The Sage Group H1 2025 Earnings Report

The Sage Group EPS Results

• Actual EPS: GBX 20.80
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

The Sage Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

The Sage Group Announcement Details

• Quarter: H1 2025
• Date: 5/15/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 15, 2025
• Conference Call Time: 3:30AM ET

The Sage Group (LON:SGE), together with its subsidiaries, provides technology solutions and services for small and medium businesses in the United States, the United Kingdom, France, and internationally. It offers cloud native solutions, such as Sage Intacct, a cloud accounting software product and financial management software; Sage People, a HR and people management solution; Sage 200, a finance and business management solution; Sage X3, a business management solution; Sage Accounting, a solution for small businesses, accountants, and bookkeepers to manage customer data, accounts, and people; Sage Payroll for small businesses manage their payroll; and Sage HR for small and mid-sized businesses for record management, leave management, staff scheduling, and expenses services. The company also provides Sage 50cloud and Sage 200cloud that provides a range of cloud connected accounting solutions. The Sage Group plc was formerly known as Ployfinal Public Limited Company and changed its name to The Sage Group plc in September 1988. The company was founded in 1981 and is based in Newcastle upon Tyne, United Kingdom.

The Sage Group H1 2025 Earnings Call Transcript

Presentation

[Steve Hare, CEO & Director at The Sage Group]

Good morning, and welcome to Sage's results for the first half of the year. I'm pleased to be joined by Jonathan Howell, our CFO. I'm going to start with an overview of our key messages for today. Sage delivered strong results in the first half as we continue to pursue our ambition to create the world's most trusted, thriving network for small and midsized businesses powered by Sage Copilot. We achieved stable, broad based revenue growth across all regions, driven by a sustained double digit increase in ARR.

[Steve Hare, CEO & Director at The Sage Group]

Disciplined cost control, together with operating leverage, supported strong operating profit, margin and EPS expansion. An ongoing strength in cash conversion led to robust cash flow generation. Now this performance is underpinned by our constant focus on driving value for customers. We continue to innovate, enhancing our core products and growing our network platform. Sage Copilot launched just over a year ago is delivering productivity and insights to thousands of customers, and we're just getting started.

[Steve Hare, CEO & Director at The Sage Group]

Sage is at the forefront of AI innovation in accountancy, HR and payroll. And our aim is to leverage this position to revolutionize productivity and decision making for SMBs and accountants. And finally, we are executing consistently and making good strategic progress. Macroeconomic conditions are volatile and uncertain, but Sage is resilient, underpinned by our subscription based business model and secular growth drivers. In this environment, the need for SMBs to continue to digitalize, to unlock growth, efficiency, and regulatory compliance is greater than ever.

[Steve Hare, CEO & Director at The Sage Group]

And Sage is well positioned for the growing market opportunity ahead of us. And I'm confident that whatever the short term uncertainties, we will build on our advantages and deliver further long term value to our stakeholders. Now I'm going to hand over to Jonathan for the financial review.

[Jonathan Howell, CFO & Director at The Sage Group]

Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our first half results and the outlook for the full year. In summary, it's been another strong period for Sage as we continue to execute in line with our plans. So let's start with the highlights. We've achieved total revenue growth of 9%, reflecting the strength of our subscription based model.

[Jonathan Howell, CFO & Director at The Sage Group]

Our operating profit margin increased to 23.2%, an expansion of 140 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 17%. And finally, we delivered cash conversion of 115%, driven by growth in subscription revenue and good working capital management. Let's turn now to ARR growth. Renewal rate by value was 101%.

[Jonathan Howell, CFO & Director at The Sage Group]

This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good growth from new customer acquisition. As a result, ARR increased by almost £240,000,000 to £2,500,000,000 up 11% at the first half. Importantly, this growth continues to be well balanced between new and existing customers. So turning to the P and L.

