November 21, 2018 / 7:41 AM / 9 months ago

UK software firm Sage growth to slow as it shifts to the cloud

LONDON (Reuters) - The new boss of British software provider Sage (SGE.L) said he would focus on subscription services by moving more products to the cloud but said this would constrain revenue growth in the short term.

Steve Hare, who is now chief executive at the provider of small-business accounting and payroll software, laid out his plan after the group reported 6.8 percent organic revenue growth for the year ending in September.

Sage, like its competitors, has been seeking to move to cloud-based subscription services from packaged software.

Hare said 46 percent of Sage’s revenue now came from software subscriptions, up from about 15 percent three or four years ago, but said it needed to step up momentum.

“That requires more investment in the short term, but the prize will be stronger, higher quality sustained revenue growth,” he said.

“Cloud and emerging technologies are moving quickly and we need to invest to make sure we can stay ahead in terms of what we can offer to our customers.”

Shares in Sage, which said it would invest 60 million pounds on accelerating momentum and the transition to the cloud, were trading down 2.4 percent at 523.6 pence at 1208 GMT.

The shift would result in its organic operating margin shrinking to 23-25 percent next year, Sage said, from 27.8 percent this year.

Analysts at Barclay said the shift to the cloud was needed.

“However, as we have seen with others before it, cloud transitions are not quick and do require significant investment,” they said.

“With decelerating organic growth and lower margin, it will take time we expect for the market to begin to look through this.”

Sage reported organic revenue of 1.819 billion pounds and adjusted earnings per share which were 14 percent higher at 32.5 pence for the year.

Additional reporting by Sarah Young

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