After years of ruling the accounting and payroll software roost, Sage (SGE) is now racing to modernise its business as Amazon, IBM and other technology titans threaten to eat its lunch. New boss Stephen Kelly completed a wide-ranging review of the business. His transformation plan involved winnowing the company's products into two categories, growth and heritage, with most investment reserved for the former. A restructuring programme is also under way that is expected to generate at least £50m in annual cost savings. Sage has already replaced more than a third of its 100 most senior managers and introduced a single, global programme for its distribution partners.
Not that there was much evidence of competitive pressures in the company's results for the year to September. Underlying operating profit rose 8.3 per cent to £380m, even though the company revised its accounting policies to make its revenue recognition more conservative.
The shift away from one-off software sales towards subscriptions, payments, mobile and cloud products continues. That helped drive software subscription revenue up 29 per cent to £315m and underlying recurring revenue up 9 per cent. And despite initial restructuring costs, Sage widened its underlying operating margin by 0.6 percentage points to 27.1 per cent.
Sales rose in all three of Sage's territories, stripping out currency effects and acquisitions. The US business benefited from strong demand for Sage X3, a business process management solution, while a rush to comply with new UK pension rules contributed to a 29 per cent underlying rise in subscription revenue in Europe. In the 'international' division, which sprawls across Asia, Australasia Africa and South America, sales rose 14 per cent, partly due to brisk trading in Malaysia as the government provided funding for companies to become compliant with a new tax on goods and services. The company rolled out Sage One in Australia, Brazil and Malaysia, helping its flagship software product to more than double its paid subscriber base to 173,000.
Broker Numis Securities expects pre-tax profit of £378m this financial year, giving EPS of 25.7p (£355m and 24.2p in FY2015).
| SAGE (SGE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 564.5p | MARKET VALUE: | £6.1bn | |
| TOUCH: | 564-564.5p | 12-MONTH HIGH: | 590p | LOW: 400p |
| DIVIDEND YIELD: | 2.3% | PE RATIO: | 31 | |
| NET ASSET VALUE: | 80p* | NET DEBT: | 49% | |
| Year to 30 Sep | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 1.33 | 331 | 19.4 | 9.75 |
| 2012 | 1.34 | 334 | 18.6 | 10.70 |
| 2013 | 1.38 | 164 | 4.0 | 11.3† |
| 2014 (restated) | 1.35 | 279 | 17.3 | 12.12 |
| 2015 | 1.44 | 276 | 18.1 | 13.10 |
| % change | +6 | -1 | +5 | +8 |
Ex-div: 11 Feb Payment: 4 Mar *Includes intangible assets of £1.55bn, or 144p a share †Excludes special dividend of 17.1p a share | ||||
