FOR IMMEDIATE RELEASE
2 December 2003
SAGE PRE-TAX PROFIT UP 12% TO �151.0 MILLION FOR THE YEAR ENDED 30 SEPTEMBER
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 year ended 30
September 2003.
Financial highlights
* Turnover increased by 4% to �560.3m (2002: �539.8m*)
* Operating margin increased by 1.6 percentage points* to 27.8%
* Pre-tax profit grew 12% to �151.0m (2002: �135.2m*)
* Earnings per share grew 11% to 8.16p (2002: 7.32p*)
* Operating cash flow increased 22% to �183.8m (2002: �151.2m*)
* Proposed dividend 1.650p for the year, an increase of 10%
Operational highlights
* Strong profit growth in the UK and US
* 233,000 new customers added in the year. Over 400,000 customers added
through acquisitions after the year-end, taking the customer base to over
3.6 million
* Invested �177.4m in acquisitions (two of them after the year-end),
expanding into 3 new territories: South Africa, Australia and Spain
* Support contracts exceed 1 million
Geographical analysis
2003 2002
�m Turnover Operating Turnover* Operating
profit profit*
�m % growth �m % growth �m �m
UK 161.1 3.3% 64.6 12.2% 156.0 57.6
Mainland Europe 134.7 4.3% 29.6 -5.1% 129.2 31.2
US 264.5 3.9% 61.7 17.1% 254.6 52.7
560.3 3.8% 155.9 10.2% 539.8 141.5
Foreign exchange - - 11.9 2.2
impact *
560.3 1.6% 155.9 8.5% 551.7 143.7
*Group turnover and operating profit for the prior year have been retranslated
at current year exchange rates to facilitate comparison of certain of the
results within this release. Group pre-tax profit and earnings for the prior
year have been stated excluding the impact of the one-off �6m expense of
sponsoring "The Sage Gateshead".
Chairman, Michael Jackson commented: "We have continued to deliver good
earnings growth in difficult market and economic conditions. We have also made
significant progress against our strategic objectives, including the completion
of a number of acquisitions in new markets.
The start to the new financial year has been encouraging, and with significant
earnings enhancement expected from our recent acquisitions, the Board views
2004 with confidence."
Enquiries:
The Sage Group plc 0191 294 3000 Tulchan 020 7353 4200
Paul Walker, Chief Executive Julie Foster
Paul Harrison, Finance Director Kirstie Hamilton
Phil Branston, Investor Relations
Introduction
We are pleased to announce results which show earnings growth of 11%. During
the year we have made further progress in generating more revenue from our
customer base, which now numbers over 3.6m. We have also continued our
acquisition strategy, completing three significant acquisitions (two of them
after the financial year-end), which have opened up new markets and further
growth opportunities.
Financial overview
In the year ended 30 September 2003, we increased turnover by 4% to �560.3m
(2002: �539.8m*). Services revenues grew by 6% to �338.7m (2002: �319.8m*), and
represented 60% of total revenues. 80% of these service revenues came from the
provision of support contracts (2002: 78%). Software revenues grew by 1% to �
221.6m (2002: �220.0m*), and represented 40% of total revenues. 49% of these
software revenues came from sales to existing customers (2002: 45%).
Operating profit rose by 10% to �155.9m (2002: �141.5m*), with the operating
margin increased by 1.6 percentage points to 27.8% (2002: 26.2%*). Pre-tax
profit improved 12% to �151.0m (�135.2m*). Earnings per share increased 11% to
8.16p (2002: 7.32p*). These results include a charge of �2.0m for the loss on
disposal of a non-core division in May 2003.
The movement in exchange rates had a significant downward impact on results
from overseas businesses. The main factor was the 9% decline in the US dollar
against sterling, compared to the prior year, which impacted the 47% of Group
revenues originated in the US. This was only partially offset by the 8%
appreciation of the euro. Growth rates throughout this statement have been
stated at constant exchange rates, but without this adjustment, Group turnover
grew 2% and operating profit increased by 9%.
