Earnings Call: H2 2017

Nov 22, 2017

We're good. Let's make a start. Hello, and welcome to everyone here for Sage's FY 2017 results, to those of you who are in the room and those of you who are on the phones. Please note, first of all, the safe harbor statement, which you can find on the screen behind me and in your packs. The agenda for this morning's presentation is outlined on the screen. Firstly, I'll provide a brief overview of Sage's performance, and then I'll hand over to our Chief Financial Officer, Steve Hare, who will talk you through the business performance. Then I'll update you on the progress against our plans, and close off with our outlook for FY 2017 before opening for questions. I think today, before we dive into FY 2017, I think it would be useful to step back and reflect on what we've achieved together since we announced the transformation plan at the Capital Markets Day in June 2015. When Stephen and I started on our journey together, our immediate task, obviously, was to run the parallel tracks of delivering the commitments to the public markets whilst conducting a root and branch review of the business, which helped us map out the plans for the future. Back in 2015, we found that Sage had been slow to innovate and failed to engage closely with customers and the market. The organization, as many of you know, was fragmented, misaligned, and inefficient, in part due to the dozens of acquisitions that had not been integrated. The leadership probably lacked the relevant experience for sustainable cloud-based growth ahead. It was clear that a major overhaul of all parts of Sage's business was needed, and we set about sequencing carefully the transformation. As a result of this appraisal, our mission became very clear. Firstly, we had to reconnect with our existing customers and attract new customers with best-in-class cloud solutions. As I've said before, rediscover our technology mojo. Secondly, we had to create simplicity and efficiency in the organization with systems and processes fit for the businesses and as a platform for future acquisitions. Thirdly, we needed to create a high-performance, customer-obsessed leadership team, culture, and company. It was evident that we needed to address these issues to seize the opportunity in front of us, which was to become category leader in a market worth $27 billion, and to truly win in the cloud, where over 50% of financial solutions are set to be by 2020. What did we do? In the first phase of the transformation, in FY 2016 and FY 2017, our first steps were to integrate what were decentralized functions into one unified operating model, what we called at the time One Sage, to create strong supporting functions for our market and customer-facing colleagues in each country. Alignment of all our Sage colleagues would be critical to our success, so we undertook a significant rationalization program to reduce costs from the back office and to reinvest in for growth and accelerate the move to subscription. During this phase, we were very deliberate to consider no significant M&A, as we shared with you at the time. Also, that we wrapped the go-to-market functions in cotton wool to protect the customer experience. The transformation, the whole program, was carefully thought through, created, sequenced, and executed with great care. With phase one progressing well and the Sage internal platforms considered fit for purpose, we were ready to embark on phase two in October 2016. Throughout FY 2017, we continued the progress we made in phase one. With the appointment of Blair Crump as President, we also started improving the go-to-market organization, which makes up 60% of our headcount, to address the inefficiencies in this area. In FY 2017, we also commenced selective M&A activities with the acquisition of Sage Intacct, Sage People, and Sage Compass. These acquisitions, again, were thoughtfully selected to accelerate the strategy and have allowed Sage to emerge from phase two with the most complete portfolio of cloud products now unified by the Sage Business Cloud. More to come on this later. Let's just put into context what the transformation has delivered against the original objectives we set for ourselves. Since June 2015, we've consistently achieved at least 6% organic revenue growth and at least 27% underlying operating margin. This has been achieved whilst restructuring the business and transitioning to subscription, avoiding the double dip in revenue and margins that many software companies have experienced. Whilst we've achieved this growth and profitability, under the surface, we've strengthened the Sage business model, creating the efficiency and simplicity that we targeted. You could call it building the plane whilst flying it. Let me share some of these highlights. Firstly, in the transition to subscription, our recurring revenue now stands at 78% of total revenue, with software subscription revenue now representing 37% of total revenue, up from 22% three years ago. The focus on customer obsession has resulted in much improved net promoter scores, NPS, the measure of customer advocacy, which has risen from a neutral score at the start of FY 2015 to a high of +25 in the final quarter of FY 2017. In the cost transformation, we've identified over GBP 100 million of annualized cost savings and reduced our G&A expenses a proportion of revenue from 19% to under 14%. We've reinvested those savings to drive further growth. We've invested in technology, winning now hosts of awards and joining forces with the best-in-class strategic technology partners, including Amazon, Microsoft, Salesforce, and Stripe. From virtually no cloud presence in FY 2014, we now have a comprehensive suite of cloud products in all our major geographies. These products are unified under the Sage Business Cloud, with GBP 300 million of cloud annualized recurring revenue in FY 2017, growing at over 80%. We've strengthened our position as the market leader in the scale-up and enterprise market through the organic growth and the acquisitions of Sage Intacct and Sage People. Lastly, our focus on developing the senior management has resulted in a high-performing, driven leadership team focused on executing on our accelerated growth plans for the future. As we close the door on phase two, we now have the leadership, organizational alignment, efficiency, and a comprehensive suite of innovative cloud platforms to accelerate momentum in our markets. I'm pleased to confirm that the transformation we outlined and announced in FY 2015 is now complete. The strategy is clearly working, and the path to accelerated growth and superior margins is emerging, powered by the Sage Business Cloud and strengthened by the acquisitions of Sage Intacct and Sage People. We will continue the progress we made to the shift to the subscription model and the cloud, combined with relentless drive for efficiency and simplification. To be clear, though, there will be no further exceptional charges from the transformation we announced at the Capital Markets Day in 2015. I will give you some color on the strategic progress we made shortly, but I would like to hand over to Steve Hare for the financial and operating performance review. Steve? Thanks, Stephen, and I would like to add my welcome to today's results presentation. The opening message from me today is the same as last year. We have done what we said we would do. Our guidance was that we would deliver 6% organic revenue growth, including the North American payments business for the period that we owned it, and that we would deliver a 27% underlying margin, including the impact of any acquisitions and disposals, and therefore, including Sage Intacct, Sage People and Sage Compass. We have delivered both the 6% organic revenue growth and the 27% underlying operating margin. In addition, the level of exceptional charge is below where we indicated, at $73 million. And we have delivered an improved payback with annualized cost savings relating to the transformation of $59 million. We have also maintained strong free cash flow, finishing the year at a leverage of 1.6 times, well within the 1-2 times range. We are one of the only companies in the FTSE 100 to have had a progressive dividend every year since 1999, and we have again, this year, increased the dividend by 9%. Stephen and I have always been known for being completely transparent. Before I go through the details of the results, I do want to spend just a little bit of time on definitions. I will start first with FY 2017, the period that we are reporting. The organic revenue definition for FY 2017 neutralizes the impact of foreign currency translations, i.e., it is at constant exchange rates. It excludes the contribution from current and prior period acquisitions, any discontinued operations, disposals, or assets held for sale. The underlying revenue definition for FY 2017 also neutralizes the impact of