[Jonathan Howell, CFO & Director at The Sage Group]

Total revenue growth of 9% was underpinned by recurring revenue, which grew by 10%. Sage is a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 16% to million, reflecting continued top line growth and margin expansion. Profit after tax increased by 15% to GBP206 million, leading to strong growth in underlying EPS of 17% to 20.8p. And we've increased the interim dividend to 7.45p, which is up 7%.

[Jonathan Howell, CFO & Director at The Sage Group]

Cloud products continue to be a significant driver of growth, with Sage Business Cloud revenue increasing by 13%. This reflects good strategic progress as we continue to expand our global cloud solutions. Within this, cloud native revenue increased by 22%, driven by strong growth from new and existing customers, particularly in Sage Intact. Subscription penetration also continued to increase and now stands at 83%. Moving now to our regional performance, starting with North America, which represents just under half of group revenue.

[Jonathan Howell, CFO & Director at The Sage Group]

Here, we delivered revenue growth of 11%, driven mainly by the Medium segment. Sage Intact continued to perform well, with strength across key industry verticals, including construction and not for profit. Growth in the region was also driven by Sage two hundred and Sage fifty. UKIA represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The UK and Ireland increased by 9%.

[Jonathan Howell, CFO & Director at The Sage Group]

Revenue from Sage Intacct, the largest driver of growth in the region, increased by over 60%. And further growth was achieved in small business solutions, including Sage Accounting and Sage fifty. In Africa and APAC, growth of eight percent was driven by strength in Sage Accounting and Sage Payroll, together with Sage Intact. And finally, in Europe, which represents over a quarter of group revenue, growth was 8%. This reflects a strong performance across our cloud solutions.

[Jonathan Howell, CFO & Director at The Sage Group]

In France, growth of 6% was driven by strength in Sage X3 and Sage two hundred. Central Europe increased revenue by 8%, with strong growth in Cloud HR and Payroll. And in Iberia, growth of 10% was driven by Sage two hundred and Sage fifty, together with the acquisition of Force Manager in October. Now as we've said previously, our focus is on efficiently scaling the group. As we grow the top line, operating leverage, together with disciplined cost control, means we can invest more and expand the margin.

[Jonathan Howell, CFO & Director at The Sage Group]

This in turn leads to sustainable growth. In the first half, we achieved margin expansion of 140 basis points to 23.2%. This was underpinned by efficiencies, including in G and A, which is now running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. And investment in R and D at 15% remains a key priority for the group.

[Jonathan Howell, CFO & Director at The Sage Group]

Moving on to cash generation, which is a core strength of Sage. In the first half, the group generated GBP $330,000,000 of cash from underlying operations, resulting in continued strong cash conversion of 115 percent. And free cash flow was GBP $246,000,000, net of interest and tax. The group has a strong balance sheet with £1,200,000,000 of cash and available liquidity. Our leverage ratio of 1.5 remains well within our mid term target range of one to two times.

[Jonathan Howell, CFO & Director at The Sage Group]

In line with our disciplined approach to capital, this morning, we announced a £200,000,000 extension to our share buyback program. This reflects our strong cash generation and robust financial position, together with confidence in Sage's future prospects. Importantly, we retain significant capacity to support both organic and inorganic growth. So what does that mean for the full year outlook? Against the background of a more uncertain macroeconomic environment, we currently continue to expect organic revenue growth for FY 2025 to be 9% or above.

[Jonathan Howell, CFO & Director at The Sage Group]

Operating margins are expected to trend upwards in FY 2025 and beyond as we focus on efficiently scaling the group. Thank you. And now back over to Steve.

[Steve Hare, CEO & Director at The Sage Group]

Thanks, Jonathan. Our strong performance is underpinned by our strategic framework for growth. Now this is grounded in our purpose to knock down barriers so that everyone can thrive. We serve our purpose through our ambition, which is to create the world's most trusted and thriving network for small and mid sized businesses powered by Sage Copilot. And this is key to our success because it underpins the efficient delivery of advanced AI powered solutions driving value for customers.

