21st Nov 2018 08:33
LONDON (Alliance News) - Sage Group PLC on Wednesday reported a rise in annual revenue and profit as the software firm said it will focus on "accelerating" its transition to a software-as-a-service company in financial year 2019 - hoping to increase recurring revenue and subscriptions.
Shares in Sage Group were down 5.6% Wednesday morning at 506.40 pence each, the worst performer in London's blue chip FTSE 100 index.
For the year ended September 30, Sage's organic revenue increased 6.8% to GBP1.82 billion from GBP1.70 billion the year before, slightly behind the firm's guided target.
Recurring revenue increased 6.7% to GBP1.44 billion from GBP1.35 billion, of which subscription revenue jumped 25% to GBP839 million from GBP670 million.
"Sage has shown stronger performance in the second half of FY18. The renewed focus on high-quality subscription and recurring revenue has generated momentum as we exited the year," said Chief Executive Officer Steve Hare.
The company said the months of August and September achieved "in excess of" 7% growth in recurring revenue year-on-year.
In August, Sage guided for a 7% growth in organic revenue with "around" 27.5% operating margin.
For the year, Sage managed underlying operating margin of 27.2%, flat on the year before and slightly behind guidance.
On a statutory basis, revenue for the year came in at GBP1.85 billion, up from GBP1.72 billion the year before, and pretax profit rose to GBP398 million from GBP342 million.
The accounting software provider lifted its dividend to 16.50p, up 7.0% on the 15.42p paid out last year, on account of the company's "strong" free cash flow of GBP356 million.
Looking ahead, Sage said it expects recurring revenue growth of between 8% and 9% for its recently commenced financial year, with software and software related services and processing revenue expected to be flat or decline by mid-single digits, driven by a focus on driving subscription and recurring revenue.
Sage also said it is "actively marketing", and intends to dispose of, Sage Payroll Solutions, its US-based payroll outsourcing services business.
In an attempt to accelerate its transition, Sage said it will increase its R&D budget to build out its Sage Business Cloud - which is expected to add GBP60 million on to financial year 2019's operating expenses.
Hare added: "As CEO I will put customers, colleagues and innovation at the heart of everything we do to accelerate the transition to becoming a great SaaS business.
"That means investing further resource in Sage Business Cloud, a continued commitment to customer success and a culture which values the individuals and promotes collaboration. Increased investment in these areas will lead to an acceleration in high-quality sustainable recurring revenue growth."
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