foreign currency, but underlying includes, rather than excludes, the contribution from current and prior year acquisitions, discontinued operations, disposals, and assets held for sale. In FY 2018, we will include inorganic revenue, the acquired businesses from the beginning of the financial year following their date of acquisition. This is to support full alignment between the internal measures and our external guidance. For this purpose, we will therefore make adjustments to the comparative period to present the acquired businesses as though they had been part of the group throughout the period. These businesses that we acquired in FY 2017, i.e., Sage People and Sage Intacct, are all an integral part of the Sage Business Cloud. For clarity, FY 2018 organic revenue will include Sage Intacct and Sage People, but the underlying margin will also include the investments that we will continue to make in these businesses. Let us now have a look at the FY 2017 numbers. As we have said, we achieved 6.6% organic revenue growth in the year, and half of the eight regions delivered double-digit revenue growth. We saw an acceleration in Q4 in revenue growth to over 7%. This was largely driven by the expected recovery in North America, where Q4 revenue growth was in line with group rate. We also saw a stabilization in France after what has been a challenging year. Excluding France, organic revenue growth was 7.8%. Organic adjustments of EUR 24 million include EUR 20 million from the acquired businesses, as we guided, and a further EUR 4 million from subsidiaries either disposed of in the year or currently held for sale. The EUR 5 million adjustment on the recurring line is the fair value adjustment of the deferred income in Sage Intacct. As we continue to deliver on cost savings, I am pleased to say we achieved an organic operating margin of 28%, which meant that we could fund the investments in Sage Intacct, Sage People, and Sage Compass, and still achieve the 27% underlying operating margin. Turning now to the financial summary. I have already covered the story on revenue and operating margin, but a few words on the earnings per share. The underlying earnings per share growth is 3.5%. However, if you adjust to exclude the impact of the acquisitions and disposals, and therefore look on a like-for-like or continuing basis, the growth is 7.4%, reflecting the enhanced organic operating margin. The non-recurring item of EUR 70 million is the exceptional relating to the transformation of EUR 73 million, offset by the gain on the sale of a small German subsidiary that we disposed of during the year. The recurring item of EUR 49 million relates to the amortization of intangible assets and other acquisition related costs. The organic adjustment is the losses in the acquired businesses. Consistent with the last two years, I have shown the organic EBITDA margin, which this year has exceeded 30%. Just a quick word on tax. The effective underlying tax rate is 26%, in line with where we expect it to be. This is higher than the U.K. corporation tax rate, as we continue to derive more of our profits from other countries where the tax rate is higher and in which we operate and pay taxes. We would expect to maintain an effective underlying tax rate in the medium term in the range of 25%-27%. Let us turn now to the strong capital metrics. Starting with the first column, the underlying cash flow of EUR 470 million represents a cash conversion of 95%, but this is after net CAPEX of EUR 52 million. As I flagged last year, we continue to over-invest in both IT systems and facilities, and we will continue to do this in FY 2018. But we remain committed to driving strong cash conversion just as we have always done. Excluding the impact of over investment in CAPEX, we will continue to deliver an operating cash conversion in the region of 100%. Free cash flow as a percentage of revenue was again 15% as last year, within the 15%-20% range. This is after we've absorbed the exceptional cash outflow of GBP 72 million. As indicated in H1, we remain committed to delivering a strong return on the capital we invest in our business. In FY 2017, we achieved a healthy return on capital employed of 27%, and this despite spending over $1 billion on acquired businesses. Going forward, we will continue to report on this long-term metric, a clear signpost of our focus on efficient capital allocation. Moving to the final column, the closing net debt is 1.6 times trailing EBITDA, which, as I said, well within the range of one to two times. Let's take a look at the sources of revenue. Recurring revenue grew 9%, and annualized recurring revenue nearly 10%. This was underpinned by software subscription growth of more than 30%. Recurring revenue growth is slightly down, largely due to sales mix, specifically the strong new customer acquisition in enterprise led by Sage X3 revenue growth, which has a large non-recurring element. We also saw a weaker performance in France. This is the second year running that we've grown software subscription in excess of 30%. As Stephen said, recurring revenue is now 78% of total group revenue, and software subscription is 37% of total group revenue. SSRS revenue this year was approximately GBP 300 million and declined more slowly. In line with plan, non-X3 licenses, which are now less than a third of this category and are still declining double digit. However, this increase was partially offset by new customer acquisition driven through Sage X3, where we achieved great success growing revenue in excess of 20% and adding over 400 new customers. In addition, professional services also had a strong year. Processing growth of 2% was driven by Sage Pay, particularly in the U.K. market, where the shift to online commerce remains a key theme, and this was offset by a slower year in U.S. payroll processing. We're continuing to see the migration of our installed base customers to subscription, and we've also seen some good success in new customer acquisition with Sage X3 and Sage One. Overall, we continue to increase the proportion of the revenue that is coming from recurring. Let's turn now to a key metric, which is the growth in annualized subscriber base. In line with last year, we've continued to see strong growth of 32% to GBP 705 million, with almost 70% of this growth coming from Sage Business Cloud. You can see on this slide the success of the cloud-enabled version of Sage 50 and Sage 200, which combined have added GBP 93 million of annualized growth. Regionally, this is being driven by Northern Europe, U.S.A., and Canada, and in FY 2018, we will have these products available in 12 further countries, all in local languages. It's also very encouraging to see Sage One add GBP 22 million of growth. Last year, on this slide, that number was GBP 4 million. As we seek to improve the revenue quality, we have achieved an increase in the Sage One average annual contract value of over 34% to exceed GBP 80. Just a note on X3, which is a relatively small number on here, because most of the Sage X3 revenue is on perpetual license. In H1 in FY 2017, we successfully launched Sage Live on the same day in three more European countries, introducing multi-language, locally compliant accounting on one global platform. In H2, we then expanded Sage Live into Australia and South Africa, whilst also focusing our efforts on better positioning this product, and as a result, seeing customers better suited to this higher-value, functionally rich product. Sage Business Cloud was launched in October this year. I just want to put some numbers into the context following on from what Stephen said. We have gone from having virtually no cloud presence in FY 2014, just 2 million of revenue, to a comprehensive and unified suite of cloud products. As you can see from this chart, this is driving an annualized recurring revenue of GBP 300 million, and this year, has grown in excess of 80%. Now I want to be clear, Sage Business Cloud revenue only includes revenue from Sage One, Sage Live, the cloud version of Sage X3, and the cloud-enabled versions of Sage 50 and Sage 200. Both Sage People and Sage Intacct are also included here, and these two businesses contribute just over 90 million of the ARR and grew this year at over 40%. Whilst I'm talking about the two acquired businesses, I wanted to provide an update on how they're performing. Both Sage People and Sage Intacct have continued to perform strongly since joining the Sage family. Sage Intacct has continued to grow in excess of 30% and achieved this year an ARR in excess of $100 million for the first time, further strengthening our position as market leader in the scale-up segment in North America. Sage People's ACV has continued to increase, recording the highest ever ACV in the fourth quarter and signing our largest ever contract for GBP 300,000. Sage Compass has also continued to make significant progress in providing