Final Results
FOR IMMEDIATE RELEASE 30 November 2005
SAGE PRE-TAX PROFIT UP 13% TO £205.4 MILLION FOR YEAR ENDED 30 SEPTEMBER 2005
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 (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 2004
Operational 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
business
Operating 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 continues
to demonstrate the value of our key assets - our expanding customer base of 4.7
million businesses, our locally-developed software solutions and our network of
23,000 reseller partners.
Future growth will be based upon continued investment in locally-developed
business software solutions to meet the evolving needs of SMEs; supporting our
reseller partners; enhancing support for our customers with locally-delivered
services; and acquisitions in both existing and new geographic markets.
The start to 2006 has been encouraging and we therefore view 2006 with
confidence.'
*Foreign currency results for the year ended 30 September 2004 have been
retranslated based on the average exchange rates for the year ended 30
September 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 presentation
will also be available at www.sage.com. A live audio broadcast of the
presentation 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
Overview
We are pleased to report a strong performance, with turnover increasing 14%*
and earnings per share increasing 13%. These results demonstrate that our
businesses have responded well to the competitive challenges they face. We
maintained our strong market positions by providing locally- developed
solutions, by working closely with our high quality reseller partner channel
and by supporting customers with locally-based services. This enabled us to
increase our customer base to 4.7 million businesses (30 September 2004: 4.4
million).
Fulfilling customers' needs
As a supplier of business software solutions to SMEs, our growth strategy has
been based on meeting their evolving business requirements with localised
software and related services. Our SME customers buy business software to
address a variety of needs, ranging from basic book-keeping for small
businesses, to business-wide solutions for larger, mid-market customers. As
these needs change, our customers continue to enhance their solutions by
selecting 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 these
customers, since they are more likely to enhance their solution over time and
so subscribe to our support and service offerings.
In addition to providing more advanced 'back office' software, we also offer
our customers a range of software to help them manage processes elsewhere in
their businesses. Our customers have exhibited increasing demand for customer
relationship management ('CRM') software and, as a result, CRM, with organic
revenue growth of 9%*, was our fastest-growing category of solutions in the
year. Other software solutions - including payroll, human resources and
industry-specific products - also contributed to our growth. This was
stimulated by country-specific evolution of both government legislation and
other business rules, which has increased the level of information that
businesses are required to produce.
As our customers purchase more complex solutions, they increasingly opt to buy
more of our services in order to run their systems more efficiently and produce
useful business information. These additional services include both new support
for added software and higher levels of support for existing software. In
addition, more customers are choosing our combined subscriptions to both
software and services, including feature upgrades, technical and advisory
support and data transmission to accountants and government bodies.
Investing for growth
We continued our annual programme of upgrading our product portfolio in
response to customer needs, releasing new and improved products in all of our
markets. New product releases included improved integration with other Sage
products and more consistent and intuitive user interfaces. We also invested in
new applications that will enable customers to expand their solutions in
future, such as business intelligence and payroll services. Our total
investment in research and development grew by £8m*, or 11%*, and represented
28% of software revenue (2004: 28%*).
During the year, our CRM business delivered a product that enables customers to
choose freely between software that is either rented, and provided via the web,
or purchased as a traditional desktop PC application. In recognition of the
growth potential of CRM, a global organisation has been established within Sage
to increase our focus on this market and to direct the development of all CRM
products. We have established new global branding for all CRM products and have
set up a localisation centre to ensure advances in our CRM solutions are
responsive to local needs. These initiatives will accelerate the development of
CRM opportunities in new regions, whilst also adding focus to the development
of our existing CRM businesses in North America and the UK.
Our investment activity also extended to our network of high-quality reseller
and recommender partners. We provided more support for the sales and marketing
activities of our 23,000 reseller partners. We also extended our sales
activities with key influencers such as accountants and sales consultants.
Acquisition in high-growth segments of the SME market remains an important part
of Sage's growth strategy. As part of this strategy, we made a number of
acquisitions during the year. These acquisitions took us into new markets and
also enhanced our position in existing markets.
Financial review
Revenue and profitability
Revenues 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 the
contributions of current- and prior-year acquisitions (together, 21% of
revenues) 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 first
time. In addition, our existing customers continued either to upgrade their
products 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%*. Support
revenue grew by £48.9m*, or 14%*, to £391.4m and represented 50% of Group
revenues. On an organic basis, support revenue grew 6%*, principally as a
result of an increase in spend per customer. This increase resulted both from
new support contracts associated with migration to more sophisticated software
and 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 contracts
associated with continuous support subscriptions.
