Good morning, and welcome to the Q1 trading update call for The Sage Group plc. Your presenter today will be Jonathan Howell, Chief Financial Officer, who is joined by James Sandford, Head of Investor Relations. I must advise you that this conference is being recorded today, and I would now like to hand the conference over to Mr. Howell. Please go ahead. Thank you very much. Good morning, everyone, and welcome to Sage's Q1 trading update. First, I'll run through the key numbers and the performance of the business, and after that, we can open for Q&A. Just as a reminder, all numbers in the trading statement are on an organic basis. Sage has made a strong start to the year with accelerated growth in line with expectations as we focus on our strategy to be the trusted network for small and mid-sized businesses. Recurring revenue was up by 8% to GBP 429 million. This was driven by strong growth in Sage Business Cloud of 21% to GBP 280 million with continued strength in new customer acquisition. Software subscription revenue grew by 13% to GBP 336 million. As a result, subscription penetration is now at 73%, up from 68% this time last year. Regionally, we saw growth accelerate across the group. North America grew recurring revenue by 11%, with further strength in Sage Intacct, together with a good performance in Cloud Connected. In Northern Europe, recurring revenue grew by 7%. This reflects an acceleration in our Cloud Native solutions, including Sage Accounting, alongside growing momentum in Sage Intacct. In the international region, recurring revenue grew by 5%, driven by growth across Sage Business Cloud. This was supported by further progress in migrations. Looking at the portfolio view, recurring revenue for the future Sage Business Cloud opportunity increased by 10% to GBP 394 million. The pace of growth in both Cloud Native and Cloud Connected continues to be significantly ahead of the group as a whole. Cloud Native revenue saw strong growth of 44% to GBP 90 million. This was mainly driven by new customer acquisition across the portfolio, in particular, Sage Intacct, Sage People, and Sage Accounting. Cloud Connected continued to demonstrate strong growth through new customer acquisition together with continued migrations, particularly in international. As a result, Sage Business Cloud penetration has increased to 71%. This is up from 65% a year ago, with more customers able to connect to our digital network. Finally, recurring revenue in the non-Sage Business Cloud portfolio was down by 15%, in line with expectations. Just touching on other revenue, this decreased by 22% to GBP 29 million, in line with our strategy. As a result, total revenue grew by 5% to GBP 458 million. Finishing on the outlook, with Q1 growth in line with plan, we reiterate our guidance for the full year. Recurring revenue growth in the region of 8%-9%. Other revenue will continue to decline in line with strategy, and we also expect organic operating margin to trend upwards in FY 2022 and beyond. In summary, we've made a strong start to the year. Growth is accelerating in line with expectations as we execute on our strategy and focus on scaling the group. Thank you. Now let's open for questions. Thank you. We will now begin the question and answer session. To ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A queue. The first question comes from the line of George Webb from Morgan Stanley. Please go ahead. Morning, Jonathan. Just one question from my side. Could you talk a little bit about how ARR trended in Q1 and how that kind of informs what we should expect on the shape of organic recurring revenue growth as we move through the rest of the year? Thank you. Yes, I mean, very good question. The ARR growth that we reported at the end of last year, FY 2021 for the full year was 8%. We just reported recurring revenue for Q1 this morning of 8% growth, and that compares with 7% growth that we saw in Q4 of last year. Therefore, you know, that clearly implies that the growth rate of ARR has increased since the year end, and we've seen some progression during Q1. Just to give you sort of some feeling around that, it's about 2% sequential growth that we've seen in Q1 this year in terms of ARR, which is in line with the 2% or so that we saw at Q4 at the end of last year. Good progress in ARR, and it really sort of underpins our expectations for the full year. Thank you. Next question comes from the line of James Goodman from Barclays. Please go ahead. Yes, morning. Thanks very much. Maybe switching over to the cost side of the business a little bit. Clearly, we had the restructuring of some pockets of headcount at the end of the last fiscal year. Just wondering if you could update us really in terms of how the reinvestment plans are going there, maybe some commentary between hiring success, digital marketing investment. Anything you can say there about the hiring environment and wage inflation would be helpful as we think about yeah, the cost phasing through the year. Thank you. Yes, James. Thanks for the question. Just to remind ourselves, at the end of last year, we announced a restructuring, which was, in effect, the removal of 800 roles from the organization. We were very clear at that stage that that was going to be 100% replaced through further investments in the business. Some of that in heads, and some of that in digital marketing spend and brand investment. That generated an exceptional charge last