The Sage Group PLC (LON:SGE) cut its full year guidance after first half organic revenue missed its expectations with the company blaming “inconsistent operational execution”
In a trading update on Friday, the FTSE 100 software firm reported organic revenue growth of 6.3% for the six months to March 31, easing back from the 7.4% gain achieved the same period last year.
Shares plunged 10% to 603p in morning trading.
The group said revenue was hit by slippages in some enterprise licence contracts in the US and the Middle East, though it expects a recovery in the second half.
"Growth in H1 18 was lower than our expectations as the pace of execution has been slower than we planned,” said chief executive Stephen Kelly.
READ: The Sage Group disappoints with organic revenue growth
Software sUBScriptions organic revenue rose 25.3% compared to a 30.6% jump in the year-ago.
The software and software related services business posted a 7.1% increase following a 7.3% decline last year, driven by growth in its services division.
The business cloud arm was the star performer with an annualised run rate of £335mln, growing at 57%, on the back of a strong performance at recently acquired Intacct and Fairsail (now Sage People) companies.
Northern Europe, Africa and the Middle East falls short of expectations
Sage said growth in Northern Europe, Africa and the Middle East was below management’s expectations, while North America achieved “double digit growth” and Central Europe and Australia “performed well”.
France showed a return to growth in the second quarter, as expected.
Liberia and Latin America's performance was in line with expectations, the company said.
The group organic operating margin nudged down to 24.5% from 25.3% last year due after front-loading investment in the period and absorbing losses from acquisitions in 2017.
Organic revenue guidance lowered
The company lowered its organic revenue forecast for the year to 7% from 8% but left its estimate for organic operating margin at 27.5%.
Its rolling mid-term guidance for organic revenue growth of 10% on a sustainable basis and organic operating margins of at least 27% was left unchanged.
“The revised revenue guidance targets for FY18 reflect both the performance in H1 18, but also our diligence in ensuring that we focus on recurring revenue to drive sustainable acceleration throughout the rest of FY18 as a platform into FY19,” said Kelley.
“We will provide a further update on our plans at our H1 18 results announcement on 2 May 2018."
UBS maintained a ‘neutral’ rating and target price of 740p on the stock.
“The unchanged margin guidance raises the question of whether further investments are required, or if this is purely an execution/cultural shift that is being slow to take effect,” UBS said.
It added: “We expect the shares to be impacted much more than the 100bp cut to guidance might imply to earnings, given the seeming challenges in the transition and lingering risks perceived to future targets.”