FOR IMMEDIATE
RELEASE
7 May 2003
SAGE PRE-TAX PROFIT UP 14% TO �74.3 MILLION FOR HALF-YEAR ENDED 31 MARCH 2003
The Sage Group plc ("Sage"), a leading supplier of accounting and business
management software solutions and related services for small to medium-sized
enterprises ("SMEs"), announces its unaudited results for the half-year ended
31 March 2003.
Highlights
Turnover increased by 4%* to �282.1m (2002: �270.1m*)
Pre-tax profit increased 14% to �74.3m (2002: �65.1m)
Earnings per share up 14% to 4.02p (2002: 3.53p)
US operating profit increased by 30%* to �30.5m (2002: �23.5m)
UK operating margins increased to 40% (2002: 36%)
Operating cash flow up 21% to �100.6m (2002: �82.9m)
115,000 new customers added in the period, bringing the total to 3.1m customers
(2002: 2.9m), excluding Interact
Geographical analysis*
2003 2002
�m Turnover Operating Turnover Operating
profit profit
UK 80.2 31.7 76.7 27.4
Mainland Europe 66.2 14.8 67.2 17.4
US 135.7 30.6 126.2 23.5
282.1 77.1 270.1 68.3
Impact of foreign - - 9.7 1.5
exchange*
282.1 77.1 279.8 69.8
Chairman, Michael Jackson, commented: "These results again demonstrate the
resilience of our business, and our ability to generate growth. Our key asset
is our large and growing customer base of over 3 million SMEs to which we are
able to sell an expanding portfolio of products and services. This enables us
to continue to develop the business both organically and by acquisition.
Whilst we have seen no improvement in market conditions, our business
progressed well in the first half. We achieved strong results in the UK and the
US and, whilst Europe was weaker, we see some encouraging signs there. We
therefore continue to view 2003 with confidence."
*Foreign currency results for the period ended 31 March 2002 have been
retranslated at current period exchange rates to facilitate comparison of
certain of the results within this release.
Enquiries:
The Sage Group plc 0191 Financial Dynamics 020
255 3000 7831 3113
Paul Walker, Chief Executive Giles Sanderson
Paul Harrison, Finance Director Harriet Keen
Phil Branston, Investor Relations Emma Rutherford
Notes to editors:
The Sage Group plc is a leading international supplier of accounting and
business management software solutions and related products and services for
small to medium-sized enterprises. Formed in 1981, Sage was floated on the
London Stock Exchange in 1989 and the Group now employs over 5,500 people
worldwide.
Introduction
We are pleased to announce a strong performance in the period with turnover
increasing by 4%* and pre-tax profit increasing by 14%. With no improvement in
market conditions during the period, these results reflect further progress in
our strategy of generating more revenues from our large and growing customer
base of 3.1m small and medium-sized enterprises ("SMEs").
Our services revenues grew by 6%* to �168.8m (2002: �158.6m*), representing 60%
of revenues (2002: 59%), and generated a significant portion of our revenue
growth. Support contract revenues continue to be the key part of this growth.
Software licence revenues grew 2%* to �113.3m (2002: �111.5m*) and provided the
remaining 40% of revenues (2002: 41%). �60.6m of revenue came from the sale of
software to 115,000 first-time customers (2002: �63.6m*). We sold software
upgrades to a further 197,000 existing customers, generating revenues of �39.3m
(2002: �35.3m*). The sale of more sophisticated software solutions (up-selling)
and of a broader range of solutions (cross-selling) to 26,000 customers,
contributed �12.3m (2002: �11.4m*), representing a rising proportion of
software revenues.
We continue to progress our strategy of selling industry-specific ("vertical")
solutions to our customers. At the entry-level we have released versions of
our core software suitable for those small businesses seeking industry-specific
features for the first time. In the mid-market we have continued to bring to
market accounting solutions tailored to industry-specific needs, through
product development, close co-operation with channel partners, and acquisition.
All of the Group's businesses continue to focus on cost-efficient installed
base marketing and on effectively managing costs. As a result, the increase in
revenue translated into higher profits.
We continue to monitor closely the competitive landscape and have seen no
change in the period. Our commitment to constant product improvement,
effective channel management and high standards of locally-based customer
service and support remain significant differentiating factors.
