Sage Group PLC (LON:SGE.L), a global provider of cloud business management solutions, reported robust first-half financial results, highlighting sustained revenue growth and increased profitability. The company's focus on cloud solutions and markets, coupled with effective cost control measures, has led to margin expansion and a rise in earnings per share (EPS) and free cash flow.
Sage's investment in innovation is set to provide both near-term benefits and long-term success, with the introduction of new and improved solutions and AI-powered services.
Key Takeaways
- Sage reported strong first-half results with sustained revenue growth, driven by cloud solutions.
- The company is investing in innovation and has introduced new products and AI services.
- Sage expects full-year organic revenue growth to align with first-half results and anticipates increased operating margins.
- The Sage Business Cloud and connected services have shown significant growth, with a 25% increase in the first half.
- Sage's partnership with Amazon (NASDAQ:AMZN) Web Services and Tide has been instrumental in customer acquisition and product development.
- Despite a slight reduction in growth outlook, Sage remains confident in its strategic priorities and consistent growth for the second half of the year.
Company Outlook
- Sage projects organic revenue growth for the full year to be consistent with the first-half performance.
- The company anticipates an operating margin increase of 50 to 100 basis points on a constant currency basis.
- Sage plans to balance revenue growth with margin expansion through dynamic investment reallocation.
Bearish Highlights
- The growth rate of Sage Business Cloud is expected to moderate as cloud native products mature.
- The company has slightly reduced its growth outlook for the year.
Bullish Highlights
- Sage's Accounts Payable Automation service has tripled its invoice processing volume year over year.
- The e-invoicing service is helping SMBs expedite payments and comply with government mandates.
- Sage's cloud native offering, Sage Business Cloud, has grown by 25% and now represents a third of total revenue.
Misses
- It is challenging to predict the adoption rate and revenue impact of the new Copilot product for SMBs.
Q&A Highlights
- Full-year ARR growth rate is expected to match the first half's rate of 9.5%.
- Pricing changes are evaluated annually and implemented evenly across markets.
- The company has maintained a consistent pricing strategy over the past few years, contributing about 5% to revenue growth.
Sage continues to execute its strategy by leveraging its global scale and expertise while differentiating its offerings with local knowledge. With a focus on expanding its partner and customer base across seven countries and building its small business engine, Sage has launched the Sage for Small Business suite in the U.K. and refreshed its offerings for accountants in France, Spain, and South Africa.
The company's commitment to delivering great technology with a human touch has been recognized globally, as Sage has been named one of the world's best employers and a European diversity leader. In line with its inclusive growth strategy, Sage has published a net zero transition plan, aiming to reduce emissions by 50% by 2030, underscoring its commitment to sustainability and shareholder value.
Full transcript - Sage (SGE) Q2 2024:
Steve Hare: Good morning and welcome to Sage's First Half Results Presentation. Also with me today is Jonathan Howell, our CFO, and together we're looking forward to presenting a strong set of results to you. So let's start with an overview of our key messages. Sage performed well in the first half. We sustained strong revenue growth underpinned by broad-based drivers across our portfolio of cloud solutions and markets. Discipline cost control has enabled us to drive efficiency leading to good levels of margin expansion and a significant uplift in EPS and free cash flow. And our business model is resilient as we provide mission-critical software and services to help small and mid-sized businesses streamline processes, save time and make better decisions. Secondly, we are investing in innovation as a source of near-term advantage as well as a foundation for long-term success. From small enhancements to major new releases, we're introducing new and improved solutions at pace, driving engagement among customers, accountants and partners. The Sage network, designed as a powerful open platform for innovation, is enabling us to deliver new AI-powered services. These services automate workflows, not just within but between organizations. They connect business ecosystems and they deliver benefits to customers of Sage and beyond. And finally, we continue to execute against our strategy with good progress in all areas. We're leveraging our global scale and expertise, whilst at the same time differentiating our offering with deep local knowledge. And importantly, our top-line expansion enables ongoing investment as we continue to build a scalable platform for strong, sustainable growth. Now, I'll talk more about the progress a little later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review.