market insights to customers, with total users increasing by 65%. So clear evidence that the benefits we anticipated at the time of the acquisitions are coming through. Let's move to the regions now. We have grouped the regions together into three as last year, but I will make comments on the eight sub-regions, these being Northern Europe, Central Europe, France, Iberia, North America, Africa and Middle East, Asia and Australia, and Brazil. As I said earlier, half of these eight regions are this year growing their revenue double digit. Let's start with Europe. Although the recurring revenue penetration has remained constant in Europe at 78%, the software subscription penetration has increased to 37%. Both Central Europe and Iberia achieved double-digit revenue growth this year, with Northern Europe at 7%. Sage 50 and Sage 200 drove growth across Europe, with an 86% growth in Sage 50 Cloud in Northern Europe being a particular highlight. In Northern Europe, which is essentially U.K. and Ireland, we now have GBP 61 million of annualized recurring revenue from Sage Business Cloud, which this year in UKI grew at 78%. As previously indicated, it was a difficult year in France, with revenue growth of 1%. The impact of first-year premiums when customers were migrated to subscription continues to have an impact. But we do expect to see signs of recovery later in FY 2018. Both Sage One and Sage X3 delivered strong growth as new customer acquisition picked up. In FY 2017, in Europe, we recorded over 30 Sage X3 deals in excess of GBP 100,000. There were also 26 product releases in Europe in FY 2017, with the first sales of Sage Live being achieved in Germany, Spain, and France. Software subscription penetration ranges across Europe, starting at 16% in Spain, increasing to 37% in Northern Europe, and with France reporting the highest penetration rate at 56%. There remains much opportunity for subscription growth in FY 2018 in Europe as we focus on driving further growth through Sage Business Cloud and through our new leadership in France, where we will focus on the partner channel and accelerating growth in France. Moving now to North America, which now has the highest recurring revenue penetration of all of our three regions. I do want to make a specific call-out for the Canadian team, because this year they achieved both double-digit overall revenue growth and double-digit recurring revenue growth. The success in North America's recurring revenue penetration has historically been achieved through maintenance and support. Despite the significant increase in software subscription penetration this year from 14% to 25%, there remains a considerable growth opportunity in FY 2018. We have clear momentum already showing in the Sage 50 Cloud and Sage 200 Cloud products, which fueled software subscription growth in North America of 97%. Now, in the past, we've called out the Sage 200 family in North America as being on the watchlist, as being an area that's been slow to switch to both cloud-enabled products and subscription, as these products are sold predominantly through the partner channel. I'm pleased to say we now have 10,000 cloud-enabled Sage 200 family customers in North America driving GBP 30 million of revenue. This strong growth in both the Sage 200 family and also in Sage Intacct in North America reflects the complementary nature of these solutions. The momentum I talked to in the second half of last year in Sage X3 in North America has continued to strengthen. In FY 2017, Sage X3 grew at 20%, compared to 7% in FY 2016. In FY 2018 in North America, we will focus on driving growth with Sage Business Cloud and in particular in the scale-up and enterprise. We will also focus on driving growth through our partner channel. Finally, international. We achieved double-digit revenue growth in international and delivered a further increase in software subscription penetration to 56%. Brazil, Africa, and Middle East all grew double digit. With Sage One and Sage X3 growth, we're seeing further evidence of new customer acquisition in this region. We also won our first Sage Live customer in South Africa, as well as growing Sage One revenues in South Africa by 66%. In Brazil, the team did well to grow the business by 12% in what can only be described as very difficult economic conditions. We do have some continuing headwinds in Brazil due to slower-paying customers defaulting on payment, which may impact FY 2018, as you would expect in any country recovering from recession. As in other regions in FY 2018, we'll continue to focus on winning with Sage Business Cloud. Moving now to what you all know is my favorite subject, financial discipline. In FY 2017, we successfully managed our portfolio. We tidied up the underlying business through disposing of operations that were not a core fit to the strategy, as evidenced by the disposal of the North American payments business and other smaller subsidiaries throughout the year. We then identified value-accretive investments complementary to the strategy, acquiring Sage Intacct, Sage People, and Sage Compass, which collectively have added GBP 91 million of ARR in FY 2017. Despite investing $1 billion on these acquired assets, we have also funded all the losses in investments in the acquired businesses and delivered a return on capital employed of 27% and an underlying operating margin of 27%. Throughout the year, we have continued to act in a disciplined manner, and for the second year in a row have generated annualized savings in excess of GBP 50 million at an improved payback. This was done through a combination of driving efficiencies in our shared service centers, as well as areas like procurement and productivity in the go-to-market functions. Overall, our organic headcount declined as we planned, and general and administrative expenses as a percentage of revenue is now 13.8%. This will continue to reduce through driving efficiencies and discipline across both our back-office and go-to-market teams. If we have a look at the profile of the operating margin, in FY 2016, the G&A saving was 220 basis points. In FY 2017, we have achieved a saving of 360 basis points. As I have said, going forward, you can expect this to continue to trend towards low double digit as a percentage of revenue. This year, the reinvestment is very similar, with both product and go-to-market benefiting. In product, we have significantly increased our cloud product investment, delivering 52 country releases of our cloud products. But it is not just a case of making the savings and just handing them over to the go-to-market team. We take a data-driven approach to allocating the investments, and I want to give you a specific example of how this has paid off. In FY 2014, Iberia was growing at 2%, operating as a standalone business, often overlooked with little or no investment in the region, and no new product launches since 2010. Under the leadership of Luis Pardo, who was appointed in FY 2014, we have made significant progress through focused investment in both marketing and product, supported by a strong leadership team and an alignment of operations to strategy. In the last two years, we have invested marketing spend to support eight product launches. In FY 2017, we took Sage Summit to Spain, delivering the biggest event for SMEs in this region with 2,500 people attending. We have also rolled out smaller marketing campaigns to better engage the local market, such as the recent activity in response to a local VAT change that delivered revenue in excess of EUR 3 million and engaged over 9,000 customers. Iberia is a good example of how we have been putting our marketing and wider investment to good work. The payback, of course, being the progressive growth achieved to finish FY 2017 with Iberia growing their revenue double digit. In summary, I wanted to finish by making three points. Firstly, this is the third year in a row that we have achieved or exceeded guidance. Secondly, we have continued to demonstrate financial discipline and focus on capital allocation, as evidenced by both our return on capital employed and our underlying operating margin, both being 27%. We have also delivered, for the second year in a row, savings in excess of GBP 50 million, and in FY 2017, delivering GBP 59 million of savings with an improved payback. Finally, in the last two years, we have seen annualized software subscriber base grow from GBP 381 million to in excess of GBP 700 million in FY 2017, therefore providing us with strong revenue momentum. With that, I would like to thank you and hand back to Stephen. Thanks, Steve. Actually, if there are some folks at the back, there are some seats at the front if you want to come forward. More comfortable, hopefully. A strong set of results in FY 2017, giving us a platform for acceleration as we move towards the next phase of our growth story. The strategic pillars that we shared with