Financial Overview
In the six months to 31 March 2003, we increased turnover by 4%* to �282.1m
(2002: �270.1m*). Operating profit rose by 13%* to �77.1m (2002: �68.3m*), and
pre-tax profit improved 14% to �74.3m (�65.1m). Earnings per share increased
14% to 4.02p (2002: 3.53p).
The movement in exchange rates had a significant translational impact on
results for the period. The 11% decline in the US dollar against sterling,
compared to the prior year period, impacted the 48% of Group revenues
originated in dollars. This was only partially offset by a 6% appreciation of
the Euro. On an unadjusted basis, turnover grew 1% and operating profit
increased by 10%.
The interim dividend is being raised to 0.555p per share (2002: 0.157p). This
increase reflects the rebasing of the dividend announced with our results for
the year ended 30 September 2002. This dividend is covered 7 times by earnings
per share. The dividend will be payable on 13 June 2003 to shareholders on the
register at close of business on 16 May 2003.
The Group's strong earnings, recurring revenues and effective cash management
created significant growth in cash flow. Operating profit of �77.1m generated
operating cash flow of �100.6m. At 31 March 2003 the Group had net debt of �
93.1m (2002: �163.7m) with net interest covered 27 times by operating profit.
Operational Review
UK
The UK business grew revenues by 5%, adding 23,000 new customers in the period
and growing support and upgrade revenues. Whilst market conditions were
substantially unchanged during the period, the SME Division delivered growth
through the sale of services and software upgrades. In the Enterprise Division,
revenues stabilised at the level of the second half of 2002.
The operating margin rose to 40% (2002: 36%). This reflects the benefits of
last year's reorganisation of the Enterprise Division, and revenue growth in
the SME division.
Mainland Europe
In difficult market conditions our Mainland European revenues were 1%* below
the prior period. Two factors impacted performance. Firstly, the prior period
benefited from revenues associated with full Euro adoption. Secondly, economic
conditions in the period were depressed. These factors offset progress made in
service activities and in up-selling and cross-selling initiatives.
In the French business, revenues were 6%* below the prior year period and, as a
consequence, margins fell to 25% (2002: 29%).
In January 2003 we acquired Concept Group. This business provides treasury
management and consolidation software products for SMEs. This acquisition
contributed revenues of �2.0m in the period and made an operating profit of �
0.1m. Now integrated into the French business, this acquisition will provide
stimulus to cross-selling initiatives.
Our German and Swiss businesses grew revenues by 10%* with the benefit of a
full period's contribution from Gandke & Schubert acquired in April 2002. At
the end of the period we concluded the acquisition of Primus, which
strengthened our position in the vertical "tradesmen's" market. Operating
margins in Germany and Switzerland were maintained at 17%.
US
Our US business (including Interact) delivered a strong financial performance
with revenue growth of 8%* and operating profit growth of 30%*. Operating
margins rose to 23% (2002: 19%), benefiting from a more unified installed base
focus and expense control across a range of activities.
Our US accounting business grew revenues 4%* and operating profit by 21%*
returning an operating margin of 24% (2002: 21%).
Underlying this performance we saw continued strength at the entry-level with
the core Peachtree product maintaining its strong market position, attracting
45,000 new customers in the period, and growing revenues by 11%.
In the mid-market, despite customers continuing to defer software purchase
decisions, software sales to first-time customers have been maintained at prior
year levels, and we have continued to apply up-selling and cross-selling
strategies. In the Accounting business 22% of new licence revenues came from
up-selling whilst in the Speciality Products business, 13% of new licence
revenues came from cross-selling.
The Non-profit and Government Division performed well, growing revenues and
profits and acquiring a specialist product for charities.
The CRM business, Interact, continued its progress since acquisition with
revenue growth of 21%* to �28.4m (2002: �23.5m*) producing an operating profit
of �4.3m (2002: �1.9m*) at an operating margin of 15% (2002: 8%). Growth at
Interact has resulted in large part from installed base initiatives. The ACT!
product upgrade released in August 2002 has provided an ongoing revenue and
profit stream whilst the provision of support to Interact's large customer base
continues to gather momentum. The international business, representing 19% of
Interact's revenues, reported a profit for the first time following its
restructuring in 2002.
