Stephen Kelly - Chief Executive Officer Steve Hare - Group Chief Financial Officer

David Toms - Numis Securities Stacy Pollard - JPMorgan Milan Radia - Jefferies International Vijay Anand - Mirabaud Securities LLP John King - Bank of America Merrill Lynch

Good morning and welcome to the Sage interim results with Steve Hare and myself. To remind you of the Safe harbor, which I’m sure you’ve seen as well on our website.

So, in terms of today, I’ve been here now literally six months as of yesterday and that gave me the opportunity to spend quite a bit of time meeting thousands of our colleagues and hundreds of customers. And reporting a good scorecard today, but just to show you that we have lots of work to do and I’ll give you some insight with Steve associated with that.

We’ve set up - in terms of just reflecting on where we are, when we joined the company with the board, 100-day program, we called it internally Sage 2020. And it’s quite convenient actually, the timing of today, because five months ago was the first time you saw me representing Sage, reaffirming management’s guidance for the 6% growth and the 28% operating margin.

Today a checkpoint and a milestone at the mid-point of the year reaffirming that and, I think, growing confidence around the fiscal year and also then signaling to the Capital Markets Day when we can look to the future with you and share our thoughts around fundamentally three core themes. And it’s around customers for life, growing high-quality customers, and really taking the mantra of being the champion of small and medium businesses around the world to the next level.

The other element of that is really kind of driving lot of innovation into everything we do, particularly the technology and then being a trusted partner of many of these businesses around the world as they transition to the world of cloud, and the social, and mobile. And kind of thirdly, I think, it’s really important to focus on the quality of the business and quality of the revenue.

So we’re very focused on that, and the sustainable revenue growth going forward, and things that our investors and all our stakeholders really value about the business. So let’s start with today in terms of reporting on the kind of scorecard of the business.

There are a few things I’ll just pull out, which I think significant. Obviously achieving 6.2% organic revenue growth, we’re pleased with that.

And then the recurring revenue is really a good leading indicator on the quality of the business and the quality of the revenue. The organic revenue, recurring revenue at 73%; the strong growth in subscription revenue, 29%; and the things that I think our investors and we really cherish is around the revenue growth, the strong operating margins feeding through to the conversion to cash flow, free cash flow, and obviously supporting a progressive dividend.

So the underlying EPS growth of 16% I think is very creditable. What I would say, though, is probably the key thing that this model is predicated by is the quality of the revenue growth.

And it’s something Steve and I are focused on in terms of looking at the macro economy and how it affects us and many other companies. So some of that revenue growth, probably historically for Sage actually, it’s fair to say about one-half the organic revenue growth has been driven through price increases and inflation increases.

And, obviously, when you look around at the macro economy and in this economy with 0% inflation, Eurozone with very low inflation, U.S. with 1% inflation, probably the only countries where there’s significant inflation is South Africa and Brazil where there’s 7%, 8%.

So looking forward, we’re very focused on ensuring that the quality and the sustainability of those revenue streams and the growth for Sage is continued and that comes through value. It comes through delivering greater value to the small and medium businesses.

It comes through some of the things we talked about six months ago around cross-selling, around customer acquisition. And there will be much more of that when we lift our eyes to the Capital Markets Day.

But certainly today, I think we are pleased with the scorecard but we would absolutely be the first to say we are very focused and there’s a lot of work to do in Sage. We’re on the transition for the next couple of years and we’ll come back in a moment and explain the context for that.

But we certainly feel we’ve got some work to do. So I think it’s a very measured level of confidence we come with you today.

The other factor in terms of the picture for Sage is 8% organic recurring revenue. I think it is important just to stress this point.

So we’re very confident for FY 2015 and I think it gives Steve and I a privileged position to start casting our eyes to FY 2016 and FY 2017 to make sure that the progression for the company continues very well. But when you just pause and think 6% organic growth, I think what we are very focused on and the message coming from us is higher quality revenue growth.

Higher quality revenue growth built around value for customers. And that’s really the key thing that we want to assure ourselves and assure you of is around the sustainability and the quality of the business and looking out to 2015, 2016, 2017 and beyond.

And at the time of the Capital Markets I think will be an ideal position to share with you our thoughts around the growth drivers and more of that for later. But why don’t we pass over to Steve to run through the numbers and then I’ll come back to you to just give you a perspective that we’ve very much got our feet on the ground, we’re not going to get ahead of ourselves and we’re really focused on the fundamental of long term value for our shareholders.

Steve?

Thank you, Stephen. Good morning, everyone.

It’s great to be here to present such a good set of half year results. I think one of the things that’s very important for me is that at the full year we said what we were going to do in FY 2015 and we said what we were going to do in the first half, and we’ve delivered on what we said we would do.

As Stephen said, we’ve seen some good underlying growth and we’re confident that that means that we’re on track to hit the full-year targets of 6% organic growth and 28% operating margin. We’ve had some non-recurring benefits and we wanted to be completely transparent about those.

So, as I go along through the presentation, I’ll pull out where they’re having an impact. So in terms of the headlines, as I say, 6% organic revenue growth.

Now, as Stephen said, underpinned by recurring revenue growth of just under 8% and recurring revenue growth is now at 73% of total revenue, which is broadly where it was at the full year. But obviously that means that 27% is not recurring, or is SSRS.

Now in this half SSRS grew by 2%, whereas normally we would expect that to be flat or even reducing. Now the reason it grew is largely due to one-off benefits of a legislative change in Malaysia which contributed about 50 basis points to the organic growth.