The Group's strong earnings and effective cash management created significant
growth in cash flow. Operating profit of �155.9m generated operating cash flow
of �183.8m. At 30 September 2003 the Group had net debt of �110.6m (2002: �
132.8m) with net interest covered 32 times by operating profit. The
acquisitions of Softline and Grupo SP, completed after the year-end, were
financed by a combination of additional debt and cash held in the business.
The proposed final dividend is 1.095p per share, making a total of 1.650p for
the year, an increase of 10%. Subject to shareholder approval, the proposed
final dividend will be paid on 12 March 2004 to shareholders on the register as
of 13 February 2004.
Market trends
Sage serves the market for accounting and business management software
solutions for small and medium-sized businesses ("SMEs"). In this market,
solutions designed to fit SMEs' specific requirements are delivered through
local distribution channels, including value-added resellers.
During the year, the market has continued to exhibit three broad
characteristics.
SMEs have continued to exercise caution in their spending on information
technology. As a consequence, we have seen no significant change in spending on
software. Larger SMEs, who might in a better economic climate replace their
solutions, are increasingly focussing on extracting greater value from their
existing solutions. Consequently they have invested in upgrades and
complementary products. The market serving smaller SMEs is more stable, since
newly formed businesses continue to automate their business processes for the
first time.
SMEs generally have continued to spend strongly on services related to their
software, which are often critical to efficient accounting and business
processes.
Those larger SMEs replacing their solutions are increasingly seeking to
purchase systems for a number of their business processes, rather than just for
accounting. Often, the solutions they require are industry-specific. The market
penetration of industry-specific, business solutions is still relatively low.
Sage approach to the market
Our response to these economic and market trends has been as follows.
Software
Recognising that many of our customers are seeking to enhance rather than
replace their existing solutions, our upgrade programmes introduce appropriate
new features and enhancements for all customers. 373,000 existing customers
purchased upgrades during the year. As a result, upgrade revenues grew 10% and
represented 37% of software revenues.
For those of our customers seeking to replace their solutions, we have
developed appropriate migration programmes based on our broad product
portfolio. 49,000 existing customers purchased new software during the year. As
a result, revenues from the sale of new licences to existing customers
represented 12% of software revenues.
It is one of our key priorities to attract large numbers of new customers to
the Group. Continued investment in our products, brands and marketing
programmes resulted in the recruitment of 182,000 new customers during the
year, excluding acquisitions.
Support
95% of our customers have less than 100 employees, and as a consequence very
few of them have in-house IT expertise. Instead they look to Sage to provide
support. Since many of our customers are seeking to derive greater value from
their existing solutions, we are providing higher tiers of service within our
support contract offerings. These were purchased by 250,000 of our support
customers during the year. Support revenues grew 8% in the year.
Industry-specific solutions
During the year, we introduced a number of new solutions tailored for
particular industries, including manufacturing, construction and distribution.
These solutions were introduced through internal product development and
through acquisitions. We now serve over 160,000 of our customers with
industry-specific solutions. As a result revenues from industry-specific
solutions were 11% of revenues.
Competitive position
We continue to perform strongly against our competitors by leveraging the key
strengths of our business. In a market where a substantial proportion of
revenues comes from existing customers, our customer base of over 3.6m SMEs is
an important source of revenue opportunities. Our range of localised solutions,
expanded by acquisitions, meet the requirements of SMEs by incorporating local
business practices and legislation. Our solutions are delivered by an
established community of local business partners and backed up by a local
support service. We have a product portfolio which meets the needs of both
small and large SMEs, and which is continuously developed, not only through
acquisitions but also using feedback from the 21,000 customer support calls
that we receive each day. These features will continue to differentiate us from
our competitors, and are at the core of our growth strategy.
Operational review
UK
UK revenues grew 3% and represented 29% of Group revenues. Revenue growth was
generated by sales to smaller SMEs, particularly through sales of upgrades and
support to existing customers. The operating margin increased to 40%, from the
prior year's 37%, reflecting increased revenues from existing customers and
also the benefit of the prior year's re-organisation of the mid-market
division. UK operating profit grew 12%.
