Interim Results
30 April 2002
SAGE PRE-TAX PROFIT UP 10% TO £65.1 MILLION FOR HALF-YEAR ENDED
31 MARCH 2002
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 2002.
Highlights
Turnover increased by 22% to £279.8m (2001: £229.6m)
Operating profit increased by 16% to £69.8m (2001: £60.1m)
Strong operating profit growth from our US businesses
Pre-tax profit increased 10% to £65.1m (2001: £59.2m)
Earnings per share up 10% to 3.525p (2001: 3.214p)
Operating cash flow up 25% to £82.9m (2001: £66.6m)
120,000 new customers added in the period, bringing the total to 2.9m customers
at
31 March 2002 (2001: 2.7m), excluding Interact
Support contracts increased 14% to 944,000 (2001: 831,000)
Analysis of results
2002 2001
£m Turnover Operating Turnover Operating
profit profit
UK 76.7 27.4 71.4 28.3
Mainland Europe 58.7 15.7 51.7 11.4
US 115.0 24.1 107.5 20.5
Interact 26.0 2.1 - -
276.4 69.3 230.6 60.2
Impact of foreign - - (1.0) (0.1)
exchange*
Acquisition - France 3.4 0.5 - -
279.8 69.8 229.6 60.1
*Foreign currency results for the period ended 31 March 2001 have been
retranslated at current period exchange rates to facilitate comparison of
results, in the table above and in the operational review below.
Chairman, Michael Jackson, commented: 'Our strong recurring revenues provide
stability and growth. With our compelling product portfolio for small to
medium-sized businesses we continue to attract large numbers of new customers,
which in turn creates further installed base opportunities.
'Our businesses progressed well in implementing the clear strategies which have
been set. The first half performance was encouraging. We remain cautiously
optimistic about the rest of the financial year despite the continuing
challenging market conditions.'
Enquiries:
The Sage Group 0191 255 Financial 020 7831
plc 3000 Dynamics 3113
Paul Walker, Chief Giles Sanderson /
Executive Harriet Keen
Paul Harrison, Finance
Director
Phil Branston, Investor
Relations
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, the Group was floated on
the London Stock Exchange in 1989 and now employs over 5,600 people worldwide
in its market-leading companies in Europe and the US.
Introduction
We are pleased to announce another period of good growth for Sage, with
turnover increasing by 22% and pre-tax profit increasing by 10%. These results
have been achieved in market conditions which continue to be challenging and
they demonstrate the effectiveness of our strategy for generating revenue from
our large and growing installed customer base of 2.9m small and medium-sized
businesses (SMEs).
Installed base revenue, from the sale of upgrades, support contracts and other
services to our customers, increased by 23% contributing 66% of total revenues
(2001: 65%). The provision of support remains at the heart of our business.
At 31 March 2002 we had 944,000 support contracts (2001: 831,000), which alone
contributed 44% of total revenues in the period. We have also made progress in
cross-selling new products to existing customers and moving customers from
entry-level solutions to more sophisticated solutions better suited to their
growing businesses.
Significant progress has been made at Interact, last year's major acquisition.
We have repositioned Interact's product portfolio to create a more compelling
offering for its core SME target market. We have completed the integration
software necessary to ensure the ACT! product seamlessly links with Sage's
accounting products. We have also focussed on initiatives designed to build
Interact's installed base business. Whilst making these operational changes,
at the same time we improved the financial performance of the business.
We have seen no change to our competitive standing in our markets. We remain
differentiated from our competitors by the size of our user base, the quality
and scale of our channels to market and by the products and services we have
developed in response to expressed customer needs.
Financials
In the six months to 31 March 2002, we increased turnover by 22% to £279.8m
(2001: £229.6m). Operating profit rose by 16% to £69.8m (2001: £60.1m), and
pre-tax profit improved 10% to £65.1m (2001: £59.2m). Earnings per share
increased 10% to 3.525p (2001: 3.214p).
