December 2, 2015 / 10:35 AM / in 2 years

Software firm Sage's profitability muddied by accounts change

LONDON (Reuters) - Sage Group, the British provider of software to run accounts for small businesses, changed the way it booked its revenue on Wednesday, leading to a lower forecast for profitability and knocking its shares.

The group’s shares fell 6 percent despite it growing revenue by its target of 6 percent in the 12 months to end-Sept, and saying it would equal or better the performance in its new financial year.

Analysts said investors were confused by the changes Sage made in its accounting for revenue.

Shares in the company, which have risen 14 percent in the last two months, were down 5.5 percent at 545 pence at 0914 GMT, the biggest declining stock in the FTSE index.

Sage reported full-year organic revenue of 1.36 billion pounds ($2.05 billion) and operating profit of 383 million pounds on Wednesday after it improved its profit margin by 70 basis points to 28.2 percent, in line with its guidance.

The company said that under its revised revenue definition, it would target an operating margin of 27 percent this year.

“The operating profit outlook remains the same,” Finance Director Steve Hare told reporters. “We’ve called out some changes in the way we record revenue, which results in slightly higher revenue, but the profitability remains the same.”

“At some point over the course of the next few years you will start to see that operating margin increasing.”

Broker Numis said it expected some confusion over the margin forecast. “Margin guidance of 27 percent looks 100 basis points lower than before, but this reflects the accounting policy change,” its analysts said.

Sage, which supplies millions of small business with accounting and other software, has been simplifying its product range and improving its sales and customers support operations under the leadership of Stephen Kelly, who joined just over a year ago.

($1 = 0.6637 pounds)

Editing by James Davey and Louise Heavens

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