Sage has identified deal slippage in Enterprise Management and Leadership Change as factors responsible for its Africa and Middle East region below-expectations performance in H1 2018 (“half first”).
Growth in Africa Middle East of 5% (H1 17: 13%) was below management expectations, largely due to deal slippage in Enterprise Management. New leadership in the region has implemented a significant reorganisation of the management team in H1 18.
However, recurring revenue growth in Africa Middle East was 11%. Sage Accounting continued to show strong momentum in Africa, with growth of 59% in H1 18.
Focus for the region in H2 18 is to recover Enterprise Management contract slippage and rebuild the Enterprise pipeline, as well as starting to drive growth through the new management team.
Speaking on the results, the Executive Vice President, Africa & Middle East at Sage, Pieter Bensch, said: “Building on strong momentum during the period under review, Sage Africa and the Middle East is well-positioned for growth in the months to come. As the fourth industrial revolution continues to take hold across the region, we will seize the opportunity to position Sage Business Cloud as the only cloud platform that businesses in Africa and the Middle East will ever need. From start-up to enterprise, we offer a complete suite of business management solutions.”
Operating performance overview
‒ No material changes to the financial information or guidance contained in the announcement made on 13 April 2018, with the exception of cash conversion, which has improved to 99%;
‒ Organic revenue growth of 6.3% (H1 17: 7.4%), reflecting recurring revenue growth of 6.4% (H1 17: 11.1%), underpinned by software subscription growth of 25.3% (H1 17: 30.6%) and software subscription penetration of 44% (H1 17: 37%). SSRS revenue growth of 7.1% (H1 17: decline of 7.3%) and processing revenue growth of 2.1% (H1 17: 11.3%).
‒ Continuing momentum in Sage Business Cloud, with annualised recurring revenue (ARR) of £336m, growing at 57%;
‒ Organic operating profit margin of 24.5% consistent with front-loading investment in H1 and reduction in G&A expense to 13.8% (H1 17: 15.2%);
‒ Strong cash conversion of 99%, with free cash flow of 17% of revenue, and interim dividend of 5.65p (8.2% increase), reinforcing business model fundamentals;
‒ As announced on 13 April 2018, FY18 guidance revised to around 7% organic revenue growth from around 8% organic revenue growth and unchanged organic operating profit margin of around 27.5%, with clear plans in place to meet FY18 guidance.
The Chief Executive Officer at Sage, Stephen Kelly, said: “The significant market opportunity, as outlined at Capital Markets Day, is compelling and unchanged. Sage Business Cloud remains the most comprehensive cloud platform in the market to capitalise on this opportunity. Organic revenue growth in H1 18 was around £5m below our expectations, due to slower and more inconsistent sales execution than we had planned for.
“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 FY18 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.”