[Steve Hare, CEO & Director at The Sage Group]

The framework is centered around our three strategic focus areas, connect, grow and deliver. And I'll say more about these shortly. Through our strategy, we serve the interests of our stakeholders in line with our values. And this starts with our customers, small and mid sized businesses. Together with accountants and our partners, we serve millions of SMBs globally, providing unique visibility into SMB trends and challenges.

[Steve Hare, CEO & Director at The Sage Group]

Our experience is that when faced with an uncertain economic outlook, they remain resilient, agile, and quick to adapt to adversity. And they continue to see investing in technology as a priority to help them make better decisions, be more streamlined and compliant. We provide solutions that enable this, boosting visibility, efficiency and growth. So for example, Lunar Companies based in The US and shown here on the slide told us that Sage Intacct Construction gives them the dimensional reporting and data insights that they need to support and grow their business. Looking ahead, we're focused on making the latest generative and agentic AI accessible to SMBs so that they can benefit from the significant advantages that this technology will bring.

[Steve Hare, CEO & Director at The Sage Group]

By making businesses more resilient and productive, we're helping our customers thrive. So let's turn to our strategic focus areas, starting with Connect. The Sage Network is our platform of cloud products and services that digitally transform customer workflows across their ecosystems. It enables us to unify our solutions, improve the user experience, and connect customers to value added network services. These services include accounts receivable and accounts payable automation, helping entrepreneurs and finance professionals streamline their day to day operations.

[Steve Hare, CEO & Director at The Sage Group]

In January, Sage was named as a major player by IDC in their latest MarketScape report on accounts receivable automation for SMBs. While our accounts payable automation service is expanding rapidly, with the monthly value of invoices processed rising threefold over the last twelve months to $1,300,000,000 We're also building momentum in embedded payment services, driving growth by expanding key partnerships such as Stripe, GoCardless, and VersaPay. And we're enabling new services like e invoicing to prepare businesses in multiple markets for government requirements. In addition, we're using the network to integrate new services across the Sage portfolio. So for example, we've made Sage Sales Management acquired in October as Force Manager available to Sage fifty customers in Spain, The UK and France.

[Steve Hare, CEO & Director at The Sage Group]

And this has helped customers such as Ibadelli Premium Products in Spain, shown here on the slide, to boost sales and optimize their processes. So looking ahead, our aim for this focus area is to drive the adoption of more network services, bringing productivity to customers and data and insights to Sage. Our second focus area is to grow by winning new customers and delighting existing ones. Our overarching aim is to expand revenue across all products and services. In the mid market segment, Sage Intacct continued to perform strongly, adding well over £100,000,000 of ARR across the group in the last twelve months.

[Steve Hare, CEO & Director at The Sage Group]

In The US, ARR growth in Sage Intacct was over 20% with continued strength across key industry verticals. While outside The US, ARR growth was over 50% as the solution scales rapidly with customers in The UKIA region, such as AKTV, a nonprofit in South Africa shown here on the slide, as well as in Canada and good early traction in France and Germany. This performance was supported by the successful introduction of industry suites. We also saw strong growth in Sage X3, our ERP solution for upper mid market customers, driven in particular by manufacturing and distribution. In the small segment, Sage active growth accelerated in Europe following recent enhancements.

[Steve Hare, CEO & Director at The Sage Group]

And we continue to build out the small business suite so that customers can add more functionality seamlessly when they need it. And we remain focused on reinforcing our relationships with accountants, including as Accountex here in London this week, where we're showcasing our strength in AI accounting. And finally, we are driving cross sell and up sell to grow sales to existing customers through add ons and deeper functionality. Our future focus in this area is to drive further momentum with new and existing customers and continue to make it easier for them to access products and services through suites. Our third focus area is to deliver productivity and insights driven by AI.

