Sage Stock

Good morning, everyone. Welcome to the Q3 trading update call for The Sage Group. Your speakers today will be Stephen Hare, Chief Executive Officer; and Jacqui Cartin, Chief Financial Officer. [Operator Instructions] I would now like to hand the conference over to Ms. Cartin. Please go ahead.

Good morning, everyone, and thanks for joining us. I'll start by taking you through our performance in the first 9 months of the year. And after that, Steve and I will be happy to take your questions. Sage has delivered an excellent performance. Through focused execution, we've achieved broad-based acceleration across our key products and regions. This is underpinned by the investments that we're making in our platform and AI capabilities, which we continue to enhance the value we deliver to our customers. Revenue increased by 11% to GBP 2.1 billion in the first 9 months, reflecting strong demand for our solutions from both new and existing customers. This is supported by the expansion of AI-powered features across the portfolio, including growth in Sage Copilot and Agentic capabilities. Today, Sage's AI tools are available to over 600,000 customers. That's up more than 20% since we reported our half year results in May. And adoption continues to grow as customers increasingly rely on Sage for critical finance, HR and payroll workflows, where getting it right is essential.

And moving to the regional view. In North America, revenue increased by 14% to GBP 932 million, with continued momentum in Sage Intacct, supported by our vertical go-to-market approach. We also saw good growth in Sage 50 as well as in Sage 200, payroll and HR. In the UKIA, revenue grew by 10% to GBP 602 million. Sage Intacct continues to scale rapidly alongside further strong growth in Sage 50. Our cloud native small business suite, including Sage Accounting, also performed well, while momentum in embedded services continues to build.

And in Europe, revenue increased by 7% to GBP 528 million. This reflects strength in Sage X3 and Sage 200, broader portfolio growth and increasing traction from Sage Intacct. And underpinning all of this is the expansion of Sage Business Cloud revenue, which grew at 15% to GBP 1.8 billion, driven by strength across both native and connected. Cloud native was particularly strong, growing at 25% to GBP 794 million. And moving to recurring revenue. This grew by 11% to GBP 2 billion, reflecting continued momentum in ARR. And subscription revenue increased by 13% to over GBP 1.7 billion with subscription penetration reaching 84% and continuing to rise. For Q3 on a stand-alone basis, revenue was almost GBP 700 million, with growth accelerating to 12%. And on an organic basis, revenue for the first 9 months was over GBP 2 billion, an increase of 10%.

So turning to the outlook. Reflecting our performance in the year-to-date, we reiterate our full year guidance as set out at the half year. We expect organic revenue growth to be above 9% and operating margins to trend upwards in FY '26 and beyond as we continue to focus on efficiently scaling the group. So to conclude, Sage has delivered an excellent performance in the first 9 months of the year with momentum building across the group. We're strengthening our products, broadening our ecosystem and deepening the value we create across our platform. By combining trusted technology, intelligent innovation and human expertise, we're helping customers run their businesses with greater productivity, insight and confidence while further strengthening the quality, resilience and growth potential of Sage. Underpinned by disciplined execution, this gives us confidence in our ability to continue delivering sustainable, efficient growth over the long term. Thank you very much. And Steve and I would now be delighted to take your questions.

[Operator Instructions] Our first question comes from the line of George Webb of Morgan Stanley.

Steve and Jacqui congrats on the continued good results. A couple of questions, if I can. Firstly, just on the headline number, it looks like there was a sequential acceleration in the business in Q3 versus the first half stage. I think the organic revenues were closer to 11% in Q3 than 10% at the first half. Was that acceleration broad-based? Or could you add a bit more color around what drove that acceleration in Q3? And then secondly, turning to AI, could you add some color on what you're seeing in terms of customer engagement with Sage Copilot and whether particular workflows are seeing especially strong usage?

Thanks, George. So let me give you a little bit of color in terms of the acceleration drivers, and I'll give you a bit of a flavor also for the sequential piece that we're seeing from an ARR perspective. And Steve can touch upon sort of what we're seeing from an AI adoption and engagement perspective. So yes, overall, as I said in my opening remarks, we're very pleased with the performance. It's been a strong first 9 months. Underlying total revenue growth of 11%, which is very much in line with our expectations. This reflects much of the same trends that I touched upon in the first half. We entered FY '26 with strong momentum, and we have sustained that through the first 3 quarters. And we're now in the fourth consecutive quarter of acceleration. That's been underpinned by strong growth across the group, but in particular, I would call out both North America and the UKIA, which has sustained the double-digit growth that we reported at the first half.

And importantly, that has been underpinned by a couple of factors. First and foremost, we're seeing strong underlying demand coming across the group, and that's been supported by high-quality disciplined execution from a go-to-market perspective. And that is now increasingly being coupled with the growing impact of the monetization of AI features and functionality, which we are increasingly rolling out across the group. Critically, though, we are seeing a good balance of growth coming through from both new and existing customers, which is very much indicative of what we're seeing in terms of trends of both new customers and our existing base coming to us and looking to us to help them digitize workflows and make the most of AI in doing so.

Now in terms of how that shows up from an ARR perspective, as you know, we don't report that in detail at this stage. But what I will say is, as you know, we reported 2.5% sequential growth in the first 2 quarters of the year, which is ahead of where we were last year. In Q3, we are slightly ahead of 2%, which again is an acceleration versus this time last year, and that's been underpinned by the factors that I've set out. So that gives us good momentum as we enter the final quarter of the year and really underpins our confidence both in the durability of the growth moving forward, but also in the guidance that we've reiterated today. And Steve, do you want to pick up on the AI?

Yes. I mean I think a few things on AI. I think, first of all, I think the engagement from all customers, both existing customers, but also prospects, people are very focused on high curiosity, what can it do for me, making sure that they're making decisions which are sustainable over the long term. So obviously, things are changing very quickly. So particularly with future prospects people are very focused on if I purchase something, is this going to still be relevant in 2 or 3 years' time. So AI, you can trust. Trust within your workflows remains a very important point.

In terms of the types of workflows, particularly in mid-market, accounts payable. So over half of new Sage Intacct customers are taking the AI-powered accounts payable module. And also, we've said this in the past, but both small and midsized customers very interested in anything which allows them to detect anomalies. So using AI to detect unusual transactions and surface things that, therefore, a human needs to look at. And I think the final thing I would say is particularly as you look forward to the future, particularly in the U.K. and Europe, there are some regulatory tailwinds in the U.K. Making Tax Digital is really picking up for those smaller customers. And across Europe, we're seeing increasing traction around e-invoicing and all of these features are AI-powered.

We will now take our next question, please standby. Our next question comes from the line of Balajee Tirupati from Citi.

Congratulations from my side as well on another solid quarter. Two, if I may. Firstly, could you share how you see dynamics into fourth quarter and fiscal 2027? And I do appreciate base comp is tougher. But if I look at your 2026 outlook, would you say that with more than 9% revenue growth guidance, you're not ruling out 10% or higher growth this year? And then for second question, if you could update on how the price contribution in your growth is shaping in 2026. And as your Sage Accounting and Sage 50 customers for whom Copilot was rolled out earlier, as they come for renewal, are you seeing the desired uptake of Copilot and uptick in pricing?

Thanks, Balajee. So if I just touch first on your question around the guidance piece and give you a little bit of update on how we're seeing pricing and Steve can chip in, in terms of the customer behavior piece as well. So look, from a guidance perspective, as I said, we've seen a strong performance in the first 9 months, and that's in line with expectations. And we are entering the fourth quarter with a good level of momentum that's supported by a number of quarters of acceleration, and that's consistent with what we're seeing from a sequential growth perspective that I just set out. But as you referenced, as we head into the final quarter of the year, we do lap that tougher comparator, which is reflective of that particularly strong Q4 '25 that we delivered at the back end of last year. What that really does is it gives us a more balanced profile of growth for the full year, which is entirely consistent with what we said earlier on in the year, so consistent with what we were expecting. And that's what's reflected in the guidance that we're setting out today.

But really importantly, we are investing behind the opportunities that we see in the market, both in terms of growth for Q4, but also in FY '27 and beyond. So we've got good levels of confidence there. And then in terms of the pricing trends, as you know, we don't give sort of the individual components of renewal rate by value at this stage of the year. But the trends that I set out at the first half have really very much continued. We're seeing good balanced growth across new and existing and the renewal rates specifically continue to benefit from a combination of pricing and uptick and cross-sell and upsell and really importantly, that continuation of the low and stable churn.

At H1, we set a pricing contribution at around 5.5%, which was consistent with where we were in FY '25. And that really reflects the rollout of additional features and functionality and product innovation that we're delivering, including things like Sage Copilot and other AI capabilities. And as I said in the opening remarks, we now have over 600,000 volume customers who have AI-enabled features included. And what I will say in terms of the customer behavior like that, we're not seeing any increases in churn. We're very focused on the adoption piece, particularly with Copilot. And then as Steve touched upon, we are increasingly now seeing growing attach rates of stand-alone functionality to AP automation, tooling, in particular within Intacct and then also our agents that are being rolled out gradually. So the #1 priority there is making sure that people adopt, see the value and then that drives the increase over time. But what I will say, just to repeat, is we are seeing good uptick. We're seeing an uptick with cross-sell and upsell and the churn rates are quite stable. Steve, I don't know if you want to add.

Yes. I think the only thing I would add is if you sort of ignore the comparators for a minute because obviously, the Q4 comparators are a bit tougher. I think and you sort of focus on the sequential growth, what I would say is that we have a lot of confidence both in Q4 and as we look forward into FY '27 that we will continue to make good quarter-on-quarter progress. And I think to the earlier question from George, I think in terms of the broad base of that growth, it's important that we're seeing good progress in the renewal rate by value. So we're seeing good progress in terms of how our existing customers are adopting the features and functionality. And we've always said that when we increase prices, we really want to make sure there's a fair value exchange. And so we are delivering new functionality into that installed base.

But we also continue both in the mid-market with Intacct and X3, but also in small, particularly with embedded services. We continue to acquire material numbers of new customers. And I think on Sage 50, obviously, a very important franchise, and we have seen strong growth from Sage 50. It's a combination of making sure that we are able to deploy AI-enabled features into that installed base, but at the same time, offer those customers that want to take the path a fully cloud-native destination, whether that be migrating to a product like Sage Intacct or increasingly, in particularly in the U.K. and the U.S., we are offering a fully cloud-hosted experience for Sage 50 customers. So we're trying to make sure that customers are able to embrace the latest technology in the way that works for them.

We will now take our next question, please standby. Our next question comes from the line of Mohammed Moawalla of Goldman Sachs.

Congrats on the performance as well. Two from my end. Firstly, given the sort of revenue outperformance in Q3, how does that sort of change your thinking perhaps on the operating leverage and margin? So how should we think of kind of the pace of investment? Do you look to sort of still aim for that kind of 60 bps margin? Or could we see some outperformance, particularly for this year? And then secondly, just coming back to some of the product initiatives. I'm just curious, I know you've been pretty good at driving some pricing. But when you think about sort of the Intacct opportunity, where are you in Continental Europe in particular? Is that sort of still to come? And any other sort of initiatives that we should think of as we move into 2027?

