Interim Results

Sage Group PLC 9 May 2001 For release: Wednesday 9 May 2001 - 7.00am Sage pre-tax profit up 10% to £59.2 million for six months to 31 March 2001 The Sage Group plc (Sage), a leading supplier of business management software solutions and related services for small to medium-sized enterprises, announces its unaudited results for the six months ended 31 March 2001. Key points: * Turnover increased by 13% to £229.6m (2000: £202.5m) * Pre-tax profit up 10% to £59.2m (2000: £54.0m) * Earnings per share up 8% to 3.214p (2000: 2.987p) * Dividend for the half year raised 10% to 0.143p per share (2000: 0.130p) * Operating cash flow of £66.6m (2000: £66.7m) * Acquisition of Interact Commerce Corporation for £183m completed on 3 May 2001 * 2.7m registered customers at 31 March 2001 (2000: 2.3m) * Support contracts at 31 March 2001 totalled 831,000 (2000: 754,000) * Geographical analysis: Six months ended 31 March 2001 2000 £m Turnover Operating profit Turnover Operating profit UK 71.4 28.3 65.1 26.6 Mainland Europe 51.6 11.6 55.9 14.0 US 106.6 20.2 89.8 16.6 _____ _____ _____ _____ 229.6 60.1 210.8 57.2 Impact of foreign exchange* - - (8.3) (1.5) _____ _____ _____ _____ 229.6 60.1 202.5 55.7 _____ _____ _____ _____ * Foreign currency results for the period ended 31 March 2000 have been retranslated at current period exchange rates to facilitate the comparison of results, in the table above and in the operational review below. Chairman's Statement Chairman, Michael Jackson said: 'Our businesses have made sound progress during the period. Whilst broadening our product portfolio and attracting more customers, we continue to improve underlying profitability. Our second quarter showed an encouraging improvement in revenue growth which continued into April. Whilst not immune to the US slowdown, we believe we will deliver satisfactory results for the full year.' Enquiries The Sage Group plc 0191 255 3000 Paul Walker, Chief Executive Paul Harrison, Finance Director Phil Branston, Investor Relations Web-site address: http://www.sage.com Financial Dynamics 020 7831 3113 Giles Sanderson/Emma Rutherford Introduction We are pleased to announce another period of growth for Sage, with turnover increasing by 13% and pre-tax profit up 10%. These results have been achieved during a period when new licence revenues have been significantly lower than in the comparable period last year when, particularly in the first quarter of that period, IT spending was at its peak in advance of the Year 2000. However, a core strength of the business is that we have been able to continue to grow revenues from our 2.7 million existing customers. These revenues contributed 65% of total revenues and provided the Group with a sound financial base. Small and medium-sized businesses ('SMEs') continue to adopt a cautious attitude to e-business. As we have consistently maintained, we do not expect to see this change significantly in the short-term. However, there is an increasing awareness of the benefits of e-business, stimulated partly by our communication campaigns. We continue therefore to invest in the development of e-business products and services which will be to the long-term benefit of the Group. In addition, we were pleased to announce in March the proposed acquisition of Interact Commerce Corporation ('Interact') which brings to the Group a strong portfolio of customer relationship management ('CRM') software products, an established channel and a large customer base. This acquisition, completed on 3 May, represents a significant step forward in our long term strategic objective which is to provide our customers with a comprehensive range of business management software products and services. Results, dividends and finance In the six months to 31 March 2001, we increased turnover by 13% to £229.6m (2000: £202.5m). Operating profit rose by 8% to £60.1m (2000: £55.7m), and pre-tax profit improved 10% to £59.2m (2000: £54.0m). Earnings per share increased by 8% to 3.214p (2000: 2.987p). The interim dividend is being raised 10% to 0.143p per share (2000: 0.130p) payable on 19 June 2001 to shareholders on the register at close of business on 18 May 2001. Sage continues to be highly cash generative, with operating profit of £60.1m translating to operating cash flow of £66.6m in the period. After interest, tax and dividends, this gave free cash flow of £48.2m, contributing to a net cash position of £12.4m at 31 March 2001 (30 September 2000: net debt of £ 20.8m). The £183m purchase of Interact, after the period end, was financed under a new £353m loan facility which replaces the Group's existing £95m facility. Operational review UK In recent years the UK business has pursued a strategy of channel expansion, in particular through developing closer relationships with the accountants' community, as well as broadening its product range. These have provided a sound base for revenue growth of 10% in the period. The entry-level division performed particularly well, recruiting 37,000 new customers in the period. In addition, its product range grew further with the acquisition in February of TAS Software Limited for a total consideration of £ 9.7m, which added another 20,000 active customers to the business. The mid-market division also grew revenues and market share. We have been building a significant business selling products and services to the accountants' community. As well as acting as important influencers, accountants increasingly