The Group's operating margin was maintained at 27% (2004: 27%*).
Acquisitions
During the year, we completed a number of significant acquisitions, for a total
consideration of £101.0m. Details of the principal acquisitions are shown
below.
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. (enterprise
value £78.4m, November 2005) extended our presence in France.
The three principal acquisitions completed in the prior year showed improved
results against comparable prior-year periods. SP (Spain) showed revenue growth
of 5%* and improved its operating margin to 31% (2004: 23%). ACCPAC
(principally North America) showed revenue growth of 13%* and improved its
operating margin to 23% (2004: 14%*). Softline (principally South Africa and
Australia) showed revenue growth of 16%* and improved its operating margin to
23% (2004: 21%*).
Cash flow
The Group remains highly cash generative with operating cash flow of £240.3m
representing 114% of operating profit. This strong cash flow meant that, after
expenditure on acquisitions of £101.0m, net debt stood at £106.9m at the year
end (30 September 2004: £131.3m).
Dividend
In line with the Group's policy, announced in December 2004, of reducing
dividend cover, over time, to 3.5 times, the proposed final dividend is being
raised to 1.953p per share (2004: 1.719p), giving dividend growth for the full
year of 23% to 2.875p (2004: 2.33p). Dividend cover will therefore reduce to
3.9 times and it is the Board's intention to move this cover to 3.5 times for
the year ending 30 September 2006. The dividend will be payable on 8 March 2006
to shareholders on the register at close of business on 10 February 2006.
International Financial Reporting Standards
The Group will report for the first time under International Financial
Reporting Standards (IFRS) for the half-year ending 31 March 2006. In early
2006, results for 2005, restated under IFRS, will be reported, together with
the Group's IFRS accounting policies. The principal impacts of IFRS on the
Group were illustrated in a presentation on 22 September 2005 (available at
www.sage.com), by way of an unaudited restatement of 2004 results. This showed
estimated reductions in revenue of 2%, pre-tax profit of 3% and earnings per
share of 4%.
Regional review
UK
UK revenues were £195.8m (2004: £185.8m). Organic revenue growth of 5% resulted
principally from the sale of upgrades of accounting and payroll products to
existing customers. In addition, sales of both software and support were
increased in key industry-specific solutions such as those for accountants.
The UK CRM business contributed revenues of £12m. Its 10% growth reflects
increased adoption of Sage CRM products by our UK reseller partners. This has
enabled our under-penetrated UK customer base to be targeted more effectively.
The operating margin improved in the second half of the year to 39% through
effective cost management. The operating margin for the full year was 38%
(2004: 39%).
Mainland Europe
Revenues in Mainland Europe were £205.2m (2004: £172.6m*). Organic revenue
growth of 7%* resulted from customers migrating to more sophisticated software
and from increased take-up of both premium support services and continuous
subscriptions combining software and support. Sales of both software and
support were also favourably impacted by changes in payroll legislation.
The acquisition of Simultan significantly expanded coverage of the mid-market
in Switzerland. The acquisition of Logic Control, a leading mid-market vendor,
complemented our existing small business division in Spain. The acquisition of
Symfonia established a leading presence in the attractive Polish market. Two
French acquisitions, C2G Informatiqueand Cogestib, established leading
industry-specific presences in the distribution sector.
After the end of the financial year, the acquisition of Adonix extended our
presence in the French mid-market. For the year ended 31 December 2004, its
last full year prior to acquisition, its revenue was £42.6m** and its operating
profit was £9.6m**. Adonix will provide advanced solutions for our mid-market
customers, including industry-specific software for real estate and
manufacturing.
** All financial information calculated on the basis of £1 = Euro 1.480.
The overall operating margin in Mainland Europe was 23% (2004: 24%*), having
been reduced by the initial impact of acquisitions completed during 2005.
North America
Revenues in North America were £315.8m (2004: £278.5m*). Organic revenue growth
was 6%*.
