While profits from Sage Group Plc’s restructured US operations may have halved, the business still turned in record interim figures as a result of new acquisitions, a 20% rise in Sovereign software sales, and 35.7% increase in recurring revenues – sales of forms, stationery and services to existing customers increased to UKP9.5m this year from UKP7m last. A supplier of accounting software and related products for personal computers, Sage saw pre-tax profits up 24% to UKP5.4m, while turnover rose 44.8% to UKP21m. The board has recommended a 10% increase in interim dividend to 3.32 pence, compared with 1992’s 3.02 pence. Chairman and chief executive David Goldman reckons the company’s success comes from investing its strong cash flow in expanding the business, both geographically and in product terms. This, he said, has translated into a 22% improvement in earnings per share to 17.7 pence. New products for the UK market include the integrated accounting software package, Sterling +2, which runs under MS-DOS and Windows and was launched in September 1992 (CI No 2,015) – according to Goldman, it is selling like hot cakes; a new version of the high-end, high margin Sovereign offering for the mid-range market – although prices did not increase, total sales of the product rose 20% in real terms, which was important, Goldman said, as this market is much more valuable than Sterling’s; and MoneyWise, which is targeted at the home and small business market and costs less than UKP50. This package was developed in response to competition from such vendors as Intuit Inc and its bottom-end product, Quicken (CI No 2,016). All of these products are sold by Sage’s principal subsidiary, Sagesoft. New products, sold by DacEasy in the US, comprise: Instant Accounting, which is a Sterling-type package, but cheaper; and the high-end Flagship offering, based on Sovereign. These offerings are intended to address changes in the US market, which, according to Goldman, is polarising low-end products are becoming simpler and cheaper, while high-end products are becoming increasingly complex and more expensive. As DacEasy’s software has, in the past, occupied the middle ground, the company has invested heavily in new product development to try and reposition itself. While this has not affected sales, it has had a negative impact on profits, Sage noted.
AS/400 and Unix market
Total US turnover rose 21.5% to 7.8m, but profits dropped 51.8% to UKP619,000. This figure, however, does include losses of UKP370,000 from Remote Control International, acquired in October 1992. RCI supplies sales automation software for the AS/400 and Unix markets, but has undergone restructuring in the form of management changes and product rationalisation. Its offerings are now also sold via Sage’s existing international distribution channels. In total, the group has spent UKP5.1m on acquistions over the past six months, although it has retained UKP3m net cash. This may well go on further purchases – Goldman said he considers Spain to be a good potential market, although his former interest in Germany is waning due to the impending recession in the region. Nonetheless, with the acquistion of accounting software house Ciel SA, also in October last year, Sage has broken new ground in Europe. Goldman said that Ciel, with turnover of UKP2.8m and operating profit of UKP553,000, has exceeded expectations. The introduction of a more formal management structure has helped increase software sales, and improve the level of recurring revenues from forms and support contracts, he added. The group’s final purchase, Yorkshire Business Forms, bought in December 1992 (CI No 2,068), also performed well. It has now been completely integrated with Sage’s existing UKP2.5m stationery and supplies division to generate about UKP6.5m turnover in total, a 12% increase on last year. Although Goldman said that the operation had showed steady improvement and adequate growth, he is, nonetheless, keen to broaden YBF’s customer base. Whereas the Sage arm sells its products to Sovereign custo
mers and there are few opportunities for expansion, he stated, YBF is a computer forms management business that services blue-chip customers, such as Midland Bank and Nissan. And there is definitely room to move into comparable organisations. Overall, UK turnover increased 29.2% to UKP10.4m, while operating profit grew 43.1% to UKP4.2m. So, all in all, Goldman is pleased with Sage’s performance so far. He is confident that the new acquisitions will play an important role in future growth, and believes that the momentum of the first half will be maintained to give a satisfactory outcome for the full year.
