Sage first-half profit drops, buys stake in Fairsail

Software company Sage reported a drop in first-half pre-tax profit despite a rise in revenue, as it announced an agreement to buy a 20.7% stake in Fairsail.

In the six months to the end of March, pre-tax profit fell 15.6% to £142m, even as revenue rose to £747m from £717m, as the company incurred an exceptional charge of £31m, £22m of which relates to general and administrative expenses.

Organic revenue grew 6.2% in the period, while recurring revenue was up 10% to £513m and the company lifted its interim dividend by 8% to 4.80p per share.

Sage saw software subscription grow to 35.3% from 25.4% in the first half of 2015, while subscription contracts rose 50% to 842,000.

Chief executive officer Stephen Kelly said: “Sage continues to perform and transform. We made a good start to FY16 with double digit recurring revenue growth as validation that customers are embracing closer subscription relationships. High quality organic revenue growth continued to accelerate H1 over H1.

“We are pleased with the early progress made and recognise there is still much to do in the transformation. We remain confident in achieving our full year targets of at least 6% organic revenue growth and organic operating margin of 27%."

Also on Thursday, Sage said it has entered into an agreement to buy 20.7% of privately-owned software developer Fairsail Limited for £10m.

It has also extended its partnership agreement with Fairsail to offer its cloud human capital management products as an integrated solution for Sage's leading business management system, Sage X3.

Sage noted that the deal is considered a related-party transaction as chief executive officer Stephen Kelly was a minority shareholder until recently.

At 0826 BST, Sage shares were down 2.7% to 588p.