Sage Group plc results for the six months ended 31 March 2017

Sage Group plc resultsfor the six months ended

31 March 2017

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invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in The Sage Group plc (the “Company”) or any company which is a subsidiary of the Company. Information in the following presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments.

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• Certain statements contained in this presentation constitute forward-looking statements. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding the Company’s financial condition, business strategy, plans and objectives, are forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will”, or “should” or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future

business strategies and the environment in which the Company will operate in the future. Such risks, uncertainties and other factors include, among others: Inherent difficulty in predicting customer behaviour; customers may not respond as we expected to our sales and marketing activities; the competitive environment; our ability to adapt to technological change; business interruption or failure of our systems architecture and communication systems; problems with implementing upgrades to our applications and supporting information technology infrastructure; any failure to properly use and protect personal customer information and data; our ability to manage and maintain third party business partnerships; increased regulation of our businesses; any failure to process transactions effectively; any failure to adequately protect against potential fraudulent activities; any significant quality problems or delays; the global macro-economic environment; our inability to attract, retain and develop talented people; our ability to repurchase shares; our inability to adequately protect our intellectual property rights; disruptions, expenses and risks associated with any acquisitions and divestitures; amortisation of acquired intangible assets and impairment charges; our use of debt to finance acquisitions or other activities; and the cost of, and potential adverse results in, litigation involving intellectual property, competition authority, shareholder and other matters. These forward-looking statements speak only as at the date of this presentation. Except as required by the Financial Conduct Authority, or by law, the Company expressly excludes any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events, or otherwise. Nothing in the foregoing is intended to or shall exclude any liability for, or remedy in respect of, fraudulent misrepresentation.

• RoundingAs a result of rounding throughout this document, it is possible that tables may not cast and change percentages may not calculate precisely.

• MaterialityOnly figures over £1m are considered to be material for the purposes of this presentation.

02

Safe harbour

Sage Group plc interim results 2017 #SageResults

Stephen KellyChief Executive Officer

@SKellyCEO

Agenda:• Summary

• CFO review

• Progress

• Outlook

• Q&A

03 Sage Group plc interim results 2017 #SageResults

H1 17 Summary

04

The strategy is working

Strong foundations and road map

for acceleratinggrowth

Q2 momentum continuing into H2


Steve HareChief Financial Officer

@SteveHareCFO


Organic and underlying revenue

Operating Profit Margin %H1 17

%H1 16

%Change

Organic 25.2% 25.6% -40bps

Underlying 25.1% 25.5% -40bps

06

RevenueH1 17

£mH1 16

£mGrowth

Organic* £838m £787m +6.4%

Inorganic adjustments £74m £76m

Underlying* £912m £863m +5.7%

*See appendix for definitions


Financial summary

H1 17 H1 16 Change

Organic revenue £838m £787m +6.4%

Organic operating profit £211m £201m +5.0%

Organic Margin % 25.2% 25.6% -40bps

Underlying EPS 14.5p 14.2p +2.0%

Organic operating profit £211m £201m +5.0%

Share based payments £5m £6m

Underlying depreciation and amortisation £17m £15m

Non-GAAP EBITDA £233m £222m +5.4%

Non-GAAP EBITDA margin 27.9% 28.2%

Reconciliation to Non-GAAP EBITDA:

Non-recurring items (exceptional costs) (£19m) (£29m)

Recurring items (£12m) (£8m)

Statutory Operating Profit £180m £137m +32%


Free cash flow £166m

M&A (£87m)

Ordinarydividends (£101m)

Exchange movement on debt (£15m)

Interest (£10m)

Tax paid (£39m)

Exceptional costs (£23m)

Depreciation/amortisation £17m

Share-basedpayments £5m

Change in working capitaland deferred income £2m

Net CAPEX (£15m)

Underlyingoperating profit

£229m Underlying cash flow from operating activities

£238m

Free cash flow £166mUnderlying cash flow from

operating activities£238m

Opening net debt (£397m)

Closing net debt (£434m)

Strong capital metrics

08

Free cash flow as% of revenue

18%Cash conversion 104% Net leverage 0.9x

Key Metrics:


+10%

H1 17H1 16

RecurringRevenue

+31%

-3%

-8%

+6%

Other recurring

SSRS

Processing

Softwaresubscription

Revenue categories

09

+11%


Software subscriber growth

Software subscriber growthGrowth in ASB of £82m to £618m over last 6 months

10

£m 15%

536

618 13

34

22

2 11

450

470

490

510

530

550

570

590

610

630

Sep-16 Sage One Sage 50 Sage 200 Sage X3 Other Mar-17


Regional overview

11

NorthernEurope

NorthAmerica

Central & Southern

Europe

International


What went well• Every major European country excl. France

growing above the group revenue growth rate

• Northern Europe revenue growth of 8%, driven by:

• Strong performance from Sage 50 Accounts, achieving 30% recurring revenue growth

• X3 - 34% growth

• Central Europe: 8% revenue growth

• Iberia: 8% revenue growth

Areas for improvement• France

• Monetising new products

• Phase out first year premium

Europe

12

Recurring Mix

78%H1 16: 75%

RevenueH1 17

£mH1 16

£mGrowth

Recurring £361m £329m +10%

Processing £20m £18m +11%

SSRS £81m £90m -10%

Total £462m £437m +6%

35%H1 16: 31%

Subscription penetration


What went well• USA: X3 grew by 25%

• USA: triple digit software subscription growth in Sage 50c & 200c

• Canada: 9% growth, driven by Sage 50c and 200c

Areas for improvement • USA subscription growth

• USA focus on top 30 partners

North America

13

Recurring Mix

78%H1 16: 76%

RevenueH1 17

£mH1 16

£mGrowth



SSRS £37m £40m -7%

Total £241m £230m +5%

22%H1 16: 12%



What went well• Brazil: 23% revenue growth, double digit recurring

revenue growth

• Africa: 14% X3 growth, 64% growth in Sage One revenue

• Middle East: growing by 23%, with strong Sage X3 growth

• Australia: 8% growth, with strong recurring revenue growth

Areas for improvement • South East Asia: focus on C4L

International

14

Recurring Mix

73%H1 16: 72%

RevenueH1 17

£mH1 16

£mGrowth



SSRS £29m £29m -%

Total £135m £120m +13%

55%H1 16: 51%



Financial Discipline

Annual savings secured in H1 17

Headcount £21m

Other £7m

Total savings £28m

15

Total exceptional costs (£19m)


Organic operating profit margin: 12 month snapshot

16

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

Mar-16 Product Development Go to Market G&A Mar-17

25.6%

-0.5%-4.4% 4.5%

25.2%


Focus on financial discipline




H1 17 Summary


Stephen KellyChief Executive Officer

@SKellyCEO


Commitment to The Golden Triangle

19

GoldenTriangle

Payments and Banking

People and Payroll

Accounting


One Sage

Customersfor Life

Winning in the Market

Capacity forGrowth

RevolutioniseBusiness


Strategic Pillars

21

Revolutionise business

In-the-moment accounting

Powerfulbusiness apps

Easy-to-usetechnology Invisible admin

More insights into our data


22


Cloud-first, mobile led

AI powered, enabling invisible admin

Real time access to financial health

Intuitive dashboards

Open API –Complete

cloud solution


23


Strategic alliances


Customers for Life

840k

1,240k

H1 16 H1 17

Software subscriptions

84%86%

H1 16 H1 17

Renewal Rates

24

Subscription

On plan

Off plan

H1 16 H1 17

Subscription

On plan

Off plan

Transition to subscription


25

Customers for Life – Sage 50c

Sage 50crevenue growth+25%

Cloud enabled contracts

>110k

H1 17



26

Start Up

Scale Up

Enterprise


Product USA UK & Ireland France Spain Germany Canada Brazil RSA Australia


27

H1 16



28

Product USA UK & Ireland France Spain Germany Canada Brazil RSA Australia

FY 17


Capacity for Growth

29

Efficient Capital Allocation

Financialdiscipline

Profitablegrowth


One Sage

30

Communication of strategy and values Sage Foundation Colleague

engagement


Further Acceleration

Growth Drivers

FY17

31

C4L C4L

NCANCAM&A

NCAM&A

M&A


FY17 Outlook

32

Revenuegrowth

Operatingmargin

Exceptionalcharge not expected

to exceed


£75m

H1 17 Summary

33

The strategy is working





Q&A

#

#SageResults


Processing revenue is revenue earned from customers for the processing of payments or where Sage colleagues process our customers’ payroll.