[Steve Hare, CEO & Director at The Sage Group]

Over the last year, we've developed and scaled Sage Copilot to customers of key products across our markets, focusing tightly on the use cases that SMBs find most valuable. Today, Sage Copilot is generally available and driving revenue in The UK, supporting thousands of customers of Sage accounting as well as early adopters in Sage fifty. With features like invoice management, email generation and business insights, we're saving customers time and money, boosting their productivity. And the ability of Sage Copilot to show its workings helps build customer confidence and trust. For Sage Intacct, early adopter customers can use Sage Copilot to streamline their monthly close process and gain real time insight into their business performance.

[Steve Hare, CEO & Director at The Sage Group]

While for accountants, Sage Copilot enhances client collaboration and practice management. All of these features are designed to eliminate friction in critical finance workflows. Gareth Pedley of Watson's Anodizing, based here in The UK and shown on the slide, told us that Sage's business tools and AI capabilities are revolutionizing their business operations. Looking forward, we continue to rapidly develop and roll out Sage Copilot across the group, supported by our ongoing collaboration with AWS. Importantly, Sage Copilot paves the way for the development of more sophisticated agentic capabilities, embedding always on intelligence into our customers' workflows.

[Steve Hare, CEO & Director at The Sage Group]

These will enable it to manage multi step end to end processes with less human oversight, accelerating close times, reducing risk and unlocking significant ROI for our customers. Now our success depends on our ability to deliver for our stakeholders. For our customers, the value they get from our solutions is demonstrated through recognition like the twenty twenty five Buyer's Choice Awards from TrustRadius, where Sage Intact and Sage Accounting were both winners earlier this year. And we're also proactively championing customer interests. For example, we're working with the UK government as we speak, supporting policy and technology solutions to address the challenges SMBs face, such as late payments.

[Steve Hare, CEO & Director at The Sage Group]

For partners, we're investing in our relationships, delivering tools to help drive new customer leads and simplifying the way we do business with them via a single global framework. For colleagues, we foster a high performance culture and an experimental mindset. In February, the Financial Times ranked Sage among The UK's best employers for 2025 based on independent surveys. And we're supporting colleagues by investing in our workspaces with next generation offices recently opened in centres such as Atlanta, Beaverton, and San Jose in The US, Toronto and Vancouver in Canada, Winnesh here in The UK, and Porto in Portugal. Onto society where we aim to multiply our impact by helping SMBs to be more sustainable and successful.

[Steve Hare, CEO & Director at The Sage Group]

For example, we recently launched the Sage Impact Entrepreneurship Scheme, supporting over a 50 startups across our markets with mentorship, training, and grants. And for shareholders, our objective is to create sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. Our strategy is delivering growth in all regions. We're leveraging our scale by rolling out global solutions.

[Steve Hare, CEO & Director at The Sage Group]

We're enhancing our industry and functional capabilities and bringing them together in simplified integrated suites. And we're scaling the Sage Network Platform to deliver innovative AI solutions like Sage Copilot, which helps our customers save time and gain valuable insights. Sage is differentiated by our leading technology. We have deep local expertise across financials, payroll and HR, serving a wide range of SMBs across diverse regions. And we work with an extensive network of partners, accountants, resellers, ISVs who expand our reach and enrich our ecosystem.

[Steve Hare, CEO & Director at The Sage Group]

And finally, as we grow, we're creating the headroom to increase investment and expand margins, driving sustained, efficient growth. So in conclusion, Sage achieved a strong performance in the first half. We continue to deliver significant top line growth with cost discipline leading to margin expansion. We're investing in innovation to drive value for customers, powering Sage's success now and in the future. And despite the uncertain macro, we're executing well and making consistent progress towards our strategic priorities.

[Steve Hare, CEO & Director at The Sage Group]

So that concludes today's presentation. Thank you very much for watching, and Jonathan and I would now be happy to take your questions.

[Operator]

Thank you. And now we're going to take our first question. And it comes from the line of Frederic Boulan from Bank of America. Your line is open. Please ask your question.

[Frédéric Boulan, Head of European Software, Payments & IT Services research at Bank of America Merrill Lynch]

Hey, good morning. Thanks a lot for taking the question. If I can ask firstly around the guidance for the full year. So we're keeping this outlook at 9% or more. I think so you did 9% in H1 with a bit of a deceleration in trends and still a fairly uncertain macro.