year-end of about GBP 67 million, which we reported at the year-end. The program of removing those roles and then reinvesting is running according to plan, at the Q1 stage as we move through the year. The hiring environment is a little harder. We're seeing slightly higher attrition, but none of that is material in terms of our ability to execute at this stage. In terms of the cost progression through the year, it's very much as we sort of anticipated, you know, when we started this financial year. Just to remind everybody, we reported a margin at the end of last year, FY 2021, of 19.3%. That was driven by increased levels of investment in sales and marketing and product. At the year-end stage, we guided for FY 2022 that the margin would trend upwards during FY 2022 and beyond, and that's exactly what we've seen during the Q1. We're very much on track with our plans in reinvesting and maintaining that guidance. The only thing that I would add, and I did say also, at the year-end last year on the earnings call, was that we do reserve the right to dynamically accelerate or deaccelerate the level of investment during the course of the year. Nonetheless, and importantly, that does not change our overall guidance. Thanks, James. Thanks a lot. Thank you. Next question comes from the line of Ben Castillo from BNP Paribas Exane. Please go ahead. Good morning. Thanks very much. Take my question. Can I ask about capital allocation, use of cash? If I'm not mistaken, I believe the second buyback tranche has come to an end now. That was announced back in September. How should we think about that going forward as you balance, you know, M&A? If you can talk about, you know, what sort of targets you may be looking at, or alternatively indeed, you know, continued return to shareholders. Thank you. Ben, thanks very much for the question. Yes, as you quite rightly point out, for much of the last financial year and indeed during the Q1, we were conducting a share buyback program. We've completed that now. There were two tranches of GBP 300 million each, and we've now just completed this week the full GBP 600 million. That buyback was very clearly flagged as being surplus capital at that stage. Indeed, at least GBP 500 million of that was generated in the disposal program that we've been doing over the last two years. That has come to the end now. Now at this stage, we are really focusing on investing in the business, notwithstanding the fact that we're going to increase the margin, but also doing appropriate M&A. I think the Brightpearl acquisition is a good example of that. The Brightpearl acquisition, which we announced pre-Christmas, really, you know, enables us to move into a new vertical, e-commerce and retail digital marketing. It also gives us the opportunity to expand the Intacct verticals that we're operating in and the Intacct user base. Lastly, and probably very importantly, it also enables us to add new customers and information and transactions going through the Sage Network. That is exactly the type of transaction that we want to keep examining in, you know, future quarters and years. Just in terms of, you know, sort of surplus capital, we exited last year with a net debt of GBP 200 million. That's 0.6 times net debt to EBITDA. Just need to, you know, remind everybody that since the FY 2021 year end, we've done about GBP 200 million of the share buyback to complete it, and we've also completed on the Brightpearl transaction, which was GBP 225 million. We're now moving back towards or, you know, into the target range of net debt to EBITDA that we have of 1-2. Very much on track, and, you know, making sure that we invest appropriately where we have the opportunity. Thank you, Ben. Thanks a lot. Thank you. Next question comes from the line of Michael Briest from UBS. Please go ahead. Yes, thanks. Good morning. Actually, I mean, you normally give a net debt figure. I was just curious why that wasn't there. Can you say something about churn rates, and then more structurally, as we think about the business evolving, you know, 20% of the business is Cloud Native now. Can you describe the sort of margin profile, either a gross margin, I know operating margin might be difficult. Just help us understand how as you grow further in Cloud Native, that might affect gross margins and overall profitability. Yes. I think, and Michael, there's sort of the three points there. Just in terms of the financial position, we introduced reporting on the financial position as we moved into the COVID pandemic about 18 months or so ago. We didn't do that previously on a Q1 and Q3 basis. As now the business and, you know, is sort of coming through, you know, towards the end of the COVID environment, we're not giving a quarterly update on the leverage and net debt position. In terms of churn, you know, we reported at last year-end that we had continued to see a decline, and indeed that we were now, this was at last year, you know, the FY 2021 year end, at a level that was lower than the pre-COVID environment. What I can say is at the Q1 stage, that is exactly the same. We are now operating at probably the lowest that we've been operating in terms of churn, and that takes us back to below where we were before the COVID pandemic. In terms of margin profile, you know, as we are now getting the right products to market with the right marketing strategy behind it, in terms of digital and through the partner channel, we