The interim dividend is being raised 10% to 0.157p per share (2001: 0.143p)
payable on 17 June 2002 to shareholders on the register at close of business on
17 May 2002.
The Group's performance is reflected in strong cash flow with operating profit
of £69.8m
(2001: £60.1m) generating operating cash flow of £82.9m (2001: £66.6m). At 31
March 2002 the Group had net debt of £163.7m (2001: net cash £12.4m) with net
interest covered 15 times by operating profit.
Operational review
UK
The UK business has continued to grow revenues, adding 23,000 entry-level
customers in the period.
UK margins were lower than in the prior year. This was attributable to the
performance of the Enterprise division and to investments made within other
parts of the business.
The Enterprise division continues to face challenging market conditions, which
resulted in reduced revenues. However, with our strong product portfolio, and
the opportunity to migrate our existing customers to mid-market solutions, we
are confident of better performance in the second half.
Elsewhere in the UK we made additional investments in our installed base
initiatives. These investments have been in people, internal systems and
channel support. We expect to see the benefits of these initiatives come
through in the second half of the year, which will lead to improved financial
performance.
Mainland Europe
Our French business performed strongly in the period, delivering revenue growth
of 27% and operating profit growth of 43% over the prior year. Whilst the
introduction of the Euro created some stimulus to revenues, the French business
also made gains resulting from the migration of customers up its extensive
product range and through the further sale of support contracts.
In October 2001 we acquired Coala SA. This business provides products and
services for accountants in practice and has become the focal point for our
relationships with the accountants' community in France. Aside from their
importance as potential customers to Sage, accountants are highly influential
recommenders of Sage products in all our territories.
Our German business continues to make sound progress in growing revenues and
profits. We added 30,000 new entry-level customers through the acquisition, at
the period end, of Gandke & Schubert for £2.9m, a business which achieved a
turnover of £1.8m in the financial year to 31 December 2001.
US
Our US accounting business delivered a strong financial performance with
operating profit growth of 18% in the period. Operating margins were lifted to
21% (2001: 19%) on revenue growth of 7%. This performance demonstrates the
benefits of last year's restructuring of the Speciality division, which sells
fixed asset, human resources and payroll solutions, and of operational
efficiencies achieved in the Entry-level and Mid-market divisions from
focussing on core products and installed base activities. Market conditions
remain challenging, but we continue to leverage our substantial installed base
revenue opportunity to support the growth of the US business.
Peachtree, our Entry-level division, continues to maintain its strong market
position and attracted 41,000 new customers in the period. Consequently core
product revenues grew by 22% and support contract numbers increased to 188,000
(2001:158,000).
Successful up-selling and cross-selling initiatives have enabled our Mid-market
and Speciality divisions to perform well. In the Mid-market division, 31% of
new licence sales of the MAS90 product came from the Peachtree customer base,
whilst in the Speciality division, 21% of FAS (Fixed Asset Management) new
licence sales were made to customers from our Mid-market division.
Organisational changes and further additions to our US management team place us
in a strong position to reap significant future benefits from these up-selling
and cross-selling initiatives.
MIP, the recent acquisition in the not-for-profit sector, has been integrated
successfully into the business. With MIP we have the opportunity to develop an
important business addressing the needs of the large not-for-profit sector in
the US.
Interact
Considerable progress has been made at Interact from both an operational and a
financial perspective. The US business has returned an improved margin of 10%
on revenues of £22m. The international business, which contributed £4m of
revenue, was restructured during the period and, as a consequence, we are
confident that it too will deliver substantially improved results in future.
Following the completion of the integration framework linking Interact's ACT!
product to Sage's back office accounting products, our customers can now
benefit from the adoption of fully integrated contact management and accounting
solutions. These applications were launched in March in the UK and the US and
are scheduled for release in France and Germany in June. The design of the
software linking Interact's salesforce automation tool, SalesLogix, to our
mid-market accounting software products is underway and will be completed later
in the year.
With its own large customer base, Interact has also placed considerable focus
on installed base activity in the period. The sale of support contracts to the
SalesLogix customer base delivered strong revenue growth. For ACT! users, a
series of new products and services have been launched. For example, in
February, Interact launched a new support contract, ACT! Advantage, to address,
for the first time, the substantial opportunity to sell support contracts to
the four million-strong ACT! installed user base. Early results have been
encouraging.