Thanks, Mo. I'll give you a bit of an update on margin and Steve can give some color on the Intacct internationalization piece. So from a margin perspective, we now have a very consistent track record, as you know, of margin expansion, and we are in the fourth consecutive year of that expansion. And it is increasingly underpinned by a mixture of factors. So with the accelerating growth that we are now posting, as you point out, that's driving a good level of operating leverage, and that is sitting alongside an established pattern of operating efficiencies that we have now been building to over a number of years. But importantly, we now are also starting to see the increasing benefits of the adoption of AI internally, which is sort of enhancing that still. So all in all, that really gives us good capacity to invest for innovation and growth as you see today, whilst continuing to expand margin.

Now in terms of the trajectory moving forward, as I set out in my opening remarks, we expect margins to continue to trend upwards in FY '26 and beyond. But we expect to be at the bottom end of that 50 to 100 basis points range as we look to continue to invest while we expand the margin. So we're making good progress. But clearly, we'll give you more of a fulsome update overall in November. Steve, do you want to touch on the Intacct?

Yes. And I think just to reinforce the point that Jacqui makes, our priority is to continue to invest for growth. We see significant opportunities. And I think particularly if you take Intacct and X3 both in the U.K. and Europe, we're very focused on making sure that we are the winners. We are the #1 player in the mid-market in our core countries. I think we are now seeing very strong progress with Intacct in France. Germany is following behind that. But it is our intention that we think we will see very strong growth in the coming years from that franchise. We already have strong growth, again, particularly in France, but also across other parts of Europe with X3, which continues to grow strongly double digits. So I feel -- if I take a kind of midterm view across Europe with Intacct and X3, I feel pretty bullish.

And Mo, just to add on that in terms of -- again, we don't give the individual growth rates at this stage. But the first half, we reported growth in Intacct and [indiscernible] of about 20% and outside the U.S. around 50%. The trends there are...

We will now take our next question, please standby. Our next question comes from the line of Frederic Boulan of BofA.

Fred at Bank of America. Can you give us an update on the competitive landscape? Any developments to flag maybe in the U.S. with QuickBooks or from AI native players?

Sure. I think probably not that different really from the comments we made at the first half. It remains a competitive space. I think it's a pretty obvious point, but AI and the rollout of agents is moving very, very quickly. And whether you look at our established competitors or whether you look at our newer competitors, there's a lot going on. And I think my response to that is we continue to offer our customers and also our prospects almost the best of all worlds in that you get access to the latest technology because we have obviously developed our own AI models, but we also access the whatever intelligence is required from the various frontier models. And we build that into workflows and into products that you can trust. So we're orchestrating that for you.

So I think my summary would be it remains very competitive. It probably isn't any different to how it was a quarter ago. And in the end, the proof points are that our churn remains very stable. So we are keeping our customers and we continue to acquire new customers, both in the mid-market and also at the smaller end of the market. And actually, particularly at the smaller end of the market using our embedded services with a number of the fintechs that we signed partnerships with, we are seeing acceleration in the volume of our new customer acquisition. So I think those proof points show that we are competing effectively, but it's a very competitive space.

Yes. And Fred, I would just add to that in terms of sort of from a North American perspective, the biggest proof point there is the acceleration in the growth, which is 14% in the first 9 months. That's up from 12% last year. So that gives you a flavor for sort of the progress overall.

Due to time, we will now take our last question, which comes from the line of Toby Ogg of JPMorgan.

A couple from me. Perhaps just firstly, on the macro and the demand environment. Have you seen any changes here? We obviously saw towards the end of June, the ceasefire with the Middle East situation. And then in July, we've seen reescalation. Have you seen any impact on customer behavior or demand through this? And then secondly, just on Europe, it looks like that accelerated in Q3 relative to Q2. Any specific drivers that are helping lift the growth rate in Europe? And how sustainable do you think those drivers are?

Thanks, Toby. I'll give you a little bit of a flavor just to add to some of the points that Steve made earlier in terms of Europe, and Steve can touch upon the macro. Look, from a European perspective, this is an area that is obviously right for opportunity in terms of the compliance tailwinds that we're seeing in that market. But also as we're sort of building our presence with Sage Intacct, Sage Active, we do see opportunities there to drive growth, and we're well positioned in the market. In particular, in the first 9 months, we've seen strong performance from Sage X3 in our French business. We've seen a really strong performance in our Iberia business, as I touched upon in the first half. So overall, it's a mixture of strong compliance tailwinds that are coming through in Continental Europe, a growing level of cloud adoption, which has otherwise lagged other parts of the group historically and then us having good products in place that are sort of ready to start building traction and scaling.

Yes. And I would say on the macro, I think there's probably 2 parts to this. One is how people are impacting how they behave with us, i.e., does it make them less or more likely to make purchases from Sage. And then it impacts of how they see their own business. And what I mean by that is if I -- when I talk to customers, customers are -- depending on which industry they're in, they are very focused on the cost of materials, their input costs essentially. And because that's where the impact of the Middle East has the most impact for them. So whether it be oil prices driving cost of distribution, et cetera, et cetera, these are all inflationary pressures which our customers have to pay real attention to.

I think in terms of how they interact with us, in the past, I have said that sometimes when you get these kind of macro uncertainties, it can lead to people just taking a little bit longer to make decisions. The way I would see it at the moment is because these -- whether it be the Ukraine conflict or whether it be the war in the Middle East, I think people are kind of slightly looking through it now and saying, well, it kind of is what it is. It will come to the end -- come to an end in due course. But in the meantime, I need to get on with things.

And so if you link those 2 things together, obviously, part of what we're selling is not just compliance, keeping you safe, et cetera, but it's also offering you productivity. It's offering you efficiency. It's offering you automation of your workflows. And in some ways, the more people see those cost pressures, the more it encourages them to invest to find productivity to be able to absorb cost increases elsewhere. So I would say at the moment, the kind of pipeline of interest, the engagement is strong and is largely unaffected by the ups and downs of the wider macro environment.

Thank you. I will now pass back to the speakers for closing remarks.

So thanks, everyone, for joining the call today and for all of the questions. James and IR team will be available for any follow-ups today. And Steve and I look forward to speaking with you all again in November. Thank you very much.

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

Good morning, and welcome to Sage's results for the first half of FY '26. I'm joined today by Jacqui Cartin, our Chief Financial Officer. I'm going to start by focusing on 3 key messages this morning.

First, Sage had an excellent first half as we continue to expand the value that we deliver to small and midsized businesses. We achieved broad-based double-digit revenue growth, driven by strength in our key products, and we accelerated our renewal rate, added new customers and increased ARR by around GBP 275 million year-on-year. At the same time, we expanded margins with mid-teens growth in both operating profit and EPS. And we generated strong cash flows, allowing us to invest for the future and continue to deliver attractive capital returns.

Second, we're driving growth through AI, strengthening our competitive position and making Sage inherently more valuable. In an agentic world, AI depends on trusted systems of record like Sage to reason and act, making our role more critical, not less. We're building AI for people for whom accuracy and compliance are paramount. We're making our products more powerful by embedding trusted intelligence directly into customer workflows in a way that's governed and transparent by design, and we're scaling these capabilities fast with AI-powered features now available to over 500,000 customers across the group. Helping finance teams accelerate cash flows, close the books faster and confidently turn insight into action. And finally, we're growing not only our revenue but also our market opportunity. By building an agentic intelligence layer into our solutions, we're expanding what our software can do, addressing more financial tasks and higher-value use cases.

As we extend our platform further into finance and operational workflows, we're reaching new customers with more varied and complex needs, and we're supported by long-term structural tailwinds as more SMBs are created, more of them digitalized and compliance needs increase. Taken together, this is driving strong durable growth for Sage.

Now a key question for the market is which businesses will succeed in an agentic AI world. So let me explain why Sage is well positioned to win. First, Sage is embedded in our customers' mission-critical workflows. We operate the system of record for finance, for HR and for payroll for millions of SMBs. These are regulated, high-stakes environments where nearly right is wrong. Accuracy and compliance are legal requirements and customers cannot afford to take risks. They rely on solutions that work from a vendor they trust.

Second, we combine public models with our own domain-specific models built on proprietary data and deep domain expertise. Our AI is trained on billions of real financial transactions across industries, regions and regulatory regimes, and applied through decades of practical experience. This enables a level of performance and customer outcomes that general purpose models alone cannot deliver. Third, we're investing in trust as an operating standard. In regulated financial workflows, trust is a prerequisite for adoption. So our agents are designed for assurance, enabling governed outcomes that are transparent and verifiable. This allows customers to move faster and adopt AI with confidence.

And finally, we have a powerful ecosystem and distribution advantage. Our global network of partners, including accountants, developers and resellers extends the reach of our platform and deepens customer relationships, helping us to serve more SMBs across our markets. And with new customers and partners joining, our ecosystem is growing. These strengths, embedded workflows, domain expertise, trusted intelligence and a scaled ecosystem are very hard to replicate at scale. But it is exactly these strengths that gives Sage a clear advantage as AI becomes more deeply embedded into how businesses are run. In a market full of AI promise, Sage's advantage is trusted intelligence embedded into core financial workflows, and that's what drives adoption and performance.

So let me now hand over to Jacqui, who will take you through our financial performance and outlook.

Thanks, Steve. We've delivered a very strong first half with accelerating revenue growth, expanding margins and strong cash generation. At the same time, we've continued to invest in our products, particularly in AI across finance, HR and payroll, and that's increasing the value our customers get from Sage. And importantly, that investment is translating into faster top line growth as our customers adopt more functionality on the platform, and they rely on Sage to run a broader set of their workflows. And you can see that coming through clearly in the numbers.

Revenue grew by 11%. This reflects strong demand from existing customers alongside continued momentum in new customer acquisition. Operating margin expanded by 80 basis points to 23.9%, driven by operating leverage and disciplined cost management, with productivity increasingly coming through from AI and automation. And together, that is translating through into earnings, with EPS up by 16%. And cash conversion was 116%. This reflects the strength of the subscription model and disciplined working capital management. And that same strength is reflected in our ARR.

Renewal rate by value increased to 102%. This reflects strong retention alongside targeted price increases and higher sales to existing customers through tailored add-ons. And as Steve mentioned earlier, we're also seeing the benefit of the rollout of Sage Copilot and our specialist agents as we embed AI into customer workflows and the systems that they already trust to run their businesses.

Alongside this, new customer acquisition increased to GBP 200 million, up from GBP 190 million at H1 last year. And overall, ARR increased by around GBP 275 million to GBP 2.7 billion, and that's up 11% at the half year.

Looking now at the P&L. Total revenue grew by 11%, underpinned by recurring revenue, which also grew at 11%. And as a reminder, 97% of our revenue is now recurring. That really speaks to the quality and resilience of our business model. Operating profit grew 15% to GBP 326 million. reflecting strong revenue growth and margin expansion. Profit after tax increased by 10% to GBP 224 million, driving underlying EPS growth of 16% to 23.7p. And we've increased the interim dividend by 8% to 8.05p. Underpinning all of this is the continued expansion of our cloud portfolio, and this remains a key driver of growth.

