Comments on half year financial results

Paul Walker, CEO:

We are pleased to report a good half-year performance, with overall growth in line with management expectations. Our businesses in Mainland Europe and Rest of World again experienced excellent growth. Our UK business also performed well compared with a very strong first half in 2007, which had the benefit of legislative stimulus. Our North American business, excluding Sage Healthcare Division, grew in line with our expectations despite a more challenging economic environment. Sage Healthcare Division implemented a number of actions aimed at increasing support retention and improving overall customer satisfaction. As a result, revenues from maintenance and support and network services stabilised. System sales contracted compared to a strong performance in 2007, which saw significant stimulus from changes in legislation relating to insurance claims processing.

Over the period, we maintained the Group EBITA margin, whilst generating strong operating cash flows. Our strong cash generation underpins the rebased dividend payment in the period, as well as on-going strategic investment in our businesses.

These results demonstrate the enduring defensive nature of our business model that underpins our organic revenue growth. Our customers’ appetite for value-added support continues to grow, resulting in organic revenue growth of 10%* in maintenance and support revenues (including premium support), which are the largest component within subscription revenues. Half our revenues are now derived from these maintenance and support contracts, with very high average retention rates of 80%. Overall, we have 1.7 million support contracts, of which almost two thirds are now premium contracts, combining software and support. Premium support contracts tend to enjoy high renewal rates and superior pricing. Subscription revenues are highly profitable with attractive, sustainable margins that help to drive our strong profit growth.

Our customers view Sage’s products and services as an essential part of their business management process. It is a long term relationship built on loyalty, trust and quality advice that helps them run their businesses more effectively. Our strong customer relationships are demonstrated by the 36,000 calls we took on an average daily basis over the period. This on-going dialog with our customers is one of our primary competitive advantages.

We continue to improve our products and services through customer feedback, technological innovation and understanding of the local business environment that allows us to develop products tailored to our customers’ needs. Our hosted products and services still represent only a small part of our revenues, but they have shown strong growth in new and established markets, especially in Customer Relationship Management solutions (”CRM”). We anticipate that growth in our hosted products will continue to develop in line with customer demand.