Good morning and welcome to Sage's results for the first half of the year. I'm pleased to be joined by Jonathan Howell, our CFO. I'm going to start with an overview of our key messages for today. Sage delivered strong results in the first half as we continue to pursue our ambition to create the world's most trusted, thriving network for small and mid-sized businesses powered by Sage Copilot. We achieved stable, broad-based revenue growth across all regions, driven by a sustained double-digit increase in ARR. Disciplined cost control, together with operating leverage, supported strong operating profit, margin, and EPS expansion. Ongoing strength in cash conversion led to robust cash flow generation. Now, this performance is underpinned by our constant focus on driving value for customers. We continue to innovate, enhancing our core products and growing our network platform.
Sage Copilot, launched just over a year ago, is delivering productivity and insights to thousands of customers, and we are just getting started. Sage is at the forefront of AI innovation in accountancy, HR, and payroll. Our aim is to leverage this position to revolutionize productivity and decision-making for SMBs and accountants. And finally, we are executing consistently and making good strategic progress. Macroeconomic conditions are volatile and uncertain, but Sage is resilient, underpinned by our subscription-based business model and secular growth drivers. In this environment, the need for SMBs to continue to digitalize, to unlock growth, efficiency, and regulatory compliance is greater than ever. Sage is well-positioned for the growing market opportunity ahead of us. I am confident that whatever the short-term uncertainties, we will build on our advantages and deliver further long-term value to our stakeholders.
Now, I'm going to hand over to Jonathan for the financial review.
Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our first half results and the outlook for the full year. In summary, it's been another strong period for Sage as we continue to execute in line with our plans. Let's start with the highlights. We've achieved total revenue growth of 9%, reflecting the strength of our subscription-based model. Our operating profit margin increased to 23.2%, an expansion of 140 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 17%. Finally, we delivered cash conversion of 115%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises.
We have seen good growth from new customer acquisition. As a result, ARR increased by almost GBP 240 million to GBP 2.5 billion, up 11% at the first half. Importantly, this growth continues to be well-balanced between new and existing customers. Turning to the P&L, total revenue growth of 9% was underpinned by recurring revenue, which grew by 10%. Sage is a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 16% to GBP 288 million, reflecting continued top-line growth and margin expansion. Profit after tax increased by 15% to GBP 206 million, leading to strong growth in underlying EPS of 17% to 20.8 pence. We have increased the interim dividend to 7.45 pence, which is up 7%. Cloud products continue to be a significant driver of growth, with Sage Business Cloud revenue increasing by 13%.
This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud-native revenue increased by 22%, driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance, starting with North America, which represents just under half of group revenue. Here, we delivered revenue growth of 11%, driven mainly by the medium segment. Sage Intacct continued to perform well, with strength across key industry verticals, including construction and not-for-profit. Growth in the region was also driven by Sage 200 and Sage 50. UKIA represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 9%. Revenue from Sage Intacct, the largest driver of growth in the region, increased by over 60%.
Further growth was achieved in small business solutions, including Sage Accounting and Sage 50. In Africa and APAC, growth of 8% was driven by strength in Sage Accounting and Sage Payroll, together with Sage Intacct. Finally, in Europe, which represents over a quarter of group revenue, growth was 8%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Central Europe increased revenue by 8%, with strong growth in cloud HR and payroll. In Iberia, growth of 10% was driven by Sage 200 and Sage 50, together with the acquisition of Force Manager in October last year. As we have said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage, together with disciplined cost control, means we can invest more and expand the margin.
This, in turn, leads to sustainable growth. In the first half, we achieved margin expansion of 140 basis points to 23.2%. This was underpinned by efficiencies, including in G&A, which is now running at 8% of revenue. Importantly, we continue to drive investment, with sales and marketing at 40% of total revenue. Investment in R&D at 15% remains a key priority for the group. Moving on to cash generation, which is a core strength of Sage. In the first half, the group generated GBP 330 million of cash from underlying operations, resulting in continued strong cash conversion of 115%. Free cash flow was GBP 246 million, net of interest and tax. The group has a strong balance sheet with GBP 1.2 billion of cash and available liquidity. Our leverage ratio of 1.5 remains well within our midterm target range of one to two times.