While improving its operating margin, the UK business has continued to invest
in its product portfolio. Its migration programme, targeted at smaller SMEs,
has been strengthened by the introduction of new products, increasingly
addressing the needs of SMEs in specific industries.
Mainland Europe
Economic conditions in Mainland Europe were the most challenging of all our
markets, and were exacerbated by falling demand in the aftermath of the
transition to the euro. However, acquisitions enabled revenues to grow by 4%,
and Mainland Europe represented 24% of Group revenues.
In these conditions, many of our competitors saw a steep decline in business.
By contrast, our businesses remained highly profitable, as we were able to take
advantage of the sales opportunities that remain within our large customer
base. Furthermore, we continued to invest in upgrade programmes and in
developing support services for our customers.
Businesses acquired in the year contributed low initial margins and therefore
overall margins fell to 22% (2002: 24%).
US
Overall US revenues grew by 4% and represented 47% of Group revenues. The
accounting business grew revenues by 2%, while the CRM business grew revenues
13%.
Overall US operating margins grew to 23% (2002: 21%), led particularly by the
improvement of CRM margins to 18% (2002: 14%). Overall US operating profits
grew 17%.
In the accounting business, revenues were driven by our core accounting range,
where our investment is focused, and in particular by Peachtree's 9% growth.
This product range represented 80% of accounting revenues. The balance of
revenues came from our legacy products, where we actively seek to migrate
customers to core products. With lower investment, these products continue to
provide strong profit contributions.
The CRM business performed particularly well, due to the success of its upgrade
programme, which introduced compelling new features for customers of the ACT!
contact management product. In this expanding market, we continue to make
significant investments in both marketing and product development.
The US business has been built through a series of acquisitions, which have
created a large product portfolio and a customer base spanning small and large
SMEs. During the year, considerable progress was made in consolidating the US
businesses into two divisions, one addressing smaller SMEs and one addressing
larger SMEs. The centralisation of certain back-office functions, together with
a cohesive approach to our customers and business partners, ensures we continue
to build on our strong market presence in the US.
Acquisition activity
Our acquisition strategy remains core to our approach to the market. We acquire
businesses not only to enter new territories, but also to expand our offer in
territories where we already have a presence. The acquisition of businesses
with well-established brands and customer bases provides opportunities to sell
more products and services and so improve profitability.
We have made significant progress in our acquisition strategy through one major
acquisition during the year, and two further acquisitions after the end of the
year. In total, our acquisitions over the year and up to present represent a �
177.4m investment in future growth, supported by our strong operating cash
flows.
Timberline, acquired in September 2003 for an enterprise value of �55.9m, has
expanded our US industry-specific offer into a further important market: the
construction and real estate sector. We have 150,000 customers in the US
construction and real estate sector already using our software. Many of these
businesses represent excellent prospects for the Timberline product and we will
develop programmes to facilitate migration to this higher-value solution. This
acquisition contributed revenues of �1.6m in the period and made an operating
profit of �0.5m.
Our acquisition of Grupo SP in October 2003, for an enterprise value of �49.1m,
established a leading position in the attractive Spanish market. SP specialises
in providing solutions for smaller businesses. It is our intention to sell
additional products to SP's customer base, and also to extend SP's presence to
address the needs of larger SMEs by selling more sophisticated solutions.
With the acquisition of Softline, completed in November 2003, for an enterprise
value of �54.9m, we gained market-leading positions in South Africa and
Australia. Softline has well-established brands and large customer bases. We
will use our expertise to sell more products and services to Softline's
customers.
The two acquisitions completed after the end of the year added over 400,000
customers to the Group, bringing our customer base to over 3.6 million
businesses.
In addition, we made a number of small acquisitions during the year,
principally Concept Group in France, acquired in January 2003 for an enterprise
value of �5.0m. This business provides complementary treasury and consolidation
software for SMEs. This acquisition will provide stimulus to cross-selling
initiatives, increasing the breadth and value of the solutions offered to our
customers. Concept contributed revenues of �6.5m in the period and made an
operating profit of �0.4m.
