Sage swings the axe as profits fall

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Sage’s organic revenue growth and pre-tax profits dipped as the listed accounting software giant struggled with “slower and more inconsistent sales execution” than expected. A clearout of senior executives swiftly followed.

Organic revenue growth of 6.3% to £908m for the first half of Sage’s financial year was about £5m below expectations. Statutory profit before income tax was £171m, down from £180m.

Despite the disappointing interim figures for the first half of 2018, Sage CEO Stephen Kelly acknowledged slower than expected growth in northern Europe and Africa/Middle East, but remained confident of hitting targets: “We have already started the implementation of robust plans to address these execution issues and to accelerate our growth through high-quality recurring revenue throughout the rest of [the financial year] and beyond.

“The revised revenue guidance for FY18 reflects the H1 18 performance, but also our absolute commitment to ensuring we focus on driving high-quality subscription revenue, aligned with the strategy."

The half year report fleshed out issues raised in a surprise trading update issued on 13 April that triggered a damaging decline in Sage’s share price. The added detail in the interim report seems to have shored up investor confidence and market performance has levelled out.

The disappointing half year results prompted a clearout of more than 30 executives, including Sage’s UK and Ireland managing director Alan Laing. Stephen Kelly explained to the Financial Times that the departures would “speed up decision making and improve accountability”.

He continued: “It’s important for investors to know that we aren’t going to stagnate. We want to show that there is constant change and we are doing things to tackle the sales issue.”

In recent years, the once dominant Sage has experienced intense competition from cloud disrupters such Xero, and its US arch rival, QuickBooks. Sage ploughed substantial resources into transitioning its business model from desktop software to subscription-based cloud products. Last summer, it concluded its biggest ever acquisition, paying £654m for the American accounting cloud developer Intacct.

Clearly, the effort to integrate the Intacct operation alongside parallel efforts to roll out Sage Live (Laing's legacy after he cemented a software partnership with Salesforce in 2015) and the revamped Sage Business Cloud Accounting product lines have strained Sage’s capacity. But Kelly reassured investors that momentum was building behind the company’s cloud plans. “The root causes of execution issues have been identified and management has already made changes, in order to drive subscription-based revenue acceleration in H2 18 and beyond.”

About Francois Badenhorst

Francois

Francois is a writer, editor and broadcaster specialising in business.

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04th May 2018 11:18

No surprises really. The Sage products that I have used have been poor.
There are better suppliers than Sage.

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04th May 2018 11:53

Sage runs out destroying promising small software companies! I hope Xero or QBs are not a target for Sage. Look at "TasBook"

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to Cantona1
04th May 2018 13:13

Intuit (who own QBO) dwarf Sage many times over. There is not a chance that Sage could buy them! Xero is probably a similar size to Sage.

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04th May 2018 12:28

Being forced in the future to a cloud model is not such an appealing prospect and I worry that will be their ultimate aim.

I've already seen that with MS Office with its Office 365 offering.

Not keen on that direction from a user point of view, but I can see the commercial logic to it.

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to AdrianLawrence
04th May 2018 13:21

It's the way that everything is going. MTD will, in time, force everyone onto the cloud.

Is your objection to O365 the fact that the payments (as opposed to the initially purchased licence) are now perpetual or is there another reason?

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05th May 2018 19:54

If the problems lie in African regions and everywhere else is spot on why has the UK and Ireland bloke been peddled

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to Glennzy
06th May 2018 13:03

Good point. The whole statement and PR bit doesn't make it very clear what the picture is. Extremely well done!

I doubt if it's anything more nefarious than the fact of where Sage is listed, and the UK profile is higher to investors.

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to rsergeant
08th May 2018 09:27

Hi Glenn/Richard - if you look at the Sage statement, it does specify execution in "Northern Europe and Africa/Middle East". Northern Europe includes UK and is a much bigger market than EMEA, which is still at the emerging stage for Sage.

As far as execution goes, they had an exciting prospect for a Sage One-level practice suite in 2014, but it's taken until this year to roll out, sidelined along the way by a shift in priority to Sage Live (mid-market, Salesforce-based "platform"), then Making Tax Digital, then a global rebrand/rationalisation around Sage Business Cloud and Sage Accountant Cloud - I think they're still trying to work that one out.

Then throw in Intacc, which hardly clarifies the cloud product strategy, and you've got a pretty good receipe for lack of execution.

Unfortunately, I'm not sure that chopping and changing country and middle managers is going to restore momentum. Sage needs to clarify where it's main priority lies and push ahead on that front aggressively. From what I've seen driving the cloud adoption in the UK SME and practice market hasn't been that high up the agenda - and MTD timetable changes haven't helped - and both Xero and QuickBooks have been chipping away at Sage on that front.

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05th May 2018 19:54

If the problems lie in African regions and everywhere else is spot on why has the UK and Ireland bloke been peddled

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07th May 2018 10:55

Slower and inconsistent sales execution means they couldn't get enough people to pay their exorbitant fees for what is fast becoming a rubbish product. The fact they still keep people on their awful SageDrive product which continually freezes/throws people off they system is a miracle.

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08th May 2018 08:55

It's very easy to have a pop at Sage seeing they have been around for over 30 years but they are a very successful company.

Sage 50 still dominants the market despite not being the best product out there.

Is there space for 3 in the cloud space? If not my money would be on Sage being one of the last 2 standing.

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08th May 2018 10:20

Despite over 30 years in the market, Sage has not written any worth of an accounting software. It is the most rubbish, highly overrated product. The last time I used Sage, you still can not drill down on a report. I can post Debtors and Creditors using a journal without linking to an individual debtor or creditor. Thus, you see lots of people complaining that individual debtor lists balance does not match with “Debtors Control Account”.
While I was watching on “YouTube”, I came across a clip from Sage. When I watched the clip, it appeared a very friendly software. I thought, that looks good, but only to find out that the software was indeed “Peach Tree”. Sage bought the company and changed the log from “Peach Tree” to “Sage” and gives the false impression that it is Sage which designed “Peach Tree”.

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09th May 2018 12:01

I've used Sage 50 and Sage 200 in various flavours for several years now. Both are good products in my opinion, especially 200.

I also used Xero for a while before throwing it out. I took the tests and got certification but I didn't like it at all.

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09th May 2018 16:08

I have never used Sage products myself, though they cannot be all that bad considering the success that they have enjoyed over many years. As a competitor to Sage, from my recent experience all i will comment on is that i think it may be more their attitude of late, than their actual products which are leaving users with many unanswered questions.

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