Sage profits, customers jump

Challenging Europe

Sage pre-tax profits climbed 12 per cent (at constant exchange rates) to £151m on sales up 4 per cent to £560.3m for the year to 30 September 2003. The accountancy and business management software vendor squeezed out some extra margin points too, increasing operating margin by 1.6 per cent to 27.8 per cent. The declining dollar affected group profits, which were only partly offset by the appreciating euro. Taking this into account, adjusted (i.e real) turnover grew 2 per cent and operating profit increased 9 per cent.

At the end of the year Sage had net debt of £110.6m (2002: £132.8m), with net interest covered comfortably 32 times by operating profit.

Continuing its acquisition-hungry policy, Sage bought three companies in the period, with two acquisitions completed after year end. Its new subs are Timberline, Grupo SP and Softline. The companies cost £177.4m in toto and their purchase were funded by a mixture of debt and cash from within Sage. These acquisitions take Sage into three new countries: South Africa, Australia and Spain.

Sage reports strong profit growth in the UK and the US, but mainland Europe was “the most challenging of all our markets, and were exacerbated by falling demand in the aftermath of the transition to the euro.” Acquisitions helped Sage hold steady on sales and profits, compared with rivals who saw sales fall, the company said.

Sage’s commercial heartland is the small and medium business sector with the emphasis on small – 90 per cent of its 3.6 million customers employ under 100 people. It says that customers everywhere are cautious with their budgets and it notes no uptick in software spending. So the company has concentrated efforts on selling upgrades – it notes that 373,000 existing customers purchased upgrades during the year. As a result, upgrade revenues grew 10 per cent and represented 37 per cent of software revenues. Also small companies mostly don't have inhouse IT, and look to the likes of Sage to provide maintenance and support. Upshot, Sage grew support revenues eight per cent over the year.

Sage grew its customer base by 233,000 over the financial year and by another 400,000 customers obtained through acquisitions completed after year-end. The company says it is not relying solely on acquisitions to gain new customers. It recruited 182,000 new customers during the year, excluding acquisitions, and attributes this to “ontinued investment in our products, brands and marketing programmes”. ®

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