| Abstract: | Revenue up 12% at British ERP vendor on strength of subscription sales to SMBs. |
| Keywords: | Sage software, Sage sales |
British enterprise software provider Sage Group on Wednesday reported a 12% rise in revenue to nearly £1.3 billion for the year ended Sept. 30, as a steady increase in subscription sales helped offset declines in other areas.
Stripping out £11.2 million attributable to acquisitions, revenue from the company’s continuing operations increased 10%. Earnings before interest, taxes, and amortization nudged up 6% to £299.8 million — all but £1 million of which came from continuing operations for the mid-market purveyor of ERP and CRM software.
The company reports financials for its first half and full year, without breaking out its second-half figures.
Sage CEO Paul Walker said in a statement, “We anticipate that the broader economic climate will remain uncertain for the near future.” Indeed, Sage closed its fiscal year in September, before the world economy took its most drastic downturn. “ However,” he continued, “our business model, together with consistently strong cash flows, robust balance sheet, and high level of recurring revenue streams, provides a solid foundation for our operations.”
Subscription revenue grew 10% over last year’s total and made up 61% of the company’s total sales, the bulk of which came from on-premises software and support. “This translates into a very strong cash flow,” Walker said in a presentation to analysts that was broadcast on the web, explaining that many of the subscription fees come up front.
Operating cash flow was £342 million, up from £317.1 million at the same time a year ago.
Walker also noted in the presentation that Sage is increasing its subscription fees to offset the “inevitable weakness in renewal rates” as the economy sidelines some buyers. Walker said yearly renewal rates had not yet started to fall, but predicted that they will.
Although the company is pushing a subscription-based software model, only a tiny portion of its subscription revenue currently comes from software-as-a-service (SaaS), through which customers “rent” applications hosted on an offsite, third-party server. “Do I think [SaaS] will grow at an exponential rate? No. I think it will be a slow burn,” Walker said in response to an analyst’s question. ”A lot of software-as-a-service has grown, but has struggled to make money.”
On the same conference call, CFO Paul Harrison said Sage experienced a slowdown in the second half of the year. Like Walker, he said subscriptions were a bright spot, as customers postponed buying traditional software packages but spent on subscriptions.
Full-year sales fell nearly 3% in North America, to £500.9 million in constant currency, pulled down by the company’s regrouping Healthcare division, which is a North America-only operation. But in mainland Europe, revenue gained 15% in constant currency, reaching £455.5 million. UK revenue increased by over 5%, to £263.3 million in constant currency. The “rest of world” category grew 16% to £91.1 million in constant currency. Walker told analysts that Sage has not yet felt the impact of the global economic slump in mainland Europe, as it has in the U.S. and United Kingdom, but said it anticipates it will.
“Although we remain cautious in our outlook, we expect demand for our customer support to continue, which, combined with tight cost control and our strong geographic market positions, will allow us to weather these turbulent times,” Walker said in a statement.
He also said that the company was unlikely to make any acquisitions over the next 12 to 18 months.
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