In line with our disciplined approach to capital, this morning, we announced a GBP 200 million extension to our share buyback program. This reflects our strong cash generation and robust financial position, together with confidence in Sage's future prospects. Importantly, we retain significant capacity to support both organic and inorganic growth. What does that mean for the full-year outlook? Against the background of a more uncertain macroeconomic environment, we currently continue to expect organic revenue growth for FY2025 to be 9% or above. Operating margins are expected to trend upwards in FY2025 and beyond as we focus on efficiently scaling the group. Thank you. Now, back over to Steve.
Thanks, Jonathan. Our strong performance is underpinned by our strategic framework for growth. This is grounded in our purpose to knock down barriers so that everyone can thrive. We serve our purpose through our ambition, which is to create the world's most trusted and thriving network for small and mid-sized businesses powered by Sage Copilot. This is key to our success because it underpins the efficient delivery of advanced AI-powered solutions, driving value for customers. The framework is centered around our three strategic focus areas: connect, grow, and deliver. I will say more about these shortly. Through our strategy, we serve the interests of our stakeholders in line with our values. This starts with our customers, small and mid-sized businesses. Together with accountants and our partners, we serve millions of SMBs globally, providing unique visibility into SMB trends and challenges.
Our experience is that when faced with an uncertain economic outlook, they remain resilient, agile, and quick to adapt to adversity. They continue to see investing in technology as a priority to help them make better decisions, be more streamlined, and compliant. We provide solutions that enable this, boosting visibility, efficiency, and growth. For example, Luna Companies, based in the US and shown here on the slide, told us that Sage Intacct Construction gives them the dimensional reporting and data insights that they need to support and grow their business. Looking ahead, we're focused on making the latest generative and agentic AI accessible to SMBs so that they can benefit from the significant advantages that this technology will bring. By making businesses more resilient and productive, we're helping our customers thrive. Let's turn to our strategic focus areas, starting with connect.
The Sage Network is our platform of cloud products and services that digitally transform customer workflows across their ecosystems. It enables us to unify our solutions, improve the user experience, and connect customers to value-added network services. These services include accounts receivable and accounts payable automation, helping entrepreneurs and finance professionals streamline their day-to-day operations. In January, Sage was named as a major player by IDC in their latest MarketScape report on accounts receivable automation for SMBs. While our accounts payable automation service is expanding rapidly, with the monthly value of invoices processed rising threefold over the last 12 months to $1.3 billion. We are also building momentum in embedded payment services, driving growth by expanding key partnerships such as Stripe, GoCardless, and VersaPay. We are enabling new services like e-invoicing to prepare businesses in multiple markets for government requirements.
In addition, we're using the network to integrate new services across the Sage portfolio. For example, we've made Sage Sales Management, acquired in October last year as Force Manager, available to Sage 50 customers in Spain, the U.K., and France. This has helped customers such as Ibadeli Premium Products in Spain, shown here on the slide, to boost sales and optimize their processes. Looking ahead, our aim for this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting existing ones. Our overarching aim is to expand revenue across all products and services. In the mid-market segment, Sage Intacct continued to perform strongly, adding well over GBP 100 million of ARR across the group in the last 12 months.
In the U.S., ARR growth in Sage Intacct was over 20%, with continued strength across key industry verticals. While outside the U.S., ARR growth was over 50% as the solution scales rapidly with customers in the UK and Ireland region, such as AKTV, a nonprofit in South Africa, shown here on the slide, as well as in Canada and good early traction in France and Germany. This performance was supported by the successful introduction of industry suites. We also saw strong growth in Sage X3, our ERP solution for upper mid-market customers, driven in particular by manufacturing and distribution. In the small segment, Sage Active growth accelerated in Europe following recent enhancements. We continue to build out the small business suite so that customers can add more functionality seamlessly when they need it.