Sage Business Cloud revenue grew 15% in the first half, with acceleration across both cloud native and cloud connected. Cloud native increased by 25%. This was particularly driven by Sage Intacct across both new and existing customers. And cloud connected growth, that was led by Sage 50 where our customers are benefiting from bundled functionality, new AI features and continued migration to the cloud.

So with all of that, subscription penetration is now at 84%, and this continues to increase. This performance is also broad-based across our regions. In North America, growth accelerated to 14%. The U.S. was particularly strong here with 15% growth. Here, Sage Intacct continues to build momentum, particularly through our vertical go-to-market approach. And we're seeing strong demand across sectors, including not-for-profit, construction and financial services, alongside increasing adoption of AI-powered modules, such as accounts payable automation. Growth in the region is also supported by Sage Intacct Advisory. This enables outsourced accounting and virtual CFO services on our platform, and we also saw good growth in Sage 50 as well as in payroll and HR and Sage 200. And in Canada, revenue grew by 9%, with Sage Intacct continuing to scale rapidly, alongside further strength in Sage 50. And in the UKIA, we saw sustained momentum with all regions growing by 10%.

Sage Intacct continues to perform strongly, and this was supported by good execution across our partner ecosystem. Sage 50 also made a strong contribution, accelerating as we bundle additional capabilities, including Sage Copilot to deliver higher-value solutions to our customers. Our small business suite, including Sage Accounting performed well, and we're also building momentum in Sage Sole Trader and embedded services, where we are partnering with U.K. banks and fintechs to win customers earlier in their life cycle and support making tax digital readiness.

Across Africa and APAC growth was driven by strong performance in Sage Accounting, Sage Payroll and Sage Intacct. And in Europe, revenue grew by 7%. France also grew by 7%, with strength in accounting solutions, including Sage X3 and Sage 200 alongside increasing traction in Sage Intacct. And in Iberia, revenue grew by 9%, driven by Sage 200 and solutions for Accountants, which was supported by compliance tailwinds in this region. Sage 50 also contributed through strong retention as well as higher pricing.

And finally, Central Europe, which grew by 4% and led by Cloud HR and payroll and Sage 200, primarily through sales to existing customers, along with early traction in Sage Intacct. So across the business, we're focused on delivering this growth efficiently. As we scale, operating leverage, disciplined cost control and productivity gains are allowing us to invest and expand the margin. And in the first half, that translated into a margin expansion of 80 basis points to 23.9%. G&A was broadly flat year-on-year at around 8% of revenue. And at the same time, we continued to invest. R&D remained stable at around 15% of revenue, and we're making efficiency gains here and reinvesting to accelerate delivery. And sales and marketing spend, that was around 40% of revenue, reflecting targeted investment for growth. So overall, our platform-led model and increasing use of AI is enabling scalable and efficient growth. And all of this flows through into earnings.

Operating profit increased by 15%, driven by revenue growth and margin expansion. Net finance costs were higher following recent debt issuance, while the effective tax rate remained stable at 24%. Taken together and including the benefit of share buybacks, EPS increased by 16% to 23.7p. And cash generation remains strong. We generated GBP 378 million of cash from operations in the first half, with cash conversion of 116%. Free cash flow was GBP 241 million, net of interest and tax. And this cash generation underpins our robust financial position. We have GBP 1.1 billion of available liquidity, providing both resilience and flexibility. Our leverage ratio stands at around 2x, which is at the upper end of our target range of 1 to 2x and following recent share buybacks. And all of that brings me to capital allocation. Our priority is organic investment, and you see that coming through in our continued R&D spend.

Alongside that, M&A remains an important growth lever. We're focused on tuck-in acquisitions that strengthen the portfolio and add capability where we need it. And you've seen that in the first half. We've acquired Criterion, which strengthens HR and payroll for Sage Intacct in the U.S. We acquired Akao, building out e-invoicing in France. And post the period end, we acquired Doyen AI which supports faster AI-enabled implementations. And at the same time, we remain committed to shareholder returns. We continue to grow the dividend in line with our progressive policy, and we're returning surplus capital. with GBP 600 million of share buybacks announced and around GBP 350 million completed during the first half. So overall, we're allocating capital to grow the business, build capability, and invest for the future while continuing to deliver strong returns to our shareholders.

And finally, turning to the outlook. Building on the momentum that we have in the first half, we now expect organic revenue growth for FY '26 to be above 9%. And we expect operating margins to continue to trend upwards in FY '26 and beyond as we focus on efficiently scaling the group. So overall, it's been a strong first half. We're executing well. We're seeing the benefit of our investments come through, and we're delivering growth that is both sustainable and disciplined.

And with that, I'll hand back to Steve.

Thanks, Jacqui. Our strong financial performance has been driven by sustained focused execution and the strategic choices we've made. This includes focusing early on AI long before it became a boardroom topic. We've been growing our specialist teams of engineers and data scientists, building infrastructure and putting governance in place for nearly a decade. We were the first major accounting software provider to include real-time AI-powered outlier detection and one of the first to launch a commercial copilot.

And through successive waves of technology, predictive automation, generative and now agentic AI, we've moved at pace to increase the value that we deliver to customers. Our strategy is rooted in our customers' needs, and they consistently tell us they want technology that solves real problems, works reliably and can be trusted in regulated high-stakes environments. In research backed by Sage, over 70% of finance leaders said they would reject an AI system if it cannot explain its outputs.

Assurance is at the heart of finance, and that's why our focus is on building AI you can trust based on 3 pillars: confidence. Confidence means that our AI outputs are explainable and verifiable. Control. Control means agents operate within customer-defined guardrails with human approval where it matters, and accountability. Accountability means that actions are logged, traceable and auditable. Now last month, we were with over 4,000 customers and partners at our Sage Future Conference in San Francisco. At that event, Scott Krug, SVP and CFO of the New York Yankees told us he was proud that Sage gives his team clarity, insight and the confidence they need to make the big calls such as when they sign players for hundreds of millions of dollars.

This is how we meet the real-world needs of CFOs, controllers and business owners and why customers want to adopt AI through Sage. Enabling our AI strategy is the Sage platform, the secure, scalable foundation that connects our products, customers and partners. By centralizing identity, data and security through the platform, we can innovate quickly and deploy AI consistently across products and geographies. And as adoption increases, the scale of our intelligence engine is growing rapidly. In November, I told you our models were generating 3.5 billion predictions annually. Since then, that number has already gone up by around 25%. But scale is only part of the story.

We also focus relentlessly on accuracy and cost. As a result, some of our models cut error rates in half and are significantly more cost-efficient compared to off-the-shelf alternatives. This engine is powering our solutions like Sage Copilot, which has delivered more than 75 million insights and answered over 300,000 customer questions in the last year.

Importantly, our agents are live and delivering real value for customers today. Take our close agent, which accelerates the month-end close. It acts as a digital co-worker guiding finance teams through the close process. Although it only launched in November, it's already live with over 500 customers. Our assurance agent proactively monitors financial data in real time, detecting outliers and catching anomalies before they're posted. In the last year, it identified over 6 million potential errors, enhancing accuracy and trust. And our accounts payable agent handles invoice processing, approvals and reconciliation with speed and accuracy for customers across the group. It's processing invoices worth over GBP 3.3 billion per month. That's up nearly 3x in the last year, saving customers more than 5 million hours of work.

Now you can see other examples of agents that we've launched on the slide, and there are more to come. These are practical tools, delivering tangible time savings, more accuracy and better outcomes for customers. But don't take it from me. Let's hear from some of our customers.

[Presentation]

So as you've heard, our AI is delivering significant benefits, saving customers more than 100 hours a month on tasks that used to take days and freeing up time to plan and to grow. But it's not just about agents built by Sage. We're also building our agentic ecosystem to increase innovation and customer choice. Since launching the Sage AI Gateway, we've received over 300 applications to develop or deploy third-party agents on our platform. This enables solutions like DataBlend to integrate with Sage Copilot, bringing insights directly into finance workflows. Through our MCP server, partners can build and connect intelligence that extends and enhances Sage solutions deployed through our agent marketplace. And we've introduced more flexible revenue models, supporting revenue share and consumption-based pricing to drive adoption and monetization.

And we're also using AI to accelerate deployments for new customers, making it easier and faster for them to switch to Sage. In partnership with PwC, we're embedding intelligence directly into the implementation process, removing manual effort across design, configuration and testing. And following our acquisition of Doyen AI, we're making data migrations faster and more accurate, reducing complexity and speeding up time to value. And finally, through an expanded collaboration with AWS, we're accelerating the migration of customers from connected solutions like Sage 50 to a cloud-native environment. This supports faster cloud adoption, greater AI readiness and stronger lifetime value. These capabilities are driving revenue growth, and expanding our market opportunity. We're building an agentic intelligence layer to make our products more powerful, productive and valuable. We're extending our platform to automate more financial tasks, growing in areas like accounts payable and receivable, expense management and payments.

And we're expanding vertically through industry-specific solutions and modules. All this is enhancing the value that we deliver to our customers, driving growth in key products such as Sage Intacct with U.S. ARR up by more than 20%. Outside the U.S., ARR grew by about 50% with a particularly strong performance in the U.K. and in Sage X3, where we've just launched a cloud-native version with AI capabilities, growth across all regions was around 15%. And beyond the mid-market, we're also investing in the small segment to drive platform growth.

As Jacqui said, we've made strong progress, delivering embedded services into the financial apps and platforms that small businesses already use every day. Partners include major banks and fintechs like HSBC, Monzo, Tide and SumUp who trust Sage to help drive innovation. Along with strength in Sage Accounting and Sage Sole Trader, this is leading us to win more new customers earlier in their life cycle.

We are also transforming Sage itself through AI and automation. Our use of AI tools in R&D is now well established, enabling our engineers to save over 160,000 work hours in the last 6 months, helping to drive faster delivery. And in sales, AI is saving time for our go-to-market teams and improving lead quality and conversion rates. And in customer support, it's handling 4x more interactions than a year ago and driving a 70% resolution rate at lower costs. More broadly, every leader across Sage has been tasked with embedding AI into their function, helping to increase productivity and efficiency.

So let me recap on how Sage is creating sustainable long-term value. We do this by growing revenue and by doing so more efficiently over time. We have a clear strategic focus, strong brand, global products, broad geographic reach and deep domain expertise, underpinned by trust built up over decades. We're committed to meeting our customers' needs, including by delivering AI you can trust, centered around confidence, control and accountability. And our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin expansion.

So to close, we delivered an excellent first half performance, driven by focused execution, and we're carrying strong momentum into the second half. We are using AI to create more value for customers and for Sage, delivering trusted solutions at scale today, and our market opportunity continues to grow as we broaden our reach, scale global products and engineer intelligence into core business workflows. Thank you for watching, and Jacqui and I would be delighted to take your questions.

[Operator Instructions] We will now go to our first question. And our first question today comes from the line of George Webb from Morgan Stanley.

Steve and Jacqui, well done on the strong numbers. A couple of questions, please. Firstly, as we look back on that robust growth in the first half on both the revenue side and on ARR, could you maybe just piece out a little bit on the key drivers of that growth acceleration and how you'd frame the momentum you're seeing versus the macro and demand backdrop? And then secondly, as you pointed out, the renewal rate by value ticked up to 102%. Could you perhaps break down for us what you've seen in the components of that in the first half between pricing churn and cross and upsell, and the extent to which you see that uptick in the renewal rate is sustainable as you look forward?

