Interim Results - Pre-tax Profit Up 52%

Sage Group PLC 9 May 2000 SAGE PROFITS UP 52% TO £54.0M FOR SIX MONTHS TO 31 MARCH 2000 The Sage Group plc ('Sage'), a leading supplier of accounting and payroll software and related products for small to medium-sized businesses and internet enabler of this community, announces its unaudited results for the six months ended 31 March 2000. Key Points: + Pre-tax profits up 52% to £54.0m (1999: £35.5m) + Turnover up 53% to £202.5m (1999: £132.5m) + Operating profit £55.7m (1999: £37.8m) up 47% + Underlying growth of 20% in turnover and 36% in operating profit + Earnings per share up 45% to 2.987p (1999: 2.058p) + Dividends for the half year raised 10% to 0.130p per share (1999: 0.118p) + A broad range of e-business products and services launched + Geographical analysis: Six months ended 31 March 2000 1999 Turnover Operating Turnover Operating profit profit £m £m £m £m UK 65.1 26.6 39.3 18.4 Mainland Europe 54.4 14.1 43.7 8.8 US 72.9 14.0 45.1 9.8 192.4 54.7 128.1 37.0 Impact of foreign exchange* - - 4.4 0.8 Acquisitions - US 8.2 0.9 - - Acquisitions- Europe 1.9 0.1 - - 202.5 55.7 132.5 37.8 * Foreign currency results for the period ended 31 March 1999 have been retranslated at current period exchange rates to facilitate the comparison of results. Chairman, Michael Jackson commented: 'Our well defined e-business products and services targeted at our 2.3 million customer base coupled with recent acquisitions will help us build further on our strong existing business and the Board remains confident about prospects for the full year' ENQUIRIES Paul Walker, Chief Executive, or Paul Harrison, Finance Director, on 020 7831 3113 today and on 0191 255 3000 thereafter, or Giles Sanderson or Jon Earl of Financial Dynamics. ISSUED BY FINANCIAL DYNAMICS LTD, 30 FURNIVAL STREET, LONDON EC4A 1JE. TELEPHONE: 020 7831 3113 The Sage Group plc INTERIM REPORT : FOR THE 6 MONTHS ENDED 31 MARCH 2000 INTERIM REPORT CHAIRMAN'S STATEMENT Introduction The six months to 31 March 2000 have been a very active and successful period for the Group. In addition to the continued development of our existing businesses, we made two significant acquisitions in Best Software, Inc. and Ubiquis SA, and we have made considerable progress in developing and launching our e-business products and services. Results, dividends and finance In the six months to 31 March 2000, turnover grew by 53% to £202.5m (1999: £132.5m). Operating profit grew by 47% to £55.7m (1999: £37.8m). Profit before taxation increased 52% to £54.0m (1999: £35.5m) and earnings per share increased 45% to 2.987p (1999: 2.058p). Our core businesses showed good underlying growth of 20% in turnover and 36% in operating profit. The interim dividend is being raised 10% to 0.130p per share (1999: 0.118p) payable on 19 June 2000 to shareholders on the register at close of business on 19 May 2000. Cash generation continues to be strong with £66.7m of operating cash flow generated in the period which, after interest, tax and dividends, gave free cash flow of £44.9m. The major acquisition in the period was Best Software, Inc. for a gross cash consideration of £285.4m including costs. This acquisition was financed through a vendor placing of 43,707,488 new ordinary shares, which raised £289.7m after costs. Ubiquis SA was acquired for consideration of £20.6m satisfied by the issue of 2,529,847 new ordinary shares. Other acquisitions were completed in the period for a cash cost of £14.6m. Acquired businesses held £1.9m of cash and £31.5m of short term deposits upon acquisition. After net capital expenditure of £10.1m and other movements of £2.1m, net funds stood at £1.7m at 31 March 2000 (30 September 1999: (£58.3m) net debt). Operational review In the UK, Sage Software Limited has continued to show strong organic growth whilst maintaining high operating margins. Tetra plc, acquired in April 1999 and now called Sage Enterprise Solutions, has refocused its business on selling through the value added reseller channel de-emphasising the previous strategy of selling direct to larger businesses. This has led to a significant improvement in operating margins. With a new management team in place, a strong product portfolio and part of the Sage UK operation, we believe this business is well positioned to make a significant future contribution to the Group. Our French businesses continue to perform well and have attracted 65,000 new customers in the period. Following