We remain focused on reinforcing our relationships with accountants, including at Accountex here in London this week, where we're showcasing our strength in AI accounting. Finally, we are driving cross-sell and upsell to grow sales to existing customers through add-ons and deeper functionality. Our future focus in this area is to drive further momentum with new and existing customers and continue to make it easier for them to access products and services through suites. Our third focus area is to deliver productivity and insights driven by AI. Over the last year, we've developed and scaled Sage Copilot to customers of key products across our markets, focusing tightly on the use cases that SMBs find most valuable. Today, Sage Copilot is generally available and driving revenue in the U.K., supporting thousands of customers of Sage Accounting, as well as early adopters in Sage 50.
With features like invoice management, email generation, and business insights, we're saving customers time and money, boosting their productivity. The ability of Sage Copilot to show its workings helps build customer confidence and trust. For Sage Intacct, early adopter customers can use Sage Copilot to streamline their monthly close process and gain real-time insight into their business performance. While for accountants, Sage Copilot enhances client collaboration and practice management. All of these features are designed to eliminate friction in critical finance workflows. Gareth Pedley of Watsons Anodizing, based here in the U.K. and shown on the slide, told us that Sage's business tools and AI capabilities are revolutionizing their business operations. Looking forward, we continue to rapidly develop and roll out Sage Copilot across the group, supported by our ongoing collaboration with AWS.
Importantly, Sage Copilot paves the way for the development of more sophisticated agentic capabilities, embedding always-on intelligence into our customers' workflows. These will enable it to manage multi-step end-to-end processes with less human oversight, accelerating close times, reducing risk, and unlocking significant ROI for our customers. Now, our success depends on our ability to deliver for our stakeholders. For our customers, the value they get from our solutions is demonstrated through recognition, like the 2025 Buyers' Choice Awards from TrustRadius, where Sage Intacct and Sage Accounting were both winners earlier this year. We are also proactively championing customer interests. For example, we are working with the U.K. government as we speak, supporting policy and technology solutions to address the challenges SMBs face, such as late payments.
For partners, we're investing in our relationships, delivering tools to help drive new customer leads, and simplifying the way we do business with them via a single global framework. For colleagues, we foster a high-performance culture and an experimental mindset. In February, the Financial Times ranked Sage among the U.K.'s best employers for 2025, based on independent surveys. We're supporting colleagues by investing in our workspaces with next-generation offices recently opened in centers such as Atlanta, Beaverton, and San Jose in the US, Toronto and Vancouver in Canada, Winnersh here in the U.K , and Porto in Portugal. Onto society, where we aim to multiply our impact by helping SMBs to be more sustainable and successful. For example, we recently launched the Sage Impact Entrepreneurship Scheme, supporting over 150 startups across our markets with mentorship, training, and grants.
For shareholders, our objective is to create sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. Our strategy is delivering growth in all regions. We are leveraging our scale by rolling out global solutions. We are enhancing our industry and functional capabilities and bringing them together in simplified integrated suites. We are scaling the Sage Network platform to deliver innovative AI solutions like Sage Copilot, which helps our customers save time and gain valuable insights. Sage is differentiated by our leading technology. We have deep local expertise across financials, payroll, and HR, serving a wide range of SMBs across diverse regions. We work with an extensive network of partners, accountants, resellers, ISVs who expand our reach and enrich our ecosystem. Finally, as we grow, we are creating the headroom to increase investment and expand margins, driving sustained, efficient growth.
In conclusion, Sage achieved a strong performance in the first half. We continue to deliver significant top-line growth with cost discipline leading to margin expansion. We are investing in innovation to drive value for customers, powering Sage's success now and in the future. Despite the uncertain macro, we are executing well and making consistent progress towards our strategic priorities. That concludes today's presentation. Thank you very much for watching. Jonathan and I would now be happy to take your questions.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. Please stand by, we will compile the Q&A roster. This will take a few moments. Now we are going to take our first question. It comes from Frederic Boulan from Bank of America. Your line is open. Please ask your question.
