November 20, 2019 / 9:24 AM / 5 months ago

UPDATE 1-UK software firm Sage's profit dips on cloud investment

(Adds CEO comments, analyst reaction, shares)

By Paul Sandle

LONDON, Nov 20 (Reuters) - British software company Sage reported a 13% drop in full-year organic operating profit to 432 million pounds ($558 million) on Wednesday as its margin was squeezed by increased investment in its cloud and subscription products.

Chief Executive Steve Hare said Sage had made progress in building subscription revenue, extending its cloud capabilities and improving its performance in Britain.

“We now have over a billion pounds of subscription revenue - that’s a really important milestone, if you go back three or four years we had less than 300 million,” he said.

The company, which provides accounting and other software to small and medium sized businesses, reported a 5.6% rise in organic revenue for the year to end-September to 1.82 billion pounds, slightly ahead of analysts’ forecasts of 5.4% growth.

Sage forecast recurring revenue growth of 8-9% for the current year, and said its margin would be around 23%, which represents no recovery in its margin the short term.

Hare said Sage was pursuing the long-term opportunity to build a cloud environment that included products and services from Sage and its partners.

“We are really focused now on building out Sage Business Cloud. It’s much more than a collection of products: it’s a comprehensive digital environment that includes products, services and partners.”

“We are investing for growth,” he said. “I am not focused on enhancing the margin in the short term, I am focused on delivering a reasonable margin but investing for growth and making sure we have the right capabilities.”

Shares in Sage, which have had a strong run up to the results, were trading down 3% at 717 pence at 0900GMT.

Analysts at Citi said the margin trajectory was key.

“To us the outlook indicates slight conservatism on the top line, but we anticipate greater scrutiny when it comes to margin as it suggests higher investments than expectations,” they said.

Sage increased its full-year dividend by 2.5% to 16.91 pence a share, and said it would return 250 million pounds to shareholders, reflecting the expected proceeds of the disposal of its Sage Pay business.

$1 = 0.7744 pounds Editing by James Davey and Jane Merriman

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