Sage’s growing subscription business boosts revenues

By Aarthi Rayapura November 30, 2016

By Lauren Fedor

Sage, Britain’s biggest software group, has reported improved revenue growth and operating margins as faster-growing subscription revenues continued to offset a decline in its traditional software sales.

On Wednesday, the Newcastle-based company, which provides accounting and payroll software for clients in more than 20 countries, reported organic revenue growth of 6.1 percent for the 12 months to the end of September. Recurring revenue growth was strong, too, at 10.4 percent, compared with 9 percent last year. Overall, that lifted total revenue by 9.3 percent, to £1.57bn.

Organic operating profit margins improved to 27.2 per cent compared with 26.5 per cent last year, but pre-tax profits were relatively flat at £275m.

Sage shares rose more than 2 percent in early trading, to 693p per share, on news of the company’s performance and an 8 per cent increase in its ordinary dividend, to 14.15p per share.

Sage’s traditional business of installing software in customers’ offices has come up against increased global competition from nimbler start-ups such as Xero, Intuit and NetSuite that offer products that are web or cloud-based.

In response, Sage has looked to new technology-driven products as part of an ambitious turnround plan to boost its growth. A key part of this overhaul has been encouraging customers to sign up to a subscription model.

Stephen Kelly, chief executive, said on Wednesday that the strategy was “working, with customers embracing closer relationships with Sage”.

Software subscription revenue grew just over 32 percent in the year to the end of September, while the number of software subscription contracts increased 46 percent, to just over 1m. Retention rates, the proportion of customers that renewed their software subscriptions, increased to 86 percent compared with 84 percent last year.

Read the full article on FT.com

And learn what Steve Hare, CFO at Sage has to say about the company’s shift from product sales to subscriptions here.