Sage counts cost of lower than forecast sales figures

● French business continues to drag on performance ● Second half of year expected to see improvement

Business software firm Sage saw its shares hit yesterday after reporting weaker than expected first quarter sales growwth and continuing problems at its French division.

The group posted a 6.3 per cent rise in organic revenues for the three months to 3 December, supported by a strong performance from its North American business. Although the rise was lower than analysts expected, the company said it expects an improvement in the second half of the year.

Across the group as a whole, Sage said software subscriptions grew 26 per cent, while organic software and services revenues rose 4 per cent thanks to strong performance in training and services as well as in its enterprise management division, helping to offset a decline in other licences.

Its figures were also held back by higher sales training costs and a weak showing from its French division, which the company said “continues to significantly underperform relative to the rest of the group, weighing on both organic revenue and recurring revenue growth”. Sage shares were at the bottom of the FTSE 100 in early trading, down around 8 per cent.

Jasper Lawler, head of research at London Capital Group, said the company “may be reaching the twilight of investor optimism about its conversion to a cloud-software business

“Sage reported another strong quarterly rise in sales, but the shares fell since the figures came in slightly below expectations,” he said.

“An increase in sales training costs seems to have distracted from the business of selling software. Investors aren’t convinced by Sage which has kept FY 2018 guidance despite the blip.”

The company also noted currency headwinds as a result of the stronger pound, which resulted in a weaker translation of US dollar and eurodenominated income.

Chief financial office Steve Hare said the results were in line with the company’s expectations.

“As we outlined at the time of the full-year results, we have invested heavily in sales training in Q1 to set up the business for success, particularly in Sage Business Cloud, resulting in the delay of some revenue into Q2.

“We expect acceleration throughout the year including a stronger Q2 and we reiterate our full year guidance of around 8 per cent organic revenue growth and around 27.5 per cent organic operating margin.” Shares in Fever-tree fizzed up 5 per cent yesterday after the premium mixer maker seized the UK market’s top spot and backed annual earnings to outstrip forecasts. The company, launched in the UK in 2005, added that total full-year sales were expected to soar 66 per cent to £169 million, while annual UK sales were set to leapt 96 per cent compared with 2016 on the back of a very strong second half. Fever-tree said the “full year will be comfortably ahead of market expectations”.