Shares of Sage Group, the Newcastle-based accounting software giant for SMEs, rose about 7% after it reported strong annual revenue growth, though the FTSE 100 firm saw its profit slip.

The company hiked its annual dividend 4.1%.

Sage shares were the best performer in the FTSE 100 in early trade.

In the financial year that ended September 30, the enterprise software company posted a pretax profit of £337 million, down 2.9% from £347 million the previous year.

Revenue, however, rose 5.4% to £1.95 billion from £1.85 billion. The growth was underpinned by its Sage Business Cloud arm, which reported 24% revenue growth on an organic recurring basis.

Sage declared a full year dividend of 18.40p per share, up 4.1% from 17.58p a year prior.

Net debt amounted to £733 million on September 30, up from £247 million a year before. The increase in debt was mostly due to £315 million spent on acquisitions.

Looking ahead, Sage said it entered its new financial year with “strong momentum” and said it expects organic recurring revenue growth to be ahead of last year thanks to the strength of Sage Business Cloud, as well as expecting operating margins to trend upwards in financial 2023.

Sage CEO Steve Hare said: “Sage has had a strong year, making good progress as we deliver on our strategic priorities.

“We significantly accelerated revenue across all key products and regions, expanded our organic operating margin and delivered strong cash flow.

“ARR growth of 12%, underpinned by increasing levels of new customer acquisition, is particularly encouraging and positions us well for the year ahead.

“Sage’s purpose of knocking down barriers so everyone can thrive is more important now than ever.

“Sage Business Cloud solutions enable small and mid-sized businesses to streamline their processes and unlock productivity, helping them to achieve more with less.

“While we are mindful of macroeconomic uncertainties, I am confident that our resilient business model together with our strategy for delivering efficient growth, centred on our expanding digital network, will enable us to create further long-term value for all our stakeholders.”

Reporter: Xindi Wei

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REACTION:

Dan Ridsdale, Head of Technology at Edison Group: “Demonstrating a combination of good defensive credentials and positive business model transition, Sage, the UK’s second largest listed technology firm reported robust results this morning.

“Operating profits saw an 8% rise in full-year organic operating profit to £383 million ($455 million), driven by an improvement in its margin that it forecasts to continue.

“The SME focused software company posted an organic recurring revenue growth of 9% to £1.82 billion ($216 billion) in the FY, in line with average market expectations and an improving mix with growth of Sage Business Cloud of 24%.

“Cloud business penetration is now 90%, up from 86% in the year prior, while subscription penetration is 93%, up from 90% on the year prior.

“Fiscal 2022 pre-tax profit was reported to have fallen due to increased costs, thanks to a change in recurring and nonrecurring items, including higher net gains in the prior year from disposals.

“For fiscal 2023, it expects organic recurring revenue growth to be ahead of the prior year, driven by strength in Sage Business Cloud, which based on recent performance, is not an unreasonable goal.

“Overall EBITDA saw a modest increase of 3% to £468 million ($556 million), with margin decreasing slightly to 24%, and statutory operating profit also dipping by 2% to £367 million ($436 million), as stated above.

“The board declared a final dividend of 18.40 pence a share compared with 17.68 pence a year earlier. Earlier in the month, the firm had seen a ~5% increase in share price, likely a result of relatively positive financials.”

Victoria Scholar, Head of Investment, Interactive Investor: “Shares in Sage Group are trading higher after it reported full-year organic profit up 8% to £383 million on revenues up 5% to £1.94 billion.

“Looking ahead, the software company said it expects organic revenue growth to be ahead of last year with operating margins expected to trend upwards. JP Morgan raised its price target on the stock following its results this morning.

“Shares in Sage Group have performed well lately, rallying by more than 15% over the past six months.

“The software company is focusing on scaling the business, helping to underpin margin growth and profitability.

“Its cloud business fared particularly well with growth of 24% despite pressures from the macroeconomic uncertainties flagged by CEO Steve Hare.”