Sage’s organic revenue growth and pre-tax profits dipped as the listed accounting software giant struggled with “slower and more inconsistent sales execution” than expected. A clearout of senior executives swiftly followed.
Organic revenue growth of 6.3% to £908m for the first half of Sage’s financial year was about £5m below expectations. Statutory profit before income tax was £171m, down from £180m.
Despite the disappointing interim figures for the first half of 2018, Sage CEO Stephen Kelly acknowledged slower than expected growth in northern Europe and Africa/Middle East, but remained confident of hitting targets: “We have already started the implementation of robust plans to address these execution issues and to accelerate our growth through high-quality recurring revenue throughout the rest of [the financial year] and beyond.
“The revised revenue guidance for FY18 reflects the H1 18 performance, but also our absolute commitment to ensuring we focus on driving high-quality subscription revenue, aligned with the strategy."
The half year report fleshed out issues raised in a surprise trading update issued on 13 April that triggered a damaging decline in Sage’s share price. The added detail in the interim report seems to have shored up investor confidence and market performance has levelled out.
The disappointing half year results prompted a clearout of more than 30 executives, including Sage’s UK and Ireland managing director Alan Laing. Stephen Kelly explained to the Financial Times that the departures would “speed up decision making and improve accountability”.
He continued: “It’s important for investors to know that we aren’t going to stagnate. We want to show that there is constant change and we are doing things to tackle the sales issue.”
In recent years, the once dominant Sage has experienced intense competition from cloud disrupters such Xero, and its US arch rival, QuickBooks. Sage ploughed substantial resources into transitioning its business model from desktop software to subscription-based cloud products. Last summer, it concluded its biggest ever acquisition, paying £654m for the American accounting cloud developer Intacct.
Clearly, the effort to integrate the Intacct operation alongside parallel efforts to roll out Sage Live (Laing's legacy after he cemented a software partnership with Salesforce in 2015) and the revamped Sage Business Cloud Accounting product lines have strained Sage’s capacity. But Kelly reassured investors that momentum was building behind the company’s cloud plans. “The root causes of execution issues have been identified and management has already made changes, in order to drive subscription-based revenue acceleration in H2 18 and beyond.”
About Francois Badenhorst
Francois is a writer, editor and broadcaster specialising in business.