Yes. Thanks for the question, George. So if I just give you a sort of high-level overview of how we're seeing the acceleration drivers, and then I'll give you a little bit more color in terms of the renewal rate by value piece. So yes, it's been a good strong first half performance. We have seen underlying total revenue and ARR growth of 11%, which is very much in line with our plan at this stage. As you know, we exited FY '25 with strong momentum, and we have carried that through the first half, which is pleasing. And that is underpinned very much by strong underlying demand in the business from our customers and also high-quality execution.

And importantly, we are now starting to see the benefits of AI monetization coming through. And you can see that reflected in that uptick in renewal rate by value, which I can walk through in a bit more detail. But within that, I would just call out some regional drivers. So North America, we accelerated there to 14%, up from 12% in FY '25. And that's really supported by the investments that we have not been making over the last 18 months or so in our vertical strategy there, our go-to-market motion and our leadership in that territory. And then alongside that, in the UKIA, we saw growth accelerate to 10%, up from 9% in FY '25. And across both of these regions, we have seen strength across Sage Business Cloud. So with good growth coming from both Sage Intacct and Sage 50 in those territories. So overall, a strong performance with broad-based drivers across the piece and gives us good confidence in that guidance that we've set out today and the durability of the growth moving forward.

And if I just give you a little bit more color on renewal rate by value, that has ticked up to 102%, up from 101% in the prior year. Within that, a few things to call out. The H1 contribution from pricing was around 5.5%, which is in line with where we were in FY '25. And that very much reflects the continued fair value exchange for -- as we roll out product enhancements and additional features and functionality in those base product offerings. That includes like Sage CoPilot, which we launched in the U.K. during FY '25, and we also launched in the Intacct business during the first half of this year, and that's included in the pricing uptick.

And then alongside that, we have seen an uptick in cross-sell and upsell as we've seen additional bundled functionalities of adjacent capabilities, things like expense management. And then alongside that, we also are adding AI functionality like AP automation, which we referenced in the presentation, which is being charged for on a stand-alone basis. And that also sits together with a slightly improved churn, which comes together to give us good durable and robust growth, and gives us confidence as we move forward and importantly, really underpins the confidence that we have in the guidance that we've set out today.

That's great. Perhaps just one final question. It was interesting to see the Doyen AI acquisition, obviously, a little bit different compared to kind of a tech tuck-in. Could you just talk a little bit about where you expect to see the benefits of that?

Yes, this is Steve. So thanks for the question. It's really around enhancing migration tools. So whether that be bringing customers in from other providers and migrating them to Intacct or whether it be our own Sage 50 base and migrating those customers also to Intacct. So using Doyen and also our own internal capabilities to make those migrations and implementations run smoother.

The question comes from the line of Frederic Boulan from Bank of America.

Two questions, please, on my side. Firstly, on your Gen product pipeline, any -- it would be great to have an update on what's next after the U.K. and the kind of Intacct offering? Any specific areas where we should expect further launches in the coming 12 months? And if you can spend a bit of time on the monetization, I mean, you mentioned different model there? And specifically on the pricing side, any specific impact you can call out?

And then secondly, on the competition side, if you could give us an update on competitive intensity, any changes there, any increasing pressure from some of the Gen AI native players that seems to be more active in some segments of the market, including software?

Sure. Thanks for the question. So the things that we will watch out for really over the next 12 months is to the products like Intacct and X3, both of which we have already obviously have a strong presence in markets like the U.S., the U.K., but also South Africa, Australia, et cetera. We are now -- we have launched in Europe. So we've always had X3 in Europe, but we have now fully launched Sage Intacct in both France and Germany. But those products take a while to get some traction, get your reference sites, that sort of thing. So continue to watch for progress there and also obviously continuing to enhance the agentic capability of both of those products, although we already have launched things like the close agents, things like AP automation, et cetera, but you can expect to see more of that.

And then also on the smaller side, we're particularly pleased with the progress that we're making on embedded services. So in the U.K., signing up with the likes of HSBC, Monzo, SumUp, Tide, et cetera, you'll expect to see more of that. And that is something that we will also do in Europe. And then in terms of the monetization, look, I think along with what a number of other players have said in the industry, I think it's going to be a combination of things. You're going to see us using it within the existing packages to increase prices by offering more functionality, so embedded within the suite, if you like. But you're also going to see more consumption-based pricing on top of that. So in Intacct, for example, we are already monitoring usage, which we tend to offer within bands. So you get a certain amount of usage within Tier 1 of the package, but if you increase your usage, well, then you'll need to pay overage charges or go into Tier 2, et cetera.

And so I think you're just going to see that continuing to develop. And then as far as competition is concerned, look, I think we get asked a lot about the competition from native Gen AI players. And of course, there are a number of players coming on to the scene. But the thing I always emphasize is, we are also native AI, right? We have been working on AI for the last 8 years. We set up the Sage AI labs when I first became CEO. We're doing what we think customers want, which is we're embedding AI into their workflows, into their ways of working, and we're delivering to them solutions that they can trust and that are producing accurate outcomes. And I think my kind of final thought, which I will always come back to is in our industry, nearly right is wrong. So whether it be payroll, whether it be financial, it has to be right. And these systems and processes are run by finance professionals who have personal responsibility for making sure that they're right.

And so the combination of the large language models with our domain expertise and with our trusted platform is what produces that outcome. And as you can see from our results today, that people continue to come to Sage for those trusted solutions.

Your next question today comes from the line of Charles Brennan from Jefferies.

Can I just do 2 quick questions? Firstly, over the past 12 months, we've seen a very nice progression in both NRR and NCA to drive the improving growth. From here, can you talk about the growth drivers across both of those components going forward? Do you think it should be balanced across both of those? Or is it going to be biased more to one or the other? And if the growth drivers are going to be balanced across both of those, is it then logical to believe that we've been in a 9% to 10% growth cadence for the last few years. But if we're seeing contributors to growth across both of those, are we at the point where we can start to break out of that 9% to 10% range?

And then secondly, just as a quick number follow-up, you're normally pretty good at giving us a sequential ARR progress. I haven't been able to calculate it myself yet this morning. Can you just give us what the Q2 sequential was?

Thanks, Charlie. I'll take the first part, and then I'll hand it over to Jacqui, who can make some more comments and talk about the sequential. I think look, on the drivers, yes, I see it as balanced. I think both are really important. And I think it's important both at this kind of smaller end of the market and also in the mid-market that we continue to attract new customers. But it's also very important that we continue to offer value to our existing customers and get them to adopt the latest technology. So I think the balance is the right way to think about it.

I think you know without giving -- Jacqui will tell me off if I give any medium-term guidance. So this is obviously an aspiration. But you've heard me talk about it before. I'm determined to get Sage into a place where we are consistently growing double digit and doing so in the balanced way that you described. But Jacqui, any further thoughts?

Yes. If we take a step back at the sort of the broader guidance that feeds into that. So Steve references, we've had a strong first half. And all of those factors really do set us well as we enter the second half, and we are very focused on that balanced growth and the opportunity that, that creates across the different parts of our customer base. And those factors are very much reflected in the modest upgrade to guidance that we've set out today of above 9%. But of course, keep in mind that we do start to lap slightly tougher comparators in the second half of the year.

So that guidance for FY '26 very much reflects the balance of these factors. So good strong progress. But clearly, we will continue to update you through Q3. And then in terms of sequential growth, yes, so we posted 2.5% sequential growth in Q1, which was up from 2% in the same period last year. And in Q2, it was also around 2.5% with a slight acceleration versus the same time last year, underpinned by the factors that we have set out. So that gives us a good strong momentum and underpins that guidance that I've just reiterated.

Your next question today comes from the line of Balajee Tirupati from Citi.

Firstly, congratulations on your results and 2 questions from my side, if I may. On market view, I appreciate the elevated degree of uncertainty. But based on the demand and pipeline view you have and the building AI commercialization tailwind in place, do you see Sage is operating in a stable, accelerating or moderating environment? And in that context, is the updated fiscal '26 growth outlook is conservative or realistic?

And the second question on AI side, and Sage has retained momentum in terms of announcements across AI value chain from AI agents across workflows to development tools as well as new commercial models you announced earlier. Could you kindly share insight on how the adoption from your customers as well as partners evolving versus your own momentum? And in that context, a year after commercial launch of Copilot, if the group's go-to-market motion focus is still primarily towards supporting adoption or monetization of AI features building pace in parallel as well?

Yes. Thanks for the question. So I think the way I'd characterize the market is, I think if you take a multiyear view, my view is that the TAM that we -- the TAM is expanding. But it's expanding in an inconsistent way across different markets, and different cohorts of customers. So really -- and this kind of leads into your second question. We're going through a phase where people are very interested in the new technology and the new capability that's available.

But going back to the mission-critical accuracy, compliance, et cetera, it means that people take a somewhat cautious view of trying things and seeing how it works out. And so we are focused on making functionality available to people. So you take Copilot and the AI features, we have deliberately made that available as wide as possible. And then what you're trying to do is to get people to try the features, to adopt things like AP automation, the close agent, et cetera. And then as they use it more and you can embed more features, then the monetization follows that. So we have some monetization because as we've said in the press release, we have over 500,000 customers that are using AI features, including Copilot. You can see in the renewal rate by value that we're getting some uptick, some of which is caused by the availability of those AI features.

But if I -- to answer your second question directly, the prioritization is to make the features available, get customers to adopt them. And I'm reasonably patient about the pace at which that then monetizes. So our #1 priority is not to extract as much value as we can from our customers in the short term. It's to get them to use the technology for them to gain the value and then we will monetize over time, which gives me a lot of confidence about our medium-term outlook.

Our next question today comes from the line of Toby Ogg from JPMorgan.

Perhaps just coming back again just on the AI monetization side. Could you give us a sense for what sort of contribution to growth you're seeing now from AI specifically? I know, Jacqui, you talked about 5.5% pricing contribution in H1, which is similar to FY '25. So what sort of contribution from AI are you seeing? And then just on the organic ARR trajectory, that's obviously been accelerating now for a number of quarters. Any reasons to think that trend wouldn't continue? I know Q4, you have a more difficult comp. But as we think about the next quarter or so, any reasons in Q3 to think that wouldn't continue to accelerate?

Yes. So I'll make a couple of comments. I'll hand over to Jacqui. I think on the AI monetization, I think the way to think about this is we don't sort of go to our customers and say, look, you must buy this AI module from us, i.e., we don't say come and buy AI. What we say is that we have technology, AI and other technology, which enables us to deliver to you things that save you time, give you insights, et cetera, et cetera. And so I think the way to think about this is it's making an initial contribution in that it is making, particularly for existing customers, that renewal rate, it's underpinning that renewal rate. It's giving people confidence that by staying with Sage, they are accessing all of the capability and latest solutions, right?