And if you think about the full-year, if we maintain the sort of level of recurring revenue growth that we’ve currently got, so somewhere around 7.7% to 8% and we have flat SSRS, then that would get you back to the headline of 6% organic revenue growth. So the reason we’re being a bit cautious about the headline growth in the second half is because of the level of SSRS.

So we’re very confident about our recurring revenue trend of 7.7%, trending up to 8%, but the SSRS, we - from time-to-time we’ll have little bump like we have done, and this where we’ve got a bit of a benefit, but generally as we transition into subscription we’re not expecting SSRS to growth. As far as the margin is concerned 28.1% margin gives us confidence in terms of the trajectory and to the full year.

But what’s equally important is that all functions now report globally. So from January all of the functions like finance, HR, facilities, IT, et cetera, will all now report globally.

So why is that important? Because it allows global functional heads, like myself, to make decisions about resourcing and efficiency across all businesses rather than doing it on a country-by-country basis.

So this will speed up our ability to drive those efficiencies and reinvest into sales and marketing. To support this we’ve recruited a Global Chief Information Officer.

So we’ve created a global CIO role. We also have a Global Head of Facilities and Procurement.

These are both new roles where we’ve recruited people into them. In addition, marketing is also now organized globally.

That’s important because it now allows us to take in more global approach to ensuring how we’re spending our marketing money and ensuring that we’re getting a return on investment which is appropriate for the company as a whole rather than individual countries. And what you’ll see us doing is channeling more of that marketing money into digital marketing.

Profit before tax is up 9%. Interest cost is up a bit compared to last year because borrowings are slightly higher due to the acquisition of PayChoice and also we’ve re-financed the private placement debt during the course of the half.

The effective tax rate is lower than last year due to a lower rate of tax in the UK and also some corporate simplification. The rate is at the lower end of where I would expect, so the rate is about 15%.

And I would think about a corridor of 25% to 27%, with this being kind of at lower end of what I expect to be sustainable. The reason for that is it’s very sensitive to profit mix.

Obviously the rate of corporation tax is a lot lower in the UK than it is in France and the U.S for example. So depending on the exact mix we will get some variability in the effective rate.

So overall, that gives a strong rise in EPS of 16%, but again, not really sustainable in the long term. So, in line with our progressive dividend policy we’d increase the interim dividend by 8%.

So, turning now to revenue growth and the sources of growth, as in the last kind of couple of reporting periods, the big driver here is software subscription. The top contributors to the growth in software subscription in this period are the UK and Ireland and France.

Using products like Sage 50 and SMB payroll in France as well as Seoul [ph]. As I’ve already said, SSRS was ahead of expectations due to a strong Q2, particularly in Malaysia, which as I said, impacted growth by about 50 basis points.

And as I also said, there will be periods where we get these one-offs, but generally the trend of SSRS is flat to down, with subscription pushing recurring revenue upwards. As Stephen’s already said, the recurring revenue growth really is the metric that we’re paying close attention to.

This is the leading indicator of the transition, the business model transition, and the transition to higher quality growth. We delivered a 70 basis point improvement in operating margin.

This is largely due to the growth in revenue and therefore the resulting operating leverage. The drive for efficiency and the switching of investment to sales and marketing, which we’ve indicated, is in the early stages and we remain very much on track for our full-year margin target.

So turning now to Europe and just going through each of the regions. Actually in many ways Europe reflects the sort of trend which I’m talking about in terms of the mix between recurring revenue and SSRS, because in Europe we have a headline organic revenue growth of 5%.

Actually recurring revenue was up 8%, but SSRS was down by 2%, because what’s happening in Europe is that Europe is really leading the way in terms of some of the transition to subscription in our on-premise products. So products like Sage 50 like the payroll products in France, where we’re selling new features, we’re enabling mobility through browsers and we’re selling new features on subscription rather than licensing.

The growth in Europe would have been even stronger had it been not for the fact that enterprise actually contracted by 4%. Enterprise is about 16% of the total revenue in Europe.

Now what’s happening in enterprise is that we continue to have issues with the business in France. We’ve highlighted this previously.

Actually, we’ve highlighted it at the two previous results announcements. Actions are being taken but in this type of business, where the sell-cycle is long and where the issues are not just to do with products, that’s to do with go-to-market, it takes time to resolve.

There’s also a significant mix shift here where X3 is starting to get good traction but the legacy products like the older ERP products and products like XRT are in decline. And this is particularly marked in France.

So actually overall there are some encouraging signs for X3. X3 in France is flat.

If you take X3 growth globally outside of France it actually grew by over 20%. So we got a bit of a transition going on in the enterprise market, where we have our legacy products in decline and there is a slower transition to X3.

So it’s going to take some time for that to recover and we remain cautious, whilst at the same time being very confident about the success of X3. The growth in Sage Pay in Europe was flattered by some hardware sales.

So the underlying growth is more like 5%. Cross sell remains the main focus for the payments offering in Europe.

So overall for Europe in H2 probably a similar pattern to H1 with UK and Ireland and France leading the growth. In the Americas, we had an organic growth of 4% in North America.

This reflected a pretty mixed performance in the U.S. Payments in SMB or small medium business were pretty weak whereas small business, micro business and enterprise went well.

Actually, from a very small base we are starting to get some traction on software subscription in North America, which actually grew by over 50%. But as in the past, maintenance and support growth made a greater contribution in this region than in other regions.

So, as you remember, in North America a feature of the North American growth is that it’s tending to come from price and it’s tending to come from up-sell of maintenance and support contracts to higher tiers, and that was, again, a feature in this half. Sage Payments in North America was flat.

As Stephen has said, we already - we now do have a new leader in that business, who is starting to take a number of the right actions including a renewed focus on cross sell. But he has only been in the business for less than a month.

