Sage Group buoyant after strong first half

Accounting software specialist Sage Group reported a significant increase in underlying recurring revenue in its first half on Wednesday, driven by robust growth in Sage Business Cloud.

The FTSE 100 firm said underlying recurring revenue was ahead 12% year-on-year, at £1.04bn.

It put that growth down to the performance of Sage Business Cloud, which experienced a substantial growth rate of 29% to reach £787m.

Underlying total revenue was 10% firmer year-on-year in the six months ended 31 March, totaling £1.09bn.

The company's underlying operating profit rose 14% to £227m, and its operating margin expanded by 60-basis points to 20.8%, primarily driven by operational efficiencies as the group scales its operations.

Sage Group's EBITDA jumped 13% to £275m, with the EBITDA margin also seeing a rise of 60-basis points, to 25.2%.

Despite the strong underlying performance, Sage reported a decline of 23% in its statutory operating profit, to £157m.

The board put the decrease down to changes in recurring and non-recurring items, including a one-off gain of £49m in the previous period resulting from the disposal of Sage Switzerland.

Underlying basic earnings per share were ahead 13%, reaching 15.68p, as a result of the expansion in underlying operating profit.

Sage reported continued strong cash performance, with a cash conversion rate of 117% after growth in subscription revenue and effective management of working capital.

The board said the company was maintaining a robust balance sheet, with £1.2bn in cash and available liquidity.

Additionally, its net debt-to-EBITDA ratio stood at 1.3x, indicating a healthy financial position.

In line with its progressive policy, Sage declared a 4% increase in the interim dividend to 6.55p per share.

Looking ahead, Sage Group said it expected organic recurring revenue growth for the full year to be around 11, driven by ongoing strength in Sage Business Cloud.

The company said it anticipated a decline in other revenue in line with its strategic plans.

Additionally, Sage forecast an upward trend in operating margins for the 2023 financial year and beyond, as it prioritised efficient scaling of the group.

“Sage performed strongly in the first half, accelerating revenue growth, increasing profitability and making further progress against our strategic priorities,” said chief executive officer Steve Hare.

“Our investments in technology and in sales and marketing are continuing to drive results, as small and mid-sized businesses increasingly choose Sage as a valued partner to transform the way they work.

“Our purpose is to knock down barriers so everyone can thrive. We are committed to delivering innovative, AI-powered services that make our customers' lives easier and their organisations more productive and resilient.”

Hare said Sage's platform, centred on its digital network, was enabling it to leverage its scale and collective expertise to maximise opportunities across markets.

“Small and mid-sized businesses are continuing to digitise, despite the macroeconomic uncertainty, and through our trusted technology and human approach Sage is well positioned to support them.

“I am confident that our proven strategy will enable us to deliver further efficient growth.”

At 0942 BST, shares in the Sage Group were up 3.65% at 851p.

Reporting by Josh White for Sharecast.com.