Sage Group aiming to build on profit rises with overhaul plans

Sage Group has signalled it will undergo an overhaul of its business, after the accounting software company revealed strong increases in revenues and profits that kept it on track to meet its targets for 2015.

The UK's biggest software group by market capitalisation said organic profits rose more than 9 per cent to £192m during the six months ending March 31.

Sage has previously stated that its main target is to reach 6 per cent organic revenue growth by this year and has made steady progress towards the goal previous financial quarters.

On Wednesday, it reported that organic revenue had increased by 6.2 per cent year-on-year, to £682m in the first half of 2015.

The Newcastle-based company sells accounting software to about 6m customers worldwide, ranging from small enterprises to large corporations. It is overhauling its business to strengthen its cloud, mobile and payments products.

To do this, it is shifting clients from paying licence fees to subscriptions, which will provide more stable, long-term revenues.

The company showed it was making progress with this strategy, reporting that organic recurring revenues increased 7.7 per cent year on year to £499m.

Sage has made significant moves in recent months to address the threat from increased competition from cloud-based competitors such as Xero, Intuit and NetSuite.

Last year, it appointed Stephen Kelly as chief executive, who has been welcomed by investors and analysts due to his record.

He was previously the UK government's chief operating officer, led Chordiant, a Nasdaq-listed technology group and helped turn round British software company Micro Focus after its disastrous initial public offering.

But the first big test of Mr Kelly's tenure will come next month when he is expected to spell out a new strategic vision for the company in June.

In a statement, he said: "We have already started making changes to facilitate and underpin our longer-term growth plans. These changes are being carefully introduced to ensure minimum risk to the business.

"These include organisational and product improvements which will help drive sustainable, profitable growth and build on Sage's existing strengths. We are at the start of this journey which will take a couple of years to fully implement."

However, the company did warn of weak performance in parts of its business, such as in North American small and medium size business arm which it described as a "drag on growth for the region," as well as a 4 per cent fall in revenues in its European enterprise business.

The company also said it had achieved 115,000 subscribers for Sage One, its small business cloud product, an increase of nearly 47,000. But the company said that this progress was "disappointing . . . [and] does not match our ambition".

Operating margins increased to 28.1 per cent, compared to 27.4 per cent a year earlier.

In September last year, Sage acquired US payroll services group PayChoice for nearly £100m as it attempted to secure a stronger foothold in the American and small business markets.

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