Sage Group Regulatory News (SGE)

Trading and COVID-19 update

6 April 2020

The Sage Group ("Sage" or the "Group") today issues an update on trading for the six months to 31 March 2020, and on the impact of the global COVID-19 pandemic on its business.

Group focus

Sage's response to the COVID-19 pandemic has been to ensure the health and wellbeing of our colleagues, to continue serving and supporting our customers, partners and accountants, and to remain focused on our SaaS transition strategy. Our business operations have continued with minimal disruption to date, thanks to the ongoing dedication and commitment of our colleagues, most of whom are now working from home. We have put in place a range of measures to help customers, including offering practical advice and quick access to expert support. The impact of COVID-19 remains highly uncertain, and we are closely monitoring developments in order to adapt our response accordingly.

Trading update for the six months to 31 March 2020

Growth in organic recurring revenue, which represents around 90% of Group sales, was ahead of full year guidance, supported by strong momentum in our core markets. Other revenue (SSRS and processing), representing around 10% of Group sales, declined in line with the Group's strategy, although the decrease accelerated towards the end of March as a result of COVID-19 impacting licence sales and professional services implementations.

COVID-19 future impact and outlook

Sage is a resilient business supported by high-quality recurring revenues and a diversified customer base of small and medium businesses. However, the sharp downturn in global economic activity caused by the spread of COVID-19 is expected to have a broad impact on businesses generally, and as a result Sage anticipates being affected in the following areas:

· customers deferring purchase decisions, leading to a slowdown in new customer acquisition, licence sales and professional services implementations; and

· a higher business failure rate leading to an increase in churn.

It is too early to quantify with confidence the impact on Sage's financial performance for the full financial year to 30 September. However the Board now believes it is likely that organic recurring revenue growth will be below the previously guided range of 8% to 9%, and that the decline in other revenue (SSRS and processing) will accelerate significantly in the second half, with some associated impact on margin. We will provide a further update at our interim results.

Sage has identified and is implementing a range of mitigating actions to manage costs and cash in the near-term, while continuing to invest in the long-term success of the business.

The Group remains confident in its strategy to transition to subscription and the cloud. The current disruption supports the adoption by businesses of cloud-based solutions that provide resilience and enable flexible working practices. Despite the near-term uncertainties, we believe our investment into Sage Business Cloud, together with our focus on customer and colleague success, leave Sage well-positioned for the longer-term SaaS opportunity.

Financial strength

The Group has a strong balance sheet, with approximately £1.3 billion of cash and available liquidity as at 31 March 2020. This includes around £900 million of cash and cash equivalents, and more than £400 million of undrawn facilities under the Group's Revolving Credit Facility which expires in February 2025. Net debt to EBITDA as at 31 March 2020 is expected to be well below 1.0x. Maturities within the next 18 months comprise $150 million (£121 million) of the Group's US private placement loan notes in May 2020, and the Group's £200 million syndicated Term Loan in September 2021.

To further support the Group's financial strength, the Board has now decided to cancel the £250 million share buy-back programme, which was suspended on 18 March 2020 after £6 million of shares had been purchased.

Interim results

The Group intends to publish its interim results on Wednesday 13 May 2020.

Enquiries

The Sage Group plc +44 (0) 191 294 3457

Jonathan Howell, CFO

James Sandford, VP Investor Relations

Amy Lawson, EVP Communications

FTI Consulting +44 (0) 20 3727 1000

Charles Palmer

Dwight Burden