you back when we met at the Capital Markets Day, I just want to take you through now, and update you on where we are with progress. Firstly, customers for life. We have continued to migrate our customers to subscription, and this has been a strong growth driver, more now than ever with the introduction of cloud-enabled solutions in the Sage 50 and Sage 200 families. These solutions give our customers the flexibility of the cloud, combined with the functionality and the familiarity of the desktop, and give customers access to data from Sage through Microsoft Office 365, as an example. From here, customers can see client contact details, check credit scores, and even raise invoices from the palm of their hands. It is no surprise that these solutions have proven incredibly popular with our customers. From their launch in FY 2016, revenue from these solutions is now GBP 133 million, almost 8% of our total organic revenue, grown 140%. Almost all of this revenue comes from Northern Europe and North America, where the solutions were first launched. We have another 12 country launches of cloud-enabled solutions planned for FY 2018, so expect this revenue stream to continue to be a strong growth driver in the future, both directly and through our partner channels. The transition to cloud-enabled solution continues to increase our software subscription revenues. Software subscription as a proportion of total revenues is now 37%, up from 22% three years ago. This shows us that we made strong progress in the customer for life strategy, but also that there is plenty of room to continue the growth, both by migrating the install base to subscription and the cloud, and by reactivating off-plan customers who do not currently use a recurring contract. Throughout the transformation, we have also built a strong culture of customer obsession as we transition towards a software as a service, getting to know our customers better and creating a community of real advocates for the Sage brand. We have given our customers the choice between digital, phone, or self-service, and unifying the team to meet areas of peak demand for customer service. We also now use artificial intelligence within our own customer services. For example, at tax year-end, we've trained Pegg, our smart assistant, to answer the 3,000 questions that are asked 95% of the time by customers, making the process smoother and more efficient for all our customers to receive the right answer. This has resulted in a significant improvement in our NPS, from a neutral score at the start of FY 2015, to a high of +25 in Q4 FY 2017. This is up 11 points since FY 2016. In terms of the focus on FY 2018, the rollout of the cloud-enabled solutions as part of the Sage Business Cloud into further geographies will be a continuing priority, as well as the relentless focus on customer obsession. Now, onto the second strategic pillar, winning in the market, new customer acquisition, led again by our President, Blair Crump, who heads up all our go-to-market functions, including all customer functions. This year, we've had two priorities here. Firstly, to drive successful execution in our go-to-market functions, and secondly, to win in the cloud. In terms of go-to-market execution, we appointed Blair in August 2016, and I want to show you some of the progress that Blair has made. Prior to Blair's arrival, our sales function had been fragmented, disparate, and operating towards different measures. Blair has made progress here with a focus on raising the standards of leadership. He's replaced five out of the top eight country leaders in the past 15 months. And actually, since Stephen and I joined together, all top leaders in the sub-regions have been replaced. Now this leadership team is highly experienced, competent, and highly effective. And we're confident that we have the right team to drive forward the revenue acceleration we strive for, as well as maintaining and enhancing our margins. Now another big area of focus for Blair has been to align and simplify our go-to-market functions. Throughout our many regions, there was still significant fragmentation and inefficiencies. Just one example, there was a headcount of 900 non-quota-bearing colleagues within the sales function. Blair has now started cutting through and reducing the complexity, so our sales teams can start focusing on customers and winning. Now there's still more to do here, as I'm sure you'd appreciate, but we're making good progress. Within every function, we've become much better at tracking our return on investment. We'll only continue investing in those areas that drive a return. A great example is the local marketing campaign we delivered in September 2017 right here in London. You may have seen us paint Waterloo and other London stations Sage green, as you can see on the screen behind me now. This campaign raised awareness of Sage in London by 11%, increased web sessions to sage.co.uk by 33%, and reached 8 million people with the Sage Stories hashtag celebrating our customer success. The return on investment led us to invest further in local marketing into FY 2018. Let's move on to our second priority for winning in the market, the rollout of our cloud products. So we've shared this slide with you before, in fact, last year, and it shows how far we've come. From virtually no cloud presence in FY 2014 with only GBP 2 million of revenues in the cloud to rolling out our cloud solutions across the globe, driving GBP 300 million of annualised recurring revenues in FY 2017. As we continue this rollout and improve the functionality, user experience, and broaden the ecosystem, our cloud revenue will continue to grow. Sage X3, which grew at over 20% in the year with more than 50 contracts signed at over GBP 100,000. Sage Live's average ACV has risen from under GBP 1,000 to GBP 3,900 in the year. Sage One's average ACV has risen by 34% on the prior year to GBP 81 with ARR increasing by 76%. This solution now has expanded its market reach as well and is suitable for businesses with up to 50 employees. These solutions are all part of the Sage Business Cloud, which is now the primary engine to win and drive new customer acquisition in the cloud. As we continue driving up market, the scale-up and lower enterprise segments remains our largest area of revenue generation, providing the sweet spot of strong profitability against fragmented competition where Sage is a clear market leader. The acquisition of Intacct significantly enhances our position in the upper scale, upper lower enterprise, as we now have a cloud-first solution in this space to win in the U.S.A., which represents over 50% of the total addressable market. We also continue our focus on the startup market. As well as driving higher contract values, we are strengthening our routes to market with renewed focus on our accountant channel and also our new e-commerce website. So important work completed to win in the market this year. Now we would appreciate there is certainly more to do, but we are very clear of some great signs of progress. Four out of our top eight geographies are growing at in excess of 10%. These midsize regions, Iberia, Central Europe, Brazil, and Africa, and the Middle East, where the comparatively smaller size makes it easier to embed operational and cultural change. In our larger regions, the transformation took longer, but we are now confident we have the pathway with the right people, the leadership, the processes, and the products through the Sage Business Cloud. So let us take a proper look at Sage Business Cloud, which we launched in October 2017. The one and only cloud business management platform that customers will ever need, from startup to enterprise. Sage Business Cloud unifies our portfolio of cloud products to provide the most comprehensive suite of cloud solutions in the market. It is perfectly aligned to our customer requirements across the golden triangle of accounting, people and payroll, payments, and banking. Supporting these core solutions, we have been developing a thriving ecosystem with marketplace apps powered by developer platforms for application program interfaces, APIs. We also offer the latest platform services, including artificial intelligence and the Pegg framework. So you may wonder what differentiates us from other cloud platforms. Quite simply, there is no competitor who offers the sheer breadth of cloud products that Sage does. Products that are global, products that are multilingual, that adapt to local legislation, that can serve a sole trader on a kitchen table as easily as they can serve multinational international corporations. Simply put, no one else can do this. New and existing customers can join the Sage Business Cloud at any stage of their business journey and carry on growing with Sage. There is no more expensive, hard-to-implement monolithic ERP systems. Sage Business Cloud is flexible and completely