LONDON (ShareCast) - (Sharecast News) - Sage Group reported 5.6% growth in its organic total revenue - excluding Sage Pay and Brazil, which were now held for sale - to £1.82bn in its final results on Wednesday.
The FTSE 100 enterprise software company said that reflected growth in recurring revenue of 10.8% to £1.56bn, underpinned by software subscription revenue growth of 29.4% to £1bn, offset by a 17.9% decline in SSRS revenue to £255m and a 3.0% decline in processing revenue to £8m for the year ended 30 September.

It said that including the impact of Sage Pay and Brazil, the business delivered total revenue growth of 5.2% to £1.92bn, recurring revenue growth of 10.7% to £1.61bn, and software subscription revenue growth of 28.1% to £1.04bn, offset by 18.8% decline in SSRS revenue to £260m and slight decline in processing revenue of 0.5% to £45m.

The company said "strong growth" in recurring revenue of 10.8% and annualised recurring revenue (ARR) growth of 12.6% reflected its continued focus on attracting new customers and migrating existing customers to subscription and the cloud.

Particular strength in recurring revenue growth was reported in Northern Europe and North America at 16% and 12% respectively, and in the 'Future Sage Business Cloud Opportunity' at 13%.

Sage said the decline in SSRS reflected the on-going transition to subscription revenue, and a strong SSRS comparator in the prior year.

Organic operating profit was down 13% to £432m, with the company's margin falling to 23.7%, from 28.8% in the 2018 financial year, which the board said reflected the increased investment to accelerate strategic execution, combined with increased colleague variable compensation in line with strong business performance and the commitment to colleague success.

It made a non-recurring gain of £28m, largely on the disposal of US Payroll Processing, offset by non-recurring charges for property restructuring costs of £28m and £14m for the impairment of the Brazilian asset held for sale.

Underlying cash conversion was 129%, which the board put down to an improvement in trade receivables and lower levels of 2018 bonus payout in the 2019 financial year.

Free cash flow stood at £443m, and the net debt-to-EBITDA ratio was 0.8x.

The board declared an increase in the full-year dividend of 2.5% to 16.91p, which was in line with the policy of maintaining the dividend in real terms.

A capital return of £250m was also announced, reflecting the expected proceeds from Sage Pay and strong cash generation, with further details to be announced on completion of the disposal of the Sage Pay business.

"We're very encouraged by the acceleration in recurring revenue in the 2019 financial year," said chief executive officer Steve Hare.

"We entered the year with momentum and added sequential ARR every month in the year, putting us further ahead in our transition to Sage Business Cloud than anticipated."

Hare noted the company had also made "significant progress" in its strategic execution, particularly in the development and roll out of its cloud offerings and the reshaping of its portfolio.

"We will continue to prioritise high quality recurring revenue growth over SSRS, and whilst we do not expect a linear progression in financial performance during this multi-year transition, our recent strong performance and continued progress towards becoming a great SaaS company means that we look forward with confidence."

Looking ahead, Sage said that building on the "significant" ARR created in the 2019 financial year, it expected recurring revenue growth of between 8% and 9%, driven by strong ongoing performance in the Future Sage Business Cloud Opportunity, as it continued to focus on attracting and migrating customers to Sage Business Cloud.

Other revenue - SSRS and processing - was expected to decline by high single digits, in line with that focus, with the organic operating margin expected to be around 23%, as Sage continued to invest in the transition to SaaS.

At 0847 GMT, shares in the Sage Group were down 2.72% at 721.8p.

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