Newcastle-based software giant Sage Group warned investors on Monday it is likely that its “organic recurring revenue growth” will be below its previously guided range and the decline in other revenue “will accelerate significantly in the second half, with some associated impact on margin.”
In a stock exchange trading and COVID-19 update, Sage added: “To further support the group’s financial strength, the board has now decided to cancel the £250 million share buy-back programme, which was suspended on 18 March 2020 after £6 million of shares had been purchased.”
On trading for the six months to March 31, 2020, Sage said growth in organic recurring revenue, which represents around 90% of group sales, was ahead of full year guidance.
“Other revenue (SSRS and processing), representing around 10% of group sales, declined in line with the group’s strategy, although the decrease accelerated towards the end of March as a result of COVID-19 impacting licence sales and professional services implementations,” said the firm.
On “COVID-19 future impact and outlook” Sage said: “Sage is a resilient business supported by high-quality recurring revenues and a diversified customer base of small and medium businesses.
“However, the sharp downturn in global economic activity caused by the spread of COVID-19 is expected to have a broad impact on businesses generally …”
Sage anticipates “customers deferring purchase decisions, leading to a slowdown in new customer acquisition, licence sales and professional services implementations” and “a higher business failure rate leading to an increase in churn.”
Sage continued: “It is too early to quantify with confidence the impact on Sage’s financial performance for the full financial year to 30 September.
“However the board now believes it is likely that organic recurring revenue growth will be below the previously guided range of 8% to 9%, and that the decline in other revenue (SSRS and processing) will accelerate significantly in the second half, with some associated impact on margin.
“We will provide a further update at our interim results.
“Sage has identified and is implementing a range of mitigating actions to manage costs and cash in the near-term, while continuing to invest in the long-term success of the business …”
On its finances, Sage said: “The group has a strong balance sheet, with approximately £1.3 billion of cash and available liquidity as at 31 March 2020.
“This includes around £900 million of cash and cash equivalents, and more than £400 million of undrawn facilities under the group’s revolving credit facility which expires in February 2025.
“Net debt to EBITDA as at 31 March 2020 is expected to be well below 1.0x.
“Maturities within the next 18 months comprise $150 million (£121 million) of the group’s US private placement loan notes in May 2020, and the group’s £200 million syndicated term loan in September 2021.
“To further support the group’s financial strength, the board has now decided to cancel the £250 million share buy-back programme, which was suspended on 18 March 2020 after £6 million of shares had been purchased.”