Hey, good morning. Thanks a lot for taking the question. If I can ask, firstly, around the guidance for the full year. We're keeping this outlook at 9% or more. I think you did 9% in each one with a bit of a deceleration in trends and still a fairly uncertain macro. Keen to hear a little bit your assumptions in terms of second-half demand growth and what gives you that confidence that that 9% is still the floor. Secondly, interesting to hear the traction around GenAI, and especially in the U.K. Again, here, keen to hear a bit of an update on how you think this can start to, firstly, the kind of pipeline outside of the U.K. from a product perspective, and then how mature can that become in the medium term for your growth? Thank you.
Thanks, Fred. Jonathan, why don't you take the first round guidance, and then I'll talk a bit about GenAI.
Yes. As you can see, in terms of guidance, our full-year guidance is for organic growth of 9% or above. That is consistent with the guidance that we gave at the time of the FY2024 results. At the half-year stage, we're on track. We've just reported good growth of 9% on a total revenue basis. We have good momentum in the business with ARR growth of 11%. As you know, the macro has been a bit more volatile and uncertain. That's difficult to quantify the potential impact, if any, at all. Our guidance is realistic but cautious. I think that you said, "What gives you confidence as you look forward?" We have a solid sales pipeline with good closure rates. We've invested in our key products, our premium products, Sage Intacct across continental Europe and Copilot, and we've improved sales execution.
That's the type of backdrop that sort of informs the guidance as we look forward into the second half.
Yeah. I would just add, in terms of customer behavior, if I look over the last sort of six weeks since the close of the half-year, so kind of April and the first half of May, we have not seen any change in customer behavior. That gives us the confidence to reiterate the guidance. On GenAI and starting with Sage Copilot, available in the U.K., and just we should emphasize this is a real product that customers are using and paying for. We have made it available to about 40,000 customers in the U.K., of which just over a quarter of them are actively using it. It does not mean the others are not using it, but it obviously takes time to really get embedded into people's workflows. We have made it available on Sage Active across Europe. That is earliest stage. We are working with early adopters on Sage Intacct.
If you look forward over the next kind of 12, 18 months, I think you'll see two things. You'll see very rapid take-up from customers as they start to see the benefits that it can bring them, particularly in terms of automating repetitive tasks and giving them insights into their workflows. What you'll also see is us going beyond just Sage Copilot and introducing agentic AI agents that perform specific tasks. Those agents will be still with human kind of oversight, but will be increasingly autonomous. One of the big things we intend to do with all of our AI is ensure that we provide audit trail and visibility so that our customers, particularly CFOs, can see how things are being done, because a big part of this is also building the trust that the machines will do things accurately.
The reason we have confidence they will is because we're also using our own domain-specific language models to supplement the large language models that everyone's using.
Thank you very much.
Thank you. Now we're going to take our next question. Now we're going to take a question from Adam Wood from Morgan Stanley. Your line is open. Please ask your question.
Hi. Good morning, Steve. Jonathan, thanks for taking the question. Maybe just first of all, on the margins, obviously, very strong performance in the first half, but the commentary around the guidance for the full year is unchanged. Could you just maybe talk a little bit about the plans for the second half in terms of investment and the confidence of being the bottom or the top end of the 50-100 basis points that you normally guide out on the margin side? Then maybe on the Intacct side, obviously, it feels like Intacct U.K. now gaining enough traction to be meaningful. Could you give us a little bit of an update there on the scale of that business and the growth, maybe also on the manufacturing and distribution products in the U.S.? Just a general kind of update on Intacct traction and scale of those newer areas. Thank you.
Thank you, Adam. As you say, we guide to margin on a full-year basis, and we do not necessarily see or anticipate a smooth linear progression in margin throughout the year. We, at the half-year stage, continue to guide to a 50-100 basis points improvement. Probably we expect a slight margin improvement as we move into the second half as well. We will continue to dynamically reallocate spend during the course of the year to optimize or maximize that trade-off between top-line growth and margin expansion. That will be a component of the second half performance on margin. Still sticking to the clear guidance that we gave at the beginning of the year.