[Frédéric Boulan, Head of European Software, Payments & IT Services research at Bank of America Merrill Lynch]

Keen to hear a little bit your assumptions in terms of second half demand growth and what gives you that confidence that 9% is still the floor? And then secondly, interesting to hear the traction around Gen AI and especially in The UK. So again, here, keen to hear a bit of an update on how you think this can start to so firstly, the kind of pipeline outside of The UK from a product perspective? And then how material can that become in the medium term for your growth? Thank you.

[Steve Hare, CEO & Director at The Sage Group]

Thanks, Fred. And Jonathan, why don't you take the first one on guidance, and then I'll talk a bit about Gen I.

[Jonathan Howell, CFO & Director at The Sage Group]

Yes. So as you can see, in terms of guidance, our full year guidance is for organic growth of 9% or above. That is consistent with the guidance that we gave at the time of the FY 2024 results. At the half year stage, we're on track. We've just reported good growth of 9% on a total revenue basis.

[Jonathan Howell, CFO & Director at The Sage Group]

We have good momentum in the business with ARR growth of 11%. And as you know, the macro has been a bit more volatile and uncertain. That's difficult to quantify the potential impact, if any, at all. And our guidance is realistic, but cautious. I think that you said what gives you confidence as you look forward?

[Jonathan Howell, CFO & Director at The Sage Group]

We have a solid sales pipeline, with good closure rates. We've invested in our key products, our premium products, Sage Intacct across Continental Europe and Co Pilot. And we've improved sales execution. So that's, you know, the type of backdrop that sort of informs the guidance as we look forward into the second half.

[Steve Hare, CEO & Director at The Sage Group]

Yeah, and I would just add in terms of customer behavior, you know, if I look over the last sort of six weeks, since the close of the half year, so kind April and the May, we haven't seen any, change in customer behavior. So that gives us the confidence to reiterate the guidance. On on GenAI and and starting with Sage Copilot, available in The UK and and just, you know, we should emphasize, you know, this is a real product that customers are using and paying for. So, we've made it available to about 40,000 customers in The UK, of which just over a quarter of them are actively using it. It doesn't mean the others aren't using it, but it obviously takes time, you know, to to really get embedded into people's workflows.

[Steve Hare, CEO & Director at The Sage Group]

We've made it available on Sage Active, across Europe. That's earlier stage. And we are working on the with early adopters on Sage Intacct. If you look forward over the next kind of December, I think that you'll see two things. You'll see a very rapid take up from customers as they start to see the benefits that it can bring them, particularly in terms of, automating repetitive tasks and giving them insights into in their workflows.

[Steve Hare, CEO & Director at The Sage Group]

And then what you'll also see is us, going beyond just Sage Copilot and introducing Agencik AI, agents that perform, specific tasks. Those agents will be, still with human kind of oversight, but will be increasingly autonomous. One of the big things we intend to do with all of our AI is ensure that we provide audit trail and visibility so that our customers, particularly CFOs, can see how things are being done and that that because a big part of this is also building the trust that the machines will do things accurately. And the reason we have confidence they will is because we're also using our own domain specific language models to supplement the large language models that everyone's using.

[Frédéric Boulan, Head of European Software, Payments & IT Services research at Bank of America Merrill Lynch]

Thank you very much.

[Operator]

Thank you. We're going to take our next question. And now we're going to take a question from Adam Wood from Morgan Stanley. Your line is open. Please ask your question.

[Adam Wood, Managing Director - Equity Research at Morgan Stanley]

Hi, good morning. Steve Johnson. Thanks for taking the question. Maybe just first of all on the margins, obviously, a very strong performance in the first half, but the commentary around the guidance for the full year is unchanged. Could you just maybe talk a little bit about the plans for the second half in terms of investments and the confidence of being the bottom or the top end of the 50 to 100 basis points that you normally guide out on the margin side?

