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Sage 2005 prelims hit double-digit growth target

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30th Nov 2005
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Sage's unaudited finanical results for the year to 30 September 2005 showed a pre-tax profit of £205.4m, a 13% increase on the previous year.

In a recent company briefing, Sage UK managing director Paul Stobart commented that "even in a tough market, single digit growth should not become the new norm".

The source of Stobart's frustration may lie in UK figures that lag some way behind the group's overall performance. UK revenues for 2005 were £195.8m, 5% up from 2004's £185.8m, with growth coming mainly from upgrades of accounting and payroll products to existing customers. The UK CRM business contributed revenues of £12m, 10% up on 2004.

Although the UK lags behind north America in its contribution to Sage revenues, it continued to lead the way in profitability, turning an operating profit of £74.5m for the year. "Effective cost management" helped the company to maintain its UK operating margin at 38%, 1% down on last year, but appreciably higher than the group's overall margin of 27%.

Highlights from Sage's preliminary announcement included:

  • Turnover 14% to £776.6m (2004: £682.6m)
  • Operating profit increased by 14% to £211.1m (2004: £184.5m)
  • Organic revenue growth of 6%.
  • Customer base expanded to 4.7m businesses (30 September 2004: 4.4m)
  • £101.0m invested in acquisitions in new and existing territories.
    (NB: Some of the figures for 2004 have been restated for comparative purposes to reflect currency fluctuations)

    As usual, Sage continued to acquire companies to fuel its growth. During the financial year, it invested £97.8m in six main acquisitions in the US, France, Spain, Switzerland and Poland, plus another £3.3m in small acquisitions.

    The prelims did not ennumerate how much these new subsidiaries contributed during the 2005 financial year, but the three deals completed last year all showed improved results against their previous performance. ACCPAC, based in the US, grew its revenues 13% with an operating margin of 23% while Softline of South Africa showed revenue growth of 16%* and improved its operating margin to 23%.

    Sage continues to be cash generative, with an operating cash flow of £240.3m (114% of operating profit). After the £101.0m spent on acquisitions, net debt stood at £106.9m at the year end (compared to £131.3m on 30 September 2004).

    Yet Dennis Howlett, in his AccMan Pro blog, has questioned whether Sage has the cash resources to fend off challenges from the new wave of software as a service providers. He would point out that Sage's cash reserves dropped to £69m this year, down from £74m in 2004. Sage's long term debts have fallen by more than £23m, while amounts falling due during the year rose by a similar amount. Overall, Sage is now servicing debts in excess of £400m.

    John Stokdyk

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