Profits rise as Sage weathers the storm
Dec 4 2008 by Iain Laing, The Journal
SOFTWARE group Sage said it was weathering the economic storm as it posted a rise in annual profits yesterday, but warned that its markets were weakening in the UK and US.
The Newcastle plc, which has 14,500 staff in 19 countries including 1,400 on Tyneside, reported a 3% rise in pre-tax profits to £273.4m, which was slightly behind expectations.
Britain’s biggest software company, which serves 5.8 million businesses, said that despite a 10% rise in UK subscription revenues, software sales had slowed in the second half to September 30.
Total revenues were up 7% to £1.3bn, with UK sales up 10% to £245.7m and those of its flagship UK product, Sage 50, ahead by 8%. European sales were up 15%, while US turnover rose just 1%. Chief executive Paul Walker said the strength and flexibility of its business model had helped achieve solid results in difficult market conditions.
“As markets weakened in the UK and North America, we were rapidly able to adapt to the changing markets and proactively focus our businesses in these regions.” Mr Walker said that although “visibility is difficult” in the economic downturn, growth in subscription revenues and demand for customer service continued to offset weakness in software in the new financial year. About 70% of revenues come from services based on recurring maintenance of the group’s software.
Sage removed its North American chief executive and finance director last year after disappointing sales figures. Sue Swenson, a former senior manager at Pacific Bell, took charge of the division this year.
Sage shares have lost a quarter of their value in a year, broadly in line with its competitors. Yesterday they closed up 6.3% at 167.8p.
Panmure Gordon stockbrokers said the 10% growth in subscription revenues was the highlight, offset by continued pressure in the US.
Analyst George O’Connor said: “Sage flags up the resilience of its business model, but overall guidance is cautious, as the global economy continues to deteriorate.”
Seymour Pierce analyst Derek Brown said high uncertainty in the first half of next year would reduce confidence in its stock.
The group’s healthcare division, which makes software for US doctors, was the worst performing part of the group and saw an 11% fall in revenue as management concentrated on improving its operations.