resell Sage products. As customers or resellers, over 20% of new software sales were attributable to this community during this period. Educating both new and existing customers forms an important part of our investment in e-business. The recently launched 'e-business in action' campaign, designed to stimulate interest in web-based applications, has been well received with more than 1,500 people attending 45 seminars held so far. Mainland Europe In France, new licence revenues were significantly lower than in the comparable period last year when the favourable Year 2000 effect was particularly evident in the first quarter. However, we have seen a marked improvement in Sage France in the second quarter where we have seen growth in primary revenues which has continued into April. The continued improvement in our French business is reflected in independent research which confirms that we gained market share in the period whilst maintaining a strong relationship with our channel partners and the accountants' community. Our German business continues to progress well. Even in a tough market we are seeing the benefits of the restructuring efforts applied to this business over the last three years which have resulted in Sage KHK's operating margin growing to 21% (2000: 6%). US The performance of our US business was affected by challenging first quarter comparatives and an uncertain economic outlook. However, strong upgrade and support sales offset pressures on new licence revenues. Our US revenues benefited from a full period's contribution from Best Software, Inc., acquired in February 2000, which generated revenues of £30.7m (2000: £9.0m). Peachtree, our entry-level division, attracted 47,000 new customers in the period. Whilst new licence sales were lower than in the comparable period this was more than compensated by installed base revenue growth. With its strong focus on its core products and existing customers, Peachtree's operating margin rose to 21% (2000: 15%). Overall, mid-market revenues at Sage Software, Inc. were 8% down against the strong comparative period. The decrease in new licence revenues was offset by significant growth in support revenues through greater penetration of maintenance contracts into the user base. Our efforts to migrate customers up through our product range have been successful. For example, the migration of customers from Peachtree to our mid-market offering, MAS90, has been accelerated by the launch of co-branded products. Customers migrating from Peachtree to MAS90 accounted for 24% of all primary units sold by Sage Software, Inc.. Best Software, Inc., our fixed assets and human resource solutions business, delivered significantly improved results in the US, benefiting from the decision taken last year to focus on core products targeted at the SME community. Acquisition of Interact Commerce Corporation The acquisition of Interact marks a significant development in our strategy of offering SMEs a comprehensive suite of business management software solutions. Our customers and channel partners have expressed strong demand for a wider range of products from Sage, feedback which is supported by independent market research. This research indicated that CRM is a relevant offering for SMEs with 75% of entry-level customers intending to purchase a CRM solution over the next few years. Our research showed that on average only 10% of Sage customers currently have CRM software. This research also demonstrated that the most critical factor affecting an SME's decision to purchase a CRM product is the extent to which it integrates with the underlying accounting software. Owning both the CRM and accounting software enables us to ensure that integration is seamless. This, combined with our traditional strengths in customer service, positions us well to market CRM solutions successfully to our 2.7 million customers. Interact is a leading supplier of CRM software with two product ranges, targeting entry level and mid-market customers. At the entry level, ACT! is a leading contact management and salesforce automation package, whilst SalesLogix provides comprehensive CRM functionality, including sales, marketing, e-commerce and support, to mid-market customers who require a more sophisticated CRM software solution. It is our intention that Interact will continue to develop its own business in the wider CRM market. Over the next six months we will be developing a common protocol to tightly integrate Interact's CRM products with our accounting products, to ensure we maximise the significant revenue opportunity of selling Interact's products to our large customer base. Outlook statement Our businesses have made sound progress during the period. Whilst broadening our product portfolio and attracting more customers, we continue to improve underlying profitability. Our second quarter showed an encouraging improvement in revenue growth which continued into April. Whilst not immune to the US slowdown, we believe we will deliver satisfactory results for the full year. