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Sage reports 10 per cent profit drop as it gears up for scaling

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Sage Group headquarters in Newcastle upon Tyne. (Photo by Ian Forsyth/Getty Images)

 Accounting software company Sage reported a 10 per cent drop in full-year organic operating profit to £343m as investment in its cloud offer squeezed its margin to 19.3 per cent from 22 per cent a year ago.

It reported a recurring revenue growth of 5.4 per cent to £1.6bn in its full year results, driven by growth in Sage Business Cloud of 19 per cent to £997m.

Organic total revenue also grew by 3 per cent to £1.7bn.

Steve Hare, chief executive of Sage, said: “Sage delivered a strong performance in FY21. We achieved recurring revenue growth ahead of our initial expectations and ended the year with real momentum, supported by our strategic investment in sales, marketing and innovation.”

“Our cloud native solutions have performed particularly well, as more new customers choose Sage to take care of their accounting, people and payroll processes – removing friction, delivering business insights, and giving them a competitive edge.”

Strategically, cloud native ARR increased by 44 per cent to £347m (FY20: £240m), driven by growth from new customers and supported by migrations from cloud connected and desktop products.

Looking forward, it expects to achieve organic recurring revenue growth in the region of 8 per cent to 9 per cent in FY22, driven by continuing strength in Sage Business Cloud, and in cloud native revenues in particular.

Hare commented on this: “Having reshaped and invested significantly in the Group over the last three years, we are now focused on growing the business in absolute terms, both organically and through acquisitions. The small and mid-sized businesses that power the global economy are adopting digital solutions at a faster rate than ever before.”

He believes that Sage are “well positioned” to support small businesses.

Sage therefore expects other revenue to continue to decline, in line with its strategy. Consistent with previous guidance, organic operating margin is expected to trend upwards in FY22 and beyond, as its focus shifts to scaling the Group.