13th May 2020 08:46
(Alliance News) - Sage Group PLC on Wednesday reported a higher interim profit as software subscription revenue grew and expenses fell, offsetting a drop in other revenue.
The accounting software firm reported a GBP275 million pretax profit for the six months ended March 31, up 39% from GBP198 million the year before.
One factor in this was a 1.9% increase in revenue to GBP975 million from GBP957 million, with organic total revenue up 5.7% at GBP935 million including 10% recurring revenue growth.
Sage said organic revenue growth was underpinned by software subscription revenue growth of 26% to GBP582 million while other revenue - software & software-related services and processing - fell 20% to GBP109 million.
Sage explained that the other revenue drop "reflects the managed decline in licence sales and de-prioritisation of professional services revenue as the business continues to focus on subscription, together with the additional impact of Covid-19 towards the end of March."
An 8.1% drop in selling and administrative expenses to GBP622 million from GBP677 million further boosted profit.
Sage increased its interim dividend by 2.5% to 5.93 pence from 5.79p, which it said was reflective of "strong business performance and cash generation in the first half".
Having already begun to hurt other revenue in late March, Covid-19 has now begun to feel the impact more broadly with some of its customers opting to defer purchase decisions and new customer acquisitions to slow as a result. Consequently, new customer acquisition in April was around half the previously forecast level with a slightly increase in customer churn.
To address this, Sage will be putting in place "a range of mitigating actions to manage costs and cash in the near-term", though it is not planning to make redundancies, use government support programmes, or furlough staff.
In terms of outlook, Sage said: "While the group has performed well in the first half, it is too early to quantify with confidence the impact of the pandemic on Sage's financial performance for the full year. We continue to expect, as we indicated in our trading update on 6 April, that organic recurring revenue growth will be below the previously guided range of 8% to 9%, and that the decline in other revenue (SSRS and processing) will accelerate significantly in the second half, with an associated impact on margin."
Chief Executive Steve Hare said: "Sage has had a strong first half, sustaining last year's growth momentum as we continue to focus on recurring revenue growth, and making good progress in strategic execution. Our key priority has been the health and wellbeing of our colleagues and our service to customers. I am proud of how colleagues have reacted, and how they have supported each other and our customers. Despite the near-term uncertainties, I believe our continuing investment into Sage Business Cloud, together with our focus on customers, colleagues and innovation, form a strong base for the future performance of Sage."
Shares in Sage Group were up 0.5% at 658.36p in London on Wednesday morning.
By Anna Farley; [email protected]
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