[Adam Wood, Managing Director - Equity Research at Morgan Stanley]

And then maybe on the Intact side, obviously, it feels like Intact U. K. Now gaining enough traction to be meaningful. Could you give us a little bit of an update there on the scale of that business and the growth, maybe also on the manufacturing and distribution products in The U. S?

[Adam Wood, Managing Director - Equity Research at Morgan Stanley]

So just a general kind of update on Intrac traction and scale for those newer areas. Thank you.

[Jonathan Howell, CFO & Director at The Sage Group]

Thank you, Adam. As you say, we guide to margin on a full year basis and that we don't necessarily see or anticipate a smooth linear progression in margin throughout the year. We at the half year stage continue to guide to a 50 to 100 basis points improvement. And probably we expect a slight margin improvement as we move into the second half as well. We will continue to dynamically reallocate spend during the course of the year to optimize or maximize that trade off between top line growth and margin expansion.

[Jonathan Howell, CFO & Director at The Sage Group]

And so that will be a component of the second half performance on margin. But still sticking to the clear guidance that we gave at the beginning of the year.

[Steve Hare, CEO & Director at The Sage Group]

And then on Intact, yeah. I mean, U UK UK traction continues to to go well if you if you if you take the UKIA region, so so both South Africa and also The UK, you know, we're up above 2,000 customers or so now, and continue to go strongly. I mean, I think I think in The UK, we in terms of share of new customer acquisition, you know, we would, we'd probably claim market leadership. So so we're we're very happy with the progress. In, in The US and and more widely on manufacturing and distribution, I think, two things.

[Steve Hare, CEO & Director at The Sage Group]

First of all, probably, you know, for the kind of smaller customers, we've introduced, as you know, SDMA, so Sage Distribution Manufacturing and Operations, you know, which is gaining traction and, not just in The US, but also across Europe. But also, we've introduced, you know, updated versions of x three, and, that's x three is is is growing very strongly, growing double digit. And the cloud versions of, x three, you know, I'm very excited about. I think that puts us in a very, very strong position in distribution and manufacturing both in The US and more widely across Europe.

[Jonathan Howell, CFO & Director at The Sage Group]

Adam, just to just add a data point to that. Three years or so ago, when we brought Intact to The UK, we said it would take time to begin to ramp up and build out, both in the direct channel and the partner channel. That has happened now. And as you can see, as we reported in the first half, total ARR growth for Intact in The UK is now growing at 60%. And that is now off a reasonably large base.

[Jonathan Howell, CFO & Director at The Sage Group]

And as we look forward, and if you think back over the last year or so, you know, we said it would take time in Continental Europe. Our expectations are that we can have similar progression over time in Continental Europe as well.

[Adam Wood, Managing Director - Equity Research at Morgan Stanley]

Very helpful. Thank you.

[Operator]

Thank you. Now we're going to take our next question. And the question comes from the line of Kai Korschow from Canaccord Genuity. Your line is open. Please ask your question.

[Kai Korschelt, Managing Director at Canaccord Genuity Group]

Yes, thank you. Good morning. I just had a couple. The first one was around Intuit's Enterprise Suite. I'm just wondering, since launch, have you seen any impact in Marketplace, maybe extension of sales cycles?

[Kai Korschelt, Managing Director at Canaccord Genuity Group]

I believe also they've been adding HR functionalities. I'm just wondering how you feel the competitive environment on that side is evolving. And then the second question was just around the share buyback, 200,000,000. I'm sure you've kind of done the math or weighed it up against perhaps deleveraging, but given your leverage is still decent at 1.5x, why not delever, maybe pay down some of the debt if you can in fact, might that not be better for shareholders or earnings per share?

[Kai Korschelt, Managing Director at Canaccord Genuity Group]

Thank you.

[Steve Hare, CEO & Director at The Sage Group]

Yes. On the first question, I think, you know, I've commented on this previously and nothing's really changed. We don't see, any evidence of, Intuit appearing in competitive processes for new customers. So they're very much using it as far as we can see to try and extend the life of their existing customers. You know, we typically, in an average year in The US, probably acquire about 500 or so QuickBooks graduates and migrate them to Intact.