Jonathan Howell: 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. As Steve mentioned, 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 10% driven by continued strong demand for our products and services. Our operating profit margin increased to 22%, an expansion of 160 basis points as we efficiently scale the business. This has led to a strong increase in EPS of 23%. And finally, our cash conversion was robust at 127%, driven by growth in subscription revenue and good working capital management. Turning now to ARR growth, renewal rate by value was 102%, up from 101% last year. This reflects increased sales to existing customers and good retention rates as we drive deeper customer relationships. And we've seen sustained levels of growth from new customer acquisition. As a result, ARR increased by 220 million to 2.3 billion. That's up 11% at the first half. Importantly, this growth continues to be well balanced between new and existing customers. So, turning to the P&L, total revenue growth of 10% was underpinned by recurring revenue, which grew by 11%. Sage is now a 97% recurring revenue business, demonstrating the high quality and resilient nature of the Group. Operating profit grew by 18% to 254 million, reflecting our continued top line growth and margin expansion. Profit after tax increased by 23% to 186 million, with EPS growing in line with this. We've increased the interim dividend to 6.95 pence, which is up 6%. Across the Group, cloud products remain a significant driver of growth, with Sage Business Cloud revenue increasing by 18%. This reflects the growing demand from SMBs for digital solutions to automate their workflows and improve productivity. Within this, cloud native revenue increased by 25%, driven by strong growth from new and existing customers, particularly in Sage Intacct. Subscription penetration also continued to increase, and now stands at 81%. Moving now to our regional performance, starting with North America, which represents just under half of group revenue. Here we delivered revenue growth of 13%, driven mainly by the medium segment. Sage Intacct continued to perform well, driven by strength across multiple verticals, including not-for-profit and construction. This reflects further success in new customer acquisition, together with strong sales to existing customers. Growth in the region was also driven by Sage 200 and Sage 50. The UKIA region represents almost a third of Group revenue, and grew at 8%, with a good performance across the portfolio. The U.K. and Ireland increased by 7%. Revenue from Sage Intacct almost doubled compared with the prior period. This reflects strong new customer wins, particularly through the partner channel. Further growth in cloud native was achieved in small business solutions, including Sage Accounting. This was supported by good performance in both Sage 50 and Sage 200. In Africa and APAC, growth of 12% was driven by strength in Sage Accounting, Sage Payroll, and Sage HR. And finally in Europe, which represents around a quarter of Group revenue, growth was 6%. This reflects a strong performance across accounting, HR, and payroll solutions. In France, growth of 5% was driven by strength in Sage 200 and Sage X3. Central Europe increased revenue by 6%, with strong growth in Cloud HR and Payroll. And in Iberia, growth of 6% was driven mainly by Sage 200 and Sage 50. As we've said previously, our focus is on efficiently scaling the Group. As we grow the top-line, operating leverage means we can invest more and expand the margin. This in turn leads to sustainable growth. Overall, this has resulted in a margin of 22%, a year-on-year increase of 160 basis points. Investment in sales and marketing stands at 39% of total revenue. And investment in R&D, which is at 15%, is a key priority for the Group. G&A is running at below 9%, demonstrating our disciplined approach to cost. And cash generation remains a core strength of Sage. Here you can see how the higher profits flow through to cash flow. In the first half, the Group generated $322 million of cash from underlying operations, resulting in continued strong cash conversion of 127%. And free cash flow was $240 million net of interest and tax. Our ability to generate cash supports our strong balance sheet with cash and available liquidity of $1.1 billion. This includes the return of around $350 million to shareholders through our recent share buyback. Our leverage ratio of 1.4 is well within our mid-term target range of one to two times. We retain significant capacity to support both organic and inorganic growth. We would do this in line with our capital allocation policy, which remains unchanged. So what does that mean for the full year outlook? We expect organic revenue growth for FY'24 to be broadly in line with the first half. And we continue to expect operating margins to trend upwards in FY '24 and beyond as we focus on efficiently scaling the Group. Thank you.
