs of customers, whilstmeeting our investment criteria. We continue to view 2005 with confidence."*Foreign currency results for the period ended 31 March 2004 have beenretranslated based on the average exchange rates for the six months ended 31March 2005 to facilitate the comparison of results.A 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)207 162 0180. Enquiries:The Sage Group plc +44 (0) 191 294 3000 Tulchan Communications +44 (0) 20 7353 4200 Paul Walker, Chief Executive Kirstie Hamilton Paul Harrison, Finance Director Kate Inverarity Phil Branston, Investor Relations OverviewWe are pleased to report a strong performance, with turnover increasing 17%*and earnings per share increasing 18%. During the period, our customer baseexpanded to 4.5 million businesses (31 March 2004: 4.3 million). Our growthresulted from serving these customers with an expanded range oflocally-delivered products and services and from strong early contributions byrecently acquired businesses. Our customers' IT spending priorities continue to evolve to meet theirrequirements. Businesses need to remain compliant with local fiscal andbusiness regulations. In addition, they want to use accounts data to provideinsights into their business through reporting and analysis. Increasingly, theywant their systems to meet the compliance, reporting and analysis needs oftheir particular industry.Businesses want to achieve these objectives in a cost-effective manner. Thismeans that they prefer to avoid potential extra cost and disruption by addingprogressively to existing solutions, rather than replacing them with entirelynew solutions. It also leads businesses to consider both the furtherautomation of business processes and outsourcing alternatives. In order to makethe best use of their software investment, many businesses choose to retainsupport services.We have continued to develop new and upgraded products and services to meetthese requirements, reinvesting 28% of software revenue (2004: 27%*) inresearch and development. We have introduced innovative new services such aspayroll outsourcing in North America, which provides opportunities for managingprogressively more payroll functions for our customers. In support services, wehave been extending the range and level of services in the fields of regulatorycompliance, management reporting and information technology.Our high-quality, localised solutions, supported by our 22,000 resellerpartners and our locally-based customer support, enabled us to attract 149,000new customers in the period (2004: 146,000), whilst the rest of our 4.5mcustomers have predominantly maintained their preference for retaining Sage astheir supplier. Financial reviewRevenue and profitabilityRevenues grew 17%* to ‚£381.6m (2004: ‚£326.5m*). Operating profit rose by 16%*to ‚£103.1m (2004: ‚£88.7m*) and pre-tax profit increased by 16% to ‚£100.6m(2004: ‚£86.7m). Earnings per share grew 18% to 5.49p (2004: 4.67p).Organic revenue growth was 6%*. Organic revenue growth excludes thecontributions of current- and prior-year acquisitions (together, 19% ofrevenues in this period) and non-core products (3% of revenues in this period).Throughout the Group, both the small business and mid-market divisions showedencouraging organic growth.Software revenues were ‚£144.6m (2004: ‚£122.4m*), representing organic growth of8%*. Attracted by our innovative new and upgraded products, growing numbers ofcustomers either upgraded their current products or migrated to higher-valueproducts.Services revenues were ‚£237.0m (2004: ‚£204.1m*), representing organic growth of6%*. 