REG - Sage Group PLC - Update on financial reporting and disclosure

SageAnnouncement

02/04/2019 08:30

RNS Number : 7592U
Sage Group PLC
02 April 2019
 


 
The Sage Group plc.
2 April 2019
Update and simplification of financial reporting and disclosure
The Sage Group plc. ("Sage") today announces changes to the format of its financial reporting and disclosure in FY19 to simplify and improve clarity of reporting. The amended format will be introduced at the H119 results and subsequently used for future Sage financial reporting.
Key amendments to the reporting disclosure are as follows:
1.    Update to portfolio revenue reporting;
2.    Amendment to KPIs; and
3.    Simplification of the financial reporting structure and layout.
 
This announcement includes an explanation of these changes as well as financial tables which are either new or have substantively changed from Sage's previous reporting format. Where previously disclosed, historical information has been included in these tables for illustrative purposes.
This announcement contains no new financial information, no historical numbers have been restated and there is no change to revenue recognition definitions on an organic, underlying or statutory basis.
 
1.    Update to portfolio reporting
The portfolio view of organic total revenue was first introduced as part of Sage's FY18 results, breaking down our product portfolio into the following categories:




Portfolio View




Cloud native




Cloud connected




Sage Business Cloud




Products with potential to migrate




Future Sage Business Cloud Opportunity




Other




Organic total revenue




We will continue to provide this portfolio disclosure for organic total revenue and from H119 we will also add organic recurring revenue to this portfolio view.
Over time we expect the proportion of organic total revenue and organic recurring revenue within Sage Business Cloud categories to increase, driven by:
-     Acquisition of new customers and reactivation of off-plan customers onto cloud native and cloud connected solutions;
-     Migration of customers from their existing Sage product to a cloud connected or cloud native solution. Revenue from these customers is reported in Sage Business Cloud revenues from the point of migration onwards; and
-     Migration of a product to Sage Business Cloud as the product develops cloud functionality. Upon becoming a cloud or cloud connected solution, revenue from existing subscription customers of that solution is reported as Sage Business Cloud revenue from the start of the period in which the product first migrates to Sage Business Cloud.
Where applicable, our reporting will include a quantification of Sage Business Cloud revenue from customers using products that were not part of the Sage Business Cloud in the prior reporting period, to allow analysis of growth rates for a comparable set of products.
Our strategic focus and therefore the important metrics to consider in this regard are: recurring revenue growth of the Future Sage Business Cloud Opportunity; recurring revenue growth of the business as a whole; and Sage Business Cloud Penetration, which is defined below.
 
2.    Amendments to KPIs
We are adding a number of KPIs to provide enhanced insight into our strategic and financial progress:
Additions
-     Sage Business Cloud Penetration: Defined as organic recurring revenue from the Sage Business Cloud as a proportion of the organic recurring revenue of the Future Sage Business Cloud Opportunity. This metric measures progress in the transition of the business to the Sage Business Cloud.
-     Total annualised recurring revenue (ARR) growth: ARR is defined as the normalised reported recurring revenue in the last month of the reporting period, adjusted consistently period to period, multiplied by twelve. It represents the annualised value of the recurring revenue base that is expected to be carried into future periods, and its growth is a forward looking indicator of reported recurring revenue growth. Going forward, Sage will disclose total ARR as opposed to Sage Business Cloud ARR, which was a subset of the total number.
As the strategy evolves, a number of KPIs previously disclosed are no longer relevant and have been superseded by more appropriate KPIs:
Superseded KPIs
-     Free cash flow as a proportion of revenue: Cash conversion will remain a core element of Sage's strategic focus, and free cash flow in absolute terms will continue to be disclosed. However, to drive simplicity we will focus on Underlying Cash Conversion as the primary reported cashflow metric, removing free cash flow as a proportion of revenue;
-     Organic Operating Profit: To drive clarity and simplification, from FY20 onwards reporting will be focused on Statutory and Underlying Operating Profit. As guidance in FY19 was provided on the basis of Organic Operating Profit, it will remain in FY19 reporting;
-     G&A as proportion of revenue: Driving efficient back-office operations remains an important objective, but our focus is on delivering efficient growth across the entire business - measured by our recurring revenue growth and overall operating profit margins; and
-     Adjusted EPS: For similar reasons to Organic Operating Profit, Sage will no longer report Adjusted EPS. Statutory EPS and Underlying EPS will continue to be disclosed.
 
