Sage Group profits fall 30% as subsidiary sales decline but accounting software sales rise
- Sage only received £47m in disposals, down from £147m the previous year
- The company is becoming a Software as a Service (SaaS) company
- Growth came from its Business Cloud software and growing customer base
Software company Sage Group saw its profits fall by 30% as it reaped less money from offloading a number of its subsidiaries.
The group earned £100million less from divestments in the six months to March 31 after making a sizable sum in the same period last year selling its payment provider Sage Pay, now renamed Opayo.
It has sold numerous international entities in the recent period, including its Australian and Swiss operations and its South African payroll outsourcing division, but only received £47m from disposals compared to £147m pounds sterling the previous year.
Software: Sage Group said its organic recurring revenue grew 4.4% on software subscription sales up 11% to £608m
This led to a drop in statutory operating profit from £86m to £203m, while revenue was down 4% as it was also hit by lower software and services trading related to software (SSRS), such as license sales and processing.
But the company said its organic recurring revenue rose 4.4% on the back of the popularity of its customer base and Business Cloud accounting software, pushing subscription revenue up 11% to £608m.
North America saw the biggest increase in recurring organic revenue of any region – rising 6% to £316m – driven by 19% growth in cloud-based financial management business Sage Intact.
Expansion: Sage boss Steve Hare said he expects small and medium-sized businesses to lead the post-pandemic recovery
Sage said the results reflected its transition from license sales and professional services to a software-as-a-service (SaaS) business backed by a subscription-based payment model.
It expects SSRS and Processing organic recurring revenue to continue to decline in fiscal 2021, but overall organic recurring revenue to be at the upper end of its 3-5% range.
Chief executive Steve Hare said the company saw a way out of the economic disaster wrought by the pandemic through its small customers.
“Our deep sense of purpose and experience supporting small and medium-sized businesses through change has equipped us well to play a vital role throughout the pandemic,” he remarked.
Research released today by the Newcastle-based company also set an optimistic tone, with predictions that small and medium-sized businesses will create more than 8 million jobs in France, the US and the UK this year.
The FTSE 100 company found that as consumers grow more confident and lockdown restrictions loosen, most companies surveyed expect a return to profitability by the fourth quarter of this year.
Spending plan: Sage, which makes accounting and HR software for small businesses, wants to pump money into its Sage Business Cloud division
It further found that a majority of businesses said they had become more resilient and had “managed well” the challenges thrown up by the Covid-19 pandemic, while more than eight in ten expect this another lock does not occur.
“We believe small and medium-sized businesses will lead the recovery, and I’m confident our strategic investment in Sage Business Cloud will continue to accelerate growth as customers become stronger and more digital,” Hare continued.
Sage Group shares closed 3.4% higher at 644.5p on Friday, making it the third highest riser on the FTSE 100 today behind Burberry and Whitbread.
Russ Mould, Chief Investment Officer at AJ Bell, said: “Historically, Sage was a ‘stable’ business based on a license sales model, where most contract cash came in upfront with servicing and maintenance revenue. at high margin over the term of the contract.
“In recent times, its market has been disrupted by cloud computing, with customers seeking to access applications on any internet-connected device, which has led to volatility in the share price.
“Even if users stick with Sage’s cloud offering, discontinuing licenses typically decreases upfront revenue and cash flow, and requires significant investment.”
If Sage is to become “a beautiful corporate butterfly,” Mold added, “the company must show that it can improve profitability while continuing to grow subscription revenue.”