Sage sales growth slows in tough European market

Reuters News
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Posted: May 09, 2012 6:04 AM
Sage sales growth slows in tough European market

By Paul Sandle

LONDON (Reuters) - British software firm Sage said first-half revenue growth slowed to 2 percent from 5 percent a year earlier, missing forecasts and sending shares down sharply as its small business customers in Europe faced tough trading conditions.

The company, which provides accounting and other business tools for more than 6 million small and medium-sized enterprises, met market expectations with a 2 percent rise in first-half underlying profit.

Chief Executive Guy Berruyer said its customers were feeling the pinch of weak economic growth in Europe.

Spain was worst hit, he said, with 23 percent of businesses employing between 10 and 100 people closing down since the start of the downturn, while France was also at risk of recession.

"We believe France is a risk, but right now we don't see it at all where we are in Spain," he told reporters on Wednesday.

Shares in Sage fell to a five-month low as analysts questioned the group's strategy for growth. The stock was trading down 4.9 percent at 263.8 pence by 0843 GMT.

Newcastle-based Sage, which competes with Intuit, has gradually started to move its products online, where they can be accessed as a service rather than bought off the shelf, a shift that it said was slowing revenue growth by about 1 percent as its sold more subscriptions.

Last week it announced a deal with Microsoft to develop business resource planning applications on its Windows Azure cloud platform, and on Wednesday it said it would launch its entry-level Sage One product in North America imminently.

Peel Hunt analyst Paul Morland, who has a "sell" recommendation on the stock, said that while Sage was a good business, its years of high growth would be hard to recapture.

"As its mix continues to shift away from software and towards subscriptions, visibility will improve but at the expense of growth and profit," he said.

Chief Financial Officer Paul Harrison said second-half growth would pick up as comparatives became easier, and the group was "comfortable" today with analysts' forecasts for 3.0 percent to 3.5 percent sales growth for the year.

Sage ended the period to end-March with net cash of 122.1 million pounds, which Harrison said would be used to continue buying back shares and to increase its dividend, with the half-year payout hiked 30 percent to 3.48 pence a share.

Acquisitions, which helped Sage become a global force in accounting software, could also be on the cards, he said.

"We have a pipeline we are looking at, but we have nothing specific to talk about today," he said.

The group reported underlying pretax profit of 176.1 million pounds ($284.2 million) on revenue of 673.1 million pounds, against analysts' forecasts of 176.1 million pounds and 684 million pounds, respectively, a Thomson Reuters I/B/E/S consensus of seven brokers showed.

($1 = 0.6196 British pounds)

(Editing by Helen Massy-Beresford)