The SMB growth as I was indicating is too reliant on price and up-sell. And we need to now start to really drive through additional products and features, like we are doing in Europe.

And this will be a focus for the new President of the North American business. A positive was a growth in excess of 30% for X3 in North America and we have also re-launched Sage One.

Brazil showed 8% growth overall, but actually 12% in recurring revenue, so the drag in Brazil is the content business. So SMB and payments in North America remain on the watch-list for second-half and we do need to see a bit more traction from the global products, in particular Sage One.

But, with the re-launch I think we’re starting to get some momentum. AAMEA organic growth, 19%, obviously very strong, obviously some boost from Malaysia.

But the underlying recurring revenue in this region is 13%. And actually, South Africa was a standout at 16%.

In South Africa the enterprise business has been going very well, as evidenced by the level of growth in X3 in this region. The other interesting feature of this region is the increasing importance of the wider African market.

This is now 14% of South Africa’s revenue and in this period grew over 20%. Australia grew 5% with price really being the main driver, but we have now launched Sage One in Australia and we’re starting to see some modest sales of X3.

So this shows our ambitions for the global product set. H2 is unlikely to be quite as strong as H1 in AAMEA, given the boost from SSRS.

However, the recurring revenue growth of 13% in the region gives you an indication of the sort of momentum going into H2. Resource and capital allocation continues to be a feature.

We’ll probably talk a bit more about this in the Capital Markets Day, where we’re going to have a sort of renewed focus on the classification of products and what’s classified as a future product. But, for the time being, as you can see from the 27% increase in R&D and sales and marketing on future products, Stephen and I continue to really push and focus on where we’re spending both our R&D and sales and marketing money.

Cash flow is a very important ingredient. Stephen and I both really value cash flow.

So going forward, again when we talk at the Capital Markets Day I can assure you that free cash flow will be a very important feature of what we do going forward and we see it as a very important underpin to quality of earnings. We saw an inflow from working capital in the period, which underpinned the strong cash conversion.

There was an outflow on M&A, which was the completion of the PayChoice acquisition. And there is therefore reduced activity on share buybacks to finish the half at 1.2-times leverage which is in line with previous guidance.

So subscription, we’ve mentioned subscription quite a bit. Just to emphasize, the 73% of revenue being recurring and then, within that, a year ago the proportion of revenue that was subscription was 15%.

At the full year, when we did the full year results it was 16% and now it’s 18%. And I think a key number is we now have over 550,000 subscription contracts.

At the year-end it was just over 450,000 so in this half we have added a significant number of subscription contracts. These subscription contracts have renewal rates of 90% plus as opposed to the typical blended rate of 84% that we talk about.

So how we’re achieving that, how we’re achieving the shift to subscription? Well, obviously some of it is with the products like Sage One, so all of the Sage One subscriptions are subscription.

But increasingly, we’re migrating on-premise products to subscription, either by reactivation or by simple migration. We’re doing this by offering customers product innovation.

We’re addressing legislative changes. We talked previously about pension auto enrolment in the UK, which has been a significant driver for converting Sage 50 customers to subscription.

And also we’re offering people attractive tier pricing, which brings them back into on plan by offering them upgrades as part of the subscription package. We do continue to offer our customers choice.

We’re not forcing the pace on migration. We’re offering a migration pack.

We’re obviously making that pack attractive, but we’re not making it compulsory. This is very important and consistent with our customer-for-life strategy and offering our customers choice.

But for new customer acquisition, apart from enterprise with X3, which is more perpetual license, most of what we’re doing now in terms of new customer acquisition is being led by subscription. So overall, whilst we are very confident in the 6% organic growth for the year, bear in mind what I said before, this mix between the recurring revenue and the SSRS revenue.

Recurring revenue will continue to be strong and will continue to increase, but SSRS will be flat or may be even down. And therefore for the second-half and for the full-year, sorry for the full-year as a whole, the reason we’re not changing any guidance is because the blend of those two will bring us to around 6%.

So think about full-year revenue growth of 6% but, as Stephen said a higher quality 6% than probably we were talking about a year or two ago. So, in summary, I think this is a fundamentally good set of results that delivers on what we said we would do.

And, whilst there is much to do in the next few years, we do have a really good momentum. And, with that, I’d like to hand back to Stephen.

Thanks, Steve, and in terms of where we go and some reflections, really. In terms of, I think, where we could do better, certainly as Steve highlighted customer acquisitions.

I think many of you have written about the cloud and innovation and we’re certainly focused on that, and also really we talked about the quality of revenue. But having said and traveled around the world, I met hundreds of customers.

The good news is, these customers are here. So words I heard before and I shared with you five months ago around indispensable: Sage is indispensable to my business.

Sage is a trusted partner. Our customer service is exemplary.

Literally, I was on a call with a lady who ran an interior design business in Birmingham on Friday and she said, wow, if I had customer service like Sage does, I’d rule the world and fantastic business over a small business, and that’s common. Obviously, we need to do better.

We need to get that consistent experience around the world. But I think we’d say there is plenty more to do.

In terms of some of the things, and if we’re - which we like to be is sort of self-critical, then some of the things on the left-hand side we’ve used this phrase of watch list towards momentum. I won’t share, because Steve has actually talked about a lot of the momentum drivers.

But I’ll just pick out a couple of these areas to say, we’re definitely getting our arms around and we’ve kicked off whole processes around quarterly business reviews and deep dives to really get our arms around the business. So I think we’re very clear connecting the strategy to the operation and find out what’s working, what’s not working so well to make sure we’re very focused on driving customer value, customers for life, and actually doing what we say in terms of the fundamentals of the business.