Revenues from the small business division were £100.9m (2004: £90.8m*),
including the impact of acquisitions. Organic revenue growth of 4%* resulted
from new and existing customers adopting premium versions of existing products,
together with support services for these products. These products include
industry-specific and multi-user features. Sales of all these products
benefited from the development of sales channels comprising recommenders and
consultants.
Revenues from the mid-market division were £214.9m (2004: £187.7m*), including
the impact of acquisitions. Organic revenue growth of 7%* resulted from
customers purchasing both new solutions and adding to existing solutions,
including new and renewed support services. These results reflected increased
support for the sales and marketing activity of our reseller partners.
We introduced a range of additional payroll services, including full payroll
outsourcing, for our 270,000 North American payroll customers. During the year,
5,000 customers subscribed to these services. This business was enhanced by the
acquisition of Federal Liaison Services, a payroll services supplier, in
November 2004.
The operating margin increased to 23% (2004: 22%*) as a result of profitable
growth in the core businesses and of improving margins in 2004's ACCPAC
acquisition.
Rest of World
This region contributed revenues of £59.8m (2004: £45.7m*). The two largest
businesses, in South Africa and Australia, showed strong revenue growth and
raised margins through increased support penetration, improved payroll
solutions and migration of customers to mid-market solutions. In Asia,
investments in marketing within the ACCPAC businesses acquired in 2004 reduced
margins in comparison with the prior year. The overall operating margin for the
region was 25% (2004: 26%*)
People
We now employ nearly 10,000 people (2004: 8,000), the increase resulting
principally from acquisitions. The successful integration of acquired
businesses into our local operations has ensured that this year's acquisitions
are already combining effectively with our existing activities. In all our
businesses, our people have demonstrated commitment to meeting the needs of our
customers and their achievements have been reflected in numerous industry
awards for product quality and customer service. We have also benefited from
new ideas on business processes and products, thanks to the innovative approach
of our people. We thank our people for their contribution to the year's
performance.
During the year, two non-executive directors, John Constable and Kevin Howe,
retired from the Group Board. John Constable joined the Board in 1995 and
chaired its Audit Committee from 1996. John played a key role in facilitating
and challenging the development of the Group's strategic vision. Kevin Howe
joined the Board in 1992 as an executive director with responsibility for our
US businesses. On retirement from his executive role in 2001, Kevin became a
non-executive director. Kevin was an early and expert advocate of customer base
marketing. We thank John and Kevin for their valuable contributions to the
Board.
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 brand
marketing within service businesses.
Outlook
Our organic revenue growth continues to demonstrate the value of our key assets
- our expanding customer base of 4.7 million businesses, our locally-developed
software solutions and our network of 23,000 reseller partners.
Future growth will be based upon continued investment in developing localised
business software solutions to meet the evolving needs of SMEs; supporting our
reseller partners; enhancing support for our customers with locally-delivered
services; and acquisitions in both existing and new geographic markets.
The start to 2006 has been encouraging and we therefore view 2006 with
confidence.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For 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 205,357 181,144
taxation
Taxation on profit on ordinary 3 (61,769) (54,343)
activities
Profit on ordinary activities after 143,588 126,801
taxation
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 96,860
reserves
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 LOSSES
For 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 SHEET
As 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 STATEMENT
For 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)
NOTES
For the year ended 30 September 2005
1. 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 translated
into Sterling at the average exchange rates for the year. For our two most
significant foreign operating currencies, the US Dollar and the Euro, the
resulting rates were £1=$1.85 and £1=€1.45 respectively. Results for the year
ended 30 September 2004 have been retranslated at these exchange rates to
facilitate the comparison of results. The Group does not hedge this
translational 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. Taxation
The 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 the
Company's statutory accounts for the year ended 30 September 2005. The
accounting policies used as a basis for this results announcement are
consistent with 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 from
those statutory accounts. The Auditors' Report on the accounts to 30
September 2004 was unqualified and did not contain a statement under Section
237 of the Companies Act 1985. Accounts to 30 September 2005 will be delivered
in due course.
5. Earnings per share
The 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 on
1,283,347,008 ordinary 1p shares (2004: 1,280,276,310) being the weighted
average 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. Dividends
The final dividend of 1.953 pence per share will be paid on 8 March 2006 to
shareholders 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 and
thereafter copies will be available from the Secretary, The Sage Group plc,
North Park, Newcastle upon Tyne, NE13 9AA.
Friday, 31st May 2024
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