Steve Hare: Thanks Jonathan. Our strong performance is underpinned by our strategic framework for growth. Our purpose is to knock down barriers so that everyone can thrive, starting with our customers. And the way we serve our purpose is through our network. And we drive progress through our five strategic priorities, which I'm going to talk about shortly, as we seek to deliver benefits for all of our stakeholders in line with our values. So let's start with our customers, small and mid-sized businesses who are vital to the global economy. Our small business tracker analyses data from 130,000 SMBs, and it shows that despite the challenging macro environment, SMBs have remained resilient with rising revenues and profits as they entered 2024. But they continue to face barriers, including cash flow issues caused by late payments and weak productivity growth. Sage knocks down those barriers for SMBs. For businesses like Gemba, a pioneer in virtual reality training shown here on the slide, we use our technology to help them get paid more quickly, and we automate their back office processes to drive productivity. And with our market insights showing that less than half of SMBs in Europe currently use accounting and payroll software, our opportunity for growth is significant, particularly given ambitious EU plans to support digitalization. To increase the value we deliver to customers, we're continually investing in our products, and we focus our investment on two big technology drivers. Firstly, AI, to enhance the level of automation and insights that we provide. And secondly, the Sage network, which enables us to connect customers across their ecosystems through our cloud services and solutions. Now these two drivers are closely linked because it's the connections enabled by Sage network that form the data flows to power our AI models. We've invested in world-class machine learning infrastructure, and we're using it to rapidly develop and deploy models that are unique to each customer and trained on their individual data. These are driving more and more AI capabilities throughout our products, including in services such as accounts payable automation, outlier detection, and time management. And in April, early adopters went live with Sage Copilot, our digital productivity assistant, as we begin our U.K. rollout. Using generative AI, Sage Copilot saves time, provides deeper insights, and supports decision-making. And it does all of this through an intuitive natural language interface. In short, acting like a trusted member of the finance team. With small businesses and accountants now providing us with valuable feedback, we will be deploying it globally over time across our entire customer base. So let's turn to our strategic priorities, starting with scaling Sage Intacct. We've invested in innovative features such as improved bank feeds and new dashboards. We've introduced deeper vertical capabilities to help manage operations, for example in non-profit and healthcare. And we've expanded Sage Intacct beyond the U.S., initially into other English-speaking markets, and more recently into Continental Europe. In France, where we launched last year, we're already building traction. The partners I've met with are engaged and excited, and customer feedback is encouraging. Cultures Food, a catering company in Paris, told me that although they've only recently switched to Sage Intacct, it's already transforming their operations through real-time data and insights. And earlier this year, we also introduced the solution into Germany. So as a result of all of this, Sage Intacct grew ARR by about a quarter in the U.S., whilst outside the U.S., it grew by two-thirds to £40 million. So on to our second priority, expanding medium beyond financials. This includes extending solutions such as payroll, HR, planning and analytics to customers of our core financial products throughout the Group. So for example, we've integrated Sage HR with Sage Intacct in South Africa and Canada, and with Sage 50 in North America, driving powerful HCM capabilities across the portfolio. Also in North America, we've launched Sage Construction Management, an end-to-end cloud suite, including pre-build and project management capabilities. This suite further enhances our strong presence in a vertical which saw ARR growth in the first half of almost 20%. And finally, Sage Distribution and Manufacturing Operations is really gaining momentum, with partners and customers across seven countries helping to drive growth. Our third priority is building the small business engine, as we seek to acquire and serve small business customers and accountants. In the U.K., we recently launched the Sage for Small Business suite, combining Sage Accounting, Sage Payroll and Sage HR into a single solution, with a unified customer experience. Sage for Accountants