So to give you a couple of examples, actually on, say, Sage One. I’d say, we’re behind our plans, but broadly, we’ve accelerated a little bit in the last six months.

So we’ve now hit 114,000 subscribers totally from a year-end position of 86,000. In the UK is a good example, because I think the UK’s close to our hearts and close to everybody’s hearts.

So we’ve hit 64,000 subscribers at the end of March. We had a good surge in March itself, the month, and we did about 5,000 net new.

The other thing that we’re looking at is not just the momentum, but also we’ve done now a relaunch in the U.S. And literally within minutes of that going live on April 28, we had customers downloading and paying for subscription to Sage One.

And, as Steve said, we’ve now launched that a couple of days ago in Australia. And pleased to say it’s just a swallow, because we’ve had 100 user bundles taken down by accountants in Australia two days ago.

So swallows don’t make summers. We need to make that sustainable and we need to build industrial strength.

The other thing I’d highlight though is it’s not just the kind of go-to- market, where we’re really focused, but it’s also driving a theme that I talked about five months ago around productivity, around flawless execution, and really connecting that golden thread from the customer right through to building products. So I’m pleased on Sage One.

For example, I can share with you, in Q2 we actually increased productivity in the engineering function by about fourfold. So we released eight significant features in the first quarter.

In the second quarter, we released 33 significant features, including bank fees, bank reconciliation, where we were probably behind competition. So I think we’re on a par now with the best-in-class competition out in the marketplace, but it’s nice to see that we’re really stepping up our capability to actually innovate and drive productivity.

Now, the other sort of cameo of that is those 33 features were actually part designed with customer input and cloud sourcing. So some radical things happening in Sage that I, having built companies in technology for 32 years, think is absolute best-in-class and that’s where we need to get to.

And Sage One is a small cameo of some of the changes taking place. So significant increase in productivity, connecting what we build with customer need and customer value; and then really deploying out the go-to-market function with digital marketing, digital service and digital sales.

The other areas, I would say in all these areas, which I think is really reassuring, I’ll just pick out enterprise Europe, and Steve talked about some of the legacy product drag, but some of the successes around X3 in all the areas, where we would say around the watch list, we have done deep, extensive dives. There is no fundamental issues.

Most of the issues are around go-to-market. I’ll just give you again a cameo.

In January, I did a complete review of the European X3 business. At the time one of the countries had a pipeline ratio - a pipeline cover ratio, we talk about it in technology of 1 time.

Well, I’ve been here 30 years and you need 3 times to be successful just in reality. If you go in with a quarter of 100 million, you need 300 million are covered at the start of the quarter.

When you’re going through partners in the channel, you need 4 to 5 times. So we had kind of 1 time, 1.2 times, it’s just not good enough.

Now the fundamentals, get back to lead generation, working with partners, partner-enablement training, and pumping the machine. The good news is the customers are in a great spot.

The product really works, does what it says on the tin. The customer satisfaction levels are very high.

But the fundamental issues we need to fix in some of these areas - all these areas actually is just the basics and doing the basics really, really well. So that’s why you’ve probably seen Steve and I being very operational in terms of deep-dive reviews.

And we’ve probably brought in a dozen, at least, a dozen people who have got a lot of experience in these areas to really make sure we set ourselves on a course for success in each of these areas. Example with Paul Bridgewater, who has joined ex-NatWest, ex-Citi, ex-Digital River long-term payment experience, he is heading our North American payments business now and he is getting his arms around the issue.

Again, no significant issues, but probably misfired on the channel strategy there. So we’ve evolved that and now we’re changing the channel strategy and we’re ramping that up as we speak.

We’ve got a dozen new folks in Atlanta working with the channel partners there. So a lot of the details beneath this on our watch list, I can reassure you, just the basic blocking and tackling raising the level of capability and executed really well on the go-to-market side.

So I’m confident, I haven’t got a magic wand and say it’s all going to fixed tomorrow, but we’ve got our arms around it. And over the next few months, I think we’ll see continuing progress, as we have done, actually on the Sage One customer acquisition side, the surge in March, and also really driving forward the innovation and engineering productivity significantly.

So the sort of things, just to give you a glimpse into the Capital Markets Day to share with you. I mentioned this thing called Sage 2020 at the start of the presentation.

We kicked that off in December. And I mentioned to you in December, when we met for the first time, around pace and pace of execution.

These are sort of the areas, you’ll probably be reassured to know that we, as a management team have definitely not been standing still. We’ve really looked at starting at the marketplace, the customers, and the fabulous position Sage has got today.

And, as I said before five months ago standing on the shoulders, but looking at the future and the opportunities we have to connect ourselves with accelerated high-quality growth for the business. So just to give you a few elements, highlighting some of the strengths of the management team, focused a lot on customers, so I’ve instigated things like code red, where, if there is a customer fire burning anywhere in the world, we jump on it, a la Red Adair model and put it out.

But then we build what the lessons are into the process around customer experience. So we’re very lucky to have 3,000 people in customer services.

But historically, they’ve operated in silos around products and now we’ve got an agenda around really raising the capability of those folks around the world to deliver outstanding customer service but consistently around the world. Steve mentioned as well functional reporting.

So legal, IT, finance facilities, HR, most recently, and marketing. So now we’ve got a global view of those functions and it all comes back to investing for growth.

And the areas where we can drive efficiency in G&A, which we know the areas where we can drive efficiency in marketing; and actually in R&D will allow us to invest more judiciously and wisely for growth that’s sustainable and high quality in terms of both customer acquisition and existing customers. And then collaboration.

We’ve just rolled out a product called Chatter. So 14,000 of our people now are chattering away to each other in terms of breaking down and smashing the silos.

