Sage: a word synonymous with wisdom, age and, perhaps, stability. Yet some may question whether the final attribute still pertains to the accounting software giant of the same name.
Sage has been shifting towards becoming a ‘SaaS’ (software-as-a-service) subscription-based business, engendering high-quality recurring revenues. Its Sage Business Cloud platform is key to this strategy. But the events of recent months have proved rather distracting – if not for the company then at least for investors.
The news that chief executive Stephen Kelly – who has spearheaded the shift away from a licence-based model – will depart after four years at the helm sent the shares plunging nearly a tenth on the day of the announcement. Chief financial officer Steve Hare has stepped in as interim chief operating officer.
Mr Kelly is leaving by mutual agreement and will remain available until next May. Chairman Donald Brydon said he “energised” the company and helped pave the way for it to become a leading SaaS business – a strategy that will continue beyond his tenure. Mr Kelly added that when he joined the company, its presence in the cloud was minimal. Now Sage Business Cloud has £386m of annualised recurring revenues.
Still, Sage is seeking a replacement “practiced in embedding sustainable processes at scale for the next phase of the Sage journey to capture the significant opportunities ahead”. Current trading is reportedly in line with expectations, but achieving full-year guidance is conditional on Sage closing a number of opportunities within its enterprise management business during September.
In April, management cut its full-year organic sales guidance by one percentage point to around 7 per cent. Half-year organic sales growth to March had come in below management’s expectations at 6.3 per cent, versus 7.4 per cent a year earlier, with recurring revenue growth of 6.4 per cent down from 11.1 per cent.
The group reiterated its revised forecasts within May’s half-year results, citing “inconsistent operational execution in driving recurring revenue growth” – particularly in the UK – along with some contract licence delays in its enterprise division in Africa/ Middle East and the US. We learnt that “corrective action” was being taken. However, somewhat reassuringly, third-quarter recurring revenues improved by 6.8 per cent – taking growth over the nine months to June to 6.6 per cent.