So our competitors when they're obviously selling against us, particularly the newer competitors, they will say, "Well, you need to come to us because we're AI native. We have all the technology. And if you stay with someone like Sage, you're not going to get access to the latest technology." That is simply untrue. So we have access to all the same technology that everybody else does. We're using the large language models. The big advantage we have is that we combine that with our domain expertise and all of the data, et cetera, that we have so that we produce these solution you can trust. Now over time, we will implement more and more agents, which we then seek to monetize more directly. So we will be able to point to, look, this particular agent, this particular agent.

Whilst it may -- again, we may do some bundling, but we'll be able to say that is driving a particular growth. But what we're doing at the moment is, we're using it to enhance the overall attractiveness of being with Sage and giving you the confidence that you will get the trusted solutions that give you what you need going forward. And so the level of direct monetization is very modest. There's some because we are charging for AI. We are charging licenses. We're charging developer licenses. We are charging some consumption. But it's relatively modest. The way to think about it is it is underpinning the confidence for the future.

Yes. And I think, Toby, the other thing to point to here is that the acceleration that you're seeing here today, there is, as Steve said, the component that is coming from this AI monetization, and it is growing. But it is also supported by those trends around demand from our customers as they look to us as their trusted system of record to effectively say, help me get those productivity benefits. And you're seeing that reflected in those territories where we have rolled out that functionality, Copilot and these sort of stand-alone agents and AP automation-type capabilities in both North America and in the U.K., and we've seen the increase in the growth rate in those territories.

And alongside that, as I referenced earlier, a slight reduction in churn as well. So those factors are coming together to support acceleration in trajectory. And then in terms of the go-forward trajectory on ARR, as you know, we don't guide to ARR. But just to reiterate what I said earlier, the modest upgrade in the guidance that we've set out today to above 9%. It balances the momentum that we've talked about in today's call, together with the impact, as you referenced, of those tougher comps in Q4 of last year with that strong exit rate that we had. But importantly, we are making good progress in the early stages of Q3, and that underpins the confidence in the guidance that we've set out. But of course, we will come back and give you further detail in Q3.

Thank you. That is all the time we have for questions. I will now hand back to Mr. Hare for closing remarks.

Yes. So as always, just thank you very much, everyone, for dialing in. And obviously, Jacqui and I look forward to seeing you again in July when we report our Q3 results. But today, thank you very much.

Good morning, everyone. Welcome to the Q1 Trading Update Call for The Sage Group. Your speakers today will be Steve Hare, Chief Executive Officer; and Jacqui Cartin, Chief Financial Officer. [Operator Instructions] I would now like to hand the conference over to Mr. Hare. Please go ahead.

Thank you very much, and good morning to everyone. And as always, thank you for joining us. I'm really pleased to be joined this morning by Jacqui Cartin, who is our new CFO, as you know, started on the 1st of January and without further ado, I'm going to hand over to Jacqui, who's going to talk us through the Q1 performance, and then we'll open up for some questions. So over to you, Jacqui.

Thanks, Steve. Good morning, everyone. So I'm pleased to say that Sage has made a strong start to the year, with growth strengthening across our key regions. As a result, total revenue for the group increased by 10% and to GBP 674 million. In North America, revenue grew by 13% to GBP 304 million. That was driven by a strong performance from Sage Intacct and was supported by continued growth in Sage 200 and Sage 50.

In the UKIA region, revenue increased by 10% to GBP 194 million. This reflects further rapid scaling Stage Intacct and strong growth in Sage Accounting and Sage Testing. And in Europe, Revenue increased by 7% to GBP 176 million, with good levels of growth across our pointing, HR and our Payroll Solutions.

I'll turn now to performance drivers. Sage Business Cloud revenue grew by 15% to GBP 574 million. This reflects good strategic progress and continued investments in our Cloud and AI acquired solutions. Within this, Cloud-native revenue grew by 24% to GBP 253 million, supported by continued strength in new customer acquisition.

In [indiscernible] also delivered good line of growth, driven by both existing and new customers. Recurring revenue, that increased by 10% to GBP 655 million, reflects continued momentum in ARR. This includes subscription revenue growth of 12%, which takes subscription penetration to 84%. And on an organic basis, total revenue for the group increased to GBP 673 million, with growth accelerating to 10%.

And finally, turning to the outlook. Underpinned by a strong first quarter, we reiterate our guidance for the full year. Organic total revenue growth is expected to be 9% or above, and we expect operating margins to continue to trend upwards in FY '26 and beyond. So to conclude, Sage has made a strong start to the year. We're executing our strategy. We are continuing to innovate across our platform. And in turn, this is driving an efficient, sustainable growth for our stakeholders.

Thank you very much. Steve and I will move be delighted to take questions.

[Operator Instructions]

And the questions come from the line of Adam Wood from Morgan Stanley.

If I could just first of all, could you give us a little bit more color. We've obviously seen acceleration in the business both in the fourth quarter and again in this quarter? Maybe just give us a little bit more insight into what's changing in the product level to give us that acceleration. And I'd be particularly interested in impact in the U.K. on getting anything you can help us with on scale and growth for that because that obviously seems to be impacting the business nicely now.

And then secondly, you talked about continued momentum in the ARR. We obviously saw acceleration there in the fourth quarter with a reasonable read of that comment that we've seen a further acceleration in ARR in the first quarter, please?

Thanks for the question, Adam. So I'll just touch upon first the overall acceleration piece and then I'll pick up on the ARR piece. So yes, it's been a good first quarter. We're very pleased with the performance. And importantly, it's very much in line with our plans at this stage of the year. If I can give you a little bit more color regionally, in North America, total revenue, as I said, is up 13%, and that's in comparison to 12% in FY '25. Underpinning that was a strong performance in Sage Intacct with good growth across new and existing customers. And that has been supported by strong demand and high quality sales execution in the North American business. And as we referenced at the year-end, we're now really starting to see the investments that we have been making in our go-to-market strategy, our vertical strategy and our people in the North American business really starting to pay off, and that is helping drive the acceleration that you're seeing here today.

And alongside that, as we said in the announcement, we've seen continued momentum in Sage 50 and Sage 200. So good broad-based growth in the North American business, driving that acceleration. And then if we touch upon the UKIA region, total revenue, that was up by 10% versus 9% in FY '25. And I should point to that as being supported by rapid scaling of Sage Intacct, which is now really starting to pick up traction. And in particular, we've seen strength in the NCA motion in the first quarter of the year, which is really starting to support that. And we'll give you a bit more color around the growth in that in -- at the first half, but the good performance there.

But I would also call out in the UKIA region, the strength that we've seen in Sage Accounting and Sage 50 in particular, where we've seen really good levels of cross-sell and upsell, which have contributed to that acceleration that you've seen overall in UKIA alongside the Intacct strengths that we referenced.

And then finally, in Europe, solid growth there of 7%, broadly consistent with where we were in FY '25 and in line with our plans for this stage of the year. We've seen broad-based growth there, but with particular success in Sage 200 and Sage X3 in this territory, and I would call it a good performance, in particular from Iberia. So all in all, it's been a good start to the year. We've got good momentum as we enter the second quarter, and that very much supports the guidance that we set out for the full year '26.

And then if I touch upon how that sort of links through the ARR performance. As you know, we don't formally report ARR at the first quarter. But as you've seen in Q4 of last year, we exited with strong momentum, and that has very much carried through into the first quarter in the ways that I've just touched upon. So sequential growth for Q1 was around 2.5%, and that's ahead of where we were this time last year at around 2%. So a good start to the year gives us positive momentum. And as I say, really underpins the confidence that we have in the guidance that we've set out, but clearly, we'll give you and a more fulsome update at H1.

And the questions come from the line of Toby Ogg from JPMorgan.

Steve and Jacqui, maybe just on the organic recurring revenue growth. So we've seen that accelerate now for 2 quarters in a row. Any particular reasons to think that trend wouldn't continue? And then how much would you put this down to actual AI monetization driving incremental revenue upside versus that underlying momentum you're seeing in Intacct across the U.S. and the U.K. versus what you're then seeing across the Cloud-connected portfolio?

Thanks, Toby. So if I can give you a little bit of color as to how we're thinking about the guidance and the forward momentum in the business, and Steve can touch a little bit upon the AI monetization strategy. So as I touched upon, and you can see, we've entered the year with really good momentum, and that's carried into Q1. And we have seen strong demand and high quality sales execution across the business as a whole, which is promising. And that really sets us up well for the remainder of FY '26.

Now as you know, as we head into the second half of the year, we do start to lap slightly tougher comparators. And so the guidance of 9% or above that we set out today really reflects a balanced view of these factors. The Q1 very much sets us up well to deliver that guidance and gives us good confidence, and we've got strong momentum as we exit.

Steve, do you want to give a bit of color on the monetization?

Yes. I mean I think the way to think about it, Toby, is it's very early days. I would say that most of the momentum that you're seeing in the last couple of quarters comes just from the underlying performance of the business. We have got some early monetization because we rolled out Sage CoPilot bundling that into some of the plans which we then use to put an uplift through in terms of the price of those plans. But we haven't really started yet in terms of any monetization, for example, of individual agents that we're starting to launch. So very much early days. I think you should read this as strength in the underlying performance of the business.

And Toby, if I can just add, if we don't give the individual components of ARR at this stage of the year, but as a reminder, in FY '25, the contribution from pricing was around 5.5%. And and that was supported in particular by the rollout of AI and CoPilot in the U.K. business. So as we continue to roll out more features and functionality and enhancements through AI capabilities, we deliver more values. And in some instances, we will take price in that way. And in the first quarter of the year, we have also rolled out CoPilot and the intelligent finance agent in the U.S. and U.K. Intacct businesses in the first quarter. And that sits alongside the strong cross-sell and upsell that I referenced as well as really good levels of NCA. So those combined set of factors sets us up well for the rest of FY '26 and underpin the strength of that guidance.

And the questions come from the line of Michael Briest from UBS.

Just in terms of the benefit you talked in Q4 from moving to multiyear deals with Intacct in the U.S. Could you maybe give some sense of how that affected growth in Q1? And your expectations for the year? And then I appreciate the comments on rolling out AI further into the portfolio. What percentage would you say of your revenue base has now been upgraded to sort of AI enhanced? And what's the time line for sort of completing the full sort of rollout?

Thanks, Michael. I'll touch first on the multiyear contract piece, and Steve will pick up on your second question. So yes, as you know, we introduced multiyear contracts in the second half of FY '25 in the North American Intacct business. and that was really focused on driving greater lifetime value through lower churn, better cross-sell and upsell opportunities. and really importantly, aligning us to the commercials of our competitors. In terms of Q1, there is no impact on ARR, and there is no material impact on total revenue growth, either for the group or for North America. So the acceleration that you're seeing here today is very much driven by strong demand, high quality sales execution across the North American business, but the group as a whole.

Yes. And Michael, in terms of the AI, the way to think about it is all of the Cloud-native revenue is AI-enabled and we are progressively rolling out across the Cloud-connected base. And by the end of the calendar year, we should have broadly completed that. But the way to think about it is, obviously, AI is something which we are progressively enhancing. So the first phase of that was to roll out Sage CoPilot. We just launched a finance intelligence agent for Sage Intacct. But what we will start doing now is progressively across all of the product base once we have Sage CoPilot embedded, we will then add to that individual agents which will carry out various tasks. And that will happen first in the Cloud-native, but will be rapidly followed by the Cloud-connected pace.