On Intacct, yeah, I mean, U.K. traction continues to go well. If you take the UKIA region, so both South Africa and also the U.K., we're up above 2,000 customers or so now and continue to go strongly. I mean, I think in the U.K., in terms of share of new customer acquisition, we would probably claim market leadership. We're very happy with the progress. In the U.S. and more widely on manufacturing and distribution, I think two things. First of all, probably for the kind of smaller customers, we've introduced, as you know, SDMO, so Sage Distribution, Manufacturing, and Operations, which is gaining traction, not just in the U.S., but also across Europe. We've also introduced updated versions of X3. X3 is growing very strongly, growing double-digit. The cloud versions of X3, I'm very excited about.
I think that puts us in a very, very strong position in distribution and manufacturing, both in the U.S. and more widely across Europe.
Adam, just to add a data point to that, three years or so ago, when we brought Intacct to the U.K., we said it would take time to begin to ramp up and build out both in the direct channel and the partner channel. That has happened now. As you can see, as we reported, in the first half, total ARR growth for Intacct in the U.K. is now growing at 60%. That is now off a reasonably large base. As we look forward, and if you think back over the last year or so, we said it would take time in continental Europe. Our expectations are that we can have similar progression over time in continental Europe as well.
Very helpful. Thank you.
Thank you. Now we're going to take our next question. The question comes from the line of Kai Korschelt from Canaccord Genuity. Your line is open. Please ask your question.
Yeah, thank you. Good morning. I just had a couple. The first one was around Intuit's enterprise suite. Just wondering, since launch, have you seen any impact in marketplace, maybe extension of sales cycles? I believe also they've been adding HR functionalities. I'm just wondering how you feel the competitive environment on that side is evolving. The second question was just around the share buyback, $200 million. I'm sure you've kind of planned a map or weighed it up against perhaps deleveraging, but given your leverage, it's still decent debt, one and a half times. Why not delever? Maybe pay down some of the debt if you can. In fact, might that not be better for shareholders or earnings per share? Thank you.
Yeah. On the first question, I think I've commented on this previously, and nothing's really changed. We don't see any evidence of Intuit appearing in competitive processes for new customers. They're very much using it, as far as we can see, to try and extend the life of their existing customers. We typically, in an average year in the US, probably acquire about 500 or so QuickBooks graduates and migrate them to Intacct. In the scheme of QuickBooks having, whatever it is, 6 million subscribers, and I think their churn rate is probably about 10%. In the scheme of that, we're not seeing any material impact in terms of competitive dynamics. The same would go for HR. I can't think of a single time where we've competed against them in an open process.
Yes. Thank you on the share buyback. First of all, one of our policies really for the last five to seven years has really been to run a strong balance sheet. As you can see, we have exited the first half with cash and available liquidity of GBP 1.2 billion. That is pretty consistent with what we have done over previous years. We exit the half-year with net debt to EBITDA leverage of one and a half times. That sits comfortably in our formal guided range of one to two times. As we get to the end of the GBP 400 million share buyback program, it is appropriate for us just to extend it by another GBP 200 million, which, absent any M&A in the second half, would leave us at a pretty consistent level by the time we get to the year-end.
In terms of capital allocation, we have a very clear capital allocation policy that we set out. Our primary source of funds and capital is for organic and inorganic growth, then to service the dividend. Lastly, if we have surplus, and only if we have surplus capital, will we return it? Over the last four years now, including the GBP 200 million, that'll be about GBP 1.6 billion of capital return. You're able to do the analysis, but that's created significant EPS enhancement for us over that period. Thank you.
Thank you. Now we're going to take our next question. It comes from the line of Balajee Tirupati from CT. Your line is open. Please ask your question.