believe that we can maintain these more elevated levels of growth whilst at the same time gradually improving margin. And that's exactly what we've seen in Q1. We're reiterating firmly our guidance for the full year, and we believe that as we get a scalable Cloud Native product base, a scalable Cloud Native platform, and the added benefits of the Sage Network, that will enable us to continue to drive revenue growth at a rate in advance of cost growth, whilst being able to continue to maintain not only for the near term, but also for the longer term. At this stage, it's very much as you know, as we've guided for this year. Okay. Thank you. Thank you. Next question comes from the line of Will Wallis from Numis. Please go ahead. Morning. I would just ask a question on pricing first and then dig in a little bit more on the ARR growth. Firstly on pricing, I think you talked about the potential to increase prices a bit as we go through this year. What do you think. Well, can you give us an update on that, but including update on the timing of when that will actually have an effect on your ARR growth as you go through FY 2022? The second question in relation to the sequential ARR growth of about 2%, I think you said towards the end of last year that you'd done a pretty good job at the end of last year of converting the pipeline, which was obviously a bit of a headwind to ARR growth in Q1. Was that actually the case? And as a sort of second part to that, do you think there's any seasonality in terms of quarterly ARR growth that we should be expecting sort of on a normal basis? Obviously, there's external factors as well. Yes. First of all, in terms of pricing, you know, we have a pricing strategy that is based upon the product offering that we're giving to our customer base and the ability of that product suite that we're offering is to improve efficiencies for our small and medium-sized businesses. We take into account other factors like inflation. If you recall, 18 months or so ago, when we entered the pandemic, we very clearly set out our stall and said that we would not be putting through any price increases, that we wanted to work with our customer base during a considerable period of economic uncertainty for small and mid-sized businesses. We have done that, and at the last year-end, FY 2021, we said that as we moved into FY 2022, we would now begin to introduce price increases. We had an internal plan. That plan was based on an inflationary environment, which we are seeing now, and we're executing on that plan of price increases only where we see there's a fair value exchange between our customers and ourselves. That will run, you know, for the full course of this year and will begin to, you know, improve revenue during the course of the H2. But you know, we will always keep it under review. It's not saying that we have plans to change, you know, what we set out to do, but we will always keep it under review. In terms of ARR, it was as you said, it was good strong sequential growth of 2% in Q1, 2% in Q4 last year. We are able to, you know, convert the pipeline at the pace that we believe we should be, and much of that, you know, NCA is being driven by Intacct, and also through the partner channel there as well. You know, there is no particular seasonality. Obviously, during the summer, it's a little bit quieter. Around the Christmas period, it's a little bit quieter. Quarter by quarter, there should be no particular emphasis on how it should be, you know, phased during the course of the year. The increase that we are seeing now in ARR really sets us up well to maintain high single-digit growth during the H2 of the year, which is against these tougher comparators that we've got for Q3 and Q4. Don't forget that the revenue growth really kicked up in the H2 of last year. Thank you. Thank you. Next question comes from the line of Stacy Pollard from JP Morgan. Please go ahead. Hi. Thank you. Two questions from me. You seem to be doing well in new customer acquisition. Do you think this is strong market demand or that you're particularly stronger against the competition? Second question, do you think you can boost international growth up to group level, or is that structurally just likely to be a little bit slower than North America and Northern Europe for a few years? The strong growth that we're seeing in Cloud Native in particular, which is the backbone of growth, it grew at 44% in Q1, you know, off the back of our core products, Sage Intacct, Sage People, Sage Accounting. That's driven by having absolutely the right products with the right additional modules in the market, and we believe are as good as, if not better than our competitors. There is also good demand always for accounting software, HR and payroll software, and also our digital network. This provides real efficiencies for small and medium-sized businesses. Those trends, we believe, you know, are deep-seated and are being supported by the increased spend that, you know, we took the decision last year and the year before to invest more through the P&L in sales and marketing and product. I think what we saw in the H2 of last year and what we've seen in Q1 of this year bears testament to that increased investment. On international, it is growing at about, you know, 4 or 5% at the moment. The important thing to understand is that we have fewer Cloud Native products in this region and we are still working our way through the