has been adopted by over 12,000 accountancy firms, which is more than doubled where we were a year ago. And we're now introducing a tiered proposition to offer accountants more choice, including value-added services from the likes of AutoEntry, GoProposal and Futrli. Beyond the U.K., we've also refreshed the proposition for accountants in France, Spain and South Africa to drive growth. So turning to scaling the Sage network, through which we connect business ecosystems and transform customer workflows. By rapidly growing Sage Business Cloud and the connected services that we offer, such as payments, tax filings and invoice processing, we're driving more network participation. So take Accounts Payable Automation as an example. It's one of the fastest growing services we've ever launched, now processing three times as many invoices as a year ago. And with more than 60 million vendor relationships tracked in our network so far, the efficiency of the service continues to grow. Equally promising is our e-invoicing service, also offered as part of the Sage network. This enables SMBs to get paid faster, reduce costs and comply with government mandates as e-invoicing gathers pace globally. And finally, the network accelerates our development cycle, enabling us, for example, to launch Sage Active rapidly in France, Spain and Germany. Our final priority is to learn and disrupt, investing in innovation and partnerships to stay at the forefront of the industry. We've deepened our collaboration with Amazon Web Services with a commitment to develop a domain specific large language model. This will serve as a foundation for SMBs to navigate accounting and compliance more easily, combining AWS's processing power with our market knowledge. We will also make Sage Earth, our easy to use carbon accounting solution, available in the AWS marketplace, enhancing distribution and reach. And finally, rapid growth in our innovative partnership with Tide is enabling Sage to acquire more new customers earlier in their lifecycle. Now, our success depends on our ability to deliver for our stakeholders, starting with our customers. Sage helps SMBs succeed by delivering great technology with a human touch. We were delighted to be ranked in the global top 10 of G2's best software companies for 2024. And we champion SMBs across our markets, for example, on environmental issues at COP28 and on AI adoption with the U.K. government. For colleagues, we foster a high performance, accountable and inclusive culture. We were pleased to be named by Forbes as one of the world's best employers and by the Financial Times as a European diversity leader. And through partners such as Morehouse College in Atlanta and Teens in AI, we're committed to growing a more diverse talent pipeline. On to society, where we support inclusive growth so that everyone can thrive. In November, we published our net zero transition plan with a glide path to reach a 50% reduction in emissions by 2030. And I'm delighted that we recently improved our climate change score from the carbon disclosure project to A minus. And for shareholders, our overriding objective is to create sustainable growth in shareholder value. Now, we do this by growing revenue and doing so more efficiently over time. Our strategy, underpinned by innovation, is driving significant growth in all regions. We're leveraging our scale by rolling out global solutions across our markets. We're building deeper vertical and broader functional capabilities brought together as suites in a simpler, more integrated proposition. And we're using our expertise and years of investment in AI to deliver a step change in the customer experience. Sage is differentiated by our leading technology, the breadth of our business, and our human touch. We have deep local expertise across financials, payroll, and HR, serving a wide range of SMBs across diverse geographies. Our network, combined with Sage Copilot, enables customers to save time, and benefit from greater insights than ever before. And finally, as we grow the business in absolute terms, this creates the headroom both to increase investment and to expand margins, driving sustained efficient growth. So in conclusion, Sage achieved a strong performance in the first half. We continue to deliver significant growth with cost discipline leading to expanding margins. We're investing in innovation, powering Sage's success now and in the future. And we're executing well, with consistent progress against our strategic priorities, giving us confidence for the second half and beyond. So that concludes today's presentation. Thank you very much for watching. And Jonathan and I would be happy to take your questions.
Operator: Thank you. [Operator Instructions] We will now take the first question from the line of Frederic Boulan from Bank of America (NYSE:BAC). Please go ahead.
