By Paul Sandle

LONDON (Reuters) -Britain's Sage Group reported a better-than-expected 21% rise in operating profit driven by a 220 basis points margin increase and said it expected further progress this year, sending its shares to a record high on Wednesday.

The company, whose accountancy software is used by millions of small businesses, reported a profit of 529 million pounds ($671 million) on revenue of 2.3 billion pounds, up 9%, for the year to end-September.

Chief Executive Steve Hare said Sage had achieved "strong, broad-based revenue growth together with significantly higher profits and cash flows".

Sage's operating profit margin rose to 22.7 percent, which is around the levels seen five years ago before the company invested heavily in cloud services.

Hare said he expected the margin to increase further this year but by towards the lower end of a 50-100 basis points range as the group continues to invest in revenue growth.

Sage has started to deploy generative AI in its products with the aim of providing insights to its small business owners, for example by highlighting overdue debts, he said.

Shares in Sage jumped as much as 22% in early deals to a record high of 1,317 pence.

Hare said Sage had seen a "very strong finish" to the year after some customers, particularly in United States, had been cautious earlier in the year. "North America remains our fastest growing territory," he said.

He said he expected organic revenue to increase by 9% or above this year. "But all other things being equal, hopefully that's conservative," he added.

Sage announced a 6% increase in its full-year dividend and a 400 million pound share buyback, which it said reflected its strong cash generation and confidence in its prospects.

($1 = 0.7888 pounds)

(Reporting by Paul Sandle; editing by Sarah Young and Elaine Hardcastle)