Sage Group beats forecasts in first year of new growth strategy

Accounting software company Sage Group’s annual revenues and earnings were slightly higher than forecast as it implemented the first phase of its growth strategy.

In June 2015 the company outlined a plan to gain new customers, retain existing customers and “revolutionise business” in order to grow the company.

For the year ended 30 September, revenue of £1.57bn was up 9.3% compared to last year, just ahead of the consensus analyst forecast of £1.56bn.

Organic revenue increased by 6.1% to £1.57bn driven by a 10.4% rise in recurring revenue, which grew at the fastest rate in a decade to £1.09bn.

Organic operating profits rose 9.2% to £427m and although pre-tax profit slipped 0.4% to £275m, the FTSE 100 company generated a 9% rise in underlying basic earnings per share to 27.84p, beating the 27.1p consensus forecast.

With underlying cash conversion at 100%, supporting a free cash flow of £254m, a dividend of 14.15p per share was declared, an 8% increase from last year.

Software subscription grew 32.3% from 28.9%, in line with the planned transition and planned decline in SQL server reporting services (SSRS) revenue of 8.5%.

During the year there was a 46% increase in software subscription contracts to just over 1m and a rise in retention rates to 86% from 84%.

The company said there was accelerating revenue growth in Europe, Africa and Brazil, but a slower performance in Asia due to a one-off regulatory change last year, while growth in North America was flat.

Chief executive Stephen Kelly said: "Phase one of the transformation programme has been successfully delivered. For phase two we have ensured that we have the core management team, processes and culture to deliver the best technology ecosystem for our customers - those business builders that drive the world's economy, creating jobs, growth and prosperity.

“Phase two of the transformation will continue to be non-linear and focus on driving more technology innovation with increasing focus on new customer acquisition as well as continuing to improve execution against the strategy for business builders.”

For the 2017 financial year, the second full fiscal year of the company’s transformation, its full year guidance is for at least 6% organic revenue growth and at least 27% organic operating margin.

Kelly said the company will continue to front-load investment in growth in the first half of 2017, consistent with its execution last year, and consequently, it anticipates a stronger growth in the second half of 2017.