80% of services revenue related to support services. These grew 7%*organically. In the six months to 31 March 2005 support contracts grew 52,000to 1.3m (31 March 2004: 1.3m). Support revenue growth arose both from anincrease in the volume of sales and as a result of an increase in spend percustomer. This increased spend resulted both from new support contractsassociated with migration to more sophisticated software solutions and fromfurther take-up of premium support services provided with existing contracts. During the period, the number of premium support contracts grew to 272,000 (31March 2004: 258,000). The Group operating margin was maintained at 27% (2004: 27%*). Investments ininfrastructure and marketing were offset by revenue growth in high-marginbusinesses and margin improvements in recent acquisitions.Recent acquisitionsThe three principal acquisitions completed in the prior-year period showedimproved results against comparable prior-year periods. SP (Spain) showedrevenue growth of 4%* and improved its operating margin to 28% (2004: 20%).ACCPAC (principally North America) showed revenue growth of 4%* and improvedits operating margin to 27% (2004: 14%*). Softline (principally South Africaand Australia) showed revenue growth of 16%* and improved its operating marginto 19% (2004: 18%*).Cash flowThe Group remains highly cash generative with operating cash flow of ‚£131.3mrepresenting 127% of operating profit. This strong cash flow meant that, afterexpenditure on acquisitions of ‚£29.4m, net debt stood at ‚£85.2m at the periodend (31 March 2004: ‚£179.7m).DividendIn line with the Group's policy, announced in December 2004, of reducingdividend cover to 3.5 times earnings over the next two to three years, theinterim dividend is being raised to 0.922p per share (2004: 0.611p). Thedividend will be payable on 17 June 2005 to shareholders on the register atclose of business on 20 May 2005.International Financial Reporting StandardsThe Group will report for the first time under International FinancialReporting Standards (IFRS) for the half-year ending 31 March 2006. There willbe three principal impacts for the Group. Firstly, the requirement to expenseshare-based payments to employees. Secondly, the requirement to capitalise (andamortise) different classes of intangible assets with respect to acquisitionscompleted since 1 October 2004. Thirdly, the requirement to capitalise (andamortise) certain expenditure associated with the development of new softwareproducts. In advance of publishing the first financial statements under IFRS,the Group will provide guidance on expected reporting changes in a presentationfor investors and analysts, to be held in September 2005. Regional reviewUKUK revenues were ‚£96.7m (2004: ‚£90.8m). Organic revenue growth of 5% resultedprincipally from the sale of upgrades of our accounting and payroll products.Strong underlying profitability was sustained through high-margin sales to thecustomer base and through effective cost management. However, the operatingmargin was reduced to 38% (2004: 40%) as a result of increased costs arisingfrom office relocations, undertaken in order to improve service for both oursmall business and accountant customers.Mainland EuropeRevenues in Mainland Europe were ‚£101.3m (2004: ‚£90.2m*). Organic revenuegrowth of 6%* resulted chiefly from customers, particularly in the Frenchmid-market, migrating to more sophisticated software and subscribing to premiumsupport services. In addition, innovative new products attracted additionalbusinesses into the customer base. Sales of both support contracts andcomplementary software were positively impacted by changes in payrolllegislation, particularly in France. The principal acquisition completed during the period was Simultan AG(Switzerland, January 2005). The acquisition of Symfonia (Poland) was completedin April 2005. The acquisition of Simultan, for an enterprise value ("EV") of‚£10.0m, significantly expands our coverage of the Swiss market, particularly inthe mid-market. The acquisition of Symfonia, for an EV of ‚£10.3m, establishes aleading presence in the attractive Polish market.The overall operating margin in Mainland Europe rose to 24% (2004: 23%*), dueto improved margins in the Spanish business, which resulted from streamlinedproduct development. North AmericaRevenues in North America were ‚£155.4m (2004: ‚£128.6m*). Organic revenue growthwas 7%*.Small Business Division revenues were ‚£51.1m (2004: ‚£42.5m*), including theimpact of acquisitions. Growth resulted from existing customers adopting newand upgraded products together with support services for those products. Thecore accounting product, Peachtree, showed organic revenue growth of 6%*. TheCRM (contact management) product, ACT!, grew