Sage confident after robust first half

(Sharecast News) - Shares in Sage Group were in the red at the open on Thursday, even after the company reported a robust first-half performance, with underlying total revenue rising 10% to £1.15bn. The FTSE 100 software company said its operating profit was ahead 18% year-on-year at £254m, with a margin increase of 160 basis points to 22%, which it attributed to operating efficiencies as it scaled its operations.

EBITDA meanwhile increased 14% to £299m, with a margin rise of 100 basis points to 25.9%.

Statutory operating profit leapt 38% to £215m, fuelled by underlying operating profit growth alongside reduced restructuring and merger and acquisition-related charges.

Underlying basic earnings per share (EPS) rose 23% to 18.2p.

The company recorded strong underlying cash conversion of 127%, driven by sustained growth in subscription revenue and effective working capital management.

Sage said it maintained a robust balance sheet, with £1.1bn in cash and available liquidity, and net debt-to-EBITDA standing at 1.4x.

The board hiked the interim dividend by 6% to 6.95p, aligning with its progressive dividend policy.

Operationally, Sage said it achieved an 11% increase in underlying annualised recurring revenue to £2.25bn, with growth seen across all regions, balancing new and existing customer acquisitions.

The renewal rate by value stood at 102%, exceeding the prior year's rate and driven by increased sales to existing customers and strong retention rates.

Sage Business Cloud revenue was 18% firmer at £915m, including 25% growth in cloud native revenue to £353m.

Subscription penetration rose to 81%, driven by 14% growth in subscription revenue to £937m.

The company reported strategic progress, expanding its global cloud solutions and deepening vertical-specific capabilities.

That was further bolstered by the acquisition of Bridgetown Software.

Sage Group said it was continuing to scale its Sage Network to deliver features and services, recently introducing its generative AI-powered digital assistant, Sage Copilot.

Looking ahead, Sage said it anticipated organic total revenue growth for the full 2024 financial year to be broadly in line with the first half.

The company also expected operating margins to trend upwards in 2024 and beyond, as it remained focused on efficiently scaling the group.

"Sage performed well in the first half of the year, delivering broad-based revenue growth and significant margin expansion," said chief executive officer Steve Hare.

"Demand for our solutions remains robust, with small and mid-sized businesses continuing to trust Sage to automate their accounting, HR and payroll workflows.

"We are resolutely focused on innovation, as both a source of near-term competitive advantage and a foundation for our long-term success."

Hare said Sage was continuing to introduce new AI-powered products and services to deliver enhanced productivity and insights, driving value for both existing and new customers.

"As we look forward, despite the ongoing macroeconomic uncertainty, I am confident that Sage's proven strategy, underpinned by continued investment, will enable us to deliver further efficient growth."

At 0810 BST, shares in the Sage Group were down 4.59% at 1,142.5p.

Reporting by Josh White for Sharecast.com.