 
3.    Simplification of financial reporting structure and layout
Presented below are the key financial tables in the revised reporting format to be implemented in H119. The layout of these tables includes all relevant KPIs. Therefore, the KPI table, formerly disclosed as an appendix to the financial reporting press release, will be removed from H119 onwards.  
All information presented below is as per data reported at the relevant reporting date. None of the financial information presented below has been restated and we have disclosed only information that has previously been published or is easily calculated from previously published information.
Historical data which has not been disclosed in this announcement is signposted in the tables below as follows:
-     TBD (to be disclosed) refers to data that has not been disclosed historically but will be disclosed in future periods; and
-     N/A (not applicable) refers to data that has not been disclosed historically and will not be disclosed in future periods.
Tables that have no substantive changes have not been re-presented and will be disclosed on a consistent basis with previous announcements.
Summary table




Alternative Performance Measures (APMs)1


FY18


FY17


Change




Organic Financial APMs


 


 


 




Organic Total Revenue2


£1,819m


£1,703m


6.8%




Organic Recurring Revenue


£1,441m


£1,352m


6.7%




Organic Operating Profit


£505m


£475m


6.3%




  % Organic Operating Profit Margin


27.8%


28.0%


(20bps)




Underlying Financial APMs


 


 


 




Underlying Total Revenue


£1,857m


£1,795m


3.5%




Underlying Recurring Revenue


£1,448m


£1,305m


11.0%




Underlying Operating Profit


£504m


£490m


2.9%




% Underlying Operating Profit Margin


27.2%


27.3%


(10bps)




Non-Recurring Charge


£10m


£70m


(85.7%)




Underlying Basic EPS


32.51


31.45


3.4%




Strategic APMs


 


 


 




Renewal Rate by Value


101%


N/A


N/A




% Subscription Penetration


46%


39%


700bps




% Sage Business Cloud Penetration


TBD


N/A


N/A




Underlying Cash Conversion


96%


95%


100bps




 Statutory Measures


FY18


FY17


Change




Revenue


£1,846m


£1,715m


7.6%




Operating Profit


£427m


£348m


22.7%




      % Operating Profit Margin


23%


20%


300bps




Basic EPS (p)


27.21


27.80


(2.1%)




Dividend Per Share (p)


16.50


15.42


7.0%




 
1 The appendix will provide guidance on the usage and definitions of the Alternative Performance Measures
2 The purpose of Organic measures is to allow management and investors to understand the like-for-like performance of the continuing business. The Organic Operating Profit reporting does not fulfil this purpose as it is provided for the current period only. A like for like measure would require in some instances including operating costs of acquisitions prior to the acquisition date, where these may be unrepresentative of the cost structure under our ownership.
Portfolio tables3
 




 Portfolio view


FY18 Revenue


% of
Total




Cloud native


£144m


8%




Cloud connected4


£233m


13%




Sage Business Cloud


£377m


21%




Products with potential to migrate


£1,087m


60%




Future Sage Business Cloud Opportunity5


£1,465m


81%




Growth, %


8%


-




Other6


£354m


19%




Organic Total Revenue


£1,819m


100%




Growth, %


7%


-




 
3 As disclosed above, a column for recurring revenue will be added to this table from H1 19 onwards.
4 Revenue from subscription customers using products that are part of Sage's strategic future product portfolio, where that product is based on an originally on-premise offering for which a substantial part of the customer value proposition is now linked to functionality delivered in or through the cloud.
5 Revenue from customers using products that are currently part of - or that management currently believe have a clear pathway to -  Sage Business Cloud.
6 Revenue from customers using products for which management does not currently envisage a path to Sage Business Cloud, either because the product addresses a segment outside Sage's core focus, or due to the complexity and expense involved in a migration.
 
Financial Results




Financial Results


Statutory


Underlying




FY18


FY17


% Change


FY18


FY17


% Change




Northern Europe


£380m


£368m


3.3%


£381m


£368m


3.4%




Central & Southern Europe


£625m


£580m


7.7%


£625m


£588m


6.3%




North America


£574m


£492m


16.7%


£584m


£582m


0.2%




International


£267m


£275m


(3.0%)


£267m


£257m


3.9%




Group Revenue


£1,846m


£1,715m


7.6%


£1,857m


£1,795m


3.4%




Operating Profit


£427m


£348m


22.7%


£504m


£490m


2.9%




% Operating Profit Margin


23.1%


20.3%


280bps


27.2%


27.3%


(10bps)




