UPDATE 2-UK software firm Sage says H1 revenue up 17 pct

* Says demand for subscription services still strong

* Revenues beats forecasts due to currency

* Second half of 2009 set to be tough

* Shares up 3.8 percent (Adds further details, reaction, share price)

By Kate Holton

LONDON, May 6 (Reuters) - British software company Sage Group Plc (SGE.L) posted a 17 percent rise in first-half revenues on Wednesday, boosted by strong demand for subscription services and currency movements.

Sage, which sells accountancy and business-management software to more than 5 million small to medium-sized companies, said it was well positioned to benefit when markets recover but expects tough conditions to persist this financial year.

It said its strong organic growth in subscription revenue, which includes support packages, had helped to offset a 15 percent contraction in organic software and software-related service revenues.

Subscription revenue, which constituted 64 percent of the business, grew 2 percent organically.

To combat the downturn, it announced annualised savings of 49.3 million pounds, which equates to 4 percent of the full-year 2008 cost base. Finance Director Paul Harrison said this had included 700 job cuts, which he felt was now sufficient.

"We anticipate that market conditions will be challenging for both Sage and its customers over the second half of the year," the company said. "With global customer confidence at historically low levels, demand for software and software-related services will remain muted.

"However, demand for high-quality customer support remains strong."

Shares in Sage were up 6 percent to 196.5 pence at 0844 GMT and analysts welcomed the results.

Panmure Gordon, which rates Sage shares as a 'buy', said it would raise its 2009 estimated earnings per share to 14.9 pence from an earlier 14.4 pence and the target price to 194 pence from 192 due to the cost savings plan.

Statutory revenues for the six months rose by 17 percent to 748.4 million pounds ($1.13 billion), enhanced by favourable currency movements, and compared with analysts' forecasts compiled by Reuters Estimates of around 725 million pounds.

Taking out the impact of currency movements, revenue contracted 3 percent, compared with a first-half 2008 organic growth of 9 percent.

Statutory pretax profit rose by 14 percent to 139.2 million pounds, compared with a market forecast of 145 million pounds. On a currency-neutral basis adjusted pretax profit was down 3 percent.

Sage said its businesses in its Mainland Europe and the Rest of the World division had begun to experience similar market conditions to those it had seen in North America and Britain last year.

It said this had resulted in customers delaying plans to purchase new licences, upgrades and migrations to new systems.

Organic revenue from Britain declined by 2 percent, although organic subscription revenue remained robust, with 7 percent growth.

Organic revenues also contracted 2 percent in Mainland Europe, while it was down 9 percent in the difficult North American market.

It said the Healthcare Division continued to improve as part of its turnaround strategy. (Editing by Greg Mahlich) ($1=.6626 pounds)