Sage shares fall amid cloud, subscription push

Sage HQ in Newcastle

Shares of Newcastle-based software giant Sage Group fell about 5% on Wednesday morning after it reported a 13% drop in full-year “organic” operating profit to £432 million as its margin was hurt by investment in cloud and subscription products. 

Sage, which sells accounting and other software to businesses, reported a 5.6% rise in “organic” revenue for the year to September 30 to £1.82 billion.

Sage increased its full-year dividend by 2.5% to 16.91p a share, and said it would return £250 million to shareholders, reflecting the expected proceeds of the disposal of its Sage Pay business.

In its outlook, Sage said: “Building on the significant ARR created in FY19, we expect recurring revenue growth of 8-9%, driven by strong on-going performance in the Future Sage Business Cloud Opportunity, as we continue to focus on attracting and migrating customers to Sage Business Cloud. 

“Other revenue (SSRS and processing) is expected to decline by high single digits in line with this focus, and organic operating margin is expected to be around 23%, as Sage continues to invest in the transition to SaaS.”

Sage CEO Steve Hare said: “We’re very encouraged by the acceleration in recurring revenue in FY19.

“We entered the year with momentum and added sequential ARR every month in the year, putting us further ahead in our transition to Sage Business Cloud than anticipated.

“We’ve also made significant progress in our strategic execution, particularly in the development and roll out of our cloud offerings and the reshaping of our portfolio.

“We will continue to prioritise high quality recurring revenue growth over SSRS, and whilst we do not expect a linear progression in financial performance during this multi-year transition, our recent strong performance and continued progress towards becoming a great SaaS company means that we look forward with confidence.”