We will grow these businesses by using our customer base marketing expertise
not only to sell more products and services to the new customers, but also to
sell the acquired products to existing Sage customers. We expect to make
further acquisitions as part of our response to the market trends noted above.
Our people
We place significant emphasis on attracting, developing and retaining our
people. The decentralised manner in which we manage our global network of
businesses is based on nurturing the entrepreneurship and creativity of our
employees. It is their understanding of local customers that enables our
businesses to develop products and services appropriate for the marketplace.
Our employees have also played an important role in maintaining and improving
our levels of local customer service, for which we have won numerous industry
awards. We thank all our people for their contribution to the year's
performance.
Outlook
Revenue from services has proven more resilient than the sale of software in
the weak economic conditions experienced during the year, and consequently we
expect this part of the business to deliver continuing growth.
Spending by smaller SMEs has demonstrated less dependence on macro-economic
conditions than spending by larger SMEs. Demand from our small business
customers is relatively predictable and therefore we expect this segment of our
business to continue its growth. Sales to larger SMEs have been more sensitive
to economic conditions, but we will continue to grow this part of the business
through strong execution of marketing programmes for our expanded product and
service range.
The Group is therefore positioned to deliver growth in unchanged economic
conditions. Growth would be higher in the event of improved conditions since
larger SMEs would seek to replace their solutions. The Group's largely fixed
cost base means that a significant proportion of incremental revenues will
translate into profit growth.
The start to the new financial year has been encouraging, and with significant
earnings enhancement expected from our recent acquisitions, the Board views
2004 with confidence.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 30 September 2003
2003 2002
(unaudited) (audited)
�'000 �'000
Turnover 560,345 551,731
Cost of sales (51,571) (54,840)
Gross profit 508,774 496,891
Selling and administrative (352,867) (353,211)
expenses
Selling and administrative expenses - sponsorship - (6,000)
arrangement
Total selling and administrative (352,867) (359,211)
expenses
Operating profit 155,907 137,680
Interest receivable 1,393 1,519
Interest payable and similar (6,263) (10,045)
charges
Profit on ordinary activities before taxation 151,037 129,154
Taxation on profit on ordinary (46,821) (40,038)
activities
Profit on ordinary activities after taxation 104,216 89,116
Equity minority interest (65) (41)
Profit for the financial year 104,151 89,075
Equity dividends (21,093) (19,143)
Amount transferred to reserves 83,058 69,932
Earnings per share (pence) - basic 8.16p 6.99p
Earnings per share (pence) - basic (pre sponsorship 8.16p 7.32p
arrangement)
Dividend per share (pence) 1.65p 1.500p
Notes:
The sponsorship arrangement relates to a one-off sponsorship payment of �6m in
connection with "The Sage Gateshead".
CONSOLIDATED BALANCE SHEET
As at 30 September 2003
2003 2002
(unaudited) (audited)
�'000 �'000
Fixed assets
Intangible 900,684 830,908
Tangible 99,243 54,541
999,927 885,449
Current assets
Stocks 2,667 2,306
Debtors 110,247 108,219
Deferred tax asset 16,559 28,306
Cash at bank and in hand 97,234 58,795
226,707 197,626
Creditors: amounts falling due within one year (185,306) (177,010)
Net current assets 41,401 20,616
Total assets less current liabilities 1,041,328 906,065
Creditors: amounts falling due after more than one (170,871) (157,194)
year
Deferred income (154,566) (127,019)
Equity minority interest (144) (121)
715,747 621,731
Capital and reserves
Called up equity share capital 12,792 12,755
Share premium account 443,137 441,859
Merger reserve 61,111 61,111
Profit and loss account 198,707 106,006
Equity shareholders' funds 715,747 621,731
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 30 September 2003
2003 2002
(unaudited) (audited)