customizable as the customer's business grows. A big part of our work around the Sage Business Cloud has been to develop our ecosystem of partners, and our payments business has particularly seen exciting developments here. We talked about the updated payment strategy at H1 FY 2017. We announced the disposal of the North American payments business in June 2017. We continue to leverage the power of Sage Pay here in the U.K., and a huge focus in this year has been building our global partnerships. Following our payment strategy update in May, we now have partnerships with the best fintech providers in the world, companies like Stripe and GoCardless, and we are together helping to revolutionize the services we can offer our mutual customers. Imagine an entrepreneur starting their very first business, a process that can be fraught with administration and red tape. Our technology through the cloud simplifies this first step for an entrepreneur. Within Sage Business Cloud, the customer can access a custom-fit solution, a suite of solutions to start trading straight away. Let me give you a couple of examples. Our partnership with Stripe means the entrepreneur can set up and receive card payments instantly with easy reconciliation. With GoCardless, the entrepreneur can seamlessly set up direct debits to ensure payments in and out are frictionless, automated, and always on time. In partnership with Liberis, we have piloted new ways for the entrepreneur to get easier access to funding via Sage Pay Business Finance. Now with our new banking API, we have enabled new bank account information feeds with the leading banks in the U.S. and the U.K., making the arduous process of bank account reconciliation much easier, giving back precious time to our customers, the entrepreneurs. Sage is not just providing compliance and allowing access of backward-looking accounts, it is helping entrepreneurs run the business smarter, more efficiently, looking always ahead from the palm of their hands. As the business grows, the power and the ecosystem of the Sage Business Cloud will continue with them, allowing the business to scale and expand across the golden triangle. Now, Steve earlier touched on the work we have done to achieve annualized cost savings, reaching our targets and reducing our G&A margin as a proportion of revenue to 13.8%, 360 basis points below FY 2016. Now, there is still more to do here, and this focus on efficiencies and simplification will continue beyond the transformation and is now considered business as usual at Sage. Let us turn our attention to One Sage. Ensuring that we have the best talent is absolutely critical to our success. We have invested in our leadership, and we now have a highly talented, highly competent, technology-driven leadership team. Our top 150 leaders, over 20% of whom come from top tech companies like Google, SAP, Salesforce, and Oracle. Another key element to succeeding in our strategy is making sure we embed a culture where our colleagues feel empowered to make a difference and give back to our communities. Sage Foundation is now a beating heart of our business at Sage. In FY 2017, we donated almost 2 million GBP in grants to small charities, and Sage colleagues spent 23,000 days paid volunteering in their communities. The Sage Foundation helps us attract and retain the right talent, particularly millennials. It is also the right way to do business, and it is something that makes us very proud. Moving on to outlook for FY 2018. The organic revenue definition for FY 2018 will include acquired businesses from the beginning of the financial year, following the date of the acquisition. During FY 2017, Sage acquired Sage People and Sage Intacct, which will now form part of organic revenue and combined, are expected to add around 1% of revenue in FY 2018. On this basis, management expects organic revenue growth for FY 2018 to be around 8%. We expect to continue to achieve cost efficiencies that will be more than sufficient to absorb losses as we continue to invest in these businesses as they scale. We are therefore confident of delivering an organic operating margin of around 27.5% in FY 2018. Now, you know we provide guidance on an annual basis. However, in the spirit of transparency, and particularly keeping investors and analysts informed of progress, we will continue with quarterly updates. We started FY 2018 investing heavily in sales training and ensuring we are set up for success through the year. Therefore, we would expect a similar phase-in to prior financial years as we accelerate momentum through the year towards our strongest performance in Q4. Our guidance today, on any basis, our organic revenue and our operating margin targets are raised. To summarize, the strategy is working, and the transformation we announced at the 2015 Capital Markets Day is complete. Throughout this period, we have maintained a compelling investment case of higher quality, recurring revenue, superior operating margins, strong free cash flow, and a progressive dividend. The work we have done organically and through acquisitions has strengthened our position as the market leader in the scale up and lower enterprise. We now have the leadership, the organizational alignment, the brand, and a comprehensive suite of cloud products unified through Sage Business Cloud to accelerate momentum in the market. Today, Sage is stronger than ever, supported by the rise in our guided organic revenue and operating margin targets and our 9% increase in the full-year ordinary dividend to 15.42 pence. As a reminder, we will be holding the Capital Markets Day on 25th of January, 2018 here in London, and we will be excited to give you much more color on Sage's future accelerated growth story. We look forward to seeing you all there. With that, I would love to open to Q&A. As ever, I ask the question, if you can state your name and your company, and if possible, to respect everybody having the chance to ask questions, please stick to one question per analyst. Let us start. Steve, come down. Thanks. We will start. Mo, do you want to kick off? There is a roving mic coming around for everybody. Great. Thank you very much. Stephen, can you maybe give us some more color on the assumptions around the sort of 8% organic growth guidance? I mean, geographically, France obviously was a little soft. Are you planning any kind of bounce back in France there, and then specifically U.K.? Some other companies have talked about some sort of macro concerns. Can you maybe isolate the macro versus some of the kind of product cycle and underlying structural drivers around that acceleration, and where the risks in the guidance are? Well, there's about three or four questions in there, but I'll do my best. At the macro level, we see the continuing acceleration with ARR, obviously, around the Sage Business Cloud. In terms of geographically, I think it's important to say we have a plan. We've got new leadership who are on this show, joined at the start of the month in France. What we shared with you before in terms of the challenge in France last year was around effectively the way we'd price for subscription and also the partner channel in France. I think we've got our arms around the issues, and with new leadership, we certainly see more stability in the first half and then momentum in France for the second half. Geographically, actually, we would certainly see broadly continuing momentum in all geographies and four obviously out of the eight sub-regions are growing at double digit. Then your last question related, I guess, to the U.K. and the environment in the U.K. Actually, we, like our customers, are confident we're getting on with running our business. Despite Brexit and all the noise, we're just focused on getting up every morning, running our business, and the outlook for our U.K. business is continuing growth. Last year we grew at 7%. You saw Steve broke out the Sage Business Cloud growth in the U.K., which is a lot of momentum. We see that continuing across the board. Do you want to add to that? Yeah. I think in the U.K., despite it being our home market and we've done well in the U.K., we still only have 37% subscription penetration in the U.K. We have a very large install base of customers who we think will continue to upgrade to the cloud-enabled version, particularly of Sage 50. We've also seen strong Sage X3 growth in the U.K. So I think we have momentum both in the install base but also with new customer acquisition. Good. Who's holding the mic? Do you want to try Stacy? Just mix it up a bit. Otherwise, what we'll do is take all the questions in future from the front to incentivize you all to come to the front of the room. Go with it, Stacy. Only one question, right? Yeah. Can Intacct be taken into new geographies where and over what time period? Obviously, yes. But what we'd like to do is keep a bit of powder dry because we want you