Frederic Boulan: First of all, on the demand and growth outlook. So you've modestly reduced your growth outlook for this year versus the message in November that was a bit more bullish. Can you specify a bit more what has changed, any specific areas where growth has maybe been a bit below your expectations? And then looking at midterm in terms of growth opportunities, where are you most excited in terms of ambitions? When we look at your different growth dynamics, whether it's product upsell, broader geographical reach and maybe gen AI. I mean, it's going to be a very interesting launch, any thoughts around monetization model, impact, et cetera, and benefits you see from gen AI? And maybe beyond revenue also in terms of benefit you see from an efficiency perspective? Thank you.
Steve Hare: Thanks very much for the question, Fred. So if we start on outlook, look, I think probably just slightly more modest expectations around U.S. growth in the second half. That's slightly tempered, we're actually seeing probably slightly stronger growth in Europe. So I think the message is very much we're achieving consistency, so that consistent growth in the second half, but we're not seeing the acceleration at the moment. As we look more into the midterm, I think there's a few areas where I feel particularly confident. I think the regional growth we expect to be pretty balanced. As I say, I think there's a number of drivers which give us quite a bit of confidence around Europe. And I mean we're getting tantalizingly close to double-digit ARR growth in Europe, which a few years ago seemed a long way away. I think on the product side, we have lots of innovation going on. We're expanding into Europe, which is very exciting. And as you say, gen AI, look, we think Sage Copilot is leading the way in the industry. I mean I would be sort of slightly cautious about what impact that will have on revenue in the short-term. But I think what it will do is, it will create a lot of momentum and both with new customers, but also with existing customers. So I think the opportunity to continue to deliver more features and functionality that drive both productivity, but also give greater insights to our existing customers is particularly exciting. Jonathan, anything you want to add?
Jonathan Howell: No, just briefly, though, just these are strong growth rates. Total revenue growth of 10%, ARR growth of 11%, those are both broadly in line with the exit rates for FY '23. And don't forget, in November, I think you referenced, in November last year results, we guided to a broad leveling off of growth rates in FY '24, and that's exactly what we've seen. And so at the half year stage, we've just taken this opportunity just to moderate guidance slightly for the full year. And basically, it's in line with the first half performance at around 9.5%.
Steve Hare: Thanks. I hope that helps.
Operator: Thank you. We will now take the next question from the line of Adam Wood from Morgan Stanley (NYSE:MS). Please go ahead.
Adam Wood: I just wanted to ask, first of all, coming back onto the U.S. question. Maybe first of all, did you see that as macro or any competitive issues in the U.S. market? And I appreciate this is a difficult one to answer, but we feel like we're a long time into weaker software spending globally, and you've been very resilient through that. Is there anything you see from your experience of cycles, whether it's ARR build, how customers are behaving, that this is kind of the tick down towards the end of the cycle or the start of a cycle where we could see further downgrades? So that's kind of on the top line of macro. And then just on margins, hitting the top end of your 50 to 100 basis points traditional guidance range would suggest maybe 40 basis points of margin expansion in the second half. You've been running well ahead of that to date. Is there more investment going into the business? I mean on Sage Copilot, I'm sure all of us have seen the adverts around London, or is there some conservatism baked into that second half margin expectation? Thank you.
Steve Hare: Yes. So I'll take the US first, and then Jonathan will cover off the margin. I think in the U.S., I think it's important to emphasize that we've continued to add new customers, both from a volume and value perspective, at a broadly similar rate. So what we haven't done is accelerate that rate. So obviously, a bit slightly law of big numbers here, as a percentage, it's therefore come off a bit. But we're still growing cloud native well in the mid-20s. I think we're seeing a couple of things here. We've continued to see strength in the verticals where we are traditionally strong. So both non-for-profit and construction has continued to show kind of real strength. But I think there are some just signs that CFOs maybe just taking slightly longer to make decisions. But I don't see any tailing off in terms of the trend, quite the reverse. I think the products that we're introducing, the enhancements we're introducing to Sage Intacct, the advent of stronger gen AI functionality means that those medium-sized CFOs have a compelling business case more than ever to upgrade to the latest technology. It's just they're probably taking slightly longer to make the decision. So over the medium term, we continue to feel very strong confidence in Intacct as a growth engine, both with our existing customers and also for NCA. Do you want to cover margin, Jonathan?