And the questions come from the line of Frederic Boulan, from Bank of America.

Steven and Jacqui, if I can ask 2 questions around GenAI but more on the risk that the market is perceiving on the industry. So firstly, if you can share your views on how your business is or could be impacted by either new players like [indiscernible] Or some corporates deciding to leverage GenAI to change the way they deal with accounting?

And second, you start to have insights on some clients that have taken up your AI solutions. You mentioned an uplift in price about one point last year at the group level. But have you seen some customers starting to gain efficiencies and potentially impacting negatively in subscription that they that they have? So any comments on that would be very helpful.

Yes. So thanks for the questions. So if we start with the risks, I've talked about this before. My view is that in many ways, what's happening with AI favors incumbents because we have a large installed base. We have 40 years plus of experience including compliance, including all of the insights around how our customers do business, not just their general ledger, the sort of system of record but also their workflows, et cetera. And so the large language models are very powerful. But my view is that you get the best outcome when you combine that with your own local domain models, which take advantage of the insights that we've built up over many years. And I think there's a couple of things I would really point to.

The first is that accuracy is not up for debate. So you -- whenever you automate processes, whenever you introduce AI into any part of the process, it has to do it accurately. And then the second thing is customers have to trust not just the accuracy of the day-to-day transactions but they have to trust the compliance part of that when it comes to the tax returns when it comes to preparing accounts, et cetera. And all my experience tells me and that includes regularly talking to customers at the moment.

In our customers, it takes a while to build that trust, and we believe that we can take our customers on a journey where they can get the benefits of AI, but they don't need to kind of throw out everything that they've built up over the last however many years, they've been running their business, which brings me to the insights. I think what people are telling me is that they're experimenting. They're adopting AI. They're seeing time savings. A number of customers have said to me that they can see 5 to 10 hours a week of savings, which are coming from us using AI to automate repetitive tasks.

But I think generally, and remember, we're selling to CFOs in the medium segment. And although we're selling to entrepreneurs in the small segment, those entrepreneurs are taking advice from their accountants. So remember, I think this is a really important point that finance people, accountants are still driving the vast majority of the decision-making, and they like proven solutions. Now of course, new competitors will come in, new competitors will obviously gain customers. But I think you can see from our results, we are delivering and our customers are starting to adopt our solutions. They're seeing benefits from it. And what that does is it frees up time, they can use that time to focus on growing their business. And hopefully, that's the next phase. What we now see will start to see is people using that productivity gain to really invest time and energy to accelerate the growth of their businesses.

And then the thing I would add there, Fred, just to touch upon the risk piece is whilst we don't report renewal rate value at this stage of the year, just to give a bit of color there, we're not seeing an impact from churn perspective as we roll out these functionalities and push price through on that. We're seeing that good uptick that Steve was talking about and that is translating into momentum that you're seeing in that sequential growth that we've reported today.

We are now going to take one last question. And the questions come from the line of Mo Moawalla from Goldman Sachs.

I just had one. Could you give us a sense on the competitive landscape in North America? Obviously, I saw you drove some acceleration, but there was a lot of talk about Intuit kind of moving up market. But what have you seen there? And obviously, also would love to kind of get a sense of kind of how that sort of NCA strength going through and where those customers are coming from?

Yes. So I think -- look, as you know, Mo, the competitive landscape in the U.S. is always very competitive. Intuit are clearly making some inroads in terms of how long they keep their own customers. And what we're not seeing is any sign of them competing for new customer acquisition, where we're going to market with Sage Intacct, we also haven't seen any change in the number of QuickBooks graduates that we're taking to Intacct. So we've always said about a quarter of our new customer acquisition for Sage Intacct comes from Intuit and that has remained consistent into Q1.

Obviously, there's a number of new players, as mentioned by Fredric. And again, look, we see them in some of our verticals, particularly software. I think software is the place SaaS where we see the most kind of new competitor activity. We've always taken an approach in the U.S. of focusing very clearly on verticalization. So we continue to be very strong in construction in non-for-profit, health care, financial professional services, hospitality, et cetera.

And we've also launched or relaunched X3. So we've launched X3 Cloud into the U.S. market, and we intend to really use that to double down in the manufacturing and distribution verticals. So it remains competitive. But I think you can see from the results, obviously, we haven't broken out new customer acquisition and what we're getting out of existing customers. But as Jacqui has already alluded to, I think you can assume that it's very, very balanced growth, and we're very pleased with the NCA performance from Intacct in the U.S. in Q1.

I would just add as well, as a reminder, in FY '25, we delivered growth in excess of 20%, for Intacct in the U.S., over 50% in the U.K. And we know you're also starting to build traction with the Intacct business in Continental Europe, which is still in its early stages, but shows promising signs. So Intacct is an important driver of that balance growth that was delivered today.

That concludes the question-and-answer session. I will now hand back to the speakers for closing remarks.

Thank you very much, everybody, for joining us today and for the questions. We very much look forward to speaking to you again at the interims in May. Have a great day.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good day.

Good morning, and welcome to Sage's full year results. I'm pleased to be joined by Jonathan Howell, our CFO.

I hope you enjoyed that preview of the Sage Finance Intelligence Agent. I'm going to start with an overview of our key messages. Firstly, Sage delivered another strong performance in FY '25. For the fourth consecutive year, we achieved a double-digit increase in underlying ARR, testament to the resilience of our model and our durable growth. Through cost discipline, together with operating leverage, we've delivered strong profit margin and EPS expansion. And we've converted this into robust cash flows, supporting organic and inorganic investment and enabling strong shareholder returns.

Secondly, our performance is driven by our relentless focus on delivering customer value. From the launch of Sage Intacct Suites to our new cloud-native version of Sage X3, we are accelerating the pace of innovation at Sage. Through our AI-powered platform, customers are saving time and making smarter decisions. The future is exciting with AI set to revolutionize the way businesses operate. And with AI agents, we're delivering the next wave of intelligent solutions, transforming how SMBs manage their finance, HR and payroll processes.

And finally, our progress is underpinned by consistent, focused execution. In recent years, we've transformed our portfolio to meet and exceed our customers' needs. And today, as a result, we have around GBP 1 billion of cloud-native ARR growing over 20%. We've enhanced go-to-market with new systems and processes to drive efficient growth, and we're investing with purpose in our technology, our people and our communities to ensure that Sage continues to deliver for the long term.

I'll talk more about our progress later in the presentation, but for now, I'm going to hand over to Jonathan for the financial review.

Thanks, Steve, and good morning, everyone. I'm pleased to share with you today our full year results and the outlook for the year ahead. In summary, we delivered strong financial results, and we enter FY '26 well positioned for further success.

Looking back, we have a good track record of strong and consistent financial performance, which highlights our continued strategic progress. As a result, since FY '22, we've grown revenue at an average of 10% per year and operating profit at 18%, converting to strong EPS growth of 21%.

Moving on to the highlights for FY '25. We've achieved revenue growth of 10%, reflecting the strength of our subscription-based model. Our operating profit margin was 23.9%, an expansion of 150 basis points as we scale the business and deliver efficiencies. This has led to a strong increase in EPS of 18%. And finally, we delivered cash conversion of 110%, driven by growth in subscription revenue and good working capital management.

Let's turn now to ARR growth. Renewal rate by value was 101%. This reflects strong retention rates and a good level of upsell to existing customers, together with targeted price rises. And we've seen good levels of growth from new customer acquisition. As a result, ARR increased by GBP 245 million to GBP 2.6 billion. That's up 11% compared to last year. 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 also grew by 10%. Sage has a 97% recurring revenue business, demonstrating the high quality and resilient nature of the group. Operating profit grew by 17% to GBP 600 million, reflecting continued top line growth and strong margin expansion. Profit after tax increased by 14% to GBP 423 million, leading to strong growth in underlying EPS of 18% to 43.2p. And we've increased the final dividend to 14.4p, taking the full year dividend to 21.85p which is up 7%.

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 23% driven by strong growth from new and existing customers, particularly in Sage Intacct. 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. Here, we delivered revenue growth of 12%, driven mainly by the medium segment. Sage Intacct continued to perform well with strength across key industry verticals, including not-for-profit and financial services. Sage 200, Sage 50 and Sage X3 also supported growth across the region.

The UKIA region represents almost a third of group revenue and grew at 9%, with a good performance across the portfolio. The U.K. and Ireland increased by 10% as revenue from Sage Intacct continued to scale rapidly. Further growth was achieved in small business solutions, including Sage Accounting and Sage 50 and this was supported by a good performance in SAGE 200.

In Africa and APAC, growth of 7% was driven by strength in Sage Accounting and Payroll together with Sage Intacct. And finally, in Europe, which represents over a quarter of group revenue, growth was 7%. This reflects a strong performance across our cloud solutions. In France, growth of 6% was driven by strength in Sage X3 and Sage 200. Iberia also increased revenue by 10%, with strong growth in Sage 200 and Sage 50, together with the acquisition of ForceManager in October last year. And in Central Europe, growth of 6% was driven mainly by Cloud HR and Payroll.

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. This, in turn, leads to sustainable growth. In FY '25, we achieved strong margin growth of 150 basis points to 23.9%. This was underpinned by efficiencies, especially in G&A, which is running at 8% of revenue. Importantly, we continue to drive investment with sales and marketing at 40% of total revenue. An investment in R&D at 15% remains a key priority for the group.

Turning to earnings per share, which grew double digit for the third consecutive year. Underlying operating profit grew at 17% following good revenue growth and margin expansion. Net finance costs increased following new debt issuance, while the effective tax rate remain constant at 24%. Together with the benefit of recent share buybacks, this led to EPS growth of 18% to 43.2p.

Moving on to cash generation, which remains a core strength of Sage. During the year, the group generated GBP 660 million of cash from underlying operations, resulting in cash conversion of 110%. This is now the seventh consecutive year of cash conversion above 100%. And free cash flow was GBP 517 million net of interest and tax.

The group has a strong balance sheet with GBP 1 billion of cash and available liquidity. Our leverage ratio of 1.7 remains within our midterm target range of 1 to 2x. In line with our disciplined approach to capital, this morning, we announced a share buyback program of up to GBP 300 million. This reflects our strong cash generation and robust financial position, together with our confidence in Sage's future prospects. Importantly, we retain significant capacity to support growth.

So what does that mean for the outlook? We have good momentum as we enter the new financial year. Therefore, we expect organic total revenue growth in FY '26 to be 9% or above, and we expect operating margins to continue trending upwards in FY '26 and beyond as we focus on efficiently scaling the group.

Thank you, and now back over to Steve.

Thanks, Jonathan. Our performance is anchored in our strategic framework for growth. It starts with our purpose, to knock down barriers so that everyone can thrive as we aim to create the world's most trusted and thriving network for SMBs powered by AI. We deliver on this through our three strategic focus areas: Connect, Grow and Deliver, which I'll say more about shortly. And through this framework, we serve the interests of our stakeholders in line with our values, starting with our customers, small and midsized businesses.

