Sage Group Rises 6% Following News Of Soaring Cloud Sales

Accounting software business Sage Group reported “significant strategic progress” on Wednesday as it released full-year financials.

At 800p per share the FTSE 100 business was last trading 6% higher on the day. This puts it at the top of the index’s biggest midweek risers.

Sales Rise

Revenues at Sage rose 5% in the 12 months to September to £1.95 billion, it said. Operating profit dropped 2% year on year to £367 million, due in part because profits in the previous year benefitted from disposals.

On an organic basis, sales jumped 6% to £1.92 billion and operating profit increased to £383 million, up 8%.

Organic operating margins increased to 19.9% from 19.5% a year earlier. This was thanks to improving operating efficiencies as the company scaled up, it said.

On Cloud Nine

Organic sales have benefitted hugely from the company’s transition to a cloud-based subscription model. Revenues at Sage Business Cloud jumped 24% to £1.26 billion, the company said.

Business penetration at the unit rose 8% year on year to 75%. And growing demand for its cloud software pushed annualised recurring revenues (ARRs) 12% higher, to £2.03 billion.

Sage said that it enjoyed “a strong [ARR] performance across all regions, with growth accelerating from both new and existing customers.”

Meanwhile, renewal rates by value rose to 101% in financial 2022 thanks to “good retention rates, a strong performance in customer add-ons and targeted price rises,” the company said. This was up from 99% previously.

Elsewhere the business reported a “strong cash performance” last year thanks to continued growth in cloud subscriptions. Cash conversion clocked in at 107% in last year, the fourth year in a row in which it has reported conversion north of 100%.

“A Strong Year”

Chief executive Steve Hall commented that “Sage has had a strong year, making good progress as we deliver on our strategic priorities. We significantly accelerated revenue across all key products and regions, expanded our organic operating margin and delivered strong cash flow.”

He added that “ARR growth of 12%, underpinned by increasing levels of new customer acquisition, is particularly encouraging and positions us well for the year ahead.”

Revenues And Margins Tipped To Rise

Sage noted that it has entered the new financial year “with strong momentum thanks to it having “made good strategic progress to accelerate growth.”

It said that it expects organic recurring revenue growth to be ahead of last year thanks to further strength at Sage Business Cloud.

The FTSE 100 firm added that “operating margins are expected to trend upwards [this year] and beyond, as we focus on efficiently scaling the group.”

“Positive Business Model Transition”

Dan Ridsdale, head of technology at Edison, said that today’s results demonstrate “a combination of good defensive credentials and positive business model transition.”

He added that Sage expects “organic recurring revenue growth to be ahead of the prior year, driven by strength in Sage Business Cloud, which based on recent performance, is not an unreasonable goal.”