Jonathan Howell: Yes. Look, in terms of margin, it has been a strong performance in the first half, 22% reported at the half year, that's an expansion of 160 basis points on a constant currency. This is now our third consecutive year that we are expanding the margin, and we will continue to do when we will continue to do that going forward. In terms of guidance, we're guiding to the top end of the range of 50 to 100 basis points for the full year on a constant currency basis, don't forget, we only guide on an annual basis. We don't guide on a half yearly basis because as we've seen in previous years, margin expansion is not a linear progress. And also, I think to your question about investment in the business, as we've said previously on these calls, we will continue to dynamically reallocate investments during the course of the year to make sure we can maximize that trade-off between revenue growth and margin expansion. And so where we see the opportunities to invest appropriately and efficiently, we would do so to drive growth.
Operator: Thank you. We will now take the next question from the line of James Goodman from Barclays (LON:BARC). Please go ahead.
James Goodman: Just maybe a couple digging into the ARR trends specifically. It looks like sequential ARR in the quarter was around the 2% level, maybe 4.5% or so for the first half. So is that right? And if so, as we look forward to the end of the year from an ARR perspective, should we extrapolate these sorts of growth rates, or do you think you see a material sort of acceleration, maybe a partly seasonal acceleration in the ARR development in the second half? And the second question is sort of an additional one just around the cloud native ARR, which, as you flagged previously, you're not disclosing anymore given where we're at in the transition but I think it was growing 28% at the full year. You've now got cloud revenue, native revenue down about 25% growth. So really the question is, are we seeing cloud native ARR slow quite materially? And it doesn't sound like it's in Intacct. So are we seeing some other products with some weakness there?
Jonathan Howell: James, just on the ARR build, I think you've almost answered it in your question. So we've reported ARR growth at the half year of 11%. That's in line with the FY '23 exit rate. Q1, we saw sequential growth of 2%, and that was in line with Q1 last year. Q2, we've seen sequential ARR growth of about 2.5%, and that compares to about 3% in Q2 last year. And so where we sit now with that ARR build in the first half and that exit rate, that underpins our guidance for total revenue for the full year. And then in terms of cloud native, cloud native revenue now is a third of our total revenue, and reported on a total revenue basis was 25% growth in the first half. It's a very significant driver of the overall business and a strong performance from Sage Intacct, Sage Accounting and Payroll. It's good absolute growth off a much larger base. So over time, the actual growth rate is moderating slightly. I think another important thing to understand about cloud native and Sage Business Cloud is that going forward, the growth of this business is primarily going to come from NCA and cross-sell and upsell and not from migrations. And so over time, by definition, the cloud native growth, Sage Business Cloud growth, those growth rates will over time increasingly converge on the total revenue growth rate. And that is exactly as you would expect, we have now completed the transition. Sage Business Cloud penetration is approaching 90%. Does that help? Does that answer your question?
James Goodman: Yes, that's very helpful.
Operator: Thank you. We will now take the next question. One moment please. Next question comes from the line of Daria-Ioana Sipos from JPMorgan (NYSE:JPM). Please go ahead.
Daria-Ioana Sipos: This was just relating the kind of impact ARR growth. You mentioned that at H1, that was around 1/4, so about 25% versus closer to 30% at FY '23. What are you seeing with respect to Intacct in the U.S.? Is this kind of mid-20s growth, closer to what we should expect going forward versus the previous trend of closer to 30%? And then,, just similarly on Intacct ARR outside the U.S., that seem to have grown by 2/3 in H1 versus closer to 80% in FY '23. Is that just a function of scale, or is that just anything else to bear in mind in there? Thank you.
