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Sage profits slip as it perseveres with shift to recurring revenue

Total revenue rose 5.6% to £1.8bn, boosted by a 10.8% increase in organic recurring revenue, which saw organic operating profit margin shrink by 5.1 percentage points

The Sage Group plc -

The Sage Group plc (LON:SGE) reported a 13% fall in profits for the past year as the accounting software specialist continues to shift more customers over to a cloud-based subscription model, but unveiled £250mln capital return after agreeing to sell its Sage Pay merchant payment arm.

Total revenue for the year ended 30 September was up 5.6% to £1.8bn, boosted by a 10.8% increase in organic recurring revenue to £1.56bn, while organic operating profit dropped to £432mln as the profit margin shrank sharply to 23.7% from 28.8%.

READ: Sage Group to sell merchant payment service business to US Bancorp

Recurring revenue was underpinned by 29.4% growth in Sage Business Cloud software subscription (SaaS) revenue to just over £1bn, offset by a 17.9% fall sales from the FTSE 100 group’s traditional software and software-related services (SSRS) business to £255mln and a 3.0% decline in processing revenue to £8mln.

The move to a business model with a higher proportion of revenue from SaaS is expected to improve the quality of revenues while also enabling strong returns on investment.

Details on the exact nature of the capital return were not confirmed, but Sage increased the full-year dividend 2.5% to 16.91p and said it will continue to maintain the dividend in real terms in future.

Chief executive Steve Hare, who was promoted from chief financial officer a year ago, said he was “very encouraged by the acceleration in recurring revenue”, with sequential annualised recurring revenue every month in the year to put the group “further ahead in our transition to Sage Business Cloud than anticipated”.

With progress made in the development and roll out of cloud offerings and the reshaping of the portfolio, Hare said: “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.”

On the outlook he said recurring revenue growth of 8-9% was expected, driven by cloud sales, while SSRS and processing revenue is expected to decline by “high single digits” and organic operating profit margin expected to be around the bottom of the 23%-25% range previously indicated.

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