the acquisition of Ubiquis, Sage France has launched an e-commerce solution seamlessly integrated with its core product range - the first such product in the French market. Our entry level business, Ciel has continued to strengthen its market leading position. Sage KHK in Germany has produced good year on year revenue growth which has returned the business to profit. Significant progress has been made, building on our efforts over the last two years, to reposition this business along the lines of the single licence model. With installed based revenues developing and a strong e-business offering, Sage KHK is well placed for future growth. We have continued to expand our US businesses attracting 47,000 new customers in addition to the 53,000 acquired with Best Software, Inc.. Peachtree is implementing its strategy to grow installed base revenues with investment being made to ensure the right systems and people are in place to provide a quality support service to its large customer base. Sage Software, Inc., distributing its products through the value added reseller channel, has successfully continued to sell support contracts to its installed customer base. The Time Division, based in Dallas, continued to make a good contribution with steady growth. Acquisitions On 14 February 2000, we completed the acquisition of Best Software, Inc.. Based in Reston, Virginia, Best is a leading provider of asset management software solutions which help organisations improve the management of their people, fixed assets and planning processes. The acquisition of Best provides the Group with a significantly expanded presence in the US market and a range of products which complements Sage's existing accounting software solutions. On 16 March 2000, we announced the acquisition of Ubiquis SA in France. Ubiquis provides small and medium-sized businesses (SMEs) with a sophisticated web trading tool which is fully scaleable and multi-lingual. Using this technology an SME can build a fully functional trading web-site, with transactional activity seamlessly integrated into the SME's underlying accounting system. This technology, originally designed to integrate with Sage France's products, will be made available to other operating companies in the Sage Group. During the period we also completed the acquisition of Sesam, the leading supplier of accounting software in the Swiss market and we purchased two further businesses in the UK; Hartley International Limited in January and, in April, CSM both of which supply software to professional firms of accountants, further strengthening our relationship with this key influencing community. E-business Strategy - a recap The internet remains an area of key strategic importance for the Group. Our strategy in the e-business arena is to provide our customers with the tools they need to take advantage of the business opportunities presented by the web. This strategy breaks down into two streams of activity: - We are 'web-enabling' all of our current PC-based software products. Embedding web functionality into our PC-based products allows our customers to enjoy the benefits of the web without having to make wholesale changes to their underlying systems. - We are developing a brand new set of web-based products and services accessible over the internet. Activity Our free web site creation tool, released in the UK in August 1999 has attracted 20,000 customers. Website Creator, the chargeable entry level website creation tool has been rolled out in the UK, France and Germany and will be live in the US at both Sage Software, Inc. and Peachtree by the end of July 2000. WebTrader, the entry level e-commerce tool allowing companies to sell their products over the web, has recently been launched in the UK and Germany, and will be rolled out by the end of June at Ciel in France, and by the end of the summer at Sage Software, Inc. and Peachtree in the US. Ubiquis, the e-commerce product for Sage's larger customers has been integrated with the mainstream accounting products in France. It is our intention to roll out Ubiquis technology to our larger customers in the UK, Germany and the US later in the year. At the beginning of May we launched an entry level ASP (application service provider) accounting service. Priced at $9.99 per month, e-Peachtree Accounting, allows very small businesses to start to manage their accounting needs on a rental basis over the web. Localised versions of this ASP accounting