Shares in software firm Sage dipped this morning as it revealed it hit a downgraded target and announced further spending as it races to keep up with cloud-based rivals.
The accounting software company’s shares fell more than four per cent today after it announced organic revenue was up 6.8 per cent – the bottom end of a seven per cent full-year target.
Organic operating profit increased by £30m to £505m, and the group boosted its dividend per share from 15.42p to 16.5p.
Annual recurring revenue (ARR) for cloud connected solutions grew 66 per cent in the year.
Why it matters
The results come as the company attempts to keep up with cloud-based software companies.
Looking forward, Sage will continue to target a transformation into a software as a service (SaaS) business by increasing research and development resources for cloud technology and expanding the Sage Business Cloud within certain markets.
The business expects the increased investment to total around £60m next year, but said it was committed to reducing operating costs by five per cent in the long-term.
In August, chief executive Stephen Kelly stepped down as the firm revealed that hitting full-year guidance was reliant on signing a number of deals in September with finance officer Steve Hare taking over as chief executive.
What the company said
Chief executive Steve Hare said: “Sage has shown stronger performance in the second half of 2018. The renewed focus on high-quality subscription and recurring revenue has generated momentum as we exited the year.
“As chief executive I will put customers, colleagues and innovation at the heart of everything we do to accelerate the transition to becoming a great SaaS business.
“That means investing further resource in Sage Business Cloud, a continued commitment to customer success and a culture which values the individuals and promotes collaboration. Increased investment in these areas will lead to an acceleration in high-quality sustainable recurring revenue growth."
What analysts said
Hargreaves Lansdown senior analyst Laith Khalaf said: “Sage has had a tough couple of years as it tried to catch up with newer, cloud-based offerings from its rivals.
“Today’s statement acknowledges that the group needs to push harder along this path. The business retains its key strengths of robust cash generation, strong organic revenue growth and a rising proportion of recurring revenues.
“But it needs to do more because the financial management software markets are rapidly migrating towards cloud-based delivery and most of Sage’s revenues still come from older-generation products.
“Forecasts are going to be brought back to reflect the additional investments required, which will rein profit margins back.
“The shares have been weak in the lead up to these numbers, but with reductions of 10 per cent or more to forecasts looking likely, sentiment will still be damaged today.
“Sage needs to show that it can migrate more of its revenue base into its newer, cloud-centric products and hang on to its existing market shares around the world. Plans announced today to dispose of up to a fifth of the groups businesses suggest the group is finally recognising the need to accelerate the process of change.”