to all come to the Capital Markets Day, and we'll share the plans around internationalization as Intacct as part of the future strategy. But absolutely. But obviously today, Intacct's revenues is all in the U.S., even very little in Canada. So fantastic product, market-leading product, Gartner Magic Quadrant. And actually the key part of the scale-up and lower enterprise to complete the Sage Business Cloud. Another element I probably should share with you, we've had a lot of market analysts kind of doing a deep dive on Sage Business Cloud. Their feedback after spending a day and a half with this going really into the bowels is we're probably 2 years ahead of the competition, and it's the most complete, and that's why I said the most comprehensive suite of cloud solutions products within a platform. There's loads more of that though, Stacy, at the Capital Markets Day. Michael. Thanks. In terms of Sage One, it added about 70,000 customers in H1 and only about 25,000 in H2. Can you talk about regional picture there and whether you think that will accelerate? Just a cheeky follow-on. In terms of the acquisition contribution, you're showing Intacct and Sage People at GBP 90 million. You're saying about 1% acquired growth or benefit from that, which is about GBP 20 million, and that just seems low. It seems to imply they're growing about 20% rather than the 30% you alluded to. Can you explain? Thanks. Sure. Let me take that second one quickly. The GBP 90 million is ARR, so it's slightly higher than the recognized revenue. I think we've guided to about 1%. It could be a little bit more because what we're looking at the moment is where we allocate capital between the different parts of the business, and this is another reason why we want every pound of revenue to be equal. If we think we can invest more into Sage Intacct and Sage People and get them to grow faster, we will, but we'll do all that within the envelope of making the 27.5% margin. I think the important thing here is that we are treating both revenue and also costs as equal internally, and it is very important because we're selling through existing channels, particularly with Sage People, that when we're talking to the sales teams, they're not saying, "Well, I better go and sell this other product over here because it's organic, and I'm not selling this one because it's not organic." We need everybody to be selling the best solution for the customer. It may be, and we'll be open when we come and do our results, we will give you an indication of how much of the growth has come from Intacct and People. It might be that it's more than 1%, but if it is, then that's great. But it will be because we've invested behind it. If you think about how that impacts on the margin, for example, we've disclosed that in the period we've owned them this year, we've already made losses of about EUR 8 million in People and Intacct. We haven't said how much we think that will be in 2018, but you can extrapolate, and you can assume that it's going to be something like 100 to 150 basis points. By us saying we're going to make a 27.5% margin, it means excluding those investments, we're probably making something more like 29% in the rest of the business. You can see from that, therefore, the confidence that we have in terms of the cost efficiencies and the cost savings in the rest of the business. But we think it's important that we allocate capital in the way that drives the most progress. I've forgotten the first question. The first question maybe on the U.K., Sage One, I think what you referred to, is overall 2% of our revenues. I know that part of the market gets a lot of the noise. However, we're really happy with the progress we've made on raising the ACV and also the ARR of 76%. Actually, Steve mentioned, I think GBP 61 million ARR in that marketplace in the U.K., and that was growing broadly similar in line to the 75%, 76% for ARR growth in FY 2017. The other things that you'll see us do more of, I referenced them in terms of the local marketing campaigns here. I just noticed we've got some of our senior management, Amanda, Vicki, Klaus-Michael, our CTO, our Head of Payments & Banking, Seamus, and Neil Morgan, who leads marketing. You'll see us get really engaged in the U.K., as you started to see us in terms of what was it called, station domination, where we painted these stations green and now if you go out to Hammersmith, if you want to lighten up Hammersmith, you might look up at the skies and see Sage. There's a lot of things in marketing. There's this big push now in the U.K. to really strongly reengage with the accountants, and we're seeing a big shift to the Sage Business Cloud for both our U.K. and North American customers that really underpins this very strong growth we saw in ARR and Sage Business Cloud. I think there's number one, I think we said to you, I think signaled for what, three years ago. At that time, it was really marketing money. But we found that the businesses of quality are actually prepared to pay for the value, and therefore, we've seen the ACV trending up on Sage One particularly. And also that is the same story on Sage Live. And now we feel that we've got all the elements of the product, the distribution, the marketplace in place to really drive the strategy through accountants, through marketing, and the move to Sage Business Cloud. We did some, I think we said a few years ago, we did some experimentation in the U.K. So we did do some deals on Sage One where we were pushing it through GBP 1 a month, so the lower end of Sage One. We have encouraged churn at that level, because at the end of the day, if we can't upsell and monetize, the model doesn't really work with people paying GBP 1 a month. So we have seen significant increase in churn in Sage One in the U.K. However, the revenue has gone up because we're focused on high-quality revenue. We've also seen churn in Brazil. I mentioned in my presentation that we've seen an increase in non-payment in Brazil, and so we've started turning customers off who are not paying. So you are absolutely seeing a shift, as Stephen said. We said a few years ago we didn't really mind what the ARPU was in the first year or so. We're now focusing much more on we believe that the product is a premium product. It's the match of anybody else's, and we intend to charge appropriately for it. Actually, one other final thing. Sorry, long answer. But two years ago, if you'd asked us about Sage One, it would've been 13 different code bases. Now, what we talk about in terms of the U.K. version, French, Spanish, German, U.S., it's a single code base. So we obviously had to do a lot. Klaus-Michael led the project with engineering to make sure that we unified it. And now, I think we're the only company that has a non-English-speaking, locally compliant, totally legislative compliant plan, which means that in the future we can go much faster in terms of product innovation and integrating things like AI and Pegg and all those fantastic products as well. Go for Charlie, and then we'll come back down here. Hi, it's Charlie Brennan here from Credit Suisse. Can I just start with a clarification on the terminology of the guidance? We're not used to you using words like around. It sounds surprisingly imprecise for you. Should we continue to interpret that as at least? And then just in terms of my question Sure Can I just ask about the CAPEX? GBP 50 million sounds like a big number. Can you give us any insights as to whether there's any cost capitalization within that with R&D and sales commissions? Thanks. I'm sure that's two questions. Okay. Go for it, Tom. Yeah. If we'd have wanted to say at least, we would've said at least. We mean around. Why are we saying around? Look, because we're still going through a shift, particularly on new customer acquisition, where we're selling X3 on perpetual license and then we're selling the other products on subscription. Being completely precise about that mix as we go through this year and as we're pushing harder and harder on new customer acquisition means that we just want a bit of flexibility. We don't want to say that 7.9 was a failure and 8.1 was a success. Something around 8 we think is reasonable, and the same with the 27.5. This year we have managed pretty much precisely to the guidance that we gave. But again, whether it's 27.4 or it's 27.7, what we're trying to do is give you the color that we are starting to see the acceleration. As we go through the first couple of quarters, we'll get a better sense of how that's playing out. Second question, CapEx. On CapEx, yeah. So 50 million. We don't capitalize internal costs as a rule. We have an R&D policy which could, in certain circumstances, allow us to capitalize R&D, but we have not done so. IT systems. We've said before that whilst we've made progress in the back office on using our own systems like Sage X3 and Sage People, we still