Propelled by a potent mix of organic growth and targeted acquisitions, Sage Group Inc., the U.K.-based business software computing giant, today reported healthy first-half 2006 financial results that were driven in part by strong adoption of its CRM products and expansion into new markets such as Australia, Canada, Spain, and South Africa.
For the six-month period ended March 31, total revenues increased 18% to £455.9 million ($795.5 million) from the equivalent fiscal 2005 timeframe. Top-line growth helped push EBITA (earnings before interest, tax, and net amortization) to £123.1, up nearly 20% from the like period last year.
Despite the parent company's strong results, EBITA for Sage Software Inc., the company's North American operation, was flat at £38.7 million in the period. EBITA margins increased one percentage point to 25% from last year's six-month period, driven primarily by the divestiture of a small unidentified business unit, the parent company said.
The top-line performance of Sage Software was also not as strong as its parent's. Total revenues generated by the Irvine, CA-based company, which delivers a wide range of business software to small and medium-sized companies under the ACCPAC, MAS, SalesLogix, and Peachtree banners, increased a respectable 6% to $297.2 million compared with the like period last year. Existing products (both license and services deals) contributed two-thirds of the revenue growth.
The division saw revenue from products sold to small businesses in North America grow by 7%, due to migration to and sales of premium products in Sage's portfolio. Revenues from products purchased by mid-market customers increased 2%, hindered by what the parent company called "a light product release schedule," among other things. Precise figures were not available at press time.
In North America, software sold to small businesses accounted for 17% of the unit's revenue; services contributed 16%. Software revenues derived from mid-market companies represented 18% of the unit's revenue; services accounted for 49%.
"We continue to benefit from our customer-focused approach, delivering software and services with real benefit today that also support our customers' growth for tomorrow," said Ron Verni, CEO of Sage's North American unit, in a prepared statement. "Our strong customer relationships have enabled us to focus on acquiring and delivering the right products and services that directly impact our customers' continuing success."
In fact, of Sage Group's 5 million customers worldwide (up 300,000 from the beginning of the fiscal year) roughly half (2.6 million) are based in North America (excluding CRM), the company said.
Acquisitions during the period also helped to spur top-line and account growth in North America. Revenues from acquisitions reached £6.2 million in the first half and delivered £2.1 million in EBITA -- up from nothing in the year-earlier period.
For instance, Sage's February acquisition of Verus Financial Management, Inc., a provider of credit card and check processing for small and mid-sized (SMB) businesses, showed revenue growth of 21% in the period -- fueled by increases in e-commerce, the company said. Sage said it expects this growth to accelerate as more North American customers ask that their credit card transactions be integrated with their accounting software. To that end, Sage said it recently began to integrate Verus services with its accounting software.
Sage also said it expects to continue to expand its regional businesses by acquiring adjacent products and services. The company reiterated its stance that it will remain disciplined in its valuation of acquisition targets and will only acquire businesses that represent "good value" for its shareholders. In that vein, the company pointed to last month's aborted acquisition of Visma ASA, a Scandinavian provider of ERP software to SMBs, after being outbid by a Norwegian private equity company, Hg Investment Managers Ltd.
Still, Sage's acquisition push goes on. Just yesterday the company disclosed that it has acquired Contractor Anywhere and Master Builder -- with combined revenues of £8.3 million -- to extend its presence in the North American construction industry. Master Builder was acquired from Intuit Inc., while Contractor Anywhere is