Sage completes cloud transformation and promises 2018 acceleration

Sage Group kept revenue growth and margins above their annual target and said the launch of its Business Cloud software suite would enable it to "accelerate momentum" in 2018.

Two years after setting out a plan to transform the business, chief executive Stephen Kelly said 2017 marked the completion of this metamorphosis.

Guidance for at least 6% organic revenue growth has been surpassed with 6.6% growth to £1.7bn in the year, while the target of 27% underlying operating margin was hit on the nose, with 28% at the reported level and an Earnings before interest, tax, depreciation and amortisation margin of more than 30%, while continuing to transform the business.

One of the chief areas of change has been towards subscription, with recurring revenue now 78% of total revenue, with software subscription revenue representing 37% of total revenue from 30% the prior year and 22% in 2014.

Annualised cost savings of £59m were made in the year, with one-off charges of £73m, both better than previously guided.

"We now have the leadership, organisational alignment, brand and comprehensive suite of cloud solutions, to accelerate momentum in our markets," said Kelly. "The launch of Sage Business Cloud in October 2017 gives our customers the most comprehensive business management cloud platform in the market and provides the platform for this acceleration."

From virtually no cloud presence in 2014, Sage has developed and acquired a range of cloud-based accounting software that it has 'unified' under the Business Cloud brand and generated £300m of annualised recurring revenue in the year, growing at over 80% in the year.

Acquisitions provided a key contribution to growth this year, with Intacct surpassing $100m ARR and continuing to grow more than 30%; Fairsail, rebranded Sage People, had a record fourth quarter with the highest ever contract signed at over £300,000 and Compass users have increased by 65% since acquisition.

Kelly expects organic revenue growth for the 2018 financial year to be "around 8%" and with further cost efficiencies to offset any losses from growing the acquired businesses and enable an organic operating margin of "around 27.5%".

A new capital markets day in London on 25 January will see out plans for Sage's "future accelerated growth journey".

For now, investors have been given a 9.0% increase in the full year dividend to 15.42p as underlying cash conversion waned to 95% from 100% the previous year due to increased capex investment, leading to free cash flow of £276m.