application will be rolled out across the rest of the Group in due course. An ASP payroll application will be launched at www.peachtree.com later this year. Best Software, Inc.'s web native payroll and HR management product, has been launched in the US market place. We are currently assessing how this application may be developed for use in other markets around the Group. Customer attitudes to the internet Our customers are paying close attention to developments on the web and look forward to the day when they can transact electronically, safely and securely with their customers and suppliers. However, with web technology still fairly immature and with issues regarding network capacity and security unresolved, our customers continue to treat the web with some caution and for the most part, are moving relatively slowly down the path to full e-business. As and when our customers are ready to 'web-enable' their businesses, we have a comprehensive portfolio of web-based products and services to ensure that they can achieve their aims with Sage. Importantly our customers see Sage as a trusted and reliable partner in the internet world. + First, we have a powerful brand - small businesses prefer to put their trust in a brand they know and that has served them well for many years. + Second, we have a strong reputation for customer service and support - and in the world of the internet, support is seen as more important than ever. + Third, and most importantly, Sage is a proven, and market-leading, supplier of software solutions that manage and record business transactions. Whether these transactions take place over a PC network, over the web, or over a mixture of the two, is entirely irrelevant to our customers. The fact is that wherever transactional activity is taking place, our customers want to be absolutely sure that things are being done safely and securely. The role of the reseller Many observers on the internet talk of 'disintermediation' as being an inevitability. Our own view, however, is that the intermediary in our market place, the value added reseller, will play a critically important role in bringing the benefits of the web to the small business community. Customers will need the local support of their trusted reseller more now than ever as they migrate their businesses to the web. We are proactively encouraging our resellers to become accredited as 'Sage e- business centres' so that they can start to provide local help and assistance to our customers. In the UK, for example, we now have more than 1,700 Sage e- business centres in place. Partnerships Forging alliances and strategic partnerships in the internet world is an essential pre-requisite to success. We have built close relationships with the major players in the internet world such as IBM, Microsoft, and the telcos as well as the infrastructure providers. Our scale as an organisation together with the size of our customer base makes us an attractive partner for these large organisations and we hope to reap the benefits of these partnerships in months to come. Outlook Our well defined e-business products and services targeted at our 2.3 million customer base coupled with recent acquisitions will help us build further on our strong existing business and the Board remains confident about prospects for the full year. Michael Jackson Chairman CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 31 March 2000 Six months ended Year 31 March ended (Unaudited) 30 September (Audited) Existing Acquisitio 2000 1999 Total 1999 operations ns Total Total £'000 £'000 £'000 £'000 £'000 Turnover 192,391 10,137 202,528 132,545 307,041 Operating profit 54,686 1,042 55,728 37,845 79,938 Net interest (1,736) (2,366) (5,625) payable Profit on ordinary activities before taxation 53,992 35,479 74,313 Taxation on profit on ordinary activities (17,277) (11,353) (23,780) Profit on ordinary activities after taxation 36,715 24,126 50,533 Equity minority 104 - (74) interest Profit for the financial year 36,819 24,126 50,459 Equity dividends (1,646) (1,414) (4,280) Amount transferred to reserves 35,173 22,712 46,179 Earnings per share (pence) - basic 2.987p 2.058p 4.224p Earnings per sahre (pence) - fully diluted 2.937p 2.055p 4.169p Net dividend per share (pence) 0.130p 0.118p 0.351p STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES For the six months ended 31 March 2000 Six months ended Year ended 31 March 30 September (Unaudited) (Audited) 2000 1999 