Steve Hare: Yes. I'll start and then Jonathan can kind of fill in the details. I think, look, at a high level, as I say in the U.S., we're basically adding a very similar number of new customers to what we've done in previous periods at similar value levels, and we also have similar levels of renewal rate by value. So the amount of ARR that we're adding in the U.S. through Intacct has remained pretty consistent. What we need to do is accelerate it, and the way we will accelerate, i.e., in other words, the drop-off in percentage is simply the law of large numbers as the business gets bigger. But what we are doing is we're focusing on expanding into other verticals and also going deeper in the verticals we're already in. So we've launched, for example, in construction, we've just launched the new construction suite, medium suite for construction, which has Intacct at its core, but also has a number of other applications integrated into it. And we're also seeking to expand more strongly in verticals like retail, like health care, like manufacturing and also drive more volume through general business, but these things take time. And the bigger the business gets, the harder it is to maintain. So I think 30% growth rates on a business that is the size it currently is, it's probably a bit punchy. So I think probably I'd be very happy if we were able to maintain growth rates in the 20s. Once you get outside the U.S., obviously, we have different things going on in different markets. So the U.K., we're showing good progress in the U.K. We've got over 1,000 intact customers in the U.K. We've got solid progress in South Africa and Australia, but we now need to see the acceleration coming through in Europe, but it's very, very early days. We've got our first few customers in France. But obviously, as Europe picks up, then that will contribute to that kind of next wave of growth of Intacct outside the U.S. Jonathan, do you want to add?
Jonathan Howell: Yes. Just very briefly to add, if we have a third of our total revenue base, as I say, growing at around 25%. So basically, to achieve that, you need most of your cloud native products and all of your territories to be performing well. And just to confirm in your question, yes, the growth rate for total revenue and ARR for North America for Intacct are both around 25% or so. And to give you an example, in the U.K., ARR in the U.K. has doubled in the last 12 months. So there is good momentum across all of those established cloud native products that we have. It would take a little bit more time for that type of growth and scale to come through in Continental Europe, but we are very confident about that, particularly given the lower levels of cloud penetration that we have across our SMB customer base and the SMB community across Continental Europe. That gives us good confidence about the future for Sage Business Cloud and cloud native products there.
Operator: Thank you. We will now take the next question from the line of Balajee Tirupati from Citi. Please go ahead.
Balajee Tirupati: Two from my side, if I may. Firstly, on dynamics in Europe, it would appear that the growth in Europe decelerated from close to 7% first quarter to 4% in second quarter. So could you share color on this growth deceleration during the second quarter? And how should we think of reacceleration in the region, as you mentioned that going ahead, you see Europe growth improving versus North America, which you have cited as a reason for slightly moderate growth expectation for the year? And the second question, on Copilot, if you could share us the initial feedback that you may have received, and also anything that you could share with us in terms of price differential for the Copilot product and view on adoption rate? Thank you.
Jonathan Howell: Yes. In Europe, if you look at it on a half year basis, it's in fact accelerated. It was 6% total revenue growth in the first half this year, 3% in the first half, last year, in broad terms, that trajectory is established. If there are any slight quarterly differentials that all depends upon the timing of the last bit of migration we're doing across Continental Europe as opposed to the rate of pickup by cloud connected or cloud native products. So I'll take a slightly longer trend line than you have just looking quarter-on-quarter.
