Sage is promising to reveal its multi year growth strategy in July, something that cannot come soon enough. Although its H1 2012 results show it is still in positive territory in terms of growth and that it is maintaining margins, it would benefit from a shot of adrenalin.
With revenue of £673m (vs £670m), management summed up H1 performance as ‘resilient’, in the face of the switch to subscriptions revenue and challenging conditions in Europe. On a organic basis the group achieved growth of 2% (vs 5% in H1 2011). Subscriptions revenue grew 5% to £451m but was offset by a 4% contraction in software and software related services revenue.
By controlling costs it is maintaining the profit line - something Sage can generally be relied on to do - with pre tax profit up 3% to £167m and the operating margin maintained at 27%, despite additional investment.
Difficult conditions in Europe pegged regional revenue growth to 1% (flat in North America and up 11% in AAMEA) but the UK and Ireland came out of the period well with 5% organic growth. Momentum around the entry level Sage One SaaS offering contributed to growth, with customer numbers doubling to 3k in last six months. Sage Pay Mobile, which was launched in the UK in April, will add to the H2 tally.
The growth in Sage’s SaaS and subscription business shows there is demand. Sage’s challenge is moving quickly enough to capitalise on it – or at the very least articulating its cloud strategy. Hopefully the July strategy outline will address this, and provide more insight into the partnership with Microsoft which will see Sage products run on the Microsoft Azure cloud (see Sage will go with Microsoft to the cloud). Although Sage is still pulling in new customers the acquisition rate has slowed – it added a creditable 129k customers in H1 2012, but that was down on the 131k of the year ago period. The renewal rate stands unchanged at 81%. Sage needs to be proactive because there are other places prospects and customers can go to for cloud-based SME business applications.