Reliable Sage in transition

Revenue of £270m from each of its two biggest markets -the US and Europe - showed a 6 per cent and 4 per cent fall, respectively, compared with the flat performance seen in the UK (revenues of £122m) and a decent 4 per cent increase to £57.3m in the rest of the world segment. Around 127,000 new customers bought software from Sage during the six-month period, taking the group's customer base close to 3.2m overall, and chief executive Paul Walker believes there is "pent up demand which will be realised as markets recover". On an underlying basis, first-half revenues slipped just 2 per cent against a 6 per cent decline seen in the second half of the previous financial year.

Improved profitability catches the eye, with underlying pre-tax profits increasing 5 per cent to £177m, after stripping out one-offs. Operating cash flow was as strong as ever at £237m, representing 130 per cent of trading profits, which helped Sage slash net borrowings from £439m to £305m at the end of March, putting acquisitions back on the agenda.

This is a pivotal moment for Sage as the business increasingly embraces a SaaS (software as a service) model. It has so far taken a softly, softly approach, not wanting to push its customers faster than they want to go, but this has raised concerns that the group is being left behind by other 'cloud' software suppliers. So a lot rides on the success of its new 'Sage One' entry level product to energise the SME sector.

The previously flagged departure of long-term chief executive Paul Walker looks likely to drag on for another six to nine months, although group finance director Paul Harrison and UK chief Paul Stobart are strong internal candidates.

Broker Panmure Gordon is forecasting full-year adjusted pre-tax profit of £350m and EPS of 19p (17.5p in 2009).

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