How Sage's AI Investment Fuels 23% Cloud Revenue Surge
Sage Group, the UK-based provider of accounting and financial software for small businesses, has reported its cloud transformation and artificial intelligence strategy is delivering results.
The company saw a 9% increase in underlying revenue to £2.3bn (US$2.8bn) for the year ended 30 September 2024, with cloud-native solutions showing particularly strong growth against competitors like Intuit and Xero.
AI and Cloud Transformation
The FTSE 100 company's push into generative AI through its Sage Copilot assistant has attracted over 8,000 customers since its launch.
The tool, which automates invoice management, payment tracking and provides strategic insights, has been integrated across key products including Sage Accounting, Sage for Accountants and Sage Active.
Subscription revenue, representing 82% of total income, grew 13% to £1.9bn (US$2.3bn) as customers migrated from traditional on-premise software to cloud services.
From products running entirely online, cloud-native revenue jumped 23% to £732m (US$915m), indicating a significant shift in the company's delivery model and customer preferences.
A strategic partnership with Amazon Web Services has enabled Sage to develop specialised large language models for accounting and compliance tasks.
This collaboration focuses on automating complex financial processes and positions the company to compete with newer fintech entrants in the small business market.
Network Expansion and Platform Development
The Sage Network platform, which digitises business processes between customers, suppliers and banks, expanded its reach through new partnerships.
A collaboration with payments provider Stripe aims to streamline cash flow management for small businesses, while a new customer account portal enables secure sharing of financial information.
The company has invested in developing API capabilities and expanded its developer platform, announced at Transform 2024, to grow its developer community. This move aims to increase third-party integrations and expand the ecosystem of connected services.
In Europe, Sage launched Active Essentials, integrating sales management capabilities into its core platform across France, Spain and Germany. The move represents Sage's response to increasing demand for integrated business management solutions in these markets.
Regional Market Performance
North American operations delivered the strongest performance, with revenue growing 12% to £1.05bn (US$1.3bn).
Sage Intacct, the company's cloud financial management platform, saw revenue surge 24% to £385m (US$482m) and now accounts for over 40% of US revenue. The platform has gained significant traction internationally, attracting nearly 1,200 customers in the UK and showing early momentum in France and Germany.
European markets showed more modest growth of 6%, reaching £610m (US$764m). France, which generates half of European revenue, grew 6% to £309m (US$386m), driven by adoption of Sage 200 cloud and Sage X3 solutions.
Central Europe matched this growth rate, reaching £148m (US$184m), with HR and payroll solutions accounting for almost half of regional revenue. Iberian operations grew 7% to £153m (US$191m), supported by strong cloud adoption and the launch of Sage for Accountants in Spain.
The UK, Ireland, Africa and Asia-Pacific region recorded revenue growth of 8% to £670m (US$837m). The UK and Ireland specifically saw 7% growth to £505m (US$631m), while Africa and APAC outperformed with 11% growth to £165m (US$206m), driven by strong adoption of Sage Accounting and payroll products.
“Small and mid-sized businesses remain resilient, despite the ongoing macroeconomic uncertainty, and they continue to choose Sage to help them become more productive and efficient”
Strategic Acquisitions and Investment
During the year, Sage completed three strategic acquisitions to enhance its vertical-specific capabilities.
The purchase of Bridgetown Software brought sophisticated bid analysis tools for the construction industry, while Infineo added integrated reporting and data visualisation expertise.
The acquisition of supply chain management provider Anvyl positions Sage to expand beyond its core financial software offering into broader business operations.
Financial Position and Outlook
Free cash flow increased 30% to £524m (US$655m), supported by underlying cash conversion of 123%, reflecting the strength of the subscription-based business model.
The company maintained £1.1bn (US$1.37bn) of cash and available liquidity, with net debt at £738m (US$922m) representing 1.2 times EBITDA.
The renewal rate by value remained strong at 101%, with the company adding £190m (US$237m) of annualised recurring revenue through new customer acquisition. EBITDA grew 16% to £622m (US$77m), with margin increasing by 160 basis points to 26.6%.
A new share buyback programme of up to £400m (US$499m) has been announced, while the board proposed a final dividend of 13.50p per share, bringing the full-year dividend to 20.45p, an increase of 6% over the previous year.
Steve Hare, CEO, sees continued opportunity despite market challenges: “Small and mid-sized businesses remain resilient, despite the ongoing macroeconomic uncertainty, and they continue to choose Sage to help them become more productive and efficient.”
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