[Steve Hare, CEO & Director at The Sage Group]

So, you know, in the in the scheme of of, you know, QuickBooks having whatever it is, 6,000,000 subscribers, and I think their churn rate, you know, is probably about 10%. So in the scheme of that, you know, it's not we're not seeing any material, impact in terms of competitive, dynamics. And the same would go for HR. You know, I can't think of a single time where we've competed against them in an open process.

[Jonathan Howell, CFO & Director at The Sage Group]

Yes. So thank you on the, share buyback. First of all, one of our policies really for the last five to seven years has really been to run a strong balance sheet. And as you can see, we've exited the first half with cash and available liquidity of $1,200,000,000 And that's pretty consistent with what we've done over previous years. We exit the half year with net debt to EBITDA leverage of 1.5 times.

[Jonathan Howell, CFO & Director at The Sage Group]

That sits comfortably in our formal guided range of one to two times. And so as we get to the end of the $400,000,000 share buyback program, it's appropriate for us just to extend it by another $200,000,000 which absent any M and A in the second half would leave us at a pretty consistent level by the time we get to the year end. In terms of capital allocation, we have a very clear capital allocation policy that we set out. Our primary source of funds and capital is for organic and inorganic growth, then to service the dividend. And then lastly, if we have surplus and only if we have surplus capital will we return it.

[Jonathan Howell, CFO & Director at The Sage Group]

Over the last four years now, including the 200,000,000, that'll be about a 1,600,000,000.0 of capital return. You're able to do the analysis, but that's created significant EPS enhancement for us over that period. Thank you.

[Operator]

Thank you. Now we're going to take our next question. And it comes from the line of Balaji Tirupati from Citi. Your line is open. Please ask your question.

[Balajee Tirupati, Equity Research - European Software & IT Services at Citi]

Hello. Good morning, and thank you for giving me opportunity to ask questions too from my side, if I may. Firstly, could you comment on sequential growth in ARR and if it had any impact from heightened uncertainty towards the end of the quarter? Also, given ARR growth of around 10.5% entering fiscal twenty twenty five and ten percent plus organic growth after first half, I'm a bit surprised recurring revenue organic growth decelerated to around 9% in second quarter. So could you share any color on the same?

[Balajee Tirupati, Equity Research - European Software & IT Services at Citi]

And my follow-up on, Sage co and my and my second question on Sage Copilot, if you could share update on how the commercial launch of, Copilot and Sage Accounting Plus package been received? And I think we saw a release yesterday where Sage is making one Copilot license available for free for accountants on the smaller package of Sage Accounting. So if you could comment on that as well. Thank you.

[Steve Hare, CEO & Director at The Sage Group]

Yeah. I'll take the second question, first, and then Jonathan can, talk about the ARR growth. So on Sage Copilot, we, you know, we continue to make it available as part of, the suites that we offer. So if you take Sage accounting as an example, the 40,000 customers that I quoted earlier, those customers who are on the plus tier, and what we did was, incorporate a license, a Sage Copilot license into that tier, and then increase the price of the tier. You're correct that what we did yesterday, the count tax, really aimed at making tax the next wave of making tax digital, is we're going to make available as part of the, you know, the the kind of basic package, some copilot capability so that when if people are using the free version, they still get a taste of, that AI functionality.

[Steve Hare, CEO & Director at The Sage Group]

But obviously, you know, as our aim is that as people get used to that and as people see the benefits of that, that we will, seek to upgrade them to the higher paying tiers. But what we want everyone to do who's using small biz the small business suite and the small business capability is for them to see the power of Sage's AI because we are the only ones in The UK who have this live in our products today.

[Jonathan Howell, CFO & Director at The Sage Group]

Yes. And then on sequential ARR growth, which is an important metric. As you can see, the exit ARR growth rate at the half year is 11%. That's in line with our expectations and also in line with our FY twenty twenty four full year exit rate. In Q1, sequential growth was about 2% and that was in line with Q1 last year.