SMBs make up 99% of all businesses in our end markets. They are the lifeblood of our economy, providing employment and creating wealth for millions. Our small business tracker analyzes data from 140,000 SMBs. And it shows that despite the external backdrop, SMBs have again proved resilient and increasingly profitable during 2025. But they continue to face barriers such as weak productivity and late payments with the challenge of remaining competitive and compliant. They want effective integrated solutions from a trusted vendor and Sage provides these solutions helping SMBs to knock down barriers, automating processes, speeding up cash flows and delivering business insights.

LA Opera, shown here on the slide, told us that Sage Intacct has completely transformed their finance function with its AI capabilities, helping to save 10 to 15 hours a week. And as we roll out Sage CoPilot and AI features more widely, we're opening up new possibilities for SMBs and accelerating customer benefits.

The way we're doing this is through the Sage Platform. This platform provides a secure, scalable foundation for all of our products. It connects customers to their suppliers, banks, tax authorities and partners, automating transactions and speeding up compliance and improving cash flow. At the heart of the platform is the Sage AI factory, the infrastructure that drives Sage CoPilot powered by our LLM backed proprietary intelligence engine, and it's supported by our data hub and core experience and network services that enhance security and automate workflows.

The system is already operating at scale with over 40,000 models in production, generating 3.5 billion predictions annually. Designed to support rapid innovation, the platform has enabled us to bring Sage CoPilot from inception to market in less than a year and to scale it across the portfolio. And we're now focused on leading the way in Agentic AI, both by launching our own agents, and by integrated trusted third-party agents in a secure ecosystem governed by Sage. For customers, this means greater choice, more intelligence, and faster innovation within the Sage products that they already know and trust.

We've been building AI into our products for years through successive technologies, first predictive then generative and now agentic AI. Through these waves of innovation, we've created a powerful and differentiated proposition, combining our experience, extensive data sets and connected ecosystem to deliver trusted, domain-specific AI at scale. Sage CoPilot is our intuitive assistant and the primary way through which customers experience our latest innovations. This is powered by Sage AI, our intelligence engine. Built on deep domain expertise, our models are trained on rich, proprietary data sets from years of experience and fine-tuned to ensure relevant and precise responses.

This specialism makes them more accurate and efficient than off-the-shelf models while industry partnerships such as our collaboration with the American Institute of CPAs promise to further enhance their performance. Increasingly, AI agents handle specialist work, taking care of repetitive tasks that weigh businesses down, but always ensuring the human stays in control. And the Sage Platform provides the environment for our AI to operate, bringing applications, workflows and data together. Guiding all of this is our underlying philosophy, authentic intelligence, meaning our AI is built to be ethical, transparent and human first. These pillars underpin our progress towards our ambition to create the world's most trusted and thriving AI-powered network for SMBs.

So let's now turn to a look at our progress in more detail through our three strategic focus areas. First, Connect, where we aim to grow our platform by connecting more products, enabling us to serve customers better by expanding the scale and scope of services we provide. This drives the network effect, where every connection and every transaction that flows across the platform makes the system smarter for everyone.

During the year, we scaled services, such as accounts payable automation with monthly transaction value tripling over the past 12 months to GBP 2.3 billion, thanks to continued adoption by customers such as Greenidge in the U.S. shown here on the slide. They told us that Sage AP automation has enabled them to double the number of invoices they process without increasing headcount. We also grew our accounts receivable service, and we launched our e-invoicing portal in France, helping customers prepare for upcoming compliance requirements. And through the acquisitions of Fyle and Criterion, we expanded in expense management and HCM, enabling us to streamline and automate these critical processes for SMBs.

We're also innovating to expand our reach by delivering a growing set of services embedded into other platforms, such as fintechs and banks, plugging into the apps that SMBs already use. We partner with Tide to deliver bookkeeping, Monzo for making tax digital, NatWest for Carbon Accounting and Capital One for expense management. Extending our ecosystem to win customers earlier in their life cycle and acting as a trusted partner to regulated service providers who are looking to innovate.

Looking ahead, our aim in 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 our existing ones. And the biggest contributor to growth is Sage Intacct, our flagship mid-market solution. In the U.S., Sage Intacct grew ARR by over 20% with Q4 a record quarter in volume terms. This was driven by strength in key verticals and supported by investment in go-to-market and the expansion of suites. And outside the U.S., ARR increased by around 50%, with standout momentum in the U.K. where Sage Intacct now serves over 1,600 customers.

During the year, we replatformed Sage X3 to deliver a full cloud native experience where we saw acceleration driven by strong demand in manufacturing and distribution. Through Sage X3, we can serve customers better, like Grupo Intaf in Spain, shown here on the slide, who told us that Sage has improved their efficiency and helped drive collaboration. For small businesses and accountants, we've expanded through product and package improvements, including in Sage Accounting, Sage 50 and Sage Active. And we've reinforced our relationships with accountants by delivering tools that streamline their work and free up time to grow their business.

Our future focus in this area is to drive momentum with new and existing customers and continue to make it easier for them to access products and services.

Our third focus area is to deliver productivity and insights driven by AI. Over the year, we've significantly scaled Sage CoPilot in availability and usage. Initially focused on Sage Accounting, we quickly expanded it to Sage 50, growing availability to around 150,000 customers including Adam Williams of Tyne Chease shown here on the slide. I met with Adam earlier this year, and he told me that Sage CoPilot is saving them over 12 hours of admin per week and helping them to get paid up to 7 days earlier.

Other customers have told us it's doubled productivity in accounts payable, while reducing manual data entry by up to 90%. We've also expanded Sage CoPilot to Sage for Accountants, Sage X3 and Sage Intacct, where it's rapidly becoming an important tool for customers. Over 26,000 Sage Intacct users worldwide have so far access features such as search help, which seamlessly guides them through key workflows. And the Sage Finance Intelligence Agent, which we showed in the video at the start of the presentation, handles natural language questions like a human finance assistant.

These solutions drive real value for customers, not just streamlining processes, but transforming their operations and making them more productive. Now we expect that this, over time, will create monetizable opportunities for Sage through features, pricing and lifetime value. As well as driving productivity for customers, we're also leveraging AI for colleagues at Sage. In engineering, AI is accelerating cogeneration saving hundreds of thousands of hours. In customer support, it's driving a 70% resolution rate with high satisfaction levels. And in go-to-market, AI agents are helping to generate, qualify and convert sales leads.

We're doubling down on internal adoption, encouraging and empowering colleagues across the group to use AI to simplify and amplify their work. And with hundreds of new use cases being assessed, the potential ahead is considerable. Our future focus in this area is to continue to scale Sage CoPilot, embedding it into the core user experience across our portfolio while further developing our agentic capabilities, accelerating benefits and unlocking ROI for customers and for Sage.

Our success depends on our ability to deliver for our stakeholders. For customers, we're committed to excellence with Sage ranked by G2 as the #1 software company in the U.K. for 2025 and in the Top 25 globally based on user reviews. And we continue to champion policies that our customers care about from partnering with the U.K. government on AI skills to advocating SMB access to green finance across the EU. For partners, we've launched AI developer solutions, enabling ISVs to build and deploy AI agents on our platform. And our new partner portal streamlines partner onboarding, provisioning and support, making it easier for them to work with Sage.

For colleagues, we foster a high-performance culture and an innovative mindset. And we're pleased that we've been recognized by Forbes as one of the world's best employers.

Turning to society, where we aim to multiply our impact by helping SMBs to be more sustainable. In FY '25, we launched our entrepreneurship program to support purpose-driven start-ups around the world. And Sage Foundation celebrated a decade of impact during which time we've raised over $5 million and enabled 1.4 million volunteering hours.

And for shareholders, our objective is to deliver sustainable growth in shareholder value. We do this by growing revenue and by doing so more efficiently over time. The key to this is rooted in our strategy, our competitive positioning and financial model. We have a clear strategic focus, which guides our decisions and ensures we align with the needs of our customers and the expectations of our shareholders.

We're differentiated from competitors by our AI-powered platform, global products and geographic reach with deep domain expertise across financials, payroll and HR. And we're diversified through our broad customer base and ecosystem. And finally, our resilient financial model is built on high-quality recurring revenue, providing stability and visibility with growth driving both investment and margin.

So in conclusion, Sage delivered a strong performance in FY '25, underpinned by continuing durable growth. Smart investments are driving an accelerated pace of innovation, particularly through AI. And with good progress in execution, we enter FY '26 with confidence and momentum.

Now before we move to Q&A, I'd like to say a big thank you to Jonathan, who's been a fantastic support to me and the broader Sage team over the last 12 years. He hands over the financial reins to Jacqui Cartin in great shape and I'm looking forward to welcoming Jacqui to the CFO role from the first of January.

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

[Operator Instructions] We will now take the first question from the line of Adam Wood from Morgan Stanley.

First of all, congratulations on the results and also best wishes from me, Jonathan. I know you've got a few weeks left, but best wishes from my side when that time comes up. I've got two questions, please. Just first of all, we saw a nice tick up in the ARR growth in the fourth quarter. Could you just talk a little bit about what the drivers of that improvement in ARR were at the end of the year, please?

And maybe just secondly, when in the commentary around North America, you talked about the introduction of multiyear customer contracts as a driver of growth. I guess from Intacct side, that's a pure SaaS business, so multiyear contracts wouldn't bring any revenue forward, but I'm just curious if you could maybe expand a bit on how that was a driver for North American revenue, please.

Adam, yes, thank you. Thank you for your questions, and thank you for your comments. First of all, if we just stand back and look at ARR for the full year, we exited with growth of around 11%, and that was in line with the first half ARR exit rate. Looking at sequential growth, Q1, Q2, Q3, we saw between 2% and 2.5%. And then to your question, in Q4, that picked up to around 4%. And that was a very strong result and particularly [Technical Difficulty].

One moment please, your conference will resume shortly.

Hello, sorry, we lost the line for a moment then. Just to recap to make sure everybody gets it. Q4, we saw a sequential growth of 4%. And that was a strong result and significantly above the 3.5% that we saw in Q4 of the prior year and that's been driven by North America and UKIA, particularly across the medium segment and primarily Intacct, where we saw a very strong performance in Q4 in both new customer acquisition and upsell and cross-sell.

I think it's probably just worth noting that we are now beginning to see the benefit from the ongoing investment that we've made in products, people and go-to-market in those regions in the medium segment. And that underpins our guidance for FY '26 as we exit with -- this year with good momentum. Suites multiyear contracts, Adam, you mentioned that. They simplify our proposition for customers and improve the sales motion. We expect over those multiyear contracts to be able to increase customer lifetime value over that extended period. And that provided a bit of an impact in Q4, but really, the whole performance was underpinned by strong execution in new customer acquisition.

We will now take the next question from the line of Frederic Boulan from Bank of America.

Two, if I may. Firstly, around AI. I mean you kind of discussed your pipeline and the kind of innovation you've been pushing. Can you spend a minute around the impact on the business from a revenue standpoint? What you've been doing from a pricing standpoint and any early insights on what you've seen in your U.K. portfolio in particular?

And then secondly, it would be good to have an update on the competitive dynamics, especially versus Intuit in the U.S.? Are you seeing any of the QuickBooks graduate funnel starting to dry out? On the contrary, I mean, U.S. performance seems to remain very, very healthy. So any comment there would be great.

