The Sage Group plc ($SGE)

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.