�'000 �'000
Profit for the financial year 104,151 89,075
Translation of foreign currency net investments and 9,791 12,233
related borrowings
Total recognised gains and losses relating to the 113,942 101,308
year
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 30 September 2003
2003 2002
(unaudited) (audited)
�'000 �'000
Net cash inflow from operating activities 183,829 145,178
Returns on investments and servicing of finance
Interest received 1,393 1,520
Interest paid (5,479) (9,454)
Issue cost of loans (225) (180)
Interest element of finance lease rental payments - (3)
Net cash outflow from returns on investments and (4,311) (8,117)
servicing of finance
Taxation
Corporation tax paid (27,416) (22,645)
Capital expenditure
Payments to acquire tangible fixed assets (40,808) (19,130)
Receipts from sales of tangible fixed assets 242 468
Net cash outflow from capital expenditure (40,566) (18,662)
Acquisitions and disposals
Purchase of subsidiary undertakings:
Net cash - current year acquisitions (66,209) (28,185)
consideration
- prior year acquisitions (7,223) (19,292)
Net cash outflow from acquisitions and disposals (73,432) (47,477)
Equity dividends paid (24,217) (5,595)
Cash inflow before financing and management of 13,887 42,682
liquid resources
Management of liquid resources
Reduction / (increase) in short term deposits 131 (1,367)
Financing
Shares issued 1,161 2,604
Movement in loan funding 23,476 (29,104)
Repayment of capital element of finance leases (21) (57)
Net cash inflow / (outflow) from financing 24,616 (26,557)
Increase in cash in the year 38,634 14,758
NOTES
1. Analysis of results
2003 2002
Turnover Operating Turnover Operating
profit profit
(unaudited) (unaudited) (audited) (audited)
�'000 �'000 �'000 �'000
UK 161,123 64,575 155,986 57,625
France 95,031 21,922 95,129 26,146
Germany/Switzerland 39,656 7,709 34,078 5,036
US 208,797 51,706 205,294 45,967
Interact 55,738 9,995 49,307 6,734
560,345 155,907 539,794 141,508
Impact of foreign - - 11,937 2,172
exchange
Sponsorship - - - (6,000)
arrangement - The
Sage Gateshead
560,345 155,907 551,731 137,680
Foreign currency results for the year ended 30 September 2002 have been
retranslated at current year exchange rates to facilitate the comparison of
results.
2. Analysis of change in net debt (inclusive of finance leases)
At 1 Cash Acquisi-tions Exchange Other At 30
October flow movement September
2002 2003
�'000 �'000 �'000 �'000 �'000 �'000
Net cash at bank 57,512 38,634 - - - 96,146
and in hand
Short term deposits 1,283 (131) - (64) - 1,088
Loans due within (39,076) 39,204 (280) 306 (37,327) (37,173)
one year
Finance leases due (21) 21 - - - -
within one year
Loans due after (152,507) (62,455) (226) 7,810 36,707 (170,671)
more than one year
(132,809) 15,273 (506) 8,052 (620) (110,610)
3. Taxation
The taxation charge for the year comprises:
2003 2002
�'000 �'000
Current taxation
UK 18,873 20,066
Overseas 11,794 9,902
30,667 29,968
Deferred taxation 16,154 10,070
46,821 40,038
4. The unaudited financial information set out above does not constitute the
Company's statutory accounts for the year ended 30 September 2003.
Statutory accounts for the year ended 30 September 2002 have been delivered
to the Registrar of Companies and those for the year ended 30 September
2003 will be delivered in due course. The Group's results for the year
ended 30 September 2002 have been extracted from those statutory accounts.
The Auditors' Report on the accounts for the year ended 30 September 2002
was unqualified and did not contain a statement under Section 237 of the
Companies Act 1985.
5. The calculation of basic earnings per share is based on earnings of �104.2m
(2002: �89.1m) and on ordinary 1p shares of 1,276,690,520 (2002:
1,274,526,435) being the weighted average number of shares in issue during
the year.
6. Subject to shareholders' approval, the final dividend of 1.095 pence per
share will be paid on 12 March 2004 to shareholders on the register at the
close of business on 13 February 2004.
7. The annual report and accounts will be posted to shareholders shortly and
thereafter copies will be available from the Secretary, The Sage Group plc,
Sage House, Benton Park Road, Newcastle upon Tyne, NE7 7LZ.
END