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 31 March 2001 Six months ended Year ended 31 March 30 September (Unaudited) (Audited) 2001 2000 2000 £'000 £'000 £'000 Turnover 229,649 202,528 412,153 ______ ______ ______ Operating profit 60,143 55,728 111,882 Net interest payable (987) (1,736) (3,134) _____ _____ _____ Profit on ordinary activities before taxation 59,156 53,992 108,748 Taxation on profit on ordinary activities (18,339) (17,277) (34,799) _____ _____ _____ Profit on ordinary activities after taxation 40,817 36,715 73,949 Equity minority interest (24) 104 71 Profit for the financial period 40,793 36,819 74,020 Equity dividends (1,819) (1,646) (4,898) _____ _____ _____ Amount transferred to reserves 38,974 35,173 69,122 _____ _____ _____ Earnings per share (pence) - basic 3.214p 2.987p 5.921p _____ _____ _____ Earnings per share (pence) - fully diluted 3.180p 2.937p 5.817p _____ _____ _____ Net dividend per share (pence) 0.143p 0.130p 0.386p _____ _____ _____ STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES For the six months ended 31 March 2001 Six months Year ended ended 31 March 30 September (Unaudited) (Audited) 2001 2000 2000 £'000 £'000 £'000 Profit attributable to shareholders 40,793 36,819 74,020 Currency translation of foreign currency net investments (2,147) 1,126 (2,963) and related borrowings _____ ____ _____ Total recognised gains and losses relating to the period 38,646 37,945 71,057 _____ _____ _____ CONSOLIDATED BALANCE SHEET As at 31 March 2001 31 March 30 September 2001 2000 (Unaudited) (Audited) £'000 £'000 Fixed assets Tangible 46,578 46,504 Intangible 556,412 540,422 _____ _____ 602,990 586,926 _____ _____ Current assets Stocks 2,260 2,489 Debtors 94,007 85,369 Cash at bank and in hand 101,091 66,417 _____ _____ 197,358 154,275 Creditors: amounts falling due within one year (115,432) (110,178) _____ _____ Net current assets 81,926 44,097 _____ _____ Total assets less current liabilities 684,916 631,023 Creditors: amounts falling due after more than one (80,202) (78,472) year Deferred income (111,727) (98,066) Equity minority interest (118) (94) _____ _____ 492,869 454,391 _____ _____ Capital and reserves Called up equity share capital 12,707 12,680 Share premium account 436,468 432,690 Merger reserve 61,111 61,111 Profit and loss account (17,417) (52,090) _____ _____ Equity shareholders' funds 492,869 454,391 _____ _____ CONSOLIDATED SUMMARY CASH FLOW STATEMENT For the six months ended 31 March 2001 Six months ended Year ended 31 March 30 September (Unaudited) (Audited) 2001 2000 2000 £'000 £'000 £'000 Net cash inflow from operating activities 66,555 66,706 104,998 Net interest, dividends and tax paid (18,376) (21,854) (41,519) Net expenditure on fixed assets (5,360) (10,102) (17,397) Net cash consideration on purchase of subsidiary (8,454) (298,132) (330,428) undertakings Net movement in short term deposits 1,745 (7,961) 29,785 Net movement in loan funding (783) 1,992 (2,807) Shares issued 1,306 290,264 290,836 _____ _____ _____ Increase in net cash 36,633 20,913 33,468 _____ _____ _____ Analysis of change in net cash At beginning of period 54,825 21,357 21,357 Net cash movement 36,633 20,913 33,468 _____ _____ _____ At end of period 91,458 42,270 54,825 _____ _____ _____ NOTES 1. Geographical analysis Six months ended Year ended 31 March* 30 September 2001 2000 2000 £'000 £'000 £'000 Turnover UK 71,440 65,085 132,124 France 37,018 42,085 71,497 Germany/Switzerland 14,631 13,833 26,595 US 106,560 89,812 181,937 _____ _____ _____ 229,649 210,815 412,153 Impact of foreign exchange - (8,287) - _____ _____ _____ Total 229,649 202,528 412,153 _____ _____ _____ Operating profit UK 28,352 26,630 54,965 France 9,512 13,226 20,631 Germany/Switzerland 2,048 809 1,997 US 20,231 16,545 34,289 _____ _____ _____ 60,143 57,210 111,882 Impact of foreign exchange - (1,482) - _____ _____ _____ Total 60,143 55,728 111,882 _____ _____ _____ * Foreign currency results for the period ended 31 March 2000 have been retranslated at exchange rates used for the period ended 31 March 2001 to facilitate the comparison of results. 2. Analysis of change in net debt (inclusive of finance leases) At 1 Cash Acquisitions Exchange At 31 March October flow movement/other 2001 2000 £'000 £'000 £'000 £'000 £'000 Net cash at bank 54,825 36,633 - - 91,458 and in hand Short term deposits 11,190 (1,745) - 44 9,489 Debt (86,802) 1,156 (14) (2,872) (88,532) ______ ______ ______ ______ ______ (20,787) 36,044 (14) (2,828) 12,41 ______ ______ ______ ______ ______ 3. Taxation The taxation charge for the period comprises: Six months ended Year ended 31 March 30 September 2001 2000 2000 £'000 £'000 £'000 UK taxation 10,918 8,583 18,433 Overseas taxation 7,421 8,694 16,366 _____ _____ _____ 18,339 17,277 34,799 _____ _____ _____ 4. The unaudited financial information set out above does not constitute the Company's statutory accounts for the period ended 31 March 2001. 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 2000 which have been delivered to the Registrar of Companies. The Group results for the year ended 30 September 2000 have been extracted from those statutory accounts. The Auditors' Report on the accounts to 30 September 2000 was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. Accounts to 30 September 2001 will be delivered in due course. 5. The calculation of basic earnings per ordinary share is based on earnings of £40.8 million (2000: £36.8 million) being profit for the period, and on 1,269,100,859 ordinary 1p shares (2000: 1,232,595,754) 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 £40.8 million (2000: £36.8 million) and on 1,282,691,501 ordinary 1p shares (2000: 1,253,705,810). 6. The interim dividend of 0.143 pence per share will be paid on 19 June 2001 to shareholders on the register at the close of business on 18 May 2001.

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