Outlook
Our strong recurring revenues provide stability and growth. With our compelling
product portfolio for small to medium-sized businesses we continue to attract
large numbers of new customers, which in turn creates further installed base
opportunities.
Our businesses progressed well in implementing the clear strategies which have
been set. The first half performance was encouraging. We remain cautiously
optimistic about the rest of the financial year despite the continuing
challenging market conditions.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 31 March 2002
Six months ended Year ended
31 March 30 September
(Audited)
(Unaudited)
2002 2001 2001
£'000 £'000 £'000
Turnover 279,821 229,649 484,137
Operating profit 69,817 60,143 128,381
Net interest payable (4,671) (987) (7,064)
Profit on ordinary activities before 65,146 59,156 121,317
taxation
Taxation on profit on ordinary (20,195) (18,339) (37,609)
activities
Profit on ordinary activities after 44,951 40,817 83,708
taxation
Equity minority interest (52) (24) 32
Profit for the financial period 44,899 40,793 83,740
Equity dividends (2,033) (1,819) (5,515)
Amount transferred to reserves 42,866 38,974 78,225
Earnings per share (pence) - basic 3.525p 3.214p 6.590p
Earnings per share (pence) - diluted 3.500p 3.180p 6.51p
Dividend per share (pence) 0.157p 0.143p 0.425p
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the six months ended 31 March 2002
Six months ended Year
ended
31 March
30
(Unaudited) September
(Audited)
2002 2001 2001
£'000 £'000 £'000
Profit for the financial period 44,899 40,793 83,740
Translation of foreign currency net investments and (8,534) (2,147) 3,463
related borrowings
Total recognised gains and losses relating to the 36,365 38,646 87,203
period
CONSOLIDATED BALANCE SHEET
As at 31 March 2002
31 March 30 September
2002 2001
(Unaudited) as adjusted
£'000 (Audited)
£'000
Fixed assets
Intangible 852,937 836,329
Tangible 52,032 51,208
904,969 887,537
Current assets
Stocks 2,182 2,308
Debtors 104,264 95,248
Deferred tax asset 41,319 48,362
Cash at bank and in hand 94,885 42,764
242,650 188,682
Creditors: amounts falling due within one year (162,400) (138,479)
Net current assets 80,250 50,203
Total assets less current liabilities 985,219 937,740
Creditors: amounts falling due after more than one (223,690) (237,585)
year
Deferred income (137,648) (112,809)
Equity minority interest (113) (62)
623,768 587,284
Capital and reserves
Called up equity share capital 12,748 12,725
Share premium account 441,397 437,671
Merger reserve 61,111 61,111
Profit and loss account 108,512 75,777
Equity shareholders' funds 623,768 587,284
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 31 March 2002
Six months ended Year
ended
31 March
30
(Unaudited) September
(Audited)
2002 2001 2001
£'000 £'000 £'000
Net cash inflow from operating activities 82,925 66,555 119,576
Returns on investments and servicing of finance
Interest received 715 312 3,302
Interest paid (4,778) (1,263) (9,023)
Issue cost of loans (180) (373) (1,877)
Interest element of finance lease rental payments (2) (9) (415)
Net cash outflow from returns on investments and (4,245) (1,333) (8,013)
servicing of finance
Taxation
Corporation tax paid (11,842) (13,791) (23,184)
Capital expenditure
Payments to acquire tangible fixed assets (8,523) (5,384) (11,619)
Receipts from sales of tangible fixed assets 187 24 4,865
Net cash outflow from capital expenditure (8,336) (5,360) (6,754)
Acquisitions and disposals
Purchase of subsidiary undertakings:
Net cash consideration - current year acquisitions (13,838) (7,482) (218,474)
- prior (7,981) (972) (11,781)
year acquisitions
Net cash outflow from acquisitions and disposals (21,819) (8,454) (230,255)
Equity dividends paid (3,615) (3,252) (5,182)
Cash inflow/(outflow) before financing and 33,068 34,365 (153,812)
management of liquid resources
Management of liquid resources
(Increase)/decrease in short term deposits (38,910) 1,745 11,212
Financing
Shares issued 2,121 1,306 2,381
Movement in loan funding 16,981 (656) 130,906
