30th Nov 2016 11:23
LONDON (Alliance News) - Sage Group PLC on Wednesday reported results in line with its guidance for its most recently-ended financial year and pointed to a similar year ahead as it progresses its five-year business transformation plan.
Shares in the FTSE 100-listed payroll software company were down 1.6% at 664.75 pence Wednesday after an initial jump to 695.50p at the market open. The stock has performed well in 2016 to date, up 10% in the year so far.
Sage reported a pretax profit of GBP274.5 million for the year to the end of September, down slightly from GBP275.8 million the previous year, as a rise in revenue to GBP1.57 billion from GBP1.44 billion was offset by GBP126.6 million in one-off costs related to its restructuring.
Sage saw recurring revenue growth of 10% for the year, up from 9.0% growth the previous year, driven by an increase in subscription revenue.
Processing revenue rose 6.0% in the year, helped by a strong performance in payroll processing and a rise in revenue from its Sage Pay product, offset by flat growth in payments in North America. Software and software-related services revenue fell 8.0%, which Sage said was in line with its continued transition towards subscription-based revenue.
By geography, revenue grew 7.0% in Europe, helped by strong performances in the UK and Ireland, France, Spain and Germany, partly offset by modest growth in Poland and a flat performance in Switzerland.
North American revenue rose 4.0%, lagging behind the wider group, as a result of a flat performance in payments. Excluding this business, growth in North America would have been 6.0%.
International revenue growth was 8.0%, as strong performances in Africa and Brazil, bolstered by its Sage One and X3 products, offset a decline in revenue in the Middle East and Asia. This decline was mostly as a result of a legislative change in Malaysia in the prior year and a lack of new product introductions in this market, which Sage said will be addressed in its current year.
Sage is undertaking a five-year growth plan, dubbed Sage 2020, which it launched at a capital markets day in June 2015. The company said Wednesday that this transformation remains on track.
Notably, it delivered an organic operating margin of 27.2% for the year, above its organic operating margin of 26.5% the previous year and in line with its guidance, and organic revenue growth of 6.1%, in line with the 6.0% it was targeting.
Sage said that it had completed the first phase of its transformation plan, realising GBP51.0 million per annum of cost savings in general and administrative costs.
Sage proposed a final dividend of 9.35p per share for the year, taking its total dividend to 14.15p, up 8.0% from the 13.10p it paid the previous year.
For its current year, Sage is guiding for at least 6.0% organic revenue growth and at least a 27% organic operating margin. It noted that it will continue to front-load its investment in growth in the first half of the year, and as a result expects strong second half growth and accelerating momentum as it exits the year.
Looking ahead, Sage said the second phase of its investment begins in its current year. As part of this, it has identified further annualised cost savings of at least GBP50.0 million for its current financial year which will create a further exceptional charge, although Sage is targeting payback in under two years.
It will focus on new customer acquisition through product launches and user experience improvements, and intends to continue investing in its sales and marketing by expanding its customer business centres.
Chief Executive Officer Stephen Kelly said the 2016 financial year "saw Sage continue to deliver" on the targets tabled at its 2015 Capital Markets Day meeting, noting the organic revenue growth driven by "higher quality recurring revenue".
In a separate announcement Sage also said non-executive directors Ruth Markland and Inna Kuznetsova intend to step down at the company's next annual general meeting in February.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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