Sage 'loses' US chiefs after sales slowdown

Oct 12 2007 by Iain Laing, The Journal

BRITAIN’S biggest software firm Sage yesterday said it would be losing its US managers after sales were slower than expected.

The Newcastle-based company, with 5.4 million mostly small business customers, said that results for the year would be in line with expectations, with pre-tax profits up 18%.

But the accounting and sales software specialist saw its share price drop by more than 3% yesterday to 243.25p after it revealed that revenues in the US, which make up nearly half the total, were up just 4%.

And now the managers of the US business were leaving with immediate effect as although the figures were up they were down from 6% last year and behind the group total of 7%.

Finance director Paul Harrison said: “We had expected better growth in the second half of the year (in North America).”

Sage declined to comment on why the division had fallen short of its hopes, but said the competitive landscape had not changed significantly and that Ron Verni and Jim Eckstaedt, the chief executive and finance director of its North American unit respectively, had left the company.

Group chief executive Paul Walker said that after a reorganisation of the North American business into four operating units in May, the company was looking for new leaders with experience of running a divisionalised business rather than people used to day-to-day management. In the meantime the US businesses will report directly to him.

Seymour Pierce analysts were concerned. “Having announced a reorganisation in the first half, further change is now required. Investors should remain very cautious,” they wrote in a research note, keeping an “underperform” rating on Sage shares.

The company’s share price fall was the largest on the FTSE 100 index and values the firm at around £3.2bn. The stock has underperformed the UK software and computer services sector by 13% this year.

Sage’s pre-tax profits of £283m in the year to September 30 compared with analysts’ average forecast of £287m, on revenues up 30% to £1.158bn.

Landsbanki analysts said: “The US has been a perennial bugbear for Sage. Once again the concern that Sage is losing market share to Microsoft and, to a lesser extent, to Intuit will resurface.

Paul Walker said Sage had not been affected by the recent turmoil in global financial markets and that most of its customers, as small businesses, had not either.

He said Sage was continuing to look for acquisitions in new and existing markets and that the difficulty private equity firms were facing in raising money for deals could make it easier for trade buyers.

The company’s statement said that revenue in the UK had grown by 7%, in mainland Europe by 10% and in the rest of the world by 17%.

Check out Sage's progress on page two.