Sage Group PLC (LON:SGE) has upped its dividend as it reported stronger than expected growth for the past year, but the market reacted badly to management's plans to increase investment in its cloud-native software in the new year.
The FTSE 100 developer of accounting and HR software for small and medium sized business, which has been on a big push to move its customers towards its cloud-based products since 2018, said upping investment in its Sage Business Cloud, along with more money for sales and marketing and product development, will reduce profit margins by up to three percentage points.
Organic recurring revenue growth in the year to end-September 2021 is expected in the region of 3%-5%.
The decision to accelerate its cloud-native software-as-a-service development comes after a noticeable shift by businesses towards cloud software during coronavirus lockdowns this year.
For the past year to September 30, the group generated £1.77bn of underlying revenue, up 3.7% on the same time last year.
Organic recurring revenue represented £1.59bn of this, with growth of 8.5%, which was above the guidance at the start of the year for 7%-8% expansion.
Organic operating profit was down 3.7% to £391mln however, representing a margin of 22.1%.
A final dividend of 11.32p was declared, resulting in the full-year payout being lifted 2% to 17.25p.
The outlook for lower profit margins resulted in the shares tumbling 13% to 590.7p on Friday morning, almost as low as was seen in the depths of the March coronavirus sell-off.
"In our view, Sage remains a game of snakes and ladders for investors," said analysts at Shore Capital. "Today represents another snake bite of reality around organic growth and margins."