Sage backs FY guidance as first-half adjusted operating profit dips

Accounting software company Sage posted a drop in first-half adjusted operating profit on Friday, as it said revenue growth for 2019 is expected to be at the top end or slightly above its guidance range.

In results for the six months to the end of March, the company said underlying operating profit dipped 2.9% to £218m even as total revenue rose 4.9% to £957m. On an organic basis, recurring revenue was up 10.2% at £779m and total revenue rose 6.2% to £941m, as operating profit slipped 0.8% to £218m.

On a statutory basis, operating profit was up 12.9% to £210m, while revenue increased 6.4% to £957m.

The group saw subscription growth of 27.7% during the half, which was offset by an 11.8% drop in software and software related services (SSRS). Growth in recurring revenue was driven mainly by strength in North America, which saw a 12% jump to £276m, and Northern Europe, where it grew 14% to £163m.

Sage said it now expects FY19 organic recurring revenue growth to be at the top end or slightly exceed the guided range of between 8-9%, but SSRS and processing revenue is forecast to be at the lower end or below its guided range of flat to a mid-single digit decline.

Overall, its expectations for full-year revenue remain unchanged and the company maintained its organic operating profit margin guidance of 23-25%.

Chief executive officer Steve Hare said: "We are encouraged by the strong start to FY19. Sage's vision is to become a great SaaS company and by focusing on customers, colleagues and innovation we are starting to see evidence of successful strategic execution. This is reflected in the strong performance in high quality recurring revenue, underpinned by subscription in the first half of the year.

"We will continue to focus on driving high-quality recurring and subscription revenue in the second half of the year."