Profit Before Tax


£398m


£342m


16.4%


£475m


£442m7


7.5%




Net Profit


£295m


£257m


14.8%


£352m


£345m7


2.0%




Basic EPS


27.21p


27.80p


(2.1%)


32.51p


31.45p


3.4%




 
7 As reported
 
 
 
Underlying & Organic Reconciliations to Statutory
The format and disclosure of this table remain consistent with prior disclosure on organic to statutory reconciliations and is therefore not replicated below.
Organic revenue overview




Organic Revenue Mix


FY18


FY17


% Change




 


£m


% of Total


£m


% of Total


 




Software Subscription Revenue


£839m


46%


£670m


39%


25.2%




Other Recurring Revenue


£602m


33%


£681m


40%


(11.6%)




Organic Recurring Revenue


£1,441m


79%


£1,352m


79%


6.7%




SSRS Revenue
Processing Revenue


£323m
£55m


18%
3%


£300m
£51m


18%
3%


7.6%
6.2%




Organic Total Revenue


£1,819m


100%


£1,703m


100%


6.8%




 
Regional reporting tables




Northern Europe


 




 Organic Revenue by Category


FY18


FY17


Change




Organic Total Revenue


£381m


£373m


2.5%




Organic Recurring Revenue


£298m


£294m


1.6%




% Subscription Penetration


47%


38%


900bps




% Sage Business Cloud Penetration


TBD


N/A


N/A




 




Central & Southern Europe


 




 Organic Revenue by Category


FY18


FY17


Change




Organic Total Revenue


£625m


£587m


6.5%




Organic Recurring Revenue


£475m


£455m


4.4%




% Subscription Penetration


39%


36%


300bps




% Sage Business Cloud Penetration


TBD


N/A


N/A




 Organic Total Revenue


FY18


FY17


Change




France


TBD


N/A


3%




Central Europe


TBD


N/A


10%




Iberia


TBD


N/A


9%




 




North America


 




 Organic Revenue by Category


FY18


FY17


Change




Organic Total Revenue


£546m


£489m


11.6%




Organic Recurring Revenue


£471m


£417m


12.9%




% Subscription Penetration


48%


35%


1300bps




% Sage Business Cloud Penetration


TBD


N/A


N/A




 Organic Total Revenue


FY18


FY17


Change




US


TBD


N/A


8%




Canada


TBD


N/A


12%




 
 




International


 




 Organic Revenue by Category


FY18


FY17


Change




Organic Total Revenue


£267m


£254m


4.7%




Organic Recurring Revenue


£197m


£186m


6.2%




% Subscription Penetration


59%


56%


300bps




% Sage Business Cloud Penetration


TBD


N/A


N/A




 Organic Total Revenue


FY18


FY17


Change




Australia & Asia


TBD


N/A


6%




Africa & Middle east


TBD


N/A


5%




Latin America


TBD


N/A


3%




 
Operating profit




 


FY18


FY17


% Margin




Underlying Operating Profit


£504m


£490m


27.3%




Depreciation & amortisation


£33m


£33m


-




Share based payments


£5m


£6m


-




EBITDA


£542m


£529m


29.2%




 
Earnings per share




 


FY18


FY17


% Change




Statutory Basic EPS


27.21p


27.80p


(2.1%)




Recurring and non-recurring items


5.30p


4.10p


-




Impact of Foreign Exchange


-


(0.45p)


-




Underlying Basic EPS


32.51p


31.45p


3.4%




 
Cash Flow
The format and disclosure of this table remain consistent with prior disclosure and is therefore not replicated below.
 
Debt




 


FY18


FY17 (as reported)




Net Debt


£668m


£813m




EBITDA (Last Twelve Months)


£542m


£505m




Net Debt/EBITDA Ratio


1.2x


1.6x




 
Foreign exchange
The format and disclosure of this table remain consistent with prior disclosure and is therefore not replicated below.
 
 
For enquiries:
The Sage Group plc
+44 (0) 191 294 3457
Lauren Wholley, Investor Relations
 
 
About Sage
Sage is the global market leader for technology that helps businesses of all sizes manage everything from money to people - whether they're a start-up, scale-up or enterprise. We do this through Sage Business Cloud - the one and only business management solution that customers will ever need, comprising Accounting, Financials, Sage Intacct, Enterprise Management, People & Payroll and Payments & Banking.
 
 
ENDS
 




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