Sage making progress

Sage reported full year revenue up 3% to £1.38bn, with similar growth in EBITDA. European business was flat, with the US and the Rest-of-World operations up by 8%. Losses on disposals halved pre-tax profit, to £164.1m, but underlying eps grew by 12%. Cash flow remained strong, with over £1bn returned to shareholders in the past two years.

The results show that the company’s transformation strategy, as discussed in our July report, is beginning to work.

Key to execution is the greater focus of resources on growth products where investment is up one-third. Cloud propositions are now becoming available for Sage’s three user segments. Progress is seen at the tightly-contested lower end, with a three-fold increase in subscriptions. Cloud-based ERP products for SMBs are now launched in the UK, Ireland and Spain with other markets, including North America following in 2104.

Linking a payments platform with Sage’s North American products clearly shows the benefits of a more integrated portfolio, with sales of the relevant products up 20%. This offers productivity benefits to users, and further up-sell possibilities to Sage. Likewise the US-led Sage Data cloud, linking mobile applications with Sage’s accounting and ERP products, contributed to the North American revenue increase.

Despite progress in migrating the customer base, subscription revenue is still only 8% of the total. This is key to long term growth and margin as a combination of cloud and a subscription model can drive substantial up-selling and high retention rates.

Sage management is confident of achieving the targeted 6% growth rate by 2015, but we look to them to maintain momentum as competition is mounting and Sage still has a long way to go to complete its transformation.

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