have a lot more work to do in terms of investing in the CRM systems. We have Salesforce across our enterprise business, so for X3. But look, we have 3 million customers that the front end CRM re-engineering is quite a big project, which we're still underway with that. Also, we made a deliberate decision two years ago that we would rationalize our entire property portfolio. So, we've halved the number of locations to around 70. But in our key sort of tier 1, tier 2 locations, in pretty much every case now, we have either moved to new offices or we have upgraded them, usually by going to smaller footprints. But we are deliberately investing in very high-quality facilities because it's part of how we attract and retain talent. Every time you do that, we obviously capitalize the cost of that refurbishment. These are decent-sized offices, so that runs into the millions of GBP. We are about to do Newcastle. So those of you who've been to Newcastle, North Park is a pretty sizable campus, 340,000 sq ft, and we are going to do a refurbishment of that campus, which probably means over the next couple of years, we'll probably spend about GBP 30 million doing that. So that's where the money's going. A question down the front. Thank you. It's Vijay from Jefferies. In the presentation today, you outlined the strong focus on financial discipline and return on capital employed, which I suppose is a pleasing message for investors. But on the other hand, change in definition of organic growth might suggest to some that there's probably a greater appetite for M&A going forward. If acquisitions are like Intacct, then it's great for short-term growth, but they will dilute returns in the near term. That feels like a confusing message for investors. I wanted to get your thoughts on, are you telling us today that as a business, as a management team, you are going to prioritize growth over returns? Or perhaps your thoughts on sustainability of returns going forward? Sure. I think we're being very disciplined. I think the fact that we are not just including the revenue, we're including the costs. Remember, if we hadn't have put Sage Intacct and Sage People into organic revenue, we wouldn't have put the losses into organic costs either. We'd be standing here saying, "Here's our revenue number, but we're now making a 29% organic margin." To me, that makes no sense whatsoever. We have to have complete transparency and alignment between internal metrics and external metrics. A pound of revenue is a pound of revenue. We need to be able to say to all our people internally, "Drive growth." My message to investors is we're doing all of that, and we're enhancing the margin. We're funding all of this. It's not like we went out and did an equity raise. We funded it all through debt, and the leverage is already down to 1.6. I think we're making very effective use of our free cash flow. We are delivering to investors accelerated revenue growth, and we're funding it. Yeah, I think just actually, you talked to a lot of the investors. I think they're very clear that the Sage story is all about organic growth, superior margins, strong free cash flow as a platform for selective acquisitions, and we've clearly stated bolt-on acquisitions that accelerate the strategy. But the essence, and we'll do much more about how we achieve this at Capital Markets Day, is that organic growth engine through winning the market with Sage Business Cloud. That's absolutely a fundamental part of the Sage story. Do you want to go back? Mix it up a bit. Hi there, Steve Goldman from Deutsche Bank. Just on the subscription growth, I think you'd said in the past that obviously at the minute, growing around 30%, a couple of years out, maybe that starts to slow once you sort of run through the lower hanging fruit of the Sage 50 base, and it's a tougher sell as you get into the sort of the 200 level products. I just wondered if you had a bit of an update around that and whether you still think that's going to play out. And obviously in line with Sage One sort of slowing and the customer growth slowing there, are you seeing any kind of material new customer acquisition growth outside of whatever subscribers you're getting there or maybe some subscriptions you're getting in Sage Live? I think on the subscription growth, I think it's probably fair to say that if you compare how we feel today to where we were 12 months ago in terms of the sustainability of the installed base growth, we probably feel a bit more optimistic. I think the cloud-enabled versions of Sage 50, 200, which are integrated into Microsoft Office 365, are proving to be very popular. We've got over globally, and by globally, I really mean the U.K., U.S., and Canada because that's the three countries where we've launched it so far. We already have over 170,000 customers that have signed up to cloud-enabled versions of Sage 50 and Sage 200. And we have an installed base in the hundreds of thousands that we can still sell that upgrade to. I think this has got. We deliberately quoted the software subscription penetration rates. Although they're high in places like France and South Africa, we still have a huge amount of runway, both in the North America and also in Continental Europe, where the products are going to be available during FY 2018. I think there's a lot of momentum. On new customer acquisition, both in Sage One and Sage X3, we're starting to see traction. It's early days. We still need to do more on new customer acquisition. But we are continuing to add the number of customers that we have. And remember, our renewal rates are 86%. So every year, 14% of our customers don't renew, and we still cover that and add more. So we are doing new customer acquisition. Stephen and I would love to see Sage having 5 million customers, never mind 3 million. But I think we're seeing some green shoots. Yeah, just another thing, and this is much kind of a little teaser maybe for Capital Markets Day, but we'll share with you on when we're moving customers to Sage 50 Cloud on subscription, Microsoft Office 365. Everything I talked about in terms of payments is fundamental. Now a customer can go to Liberis and get basically within seconds, effectively a facility. They can integrate Stripe. It's not just within the Sage Business Cloud, Sage, but it's a much broader ecosystem, and that will drive momentum and that will drive obviously existing customers to move to the cloud, but also very attractive for new customers. I think we've seen that, and the results actually speak for themselves in that respect. But on that, it's just the start. We've got another 12 countries this year we're rolling out the cloud-enabled solutions to, and you'll hear much more at the Capital Markets Day around Sage Business Cloud. Go down here, David. Hi, it's David Toms from Numis. Can I just ask a quick clarification and then a question? Clarification on in response to Charlie, you said you don't capitalize any internal cost. The notes to the accounts say that your IFRS 15 policies capitalize internal costs in winning long-term contracts. Can you just quantify that? Yeah, we haven't implemented IFRS 15 yet. IFRS 15 will be implemented from FY 2019 onwards. IFRS 15. We could talk for hours about IFRS 15. We're obviously assessing the impact of what that will have both from a revenue and also from a profitability perspective. But you probably all know the rules under IFRS 15 are somewhat more prescriptive. Therefore, as the CFO, I've always erred on the side of I don't like capitalizing internal costs unless we're forced to. Under IFRS 15, there are certain areas where we might be forced to. Now, we don't have a lot of long-term contracts. The area where we might start to have to do something different would be an X3 implementation. If we prime an X3 implementation where we sell both the software and the professional services, but we're the prime contractor, and let's say that implementation took over a period of time, we would be forced to match the costs to the revenue over that period of time. Whereas today, we treat them as they're incurred. Thanks. Then just the question. Sales and marketing productivity, my favorite question each year. You've spent more money on sales and marketing. The recurring revenue growth rate's 140 basis points lower than last year. The overall growth rate's 10 basis points lower. What's the benefit of all the sales and marketing spend, and how are you tracking the productivity of it? Yeah. I think with sales and marketing, that's why I sort of did the example I did on Iberia. We obviously have some expenditure which we sort of drive across the whole of Sage, so brand awareness. But even with things like Sage Summit, whereas last year we had a big Sage Summit in Chicago, this year we took Sage Summit on the road and took it to eight different cities. What we've been doing more of this year is focusing the investment on a