After the period end our US operations announced a re-organisation of the
business into two divisions - the Small Business Division (incorporating
Peachtree and ACT!) and the Mid-market Division (containing our accounting,
fixed assets, HR, SalesLogix and Non-Profit product offerings for mid-market
customers). The new structure, effective 1 October 2003, will help to ensure
that we present one cohesive face to our customers and partners, and that we
operate in a more efficient manner. There will be no significant costs arising
out of this re-organisation.
Board Ch ange
Graham Wylie, one of the founders of Sage, and Managing Director of the UK
business, has decided to retire from his current role, and from the Board, with
effect from 31 May 2003 after 22 years of service. The Board would like to
acknowledge Graham's considerable contribution to the business and wish him
well. The Board is pleased to announce that Paul Stobart will move from his
current role in Sage Group to become Managing Director of the UK business. Paul
has been with the Group, and a member of the Board, since 1996.
Outlook
These results again demonstrate the resilience of our business, and our ability
to generate growth. Our key asset is our large and growing customer base of
over 3 million SMEs to which we are able to sell an expanding portfolio of
products and services. This enables us to continue to develop the business both
organically and by acquisition.
Whilst we have seen no improvement in market conditions, our business
progressed well in the first half. We achieved strong results in the UK and the
US and whilst Europe was weaker, we see some encouraging signs there. We
therefore continue to view 2003 with confidence.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 31 March 2003
Six months Year ended
ended 31 March 30 September
2003 2002 2002
(Unaudited) (Audited)
�'000 �'000 �'000
Turnover 282,056 279,821 551,731
Operating profit 77,094 69,817 137,680
Net interest payable (2,835) (4,671) (8,526)
Profit on ordinary activities before taxation 74,259 65,146 129,154
Taxation on profit on ordinary activities (23,020) (20,195) (40,038)
Profit on ordinary activities after taxation 51,239 44,951 89,116
Equity minority interest - (52) (41)
Profit for the financial period 51,239 44,899 89,075
Equity dividends (7,102) (2,033) (19,143)
Amount transferred to reserves 44,137 42,866 69,932
Earnings per share (pence) .basic 4.017p 3.525p 6.990p
Earnings per share (pence) .diluted 4.001p 3.500p 6.960p
Dividend per share (pence) 0.555p 0.157p 1.500p
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the six months ended 31 March 2003
Six months Year ended
ended
31 March 30
September
2003 2002 2002
(Unaudited) (Audited)
�'000 �'000 �'000
Profit for the financial period 51,239 44,899 89,075
Translation of foreign currency net investments and 1,494 (8,534) 12,233
related borrowings
Total recognised gains and losses relating to the 52,733 36,365 101,308
period
CONSOLIDATED BALANCE SHEET
As at 31 March 2003
31 March 30
September
2003 2002
(Unaudited) (Audited)
�'000 �'000
Fixed assets
Intangible 847,651 830,908
Tangible 64,795 54,541
912,446 885,449
Current assets
Stocks 2,548 2,306
Debtors 117,259 108,219
Deferred tax asset 22,566 28,306
Cash at bank and in hand 78,242 58,795
220,615 197,626
Creditors: amounts falling due within one year (180,056) (177,010)
Net current assets 40,559 20,616
Total assets less current liabilities 953,005 906,065
Creditors: amounts falling due after more than one (134,147) (157,194)
year
Deferred income (151,129) (127,019)
Equity minority interest (121) (121)
667,608 621,731
Capital and reserves
Called up equity share capital 12,759 12,755
Share premium account 442,244 441,859
Merger reserve 61,111 61,111
Profit and loss account 151,494 106,006
Equity shareholders' funds 667,608 621,731
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 March 2003
Six months ended Year
ended
31 March 30
September
2003 2002 2002
(Unaudited) (Audited)
�'000 �'000 �'000
Net cash inflow from operating activities 100,615 82,925 145,178