Yes. Thanks, Frederic. And so to start with the AI. And we have, as we've said before, been deploying AI for many years. What we're doing now is, both with Sage CoPilot and now increasingly with AI agents, starting to create more stand-alone capability that takes advantage of generative AI. So with Sage CoPilot, we've now deployed that to around 150,000 customers.

And in terms of how we're monetizing, we're doing it in a number of different ways. With CoPilot, we're tending to bundle it into the existing plans and then use that to increase the price. So in the U.K., for example, with Sage Accounting, we put Sage CoPilot into the plus tier, and then we increased the price of that tier by around 25%, 30% and made it available to all those customers. With some of the agents, so for example, with accountants, we've launched a VAT agent, which does what it kind of says on the tin, which is it helps to prepare VAT returns.

For those sorts of agents, we may well charge for those because they are -- separately because they're doing a particular task but I think my kind of overriding message here would be that the commercial models have not really been completely written. So I think if you ask us or you ask anyone else, we're all looking for different ways to monetize what is considerable value for our customers. We are saving our customers a tremendous amount of time.

We've had feedback from small customers that Sage CoPilot is saving them 10, 12 hours a week. So I think it's kind of it will build over time, and we will -- these sorts of calls will give you transparency in terms of how it's being monetized. But it may not be an entirely kind of linear journey. It will -- there'll be different ways that we do things for different parts.

As far as the competitive situation is concerned, look, I mean, I think it's very similar to how it's been in the past. I think our differentiation is that whether it be in the U.S. or elsewhere, we're being very clear that what we're doing with AI is we are driving a platform strategy where we're using our proprietary data sets to train our models to ensure that we get the accuracy that's required in a finance payroll environment. So if we're automating workflows in the case of midsize businesses with Intacct, we're seeking to automate the close, save time by deploying AI in the close process.

All of these things have to be accurate. And the way we make them accurate is because we have domains or developing domain-specific LLMs. We've said in the press release, we have over 40,000 training models currently learning from our 40-plus years of experience in our proprietary data. And we think that is the way forward. Jonathan?

Yes, just to add a little bit more color on the pricing impact. As Steve said, we've seen price increases put through for Sage Accounting and Sage 50 in the U.K. only in relation to the introduction of CoPilot. And if you look back over the last 4 years, across our portfolio on a weighted average, our price increases have been between 4% and 5%. For this year in FY '25, that ticked up to 5.5%. And a significant component of that does come from this impact from pricing in response to the introduction of CoPilot. That's just the start.

As Steve said, it's not going to be linear necessarily, but we are optimistic given that Sage CoPilot and other AI enablement will begin to be rolled out across other products and other territories outside of the U.K.

We will now take the next question from the line of Toby Ogg from JPMorgan.

Jonathan, best wishes from me as well. Just on the 9% or above growth guidance for '26, could you just help us with the framing around the sort of recurring revenue growth versus the other revenue? I think for 2025, you saw about a 30 basis point or so headwind between that organic recurring revenue growth and the total organic revenue growth. How should we think about that dynamic for 2026? And then also, you obviously mentioned 5.5% contribution from pricing in '25. How are you thinking about the pricing contribution embedded in the 2026 guide?

Yes. So in terms of the guidance for the year, if we just step back, for FY '26, we are using the same form of guidance that we've used for the last year, which is 9%, organic total revenue growth of 9% or above. We are confident in that guidance given the momentum that we take with us as we exit the year. We've invested in key products, particularly Sage Intacct and CoPilot. And we've also seen really in Q4 and continuing this year, good sales execution. We've got a solid sales pipeline and robust closure rates.

So we see overall the guidance is realistic, but cautious. And needless to say, we will continue to update you as we move through FY '26. In terms of the various components of revenue, I think the most important thing to note is that other revenue, which we have seen as part of our strategy, a significant runoff over the last 5 years, as we exit the license business, that part is done. But we still have an element of maintenance and support and an element of professional services, which has now stabilized.

And the professional services, in particular, is an important contributor because that provides us with flexibility for implementation and new customer acquisition in the direct channel. So in those two lines, that quite strong strategic runoff that we've seen in recent years has stabilized, and there will be some variability there going forward. Now it's important to note that the other revenue line is very small, that's only 3%, but it does have an impact. And the maintenance support is a larger line and has a little bit more of an impact in supporting those numbers. I think that's answered your question.

Yes. Just on the pricing contribution for '26, anything you could say on that?

Sorry, Toby, yes. At this stage, no. We are always testing and seeking to optimize the fair value exchange that we have with our customers with existing products and new products. And therefore, we're constantly assessing the take up and adoption of these new products versus the additional pricing that we're asking for it. So at this stage, we have it baked into our plans, but we're not sort of giving forward guidance on what to expect. But clearly, you'll see the impact of any additional pricing as we get through Q1 and H1.

We will now take the next question from the line of Charles Brennan from Jefferies.

Just a couple from my side. Firstly, on Intacct, it sounds like that was the biggest driver of momentum at the end of the year. I'm under the understanding that where you provide some customer incentives to onboard new customers, that's typically in Intacct. And those discounts don't necessarily get reflected in ARR. Can you just talk about the volume of discounting at the end of the year relative to the previous year?

And then when we think about the gap between ARR growth and recurring revenue growth, last year, I think, you exited ARR of 10.5%, and we saw just over a percentage point of dilution to get to recurring revenue growth. What do you think that delta looks like this year? And then just as a small follow-up. I didn't quite catch the point on the multiyear contracts. I know you said it was immaterial, but is there any pull forward of revenue recognition under a multiyear contract?

Yes. So first of all, in terms of your opening remark around Intacct, yes, that is the very significant driver that we've seen, obviously, over the last 2 to 3 years, but particularly in Q4. And just to deconstruct that a bit, we have seen total revenue growth for Intacct in the U.S., which is about a $650 million base now, of 23%. And in H2, that was 25%. And so that underpins the overall performance that we've seen. And ex-U.S., that total revenue base is about GBP 50 million, and that's growing up between 50% and 60%.

Your reference on discounting, the level of discounting provided on a customer basis in Q4 of this year was not too dissimilar to what we were providing towards the back end of FY '24 and is part of the normal sort of sales cycle of both direct and partner channels, particularly in North America.

Multiyear contracts, you sort of referenced that. What -- first of all, multiyear contracts are important because that enables us to acquire a new customer, onboard that customer with a good assessment of the capability and functionality that they need but then gives us a 3-year period in which to assess and upsell and cross-sell into their needs rather than necessarily the other way around, where there's a big sale upfront and then an assessment in subsequent years of whether all of that capability is needed.

So that is the important thing about multiyear contract. It makes it both easier for the buyer of our products and for us for a provider of capabilities to our customers. In terms of revenue recognition, the impact is that any upfront discount is, therefore, spread over a 3-year period as opposed to a 1-year period. So there is an element of revenue improvement as a result of that. But I do stress, it's the performance of the underlying sales motion and our customer approval of our products, which is driving what we're seeing at the moment.

And to give you an example, in North America, I think we have just had our highest volume month ever for Sage Intacct. So this is underpinned by real volume coming through. And then in terms of ARR to that sort of difference, we always expect them to be close, as you referenced in your question, but not necessarily the same. And this is consistent with other corporates and companies that use this measure. The reason is, as you know, an ARR is a point-in-time metric, while revenue is booked over an extended period.

And any divergence that we see is mainly caused by the timing of revenue growth. That sort of compressed slightly in recent quarters. It will vary and fluctuate. We're not giving -- we're not giving forward-looking guidance on that gap because it depends upon the cadence of growth rate and when acceleration occurs.

And Charlie, just to add, just to be helpful, I think with the dynamics around Sage Intacct, just to emphasize what Jonathan said, in Q4 and in September particularly, we did see very, very strong volume growth in U.S. with Intacct. And we saw that consistently both in the -- both direct and also through the channel. So it was a kind of -- it was a pretty consistent theme in terms of that volume growth.

We have time for one final question from the line of Balajee Tirupati from Citi.

Congratulations on your results and Jonathan, best wishes, and thank you from my side as well. Two questions from my side, if I may. Firstly, on the topic of AI, one of your key peers announced a deal with OpenAI yesterday. Do you see merit for Sage to also target similar integration of its portfolio with Frontier models to allow customers access to more customized services?

And second question on margins, with puts and takes around AI, in particular, productivity gains internally and need for investment as well, do you see the view of 50 to 100 basis points per year margin expansion staying intact in 2026 and beyond?

Thanks. So yes, on AI, I mean, I'll start with how do people access the capability. So I think people will increasingly want to access capability, do their kind of daily tasks, approving invoices, doing all the workflow type stuff in a number of different environments, right? So today, if you want to approve an invoice, for example, typically, you have to go into the application, log on to the application, do it in the application. And in the future, you might do that in Teams. You might do that in Outlook, you'll do that on an app on your phone, whatever it might be.

And therefore, to sign up or to partner with some of the larger players like a ChatGPT, if the intention is to create that flexibility to access makes a lot of sense. The one warning I would give is we're very clear that the way that we produce accuracy is we have data on our platform, proprietary data on our platform which our learning models are using to create accurate automated workflows. We're also very protective of that data because that's customer data. So we would not, for example, want to share that data with others.

Now I don't -- I can't comment on the detail of what other competitors are doing because there isn't enough information in the public domain to make an assessment. But what I can say is we're very clear that our AI is learning in a secure environment where we are -- it's effectively a private network with a gateway so that developers can come in and develop their own agents on our platform, but it has to be curated and controlled by Sage because that ensures the integrity of the data and the integrity of the outcome.

I'll let Jonathan talk a little bit about margin, but let me just start by saying that I think in the same way that we're selling AI and productivity to our customers, we're obviously seeking to get productivity internally. And we've seen a number of areas which have already contributed to the expansion in margin this year, for example. So for example, in the area of -- areas like customer services, we are already deploying significant AI to get higher first-time resolution through AI rather than human-to-human conversations.

And if you look at it at a very high level, we've grown Sage this year revenue 10% and our headcount is broadly the same as it was 12 months ago. So we're starting to see the benefits, the early benefits of some of that investment, but Jonathan, do you want to...

Yes. And I think the important point is that Steve just raised is that with the internal adoption of AI, there are significant savings that can be achieved. And we've seen those in customer support and also in R&D and engineering. So just to stand back to your question, this is now the third consecutive year of margin expansion. We've guided for FY '26 for margin to continue to be trending upward. So that will be the fourth consecutive year and this is driven by growth and established patterns of achieving operating efficiencies.

So at this stage, we expect to be at the lower end of the usual 50 to 100 basis points range as we continue to invest in growth. And so as I always say on these earnings calls, we will, though, as we move through the year, continue to dynamically reallocate spend during the course of the year to maximize that trade-off between top line growth and margin expansion, depending upon the circumstances and the opportunities that present themselves to us as we move through the year. Thank you very much. And also thank you for your kind comments.

I would now like to turn the conference back to Steve Hare for closing remarks.

Thank you very much, and thank you, as always, everyone, for listening. And as I said in the presentation, but again, just to add my thanks to Jonathan for the huge contribution that he's made to Sage, and we look forward to welcoming Jacqui to the next call in January. But thank you very much, and have a good day, everyone.

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