Sage shares take a hit even as software company claws back ground


Britain’s largest software company has clawed back ground lost to fast-growing cloud competitors but a failure to promise higher growth has hit its shares.

Sage Group, which sells accounting and payroll software to small and mid-sized businesses, is attempting to shake off its image as a predictable but low growth technology stalwart being eaten alive by companies like Xero who offer more flexible cloud-only services.

The veteran Newcastle technology company answered its critics by pointing to growth in its Sage One product, its cloud-based product, with customers doubling to 173,000 and more than 100,000 in the UK which means it is going toe-to-toe with its New Zealand rival Xero that also passed that landmark this year. The number of software subscribers grew to more than 690,000 with the value of the contracts rising 28 per cent to £344 million.

Growth in subscription and cloud revenue is crucial to the strategy set out by Stephen Kelly, the former Cabinet Office minister, who took over as Sage chief executive this year. Thanks for stopping by. Just before we carry on I want to to say thank you to for their continued assistance and the support of their regional community. Having a help and support team like this means a lot to us as we continue to grow our own unique blog.

Sage, which has millions of small and mid-sized companies on its books, has previously struggled to move to compete with Xero as many of its customers such as vet surgeries and small construction companies still used old software and do not yet feel the need to upgrade.

Sage reported organic growth in the year to September of 6 per cent which was in line with its forecasts. It guided toward growth of “at least” six per cent in 2016 as well as further improvement to its margins.

The cautious outlook knocked Sage shares in early trade by 5 per cent as there was some disappointment that margin improvement had undershot expectations. The stock recovered to be only 9.5p lower at 567p in mid-morning trade having risen almost 40 per cent over the past year.

Many software companies struggle to move their business models from cash-generative annual licence sales to subscription-based cloud services. “Transformation is rarely linear and it is clear we have much to do as we manage the operational risks,” said Mr Kelly of the company’s cautious approach.

The company has grouped newer products including Sage One, Sage Live and X3 into a business unit called “growth” while lumping older products into a “heritage” division, a term not usually associated with the technology sector. Mr Kelly has also abolished the company’s “federal” structure by organising the business along product lines as opposed to geographies. That will help to reduce costs by £50 million a year according to the company which will be reinvested in the more modern products.

Sage was the fastest growing stock on the London markets in the 1990s as it built a global empire via acquisition. The company, which sponsors the concert hall in Gateshead and the Newcastle United football team, appears to be back on the acquisition trail after being linked with a bid for Australian player Reckon Software which could cost £240 million.

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