Returns on investments and servicing of finance
Interest received 546 715 1,520
Interest paid (2,885) (4,778) (9,454)
Issue cost of loans - (180) (180)
Interest element of finance lease rental - (2) (3)
payments
Net cash outflow from returns on investments and (2,339) (4,245) (8,117)
servicing of finance
Taxation
Corporation tax paid (11,987) (11,842) (22,645)
Capital expenditure
Payments to acquire tangible fixed assets (14,127) (8,523) (19,130)
Receipts from sales of tangible fixed assets 137 187 468
Net cash outflow from capital expenditure (13,990) (8,336) (18,662)
Acquisitions and disposals
Purchase of subsidiary undertakings:
Net cash consideration - current year (12,144) (13,838) (28,185)
acquisitions
- prior (3,917) (7,981) (19,292)
year acquisitions
Net cash outflow from acquisitions and disposals (16,061) (21,819) (47,477)
Equity dividends paid (17,150) (3,615) (5,595)
Cash inflow before financing and management of 39,088 33,068 42,682
liquid resources
Management of liquid resources
Increase in short term deposits (92) (38,910) (1,367)
Financing
Shares issued 238 2,121 2,604
Movement in loan funding (19,861) 16,981 (29,104)
Repayment of capital element of finance leases (21) (36) (57)
Net cash (outflow)/inflow from financing (19,644) 19,066 (26,557)
Increase in cash in the period 19,352 13,224 14,758
NOTES
1. Analysis of results
Six months ended Year ended
31 March 30 September
2003 2002* 2002
(Unaudited) (Audited)
�'000 �'000 �'000
Turnover
UK 80,190 76,734 155,986
France 46,911 49,710 87,411
Germany/Switzerland 19,252 17,449 31,420
US 107,316 102,719 223,285
Interact 28,387 23,460 53,629
282,056 270,072 551,731
Impact of foreign exchange - 9,749 -
Total 282,056 279,821 551,731
Operating profit
UK 31,685 27,449 57,625
France 11,576 14,429 24,025
Germany/Switzerland 3,276 2,931 4,588
US 26,234 21,598 50,118
Interact 4,323 1,868 7,324
77,094 68,275 143,680
Impact of foreign exchange - 1,542 -
Sponsorship arrangement - The Sage - - (6,000)
Gateshead
Total 77,094 69,817 137,680
2. Analysis of change in net debt (inclusive of finance leases)
At 1 Cash Exchange At 31
flow
October movement March
/
2002 other 2003
(Audited) (Unaudited)
�'000 �'000 �'000 �'000
Net cash at bank and in hand 57,512 19,352 - 76,864
Short term deposits 1,283 92 3 1,378
Loans due within one year (39,076) 31,593 (31,594) (39,077)
Finance leases due within one (21) 21 - -
year
Loans due after more than one (152,507) (11,732) 31,975 (132,264)
year
(132,809) 39,326 384 (93,099)
3. Taxation
The taxation charge for the period comprises:
Six months ended Year ended
31 March 30 September
2003 2002 2002
(Unaudited) (Audited)
�'000 �'000 �'000
UK taxation 11,205 9,585 20,194
Overseas taxation 11,815 10,610 19,844
23,020 20,195 40,038
4. The unaudited financial information set out above does not constitute
the Company's statutory accounts for the period ended 31 March 2003. The
accounting policies used as a basis for this interim results announcement are
consistent with the Company's statutory accounts for the year ended 30
September 2002, which have been delivered to the Registrar of Companies. The
Group results for the year ended 30 September 2002 have been extracted from
those statutory accounts. The Auditors' Report on the accounts to 30
September 2002 was unqualified and did not contain a statement under Section
237 of the Companies Act 1985. Accounts to 30 September 2003 will be delivered
in due course.
5. The calculation of basic earnings per ordinary share is based on
earnings of �51,239,000 (2002: �44,899,000) being the profit for the period,
and on 1,275,648,166 ordinary 1p shares (2002: 1,273,689,033) being the
weighted average number of ordinary shares in issue during the period. The
diluted earnings per ordinary share is based on profit for the period of �
51,239,000 (2002: �44,899,000) and on 1,280,526,175 ordinary 1p shares (2002:
1,282,710,783).
6. The interim dividend of 0.555 pence per share will be paid on 13 June
2003 to shareholders on the register at the close of business on 16 May
2003.
END