[Jonathan Howell, CFO & Director at The Sage Group]

In Q2, sequential growth was around 2.5%, and that is also in line with the corresponding Q2 last year. That level of ARR growth build and exit rate really supports the guidance that we've given for the full year. I think it's just worth noting in relation to your question, we've now developed we've now delivered organic revenue growth of between 910% for the last full two years. So this is a stable and consistent performance, very much in line with that. And any sort of variations that we see at the moment are part of, a normal quarterly variation that we've seen over that two year track record.

[Steve Hare, CEO & Director at The Sage Group]

The other thing I'd just add actually is, look, organic growth is super important. Obviously, you know, it's foundational and we're we're very focused on it. But it is just worth emphasizing that, m and a is an integral part of our strategy. And therefore, you know, you will see us doing bolt on acquisitions. And that is part of what we're doing to scale the business.

[Steve Hare, CEO & Director at The Sage Group]

So, organic's important. But just to highlight and to emphasize, our underlying ARR in the period was 11%. So very strong double digit growth.

[Balajee Tirupati, Equity Research - European Software & IT Services at Citi]

Thank you.

[Operator]

Thank you. Now we're going to take our next question. And it comes from the line of Sven Mert from Barclays. Your line is open. Please ask your question.

[Sven Merkt, Analyst at Barclays]

Great. Good morning. Thank you very much for taking my question. I wanted to come back on the ARR growth. And you mentioned that the 11% gives you confidence for the second half and of the full year guide.

[Sven Merkt, Analyst at Barclays]

When we now look at the recurring growth in the quarter, it was just 9% in the second quarter, and it remains a good percentage below the organic ARR growth, which was 10.1%. Can you comment what were the specific factors in the quarter that drove the difference between ARR and recurring growth? And how we should think about the gap for the second half? And just to clarify, can you comment whether you would consider your guidance achieved even if growth would round up to 9%? I wouldn't think so, but it would be great if you could clarify this.

[Sven Merkt, Analyst at Barclays]

Thank you.

[Jonathan Howell, CFO & Director at The Sage Group]

Yes. So ARR and recurring revenue, they're related, and we and we sort of always expect them to be close, but not necessarily the same. And that's consistent with others who who use this measure. As you know, ARR is a point in time metric only, whilst revenue total revenue is booked over a period of time. And therefore, any divergence that we're seeing is mainly caused by the timing of revenue growth.

[Jonathan Howell, CFO & Director at The Sage Group]

But nonetheless, ARR, the measure that you're talking about, represents a fair and annualized view of revenue that is expected to recur. And therefore, it's a good forward looking measure for us. In terms of the guidance, you can see, we've reiterated what we've said at FY24 results, that we expect our total revenue growth to be 9% or above.

[Sven Merkt, Analyst at Barclays]

So you wouldn't consider it achieved if it rounds up?

[Jonathan Howell, CFO & Director at The Sage Group]

Yes. I mean, we you and the market will judge the guidance in the round.

[Sven Merkt, Analyst at Barclays]

Okay. Thank you.

[Operator]

Thank you. So, dear participants, there are no further questions for today due to the time constraints. And at this moment, I would like to hand over back to Steve Haire for any closing remarks.

[Steve Hare, CEO & Director at The Sage Group]

Yes. Thank you very much as always for dialing in, and we look forward to updating you further at the Q3 stage. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Have a nice day.

Participants

Executives

• Steve Hare, CEO & Director
• Jonathan Howell, CFO & Director

Analysts

• Frédéric Boulan, Head of European Software, Payments & IT Services research at Bank of America Merrill Lynch
• Adam Wood, Managing Director - Equity Research at Morgan Stanley
• Kai Korschelt, Managing Director at Canaccord Genuity Group
• Balajee Tirupati, Equity Research - European Software & IT Services at Citi
• Sven Merkt, Analyst at Barclays