Solid UK performance keeps Sage on course

Aug 5 2008 by Iain Laing, The Journal

BRITAIN’S biggest software group Sage yesterday shrugged off the economic slowdown and said it was on course to meet market hopes this year despite “uncertain and challenging“ conditions.

The Newcastle company, which has 13,400 staff in 19 countries including 1,400 on Tyneside, reported a “solid” UK performance while the US operation - with the exception of its healthcare division – saw “satisfactory” trading.

Chief executive Paul Walker said: “Our businesses continue to show resilience in uncertain and challenging markets.

“We remain cautious on the economic outlook although our large customer base, geographic diversity and strong product offering provide good support for our businesses going forward.”

Sage, updating the market after nine months of its financial year, is expected to make pre-tax profits of £280m in the year to September 30.

It has focused on improving the operational performance of the US healthcare business, which has been hit by management changes as well as disruption from new legislation regulating the processing of health insurance claims.

Sage, which now earns more than half its revenues from providing management solutions rather than simple accountancy software, said in May that its earnings had outstripped analysts’ forecasts.

Pre-tax profits for the six months to March 31 had risen 9% to £138m as it overcame a weak showing in the US. That was not only higher than figures given earlier this year by the company, but £9m above analysts’ forecasts and up from £126.3m a year ago. Group revenue also rose 9% to £640.4m, £23m higher than market expectations, but revenue in the US was flat

Last October the company axed the chief executive and finance director of the overall North America division after disappointing sales figures.

Alongside the more uncertain market conditions in the UK and US, the company said growth in Spain – also in the grip of a slowdown – had “moderated slightly”.

Better economic conditions in Germany, Switzerland and France however helped Sage to a stronger performance in mainland Europe.

Seymour Pierce analyst Derek Brown said: “This is a cautious trading update using careful language to highlight the ‘uncertain’ and ‘challenging’ markets the company faces, particularly in the UK and US.

“According to the statement, trading at Sage Healthcare remains unsatisfactory – this is unsurprising given the scale of the turnaround required and the backdrop of difficult economic conditions.”

Sage was founded in 1981 and around 5.7 million small and medium sized businesses are customers. The group was floated in 1989 and is the only tech company in the FTSE 100.