Sage Group share price sinks after sales sag below own expectations

Sage, Britain’s biggest tech firm, today warned sales had fallen below management expectations, “reflecting inconsistent operational execution”.

Shares dived 15 per cent in morning trades, wiping almost £1bn off the firm’s market value.

Revenue growth in the six months to March grew by 6.4 per cent, slowing from last year’s 7.4 per cent increase.

At the heart of Newcastle-based Sage’s problems was the halving in growth of lucrative recurring revenue – falling from 11.1 per cent to 6.4 per cent. “Contract slippage” in Sage’s enterprise segment was also to blame. Geographically, the firm’s northern Europe, Africa and Middle East units bore the brunt of the problems.

Full-year revenue growth guidance was revised down from eight to seven per cent. Margins, Sage said, would not change.

Read more: Sage says its “transformation” is complete as profits jump

Boss Stephen Kelly said

Growth in the first half of 2018 was lower than our expectations as the pace of execution has been slower than we planned.

Sage, known worldwide for its market-leading accounting software, revealed plans to transform itself in 2015. The firm has banked more than £100m of annualised cost savings since 2014 and pivoted towards generating recurring revenues rather than selling individual packages.

Today, Kelly insisted the market opportunity “remains unchanged”.

“Our diligence in ensuring that we focus on recurring revenue to drive sustainable acceleration throughout the rest of 2018 as a platform into 2019.”

Despite the downbeat update, there was some cause for optimism. Business cloud revenue rose 57 per cent to £335m and North America delivered “double-digit growth”.

Read more: FTSE 100 tech firm Sage splashed $850m on a US cloud software firm