Hello. Good morning. Thank you for giving me the opportunity to ask questions too from my side, if I may. Firstly, could you comment on sequential growth in ARR and if it had any impact from heightened uncertainty towards the end of the quarter? Also, given ARR growth of around 10.5% entering fiscal 2025 and 10% plus organic growth after first half, I'm a bit surprised recurring revenue organic growth decelerated to around 9% in second quarter. Could you share any color on the same? My follow-up on Sage Copilot and my second question on Sage Copilot, if you could share update on how the commercial launch of Copilot and Sage Accounting Plus package has been received. I think we saw a release yesterday where Sage is making one Copilot license available for free for accountants on the smaller package of Sage Accounting.
If you could comment on that as well. Thank you.
Yeah. I'll take the second question first, and then Jonathan can talk about the ARR growth. On Sage Copilot, we continue to make it available as part of the suites that we offer. If you take Sage Accounting as an example, the 40,000 customers that I quoted earlier are those customers who are on the plus tier. What we did was incorporate a license, a Sage Copilot license into that tier, and then increase the price of the tier. You're correct that what we did yesterday, the Caltex, really aimed at making tax the next wave of making tax digital is we're going to make available as part of the kind of basic package some Copilot capability so that if people are using the free version, they still get a taste of that AI functionality.
Obviously, our aim is that as people get used to that and as people see the benefits of that, we will seek to upgrade them to the higher paying tiers. What we want everyone to do who's using the small business suite and the small business capability is for them to see the power of Sage's AI because we are the only ones in the U.K. who have this live in our products today.
Yes. On sequential ARR growth, which is an important metric, as you can see, the exit ARR growth rate at the half-year is 11%. That is in line with our expectations and also in line with our FY2024 full-year exit rate. In Q1, sequential growth was about 2%, and that was in line with Q1 last year. In Q2, sequential growth was around 2.5%, and that is also in line with the corresponding Q2 last year. That level of ARR growth build and exit rate really supports the guidance that we have given for the full year. I think it is just worth noting in relation to your question, we have now delivered organic revenue growth of between 9% and 10% for the last full two years. This is a stable and consistent performance, very much in line with that.
Any sort of variations that we see at the moment are part of a normal quarterly variation that we've seen over that two-year track record.
The other thing I'd just add, actually, is, look, organic growth is super important. Obviously, it's foundational, and we're very focused on it. It is just worth emphasizing that M&A is an integral part of our strategy. Therefore, you will see us doing bolt-on acquisitions. That is part of what we're doing to scale the business. Organic's important, but just to highlight and to emphasize, our underlying ARR in the period was 11%. Very strong double-digit growth.
Thank you.
Thank you. Now we're going to take our next question. It comes from the line of Sven Merkt from Barclays. Your line is open. Please ask your question.
Hi. Great. Good morning. Thank you very much for taking my question. I wanted to come back on the ARR growth. You mentioned that the 11% gives you confidence for the second half and the achievability of the full-year guide. When we now look at the recurring growth in the quarter, it was just 9% in the second quarter. It remains a good percentage below the organic ARR growth, which was 10.1%. Can you comment on what were the specific factors in the quarter that drove the difference between ARR and recurring growth and how we should think about this gap for the second half? Just to clarify, can you comment whether you would consider your guidance achieved even if growth would round up to 9%? I wouldn't think so, but it would be great if you could clarify this. Thank you.
Yeah. ARR and recurring revenue, they're related, and we sort of always expect them to be close, but not necessarily the same. That's consistent with others who use this measure. As you know, ARR is a point-in-time metric only, whilst total revenue is booked over a period of time. Therefore, any divergence that we're seeing is mainly caused by the timing of revenue growth. Nonetheless, ARR, the measure that you're talking about, represents a fair and annualized view of revenue that is expected to recur. Therefore, it's a good forward-looking measure for us. In terms of the guidance, as you can see, we've reiterated what we've said at FY2024 results that we expect our total revenue growth to be 9% or above.
You wouldn't consider it achieved if it rounds up?
Yes. I mean, you and the market will judge the guidance in the round.
Okay. Thank you.
Thank you. Dear participants, there are no further questions for today due to the time constraints. At this moment, I would like to hand over back to Steve Hare for any closing remarks.
Yes. Thank you very much, as always, for dialing in. We look forward to updating you further at the Q3 stage. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.