migration program to Cloud Connected. That is important across the whole group. As you can see, Sage Business Cloud now is at 71% penetration. That's up from 65% a year ago. To finish that off is really the focus on the international region. Therefore, the focus there is to migrate Sage 50, Sage 200 from on-premise into Cloud Connected. Nonetheless, where we are introducing Cloud Native products there, we are beginning to see good traction. I think it will come up to the rest of the group's growth rates, but that is a process that is gonna take some time and will only really, you know, move forward at pace when we've got the right and full Cloud Native product set in place for that region. Thank you. Thank you. Next question comes from the line of Paul Kratz from Jefferies. Please go ahead. Hi. Thank you very much, everyone, for taking me on. Just two questions from my end. You know, when I listen to your commentary around renewal rates and the development of ARR in the period, it sounds like quarter-on-quarter, there was actually a slight deceleration in new customer acquisition. It'd be good to understand, you know, what are the drivers of that deceleration, and how should we think then of new customer acquisitions throughout the year? The second question that I then had is, you know, you mentioned then price increases but also very high gross retention. Do you think with the price increases that you're pushing through, that we should not see any delta to the downside on your gross retention? And basically that would mean that your net retention rate should actually trend up throughout the year. Thanks. No, I mean, in terms of gross retention, we, as I say, any price increases that we put through is based upon the product offering that we've got in market, the effectiveness and the efficiency with which our customers can deploy that, and so therefore it's based on a, on this sort of fair value, you know, exchange between us and our customers. The price increases that, you know, are being put in place during the course of this year, we believe will not have a material impact either way, on our sort of gross retention rates or gross churn rates. In terms of, you know, the sort of growth, I mean, Cloud Native, you know, we've seen sequential growth across the piece of 2%, and it was 2% at Q4 last year. In Cloud Native, we've seen an acceleration. We're not seeing, you know, in any way a material deceleration of growth in Q1. It's, you know, it's only Q1, we've got a full year. As I've said earlier on the call, we are running into periods of sort of tougher comparators. We do feel, though, confident that the guidance of 8%-9% is something that is our fair and best estimate at this stage. No, we wouldn't say that there's a deceleration at this stage. Got it. That's very clear. Thank you. Yep. Thank you. Next question comes from the line of Gautam Pillai from Goldman Sachs. Please go ahead. Great. Thanks for taking my questions. Jonathan, can you please comment if you saw any benefit of Making Tax Digital in the U.K. in the quarter or expect anything in Q2? Second question on the cost side, can you comment on any investments on go-to-market for Brightpearl in 2022? If I recall correctly, Brightpearl is at a break-even level for EBITDA. Anything we should keep in mind in modeling margins in this context? Thank you. Yes, Brightpearl, the acquisition of Brightpearl and the completion of Brightpearl really hasn't in any way, you know, changed the guidance. I mean, just to remind everybody, you know, when we announced the acquisition pre-Christmas, it had GBP 20 million of recurring revenue for calendar year 2021. It was growing at about 50% at that stage on a break-even margin basis. It won't be incorporated in our organic numbers this year. It will be incorporated in our underlying and statutory numbers. Just to give you a feel, if you were just, you know, very simply to take a pro forma adjustment for a full year of Brightpearl and layer that onto the Sage Group, you'd see a slight enhancement in growth rates of the group, 30-40 basis points, and you would see a very slight but not material dilution in total margin. Really not material on margin to answer your question, and certainly isn't impacting or nor will it impact, you know, the guidance that we're giving, you know, for the full year. Sorry, your other question was around- Uh, making- Making Tax Digital. Yeah. Yes. Yes, it will come to play, you know, during the course of this year. It will not have, given the nature of the changes, a material impact on our numbers, given our customer base, given the segment that we're in, which is different from Making Tax Digital one, where if you recall, had a very significant impact. We will see a little bit of benefit, but not to the extent that we saw two years ago. Nothing in that is changing or impacting our guidance. Got it. Thank you so much. Thank you. Thank you. Thanks. That's all the time we have for questions today. I would now like to hand over back to Mr. Howell for final remarks. Just like to say thank you very much indeed for your interest, you know, for your questions and your continuing interest in Sage. Needless to say, if you have any further questions, do please contact James and the team during the course of today or over the ensuing weeks. Thank you very much indeed. Goodbye. That does conclude our conference for today. Thank you for participating. You may all disconnect.