Cloud push rains on Sage

A focus on reshaping Software company Sage’s cloud services ate into profits in the year ending September.

The company said operating profit fell 10.5% to £382 million, despite a 4.9% increase in revenue for the period.

The company is in the process of moving its customers from traditional software to software provided through the internet, or the cloud, so they can access services from different computers without having to re-install the software each time.

The switch also includes a change to a subscription-based model, rather than one based on a one-off upfront payment.

Revenue from software and related services (SSRS) fell 18% to £255 million as the company moved over to a subscription model.

“We’ve … made significant progress in our strategic execution, particularly in the development and roll out of our cloud offerings and the reshaping of our portfolio,” said chief executive Steve Hare.

“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 software as a service company means that we look forward with confidence.”

The company said recurring revenue is expected to grow by 8%-9% in the year ahead, despite forecasting an almost 10% drop in SSRS and processing revenue.

It also expects organic operating profit margin to reach around 23%, down from 23.7% this year, and 28.8% in the 2018 financial year.

Sage produces technology and provides tech support for small and medium-sized businesses. It has 13,000 employees around the world.

Shares in the company were down 4.3% to 710.4p.