Recurring revenue is revenue earned from customers for the provision of a good or service, where risks and rewards are transferred to the customer over the term of a contract, with the customer being unable to continue to benefit from the full functionality of the good or service without on-going payments. Recurring revenue includes both software subscription revenue and maintenance and service revenue.

Subscription revenue is revenue earned from customers for the provision of a good or service, where the risk and rewards are transferred to the customer over the term of a contract. In the event that the customer stops paying, they lose the legal right to use the software and the Company has the ability to restrict the use of the product or service (also known as ‘Pay to play’).

SSRS revenue is for goods or services where the entire benefit is passed to the customer at the point of delivery. It comprises revenue for software or upgrades sold on a perpetual license basis and software related services, including hardware sales, professional services and training.

Processing revenue

Recurring revenue

Software subscription revenue

Software and software related services (“SSRS”)

Measure /Description

Glossary - revenue

Organic revenue neutralises the impact of foreign exchange in prior period figures and excludes the contribution from current and prior period acquisitions, disposals and assets held for sale.

Organic revenue

Underlying revenue neutralises the impact of foreign exchange in prior period figures but includes the contribution from current and prior period acquisitions, disposals and assets held for sale.

Underlying revenue

Annual recurring revenue (ARR) is the value of all components of recurring revenue, annualised for the ensuing year.

Annual recurring revenue

Annual Contact Value (ACV) is the value of bookings that will be generated over the ensuing year under a given contract or contracts.

Annual contract value

Prior period underlying measures are retranslated at the current year exchange rates to neutralise the effect of currency fluctuations.

Underlying operating profit excludes: Recurring items: – Amortisation of acquired intangible assets– M&A activity-related items– Fair value adjustments on non-debt-related financial instruments and foreign currency movements on intercompany debt balances; and– Non-recurring items that management judge are one-off or non-operational

Underlying profit before tax excludes:– All the items above; and– Imputed interest– Fair value adjustments on debt-related financial instruments.Underlying profit after tax and earnings per share excludes:– All the items above net of tax.

In addition to the adjustments made for underlying measures, organic measures exclude the contribution from acquisitions, discontinued operations, disposals and assets held for sale of standalone businesses in the current and prior period. Acquisitions and disposals which occurred close to the start of the opening comparative period where the contribution impact would be immaterial or not adjusted.

Underlying cash conversion is underlying cash flow from operating activities divided by underlying operating profit. Underlying cash flow from operating activities is statutory cash flow from operating activities less net capital expenditure and adjusted for movements on foreign exchange rates and non-recurring cash items.

Where prior period underlying measures are included without retranslation at current period exchange rates, they are labelled asunderlying (as reported).

Underlying measures allow management and investors to compare performance without the potentially distorting effects of foreign exchange movements, one-off items or non-operational items.

By including part-period contributions from acquisitions, disposals and products held for sale in the current and/or prior periods, the impact of M&A decisions on earnings per share growth can be evaluated.

Organic measures allow management and investors to understand the like-for-like performance of the business.

Underlying cash conversion informs management and investors about the cash operating cycle of the business and how efficiently operating profit is converted into cash.

This measure is used to report comparative figures for external reporting purposes where it would not be appropriate to retranslate. For instance, on the face of primary financial statements.

Underlying

Organic

Underlying cash conversion

Underlying (as reported)

Measure /Description Why we use it

Glossary – profit and cash flow

The net value of cash less borrowings expressed as a multiple of rolling 12-month EBITDA. EBITDA is defined as earnings before interest, tax, depreciation, amortisation of acquired intangible assets, acquisition-related items, fair value adjustments and non-recurring items that management judge to be one-off or non-operational.

Net debt leverage

Documents

Sage Group plc results for the six months ended 31 March 2017