1999 Total Total Total £'000 £'000 £'000 Profit attributable to 36,819 24,126 50,459 shareholders Currency translation of foreign currency net investments and related borrowings 1,126 (1,975) (1,034) Total gains and losses relating to the period 37,945 22,151 49,425 CONSOLIDATED BALANCE SHEET As at 31 March 2000 31 March 30 September 2000 1999 (Unaudited) (Audited) £'000 £'000 Fixed assets Tangible 45,678 36,728 Intangible 496,236 186,319 541,914 223,047 Current assets Stocks 3,091 2,254 Debtors 66,056 54,214 Cash at bank and in hand 89,700 31,589 158,847 88,057 Creditors: amounts falling due within one (96,678) (85,620) year Net current assets 62,169 2,437 Total assets less current liabilities 604,083 225,484 Creditors: amounts falling due after more than one year (87,525) (86,947) Deferred income (94,164) (63,194) Equity minority interest (61) (165) 422,333 75,178 Capital and reserves Called up equity share capital 12,670 1,219 Share premium account 431,136 152,297 Merger reserve 61,111 40,545 Profit and loss account (82,584) (118,883) Equity shareholders' funds 422,333 75,178 SUMMARY CASH FLOW STATEMENT For the six months ended 31 March 2000 Six months ended Year ended 31 March 30 September (Unaudited) (Audited) 2000 1999 1999 £'000 £'000 £'000 Net cash inflow from 66,706 52,955 110,897 operating activities Net interest, dividends and (21,854) (9,744) (27,696) tax paid Net expenditure on fixed (10,102) (1,910) (10,101) assets Cash consideration on (300,035) (99,896) (143,631) purchase of subsidiary undertakings Cash received on purchase 1,903 7,449 8,652 of subidiary undertakings Net movement in short term (7,961) - (7,948) deposits Net movement in loan 1,992 (1,796) (8,767) funding Shares issued 290,264 65,994 66,703 Increase/(decrease) in net 20,913 13,052 (11,891) cash Analysis of change in net cash At beginning of period 21,357 33,248 33,248 Net cash movement 20,913 13,052 (11,891) At end of period 42,270 46,300 21,357 NOTES 1. Geographical analysis Six months ended Year ended 31 March* 30 September 2000 1999 1999 £'000 £'000 £'000 Turnover UK 65,085 39,343 99,178 France 42,506 33,753 73,588 Germany 11,917 9,930 20,685 US 72,883 45,050 113,590 192,391 128,076 307,041 Impact of foreign - 4,469 - exchange Acquisitions - US 8,195 - - Acquisitions- 1,942 - - Switzerland Total 202,528 132,545 307,041 Operating UK 26,630 18,403 39,606 profit France 13,359 9,464 19,774 Germany 664 (699) (1,806) US 14,033 9,791 22,364 54,686 36,959 79,938 Impact of foreign - 886 - exchange Acquisitions - US 897 - - Acquisitions- Switzerland 145 - - Total 55,728 37,845 79,938 * Foreign currency results for the period ended 31 March 1999 have been retranslated at exchange rates used for the period ended 31 March 2000 to facilitate the comparison of results. 2. Analysis of change in net debt (inclusive of finance leases) At 1 Cash flow Acquisit- Exchange At 31 October ions movement March 1999 2000 £'000 £'000 £'000 £'000 £'000 Net cash at bank 21,357 19,299 1,903 (289) 42,270 and in hand Short term 7,948 7,961 31,481 40 47,430 deposits Debt (87,560) (1,992) (20) 1,586 (87,986) (58,255) 25,268 33,364 1,337 1,714 3. Taxation The taxation charge for the period comprises: Six months ended Year ended 31 March 30 September 2000 1999 1999 £'000 £'000 £'000 UK taxation 8,583 6,287 12,106 Overseas taxation 8,694 5,066 11,674 17,277 11,353 23,780 4. The unaudited financial information set out above does not constitute the Company's statutory accounts for the period ended 31 March 2000. 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 1999 which have been delivered to the Registrar of Companies. The Group results for the year ended 30 September 1999 have been extracted from those statutory accounts. The Auditors' Report on the accounts to 30 September 1999 was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. Accounts to 30 September 2000 will be delivered in due course. 5. The calculation of basic earnings per ordinary share is based on earnings of £36.8 million (1999: £24.1 million) being profit for the period, and on 1,232,595,754 ordinary 1p shares (1999: 1,172,309,760) 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 £36.8 million (1999: £24.1 million) and on 1,253,705,810 ordinary 1p shares (1999: 1,173,746,403). 6. The interim dividend of 0.130 pence per share will be paid on 19 June 2000 to shareholders on the register at the close of business on 19 May 2000.

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