So we’ve got topic groups around things like competition, around the program, and the Sage 2020 program is effectively morphed and brought back together in 14 different work streams. So there is a lot of interest going around the world.

And for the first time really, we’re now cooperating and collaborating across geographies, across products, across functions that you’d expect and trying to focus all that energy to deliver customer value. And then global product acceleration, I’ve touched on that with Sage One.

Likewise with X3, we’ve done quite a lot of significant factors around X3 and raised the bar and done some really good benchmarking activity. So I think in all these areas, just to give you some of the headlines, the Sage 2020 program has probably - through its program, the management team, the ExCo, have made, I’ll give you this 217 decisions in the last five months.

Of those, 86 have been implemented and executed. Things like functional reporting, things like the sales force agreement, which we signed on the last day of January.

Things like delivery and collaboration across the company. Things like investing for the future, bringing in new hires to lead digital marketing and some of these things.

So there is a lot of activity going on, a lot of execution in the company to really focus on what I started with around customers for life; new customer acquisition, really driving a lot more value with customers, driving the innovation agenda to make sure we position ourselves not only as champions of the SMEs today and small businesses, but make sure that we actually open their eyes to the potential of 2020, and we can be their technology partner of trust to do that. And then really driving quality throughout the business, but most of all, through the quality of the revenue and sustainability of the revenue growth.

So a lot of activity going on, certainly no standing still. And we’ll lift our eyes a lot more around Capital Markets and give you color associated with strategies for growth.

So I think today it’s measured confidence, certainly around FY 2015, reaffirmation of the 6% organic revenue growth and 28%. And I think with the first-half results, I think we’ve really got a fantastic platform and it gives Steve and I, and the management team the opportunity to look at the next couple of years, 2015 and 2017 and really carefully and thoughtfully sequence the transition of activity as we go forward.

So we would certainly say there is a lot to do. I assure you and I assure ourselves and our Board is, we’re very much looking at insulating the customer from the changes.

So a lot of the things we’re talking about in terms of functional reporting, they’re all around pretty much internal functions to drive efficiency and flawless execution. So we’re insulating our customers and making sure that customer services continues and improves, but fundamentally it doesn’t change, because I think there is a lot of good things there that we need to build on.

And then finally, it’s a good kind of checkpoint today, but I’d love you to come on June 24 and join us in Canary Wharf at Building Level39, when we’ll actually give you much more of a stargazing view out to kind of 2020, where the growth drivers will come for Sage. And I think we’re very privileged and lucky to be number 1 in the small-to-medium business in Canada, in Africa, in Spain, in Ireland, in France, and in the UK, it staggers me, actually in the UK 50.4%, over 50% of businesses pay their people using Sage.

So we are very much not only a household name in the UK but in those markets I mentioned. And it’s really taking that platform and looking forward to see how we drive our growth and become absolutely the number one trusted champion of small-to-medium businesses around the world.

So at that point, I’d love to open to your questions for Steve and I.

David. Please start with David with Numis, sorry.

Hi, it’s David Toms from Numis. A couple from me.

Can you give us an indication what the ASP is on Sage One over the last couple of periods? It’s been around about £8 average monthly revenue, so that would be a useful number.

And also, Steve, you talked about how you’re early in the process of driving towards efficiency. So can you give us an indication of how much there is to go in terms of margin potential on that and how much that you think you might be reinvesting?

Okay. I’ll start with John [ph].

So take Sage One first, it’s actually - it’s been pretty flat compared to where we were at the year-end, and it’s running sort of just over £6 rather than £8 a month. So that’s globally, not just in the UK.

And then on efficiency, I think the way to think about efficiency is that, for the foreseeable future, whatever we achieve in terms of efficiency, we’re likely to reinvest into sales and marketing. So this is more for the Capital Markets Day than it’s for today, because I don’t want to be drawn into giving guidance.

But the way we’re thinking about it is that, we think we need to spend more, particularly around digital marketing. And, therefore, what comes out of G&A in the first instance is likely to end up there.

But just to give you a bit of color, we’ve got 136 properties around the world. That’s probably a few too many for 14,000 people.

So it’s things like Steve mentioned, product rationalization, talked about facilities. There is a few things that we’re looking at.

And I think it’s all about making sure we reinvest and invest for growth wisely. And that’s what we’ll share with you at the Capital Markets Day.

Stacy?

Can you just clarify that Sage One ASP? We’ve been given by your predecessor a number of £8.50, and then there was a little bit of confusion at the end of the year last year as to what the exact number was.

Can you give us a historic trend line of what the numbers have been, just we’ve got some of the accurate figures?

I think maybe before I joined, when we first launched Sage One and it was only available in the UK, and I think we sold a lot more of the accounts version as opposed to the cashbook version. As we’ve pushed more into volume and as we’ve launched it globally, so at the moment we’ve got 115,000 subscriptions, 65,000 of those are in the UK, so the rest are in South Africa, where the price is lower and other kind of European, North America where we’re launching.

So if you compare it to where we were at launch, yes, the ASP has come down, because we’re discounting more to get more subscriptions. But also the cashbook, I mean, if you go on our website, the cashbook version in the UK, we’re currently selling for £5 a month.

So the mix has pulled down the average, but the number I’ve just quoted was - it hasn’t deteriorated during this half. It’s been pretty similar throughout the half, but it’s definitely lower than it was two years ago, yes.

Stacy?

Stacy Pollard with JPMorgan. Two questions, please.

Can you speak more about what you’re doing on the marketing side to get that 3 times pipe cover that you want? And what kind of return are you seeing on those investments?