Repayment of capital element of finance leases (36) (127) (2,758)
Net cash inflow from financing 19,066 523 130,529
Increase/(decrease) in cash in the period 13,224 36,633 (12,071)
NOTES
1. Analysis of results
Six months ended Year ended
31 March* 30 September
2002 2001 2001
£'000 £'000 £'000
Turnover UK 76,734 71,440 148,839
France 43,102 36,745 74,103
Germany/Switzerland 15,574 14,961 28,451
US 114,941 107,490 209,189
Interact 26,047 - 23,555
276,398 230,636 484,137
Acquisition - France 3,423 - -
Impact of foreign exchange - (987) -
Total 279,821 229,649 484,137
Operating profit UK 27,449 28,352 56,316
France 12,927 9,442 21,859
Germany/Switzerland 2,714 2,039 4,473
US 24,106 20,450 45,582
Interact 2,075 - 151
69,271 60,283 128,381
Acquisition - France 546 - -
Impact of foreign exchange - (140) -
Total 69,817 60,143 128,381
* Foreign currency results for the period ended 31 March 2001 have been
retranslated at exchange rates used for the period ended 31 March 2002 to
facilitate the comparison of results.
Analysis of change in net debt (inclusive of finance leases)
At 1 Cash Acquisi-tions Exchange At 31
October flow movement/ March
2001 other
2002
£'000 £'000 £'000 £'000 £'000
Net cash at bank and 42,754 13,224 - - 55,978
in hand
Short term deposits - 38,910 - (3) 38,907
Loans due within one (7,584) 21 (184) (35,374) (43,121)
year
Finance leases due (57) 36 - - (21)
within one year
Loans due after more (226,039) (16,822) - 27,406 (215,455)
than one year
Finance leases due (21) - - - (21)
after more than one
year
(190,947) 35,369 (184) (7,971) (163,733)
Taxation
The taxation charge for the period comprises:
Six months ended Year ended
31 March 30 September
2002 2001 2001
£'000 £'000 £'000
UK taxation 9,585 10,918 22,303
Overseas taxation 10,610 7,421 15,306
20,195 18,339 37,609
The unaudited financial information set out above does not constitute the
Company's statutory accounts for the period ended 31 March 2002. 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 2001
(except as discussed in point 5 below) which have been delivered to the
Registrar of Companies. The Group results for the year ended 30 September 2001
have been extracted from those statutory accounts. The Auditors' Report on
the accounts to 30 September 2001 was unqualified and did not contain a
statement under Section 237 of the Companies Act 1985. Accounts to 30
September 2002 will be delivered in due course.
In December 2000 the Accounting Standards Board issued Financial Reporting
Standard No 19: Deferred Tax (FRS 19). Under FRS 19 the Group is required to
recognise deferred tax as a liability or asset if transactions or events giving
rise to an obligation to pay more tax in the future, or a right to pay less tax
in the future, have occurred by the balance sheet date. Previously the Group
provided for deferred tax using the liability method to the extent that it was
probable that liabilities would crystallise in the foreseeable future.
Deferred tax unprovided for as at 30 September 2001, and which is now required
to be provided for under FRS 19, has been provided for and shown as a prior
year adjustment. The impact on the profit and loss account for the six months
to 31 March 2002 is £7,043,000. There was no impact on the profit and loss
account for the six months to 31 March 2001 and 30 September 2001.
Shareholders' funds at 30 September 2001 have been increased by £48,362,000.
As permitted by FRS 19, the Group has adopted a policy of not discounting
deferred tax assets and liabilities.
The calculation of basic earnings per ordinary share is based on earnings of £
44,899,000 (2001: £40,793,000) being the profit for the period, and on
1,273,689,033 ordinary 1p shares (2001: 1,269,100,859) 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 £44,899,000
(2001: £40,793,000) and on 1,282,710,783 ordinary 1p shares (2001:
1,282,691,501).
7. The interim dividend of 0.157 pence per share will be paid on 17 June
2002 to shareholders on the register at the close of business on 17 May 2002.
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