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Sage shares fall as it warns margins investment in cloud transition will dent this year’s profits

Profits rose 16% to £398mln in the year just gone, but it is the year ahead that investors are bothered about after Sage warned margins will drop-off sharply

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Subscription revenues are growing fast year-on-year

Sage Group PLC (LON:SGE) has warned that it expects margins to fall sharply this year, sending the shares in the software group lower on Wednesday morning.

The FTSE 100 company, which helps businesses manage things such as money and people, said it plans to invest £60mln as it looks to accelerate its shift towards cloud-based, software-as-a-service (SaaS) model.

As a result of the investment, Sage expects margins for the current financial year to fall to between 23-25%. That compares with 27.8% for the year just gone and 28% in fiscal 2017.

Annual profits surge

A recovery in Northern Europe helped boost revenue in the year ended September 30 by almost 8% to £1.85bn (2017: £1.72bn), while pre-tax profits rose 16.4% to £398mln (2017: £342mln).

The final dividend was nudged up to 10.85p from 10.20p a year earlier.

READ: Sage names Steve Hare as new boss

Delivering his first set of results since becoming chief executive, Steve hare said: “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. 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.”

Shares were down 4% to 515p on Wednesday morning.

Quick facts: The Sage Group plc

Price: 690.4 GBX

LSE:SGE
Market: LSE
Market Cap: £7.53 billion
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