revenues organically 15%*. Salesof both products benefited from the development of new sales channels.Mid-market Division revenues were ‚£104.3m (2004: ‚£86.1m*), including the impactof acquisitions. Growth resulted from customers purchasing both new solutionsand adding to existing solutions, accompanied by new and renewed supportservices. Core accounting revenues (from MAS and related products), showedorganic revenue growth of 6%*. The mid-market CRM product, SalesLogix, grewrevenues organically 11%*.We have extended the payroll services available to our 250,000 North Americanpayroll customers by introducing payroll outsourcing services, which were usedby 5,000 of those customers. This business was enhanced by the acquisition ofFederal Liaison Services, Inc., a payroll services supplier, in November 2004,for an EV of ‚£9.7m.The operating margin increased to 24% (2004: 23%*) as a result of profitablegrowth in the core businesses and of improving margins in prior-yearacquisitions. Rest of WorldThis region contributed revenues of ‚£28.2m (2004: ‚£16.9m*) at an operatingmargin of 19% (2004: 15%*), principally from our businesses in South Africa andAustralia. These businesses showed strong revenue growth and raised marginsthrough increased support penetration and greater take-up by existing customersof complementary products such as payroll.OutlookThroughout the Group, all of our divisions have shown growth during the firsthalf by continuing to provide locally-developed and locally-supportedsolutions.Our focus will remain on growing our customer base, improving our products andservices and developing our recently acquired businesses. We continue to seekacquisition opportunities which help us meet the needs of customers, whilstmeeting our investment criteria. We continue to view 2005 with confidence.CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the six months ended 31 March 2005 Six months ended Six months ended Year 31 March 31 March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) Note ‚£'000 ‚£'000 ‚£'000 Turnover 1 381,616 332,501 687,585 Operating profit 1 103,052 90,058 185,607 Net interest payable (2,435) (3,385) (4,463) Profit on ordinary activities 100,617 86,673 181,144before taxation Taxation on profit on 3 (30,185) (26,869) (54,343)ordinary activities Profit on ordinary activities 70,432 59,804 126,801after taxation Equity minority interest - (3) (65) Profit for the financial 70,432 59,801 126,736period Equity dividends 6 (11,841) (7,829) (29,876) Amount transferred to 58,591 51,972 96,860reserves Earnings per share 5 5.493p 4.673p 9.90p(pence) - basic Earnings per share (pence) 5 5.460p 4.647p 9.85p- diluted Dividend per share 6 0.922p 0.611p 2.33p(pence) CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the six months ended 31 March 2005 Six months Six months Year ended 31 March ended 31 March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) ‚£'000 ‚£'000 ‚£'000 Profit for the financial period 70,432 59,801 126,736 Translation of foreign currency net (17,172) (46,727) (39,278) investments and related borrowings Total recognised gains and losses 53,260 13,074 87,458 relating to the period CONSOLIDATED BALANCE SHEETAs at 31 March 2005 31 March 30 September 2005 2004 (Unaudited) (Audited) ‚£'000 ‚£'000 Fixed assets Intangible assets 1,003,277 994,804 Tangible assets 124,356 123,998 1,127,633 1,118,802 Current assets Stocks 3,305 3,217 Debtors 131,983 121,597 Deferred tax asset 12,604 9,028 Cash at bank and in hand 77,872 74,341 225,764 208,183 Creditors: amounts falling due within one year (204,495) (204,018) Net current assets 21,269 4,165 Total assets less current liabilities 1,148,902 1,122,967 Creditors: amounts falling due after more than one year (157,129) (199,675) Deferred income (215,489) (190,926) Equity minority interest (205) (178) 776,079 732,188 Capital and reserves Called up equity share capital 12,837 12,818 Share premium account 448,737 446,284 Merger reserve 61,111 61,111 Profit and loss account 253,394 211,975 Equity shareholders' funds 776,079 732,188 CONSOLIDATED CASH FLOW STATEMENTFor the six months ended 31 March 2005 Six months Six months Year ended 