country-by-country basis. As Stephen alluded to, what we're seeing is a faster return on that in the smaller countries. So in Central Europe, in Iberia, Africa, Middle East, Latin America, et cetera, where we have more agile leadership where we can make the cultural changes faster. I think in the bigger countries, what we've seen is we've put money to play in certain areas. So we've seen great success, for example, in North America on the upgrade to C-line. As I say, I'm very pleased with the Sage 300 family. It's taken us a long time to get the partners to really embrace the upgrade to C-line and subscription. That all requires investment, and these things don't come for free. But what the bigger countries have to do, as well as those initiatives like driving C-line and actually driving X3, which has also been a success, we also need to manage all aspects. I mean, the bigger countries tend to have a wider, diverse source of revenue. So they have some of the older product lines that are growing slow. They have some areas where they are doing well, but as a whole, their blended growth rates are not going up fast enough because they are not bringing that together and migrating customers to, for example, the Sage Business Cloud as quickly as they should. We are being very granular about how we allocate the marketing expenditure. All these product launches that we do, they all require marketing behind them. But it takes a while for it to adopt. The C-line product is going into 12 countries, Sage Live going into whatever it is, nine, 10 countries. Sage One similarly. This all requires money to support, and then it takes a while for it to set off. But we think we have put in place a lot of the building blocks, and 2018 is a pivotal year. Yeah, I think it is a good question. It is a question we ask internally. Blair has got his arms around that. It is interesting when you look at Sage One, actually, apparently it is the fastest product to ever launch to get to 400,000 customers in that sort of comparable marketplace. We talk about it, and it is fair to say, in the early days, you do not see the rapid adoption, but then you see the hockey stick, crossing the chasm, whatever analogy you want to use. I think with Blair here at Capital Markets Day, you will get a real sense of a feel. We think there is a lot more we can do around sales productivity and efficiency. And I think that one of the reassurances you can take is, we have clearly signaled today the transformation we announced back in 2015 is complete. No more exceptionals. But the discipline we are going to drive internally around productivity, around all functions, will continue and be relentless. We agree that business is 7% and the headcount declined 3%, so we are starting to make some progress in terms of overall productivity. Yeah. The go-to-market function, 8,000 people, will be a big area of focus. Maybe a couple more questions. Yeah. Go again. Thank you very much. It is James Goodman from Barclays. You have made a few comments today about having completed the first phase of the transformation for Sage. If we look at the guidance and step back from the 8% versus the 6% this year, that is largely a consequence of the acquisitions and the payments disposal, where the growth slowed. My question is, why do you not have more confidence at this stage that the growth will accelerate? Not to steal your Capital Markets Day detail, but how confident are you that the organic growth of the underlying Sage business can accelerate, and when will that come through? James, good question. You go to lots of management team presentations. We have not talked about Brexit. You probably, hopefully, had a very different tone from this management team around confidence in the business and obviously raising the targets. We want to be sensible. We never want to be a management team that run before we walk. We are very confident, and you are right, with the disposal of North American payments, it is probably a half a percent. You got 1% from the acquisitions, but it is still a statement that we are actually seeing an uptick in terms of guidance on the organic growth. I think we will see much more of the how, which is the fundamentally getting under the surface of how we are going to achieve this, and you will meet a much broader range of the management team members. You will see the plans coming together when we meet up in January, the 25th of January. Any one? No, whilst we're signaling that this phase of the transformation is over, change is a constant. There's still a lot to do. As Stephen said, we haven't talked about any external macro factors at all. But there's quite a bit of uncertainty around at the moment. We think we have our arms around what we're doing. But I think we need to see how the next few quarters go. We wouldn't be guiding to 8% if we weren't confident around it. But there's still a lot of moving parts, and we still have one of our largest countries, i.e. France, which only grew 1%, that's got a new Managing Director. And these things take time. You can't just wave a magic wand. As I said in my presentation, if you exclude France, the rest of the business grew 7.8%. And actually, the recurring revenue would've been 11. France is a considerable drag, and whilst Laurent is a very strong leader, he's going to need some time to get his arms around that. North America showed signs of strength in Q4. But again, there's still some moving parts there that need to come through. I think it's important that we just keep it in context. This is a journey. If we'd gone back three years, most people didn't believe we could go through this transformation and achieve 6% growth every year without having some sort of double dip. We've achieved 6% growth, we've achieved 27% margin, and we have made substantial changes to this business. But we need to keep driving that change, and I think we're signaling to you it's heading in the right direction. But there's still stuff to be done. Great. Maybe a final question. Just two rows back. Excellent. Thanks. Yeah. Thanks. It's John King from Merrill Lynch. Maybe just a follow-up or clarification really on that. Just the visibility you have, more tangibly obviously saying Q4 is the strongest quarter, but I guess Sage typically feels like it has a one to two quarter visibility. What is it that you're confident on that comes through really in the latter part of the year? Yeah. Maybe I'll start and you wrap up. With Blair here, I think we have a lot more confidence. There's a lot more granular discipline, forward-looking pipeline management. There's still improvements to make, but I think when we actually sit down with the country managers, we did a call with them last week. We got a very clear picture of the year ahead and how that kind of maps out. I think the assurance that you can take is that when we provide guidance, it is underpinned by substance from the roll-up of the country managers, and Stephen's right at the center of that with Blair. 78% of the revenue is recurring, and 37% is subscription. The subscription has higher renewal rates, so typically 90% plus. As the amount of subscription increases, our visibility improves because we can see that, as I say, renewing at a higher rate. We do have good visibility of the remainder of the recurring revenue, i.e. the maintenance and support. But as I say, the retention rates are not as high. Now, we think with the cloud-enabled products, with Sage Business Cloud and with everything we're doing on Sage 50 and Sage 200, we should be able to drive much more to those higher retention rates, and therefore we're seeing improved visibility in terms of the install base. More of the new customer acquisition at the moment is coming from X3 because they are bigger projects and it's perpetual license. Although we have good order cover, visibility of the timing of those deals is more volatile, and that is one area that could be impacted by macro because CFOs become cautious when uncertainty is around. Haven't seen that yet, but that could be the case. I think we've got a pretty good handle on the momentum and what's happening in the core of the business. But the rate of adoption in new customer acquisition is always the uncertainty. You can't predict how quickly people will adopt the new things that we're doing. We've got Seamus here in the audience, who's the head of our Payments & Banking. We're doing a lot of interesting things in that space. You saw that we signed that with Stripe. There's a lot of things that we're doing, but again, you don't know how quickly customers will adopt these solutions. Thank you very much for joining us today. Also, I'm really looking forward to seeing you on January 25th. It will give you a lot of the sort of answers you started today, much more about the how in terms of medium term and acceleration of Sage Business Cloud and the overall business. Thank you very much.