That’s one. And the second one, any change in the competitive environment, let’s say, over the last year, and how is this influencing your strategy, either on product or pricing?

Okay. Maybe I’ll take those.

And specifically, we talk a lot about small-to-medium businesses, but we shouldn’t probably forget, I think it’s about one-third of all FTSE companies use Sage. So in the enterprise we’ve got a quality offering and it’s used by people like Europcar, 27,000 employees, people like Granada.

So this is the area where it is more traditional enterprise sell-in, direct sales with partners And the pipeline cover we need to fix and we’ve got, Steve highlighted actually, if you exclude France, the X3 business worldwide, excluding France has grown by 23%, and in AAMEA and in the U.S. grown 35%, 36%.

So, again, I think that validates if we fix the operational execution issues in Europe, we can get in a much better place of really sustainable growth. The things we’re doing is going back to much smarter marketing, the things you think about, issues-based marketing around manufacturing, stuff around the website, events.

Working quite extensively with partners, but, again, some of the issues, and I’ve met a lot of these partners, the issues they feed back is great product, great company. Things that get in the way are things like quality of training, partner enablement, just, actually, in the scheme of things, simple stuff to fix.

It’s a lot harder to build a great product than it is to fix things like partner enablement. So we’ve got - I’ve changed some of the structures around this to actually really get focused on fixing the issues.

So a lot of activity, Stacy, is going on, particularly in Europe, to really upgrade the marketing to be kind of certainly towards best-in-class and work with partners to deliver that, because you tend to get partners by vertical market segment. Then competition, it’s definitely the case - I welcome competition because it drives us to be innovative, but the competition is really fragmented and pretty much in every job it’s different and even in every market segment.

So in the startup marketplace there’s different competitors pop up, companies like Wave. And then other companies come and go, to be honest with you.

And I think that will always be the case in the startups. There will always be a propensity, which is the genesis of Sage, where local companies create accounting products or payroll products and then, in that geography, distribute them.

I think the opportunity of the Internet is it changes everything. It makes, fundamentally, a digital small to medium business village.

And that’s the opportunity that Sage has because I think, being a European company, which is a lot more defendable with the regulation and compliance in Europe, I think that’s a fantastic platform. So it might be just the first time in the history of technology where it’s an advantage to be a European company rather than come out of Silicon Valley.

But there are always competitors. And then in sort of the mid-market we keep focused on what all the guys - a lot of focus at the Sapphire conference today and we keep focused on Hannah [ph].

In reality, though, just to give you a couple of data points, on the X3 business, when we get in sales campaigns we have a tremendous ratio of conversion. So I mentioned at the last time I stood up with you guys five months ago, in the UK we had like a 50% win ratio.

In AAMEA, where they’re getting like 35%, 36% growth, they had a 56% win ratio. Again, those sorts of statistics are pretty unusual.

Normally, you win one in three. That’s why you need three times pipeline cover.

But where we get engaged, it’s very clear that, with our partners, we are awesome in terms of that sales process and getting the customer over the line and then implementation and happy customers. But I think competition in that space, there’s invariably - again, it’s pretty fragmented.

But, ultimately, I’m sure we’ll bump into folks like SAP in the future. Do you want to - one, two, three, you want to start doing?

All right.

Thank you. Milan Radia from Jefferies.

Just thinking about the customer acquisition opportunity over the next, say, three to five years, is it really confined to Sage One and X3? Or is there actual scope within the traditional product sets for the SMB to actually win new customers?

And second question, coming into the business and having spent some time looking at it, how have you actually managed to get overly excited about Sage One? It’s a tiny part of your revenue.

It seems to occupy a lot of attention from external commentators but, frankly speaking, it’s not going to change anything in terms of financial metrics, as far as I can see, over the next few years.

So I think, Milan, in terms of revenue contribution, you’re right in terms of just with those guys who are the risk takers, the entrepreneurs, the trades people of today, they’ll be the business people of tomorrow. And I would like to see that we’re working with them on great startup solutions, whether it’s payroll or accounting.

So I think it’s strategically very long term. They are going to be the guys that are building great companies, whether they’re down in Tech City or in the hospitality industry.

So it’s an area where, if we were asleep at the wheel, we could see a whole generation of millennial folks coming up, starting their businesses and we miss out on that. We don’t want to do that.

So I do think strategically it’s important. The other thing it’s probably fair to say, one of my observations, honestly, is we didn’t have a tremendous focus around new customer acquisition as a company.

We’ve done a fantastic job of loving and nurturing customers over many years and that’s why we’ve got fabulous customer loyalty and a really strong brand name of trust. However, I think, honestly, it’s quite good to have a culture where we’re driving around new customer acquisition as well, because it drives innovation of product, and the whole sense of the future will be getting customers at the table in terms of, as we are with Sage One, building 33 features in a quarter and actually making sure they tick the box that the customer asks for.

So I think, generally, I think what would I say in the end of the Capital Markets Day we will lift our eyes up to see the opportunity and the market size and the addressable market and all those sort of things for where our current geographies are today. And I don’t want to steal the thunder for that day but part of that, obviously, has to be around customer acquisition.

This is going to hard. Do you want to come here, just thinking?

You want - sorry, it’s gone, do you want to do this question here. I’m going to do these two and then I think we might have questions at the back on the conference.

Hi. This is Vijay Anand from Mirabaud.

Stephen, just following on from your point on the white space opportunity, which is where, I guess, a product like Sage One becomes very important to the company. When it comes to winning new customers, I guess my question relates to both product and organization on the product side.

We hear your competition talk about this platform approach wherein the software becomes a platform wherein a number of third parties could introduce apps, whereas they seem to suggest that Sage is still in that software-centric mindset. So maybe if you could talk about where you are in that.