31 ended 31 March March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) Note ‚£'000 ‚£'000 ‚£'000 Net cash inflow from operating 131,313 122,788 221,812activities Returns on investments and servicing of finance Interest received 1,108 948 2,539 Interest paid (3,896) (4,218) (6,510) Issue cost of loans - (77) (1,428) Net cash outflow from returns on (2,788) (3,347) (5,399)investments and servicing of finance Taxation Corporation tax paid (33,658) (7,928) (23,818) Capital expenditure Payments to acquire tangible fixed (6,651) (26,792) (47,088)assets Receipts from sales of tangible 2,076 120 5,614fixed assets Net cash outflow from capital (4,575) (26,672) (41,474)expenditure Acquisitions and disposals Purchase of subsidiary undertakings: Net cash consideration - current year (29,343) (152,742) (159,771)acquisitions - (78) (9,297) (10,897)prior year acquisitions Net cash outflow from acquisitions (29,421) (162,039) (170,668)and disposals Equity dividends paid (22,046) (14,018) (21,843) Cash inflow/(outflow) before 38,825 (91,216) (41,390)financing and management of liquid resources Management of liquid resources Reduction/(increase) in short term 2,362 (484) (3,756)deposits Financing Shares issued 1,782 1,581 3,064 Movement in loan funding (37,083) 109,006 15,479 Net cash (outflow)/inflow from (35,301) 110,587 18,543financing Increase/(decrease) in cash in the 2 5,886 18,887 (26,603)period NOTESFor the six months ended 31 March 20051. Analysis of results 2005 First half 2004 First half Turnover Operating Turnover Operating profit (Unaudited) (Unaudited) profit (Unaudited) (Unaudited) ‚£'000 ‚£'000 ‚£'000 ‚£'000 UK 96,673 36,253 90,790 35,889 Mainland Europe 101,343 24,032 90,165 21,071 North America 155,360 37,293 128,551 29,102 Rest of World 28,240 5,474 16,945 2,575 381,616 103,052 326,451 88,637 Impact of foreign - - 6,050 1,421exchange 381,616 103,052 332,501 90,058 The 2005 trading results from businesses located outside the UK were translatedinto Sterling at the average exchange rates for the period. For our two mostsignificant foreign operating currencies, the US Dollar and the Euro, theresulting rates were ‚£1=$1.89 and ‚£1=¢â€š¬1.44 respectively. Results for the periodended 31 March 2004 have been retranslated at these exchange rates tofacilitate the comparison of results. The Group does not hedge thistranslational exposure.Analysis of change in net debt At 1 At 31 October Exchange March 2004 movement/ 2005 (Audited) Cash other (Unaudited) flow ‚£'000 ‚£'000 ‚£'000 ‚£'000 Net cash at bank and in hand 69,543 5,886 - 75,429 Short term deposits 4,798 (2,362) 7 2,443 Loans due within one year (6,184) (51) 280 (5,955) Loans due after more than one (199,475) 37,134 5,212 (157,129)year (131,318) 40,607 5,499 (85,212) TaxationThe taxation charge for the period comprises: Six months ended 31 Six months ended 31 Year March March ended 30 September 2005 2004 2004 (Unaudited) (Unaudited) (Audited) ‚£'000 ‚£'000 ‚£'000 UK taxation 13,496 13,444 24,564 Overseas 16,689 13,425 29,779taxation 30,185 26,869 54,343 The taxation charge is based on an effective rate of 30%.The unaudited financial information set out above does not constitute theCompany's statutory accounts for the period ended 31 March 2005. The accountingpolicies used as a basis for this interim results announcement are consistentwith the Company's statutory accounts for the year ended 30 September 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.Earnings per shareThe calculation of basic earnings per ordinary share is based on earnings of ‚£70,432,000 (2004: ‚£59,801,000) being the profit for the period, and on1,282,275,455 ordinary 1p shares (2004: 1,279,750,031) being the weightedaverage number of ordinary shares in issue during the period. The diluted earnings per ordinary share is based on profit for the period of ‚£70,432,000 (2004: ‚£59,801,000) and on 1,289,959,970 ordinary 1p shares (2004:1,286,848,759).DividendsThe interim dividend of 0.922 pence per share will be paid on 17 June 2005 toshareholders on the register at the close of business on 20 May 2005. ENDSAGE GROUP PLCRelated Shares:
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