Steve Hare: Yes. And I would say, from an overall perspective, I think the underlying trend in Europe in terms of customers adopting digital tools and also, particularly, as I said, with Intacct as it comes on stronger, as Sage Active comes on stronger, I think those trends are strong. They may differ a bit quarter-by-quarter, but overall, strongly. I think look on Copilot, say we've got something like now just over 150 customers and accountants who are effectively in the early adopter stage who are giving us feedback, live feedback around the product. And I think this is a very important point to emphasize, right? We have live product with live customers. So this week at Accountex, yesterday, we were showcasing, we did over 1000 demos at Accountex. The stand was overwhelmed with interest in terms of people wanting to see the demo. And I think compared to competitors, it's just important to really emphasize, we have a live product with live customers. Now obviously, it's early adopter. So of course, we're getting feedback around things that we can simplify, things we can make more effective. And the most important thing is, and this is what we've been emphasizing, is it's all about use cases. So you need real solutions, so helping customers to save time by Copilot doing a specific workflow for you is where the value is in the initial launches. So things like making it easier to issue invoices, making it easier to chase overdue payments and getting Copilot to help you do that and save you time. And then also making it easier for you to get insights, asking simple questions like who owes me money, please send them a chasing e-mail, all of that is done by Copilot. So early signs, very exciting, a lot of interest. The flip side of that is, look, on pricing, we'll see. We will charge for Copilot but the rate of adoption for these types of applications, particularly with SMBs is extremely difficult to predict. So we have to be cautious about the revenue impact but from an interest perspective, the interest level is very, very high.
Operator: Thank you. We will now take the last question from the line of Michael Briest from UBS. Please go ahead.
Michael Briest: Just on the ARR trends, would you say that we've now seen the trough for growth rates? I know you don't do things to a decimal point, but it looks like about 10.7%. Is that now something which we'll accelerate from? And I think, Jonathan, on growth, you said about 9.5% for the year. Again, do you think that I mean I calculate 9.4% for the first half, growth rates in the second half will be stable, or is there a chance that they continue to decelerate because the comps are a little bit tougher? And then on pricing, I know in the U.K., at least historically, you put price increases through on the 1st of April. Last year, on the sort of entry-level products, it was quite meaningful. But I see no change in pricing this year. Price, can you talk about that, is it a timing thing? And last year, pricing was about 4.5% to 5% of the revenue growth, or what would the expectation be for this year? Thank you.
Steve Hare: So I'll let Jonathan answer the question, and thanks for the question, Michael. But I think it's a good indication of the progress that we've made as a company that we're getting asked if 10.7% is our trough rate. So that's a great question, Jonathan.
Jonathan Howell: Thank you, Michael. Yes, so just to reiterate on guidance, we're guiding that the full year to be broadly in line with the first half growth rate, which was 9.5%. And to answer your question, that sort of builds in our expectations of performance, pipeline builds and conversion in the second half and also the comparators that we're facing as we go into Q3 and Q4. In terms of ARR as you know we don't guide to ARR. And then in terms of pricing, it is an important component of the renewal rate by value, but it's remained very consistent now over the last couple of years. So churn is low and stable still, and that has been a hallmark really for the last 2 to 3 years. Cross-sell and upsell by definition has been very strong. And pricing, exactly to your question is about a contribution of 5% for this year, which is broadly in line with what we saw last year. And then that gets you back to the renewal rate by value of 102%, which is just slightly up on what we saw in the first half last year. So does that answer your questions, Michael?
Michael Briest: Will you put price increases through because obviously, if you put during the 1 April, they have a 6-month effect in the year. And last year, they were double digits. So what does this say about pricing for fiscal '25 if you don't put the prices up?
Jonathan Howell: So we will always assess our pricing year-by-year, product-by-product and by geography. And there is no one single pricing point in the year. All of those by territory are spread relatively evenly across the year. And we will announce those price changes as is. We have always been moderate and proportionate on pricing, and we always want to ensure that there's a fair value exchange.
Operator: I would now like to turn the conference back to Steve Hare for closing remarks.
Steve Hare: That's great. Thanks very much, as always, everyone, for dialing in. Really appreciate it, and we look forward to speaking to you at the full year results. Thanks very much.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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