Firstly, whether you subscribe to this view and where you are in this journey from software to platform. And, just following on from that, from an organization perspective, we’re not really used to Sage talk a lot about winning new customers.

So how much of a DNA change does the Firm require? You talked about bringing in new hires.

Is it just about that? Or does the business require much of, I guess, a wide-scale change?

So the first question, I think there’s a generation of, I guess, a first generation Cloud-based vendors who would kind of argue for a platform and they build in the platform. I believe things actually have moved on now.

So we’re probably in the third generation cloud where there’s Cloud platforms like here, generators just plug into the electricity. Where our value is, I believe, is creating an ecosystem for all the different verticals for small and medium businesses based on rich cap Cloud platforms.

And our core competence is movement of money. It’s accounting, it’s payments, it’s payroll.

It’s areas of HCM that are relevant to a small business. And there will be lots of that, I can promise you, when you come to the Capital Markets Day, because we will lift our eyes and look at the future.

And I think the opportunity, honestly, in some areas of our business we probably haven’t been as innovative as we could have been. But the opportunity is presented to us that we could probably leapfrog a generation of technology.

And the first generation cloud guys, I think, will look behind and say we left them behind. But that’s all about kind of the Capital Markets Day.

The second question is around - you’re right. And why I think you get a measured, strong degree of confidence, but with some caution, because we’ve got our arms around a lot of moving parts.

And one of them is about our people. We’ve got to free our people on the journey around loving customers, delighting customers, working with colleagues.

So we’ve changed all - for the first time people like Sage Pay actually report to the UK Managing Director in the last four months. So now they’re driving cross-sell campaigns and the impact is quite, as you’d expect, quite reasonable.

However, that’s not been the culture of the past. So a lot of things I’m talking about, there’s been a lot of changes in the last six months.

Just to give you a cameo of that, there’s a weekly communication from me. The ExCo meetings, there’s a lot of encouragement for our senior leaders to do customer forums, a kind of complete shift in gears.

And having done these sorts of things on a monumental scale in actually the UK Government that took quite a long time, probably three years, to really drive and change behaviors. But we’re probably talking about a couple of year transition here.

And what we want to do, and give you and us and our Board the assurance of, is we’re very carefully sequencing and managing the transition. And the first phase is no impact on the customer, insulation of the customer and a lot of other things in the back office functions to drive and switch the investment model for growth, customer acquisition and product innovation.

All right. Thank you.

So just another question on Malaysia, historically we’ve seen Sage taking advantage of any regulatory change to push the subscription option. So just wondering why you didn’t do that in Malaysia.

So I just wanted to get your thoughts.

I think in Malaysia it was - we had a historical, I won’t use the word low, but we had an historical product available, we had a pretty small window in which to sell the product and we don’t have a track record of selling subscription in Malaysia really. So we decided on this occasion, because it was a kind of non-recurring type opportunity, that the easiest thing was to sell just on license.

So it was a tactical rather than a strategic move. I mean it’s a small territory.

If the same thing had arisen in the UK we probably would have sold it on subscription, but we don’t have a track record of doing that in Malaysia.

Okay, thanks.

Thanks. Can we have a question if there is one from the conference here?

And it might be from Sapphire world.

Great. Thanks for taking my questions.

Just one, Steve, if I can, to follow up on your comments around the pricing and the fact that you wanted to move the business more towards value-based growth. Is there any sense that you’re seeing any resistance there in the pricing?

Does that mean, I guess, by extension, that there’s any concern into looking into next year and beyond that that growth you’re getting for pricing at the moment is going to be unsustainable? That’s the first question.

And then the other question was going to be on the investments you’re planning to make in sales and marketing. And I guess I’m just interested to know - a lot of us have been trying to work out what you would do in terms of the G&A leverage that you would see.

And I think some of us had expected you to perhaps invest in the R&D side of the business. So why is it that you think that the bottleneck here is the sales and marketing engine?

And why have you come out and said, well, look, we think the product is fine but we want to invest in really getting that message out there. Thanks.

Yes, I’ll start with on the pricing. I think about, if you look at the half 6% growth that we’ve just delivered, probably just under half of that is pricing.

Now some of the markets we operate in, like South Africa and Brazil, there is a reasonable degree of inflation, which gives us plenty of reason for adjusting price. But if you think about the U.S.

and Europe, we’re operating in a very low inflation environment, almost in some countries zero inflation or deflation. And so, whilst we have a strong market leadership position and you can continue to put prices up, it’s not really - Stephen and I don’t believe that’s a sustainable strategy.

We need to deliver to our customers some additional value for that price. Now the reason I don’t think that that’s particularly an immediate threat is if you take what we’re doing in Europe, we invested quite a bit of money in what we called core-product modernization.

So products like Sage 50 in the UK, which actually is the top-selling product globally for Sage. We haven’t just stood still, we’ve invested in that product.

So for things like pension auto enrolment, we’ve been able to offer additional features to our customers, which has led us to getting more price from them but, in return, we’ve delivered more value to them. So what we’re saying is, we’re not going to - it isn’t that price has no role to play but we don’t think in a low inflation environment it should be the primary driver of growth.

What needs to be the primary driver of growth is us giving additional value to our existing customers. But also, as both Stephen and I have said, we need to acquire new customers, primarily through the global products.

But we will also acquire some new customers through products like Sage 50, where people still want to go down the sort of on-premise or hybrid route. So we’re deemphasizing price.

It doesn’t mean it’s going to disappear overnight, but it certainly shouldn’t be contributing half of the growth that we’re achieving going forward.

Yes, it’s probably fair to say I think this is an area where we’re knocking on an open door. So if I’m a small business, a medium business, they far prefer a subscription-based model, because they can plan their cash flows.

And they kind of derive cash flow to value much more intellectually and from the business point of view. So I think there’s an open door there.

The good news, as well, is pretty much all of the marketplace around technology and software is moving in the same direction as us around subscription-based pricing. Then the second point of your question, John, was around R&D.

We said last time, 10% of revenues on R&D. I think that’s plenty enough horsepower.

Our challenge is really driving two things really. It’s connecting that with the go to market and really driving value for customers.

And secondly, that’s the golden thread I talk about. But secondly, really driving productivity, best-in-class agile iterative type, and we’ve just seen a little cameo.

I know Sage One, one swallow doesn’t make a summer, but we’ve just seen by shifting gears with the same people in terms of agility, team structures, designers and testers sitting together, basic stuff, a four-fold increase in one quarter of productivity. So I think we’ve got plenty enough 2,300 people and 300 people offshore in terms of R&D.

We’ve got plenty enough horsepower in R&D. It’s our responsibility, as the management team, to really drive the value of that, and drive the productivity to invent and innovate in terms of the product for customers.

Maybe just one final add to that. I think the global products is a good example.

If you take Sage One and you take X3, I think both products essentially have a feature set which is fit for purpose. So why aren’t we selling more of them?

It isn’t a product constraint. It’s a go-to-market constraint.

So we think we need to invest more into sales and marketing to accelerate the growth of those global products, which we think are perfectly capable of competing against any of our competitors’ product sets.

Thank you.

Good. Thank you very much.

A question down here.

Thanks. Good morning.

Just a bit confused on Sage One, you talked about some issues you were having in the U.S. but actually an encouraging performance in small and micro businesses.

I was just wondering if you could clarify is that not Sage One or is that a different product?

So in the startup business segment there’s been some good progress, actually, with the local products in the U.S. In Sage One, I took the decision to pause, effectively, sales and marketing and what was the previous product called Sage One is now called Sage One Extra.

That was launched, as I described, with these 33 new features, including bank reconciliation, which is pretty fundamental to the U.S. market that was launched on April 28.

Literally within minutes we had customer downloads on that in the U.S. So, effectively, we sort of had a pause where we took the foot off the gas and reorganized ourselves and built a product fit for the U.S.

marketplace. That was launched on April 28, and that’s Sage One Extra.

So now there’s a plan in place being executed to actually fix some of the go-to-market things. Fix the website, fix the digital experience, the downloads, the trials, all those sort of things that are really fundamental when you’re marketing products digitally.

And, pretty important in the U.S., is connecting with the accountants’ channel. So all those things, I’m reasonably confident.

I’ll be disappointed if in six months’ time I’m not back up here telling you about the significant progress we’ve made with Sage One in the U.S.

Then the encouraging performance in the small and micro businesses, that was a different product then?

Yes, it’s on-premise.

That’s on-premise, okay. And second question, around you had a couple of senior management changes, head of region changes.

Is that sort of backlash, for lack of a better word, to the sort of centralization of powers that you’re enforcing? And do you anticipate more such changes going forward?

I think, actually, with our people, words are really important. So the words that are really important is connecting ourselves with the customers, the golden thread of actually delivering value for customers, right back to product design and build.

Honestly, in some areas we’ve done a good job, in other areas, we’ve been inconsistent in the past. So the fundamental essence of what we’re doing setting up global functions, releasing people like Lee Perkins, who’s the Chief Executive in the UK.

Great to see him appearing on BBC Breakfast Time commenting on what small businesses need around business rates and rear band on the sofa of BBC Breakfast News, because that’s what he should be doing and he should be worrying about growth. He should be worrying about customer acquisition.

He should be worrying about competition. He shouldn’t be worrying about, should I have a Purley facility or a Petersfield facility?

And I want to go and do an office visit or should we water the plants in the reception four times a year or every day and look at the facilities across them. No.

He should be freed and unleashed from all the back office stuff. Now the guys in the back office need to provide an outstanding service and treat him as a customer.

So I think it is a shift, but every other sophisticated technology company is exactly where we’re moving to. In terms of the people, yes, there’s been a couple of changes.

Alvaro has been fantastic and actually staying with the company through the end of the fiscal year and has been a great sponsor. We’ve given that opportunity for Brendon now to be President of Europe.

And we also announced some changes with some new people coming into the U.S. We’ve mentioned payments.

We’ve also got Rich Spring leading the customer acquisition and Pascal stepping down.

Okay. And any more such changes going forward, do you think, or…

I think what we hopefully - that slide about what’s happened in the last six months 218, 217 decisions. Every day we’re thinking about what do we need to do, improve?

And then really the key thing is, and one of the key things to take away, is really carefully sequencing the activities associated with decisions and executions so they land carefully and in a very measured way. So part of that, obviously, I generally feel the opportunity we have by being a trusted partner for small and medium businesses with the level of capability, particularly in areas of digital marketing, service and the new world of the digital economy, we probably need some additional capability from people who have done it before with experience.

Thanks.

Any final question? Question from - no.

If no questions, then just thank you all again. And solid and good set of results for the first half absolutely gives us strong confidence in terms of the fiscal year and our guidance.

And I do hope you can come and join us in Canary Wharf on June 24, hopefully a location chosen to be amenable to travel and for you to spend some time with us where we raise our eyes to the future and look out to 2020 and some of the growth drivers and some of the areas we talked about today in terms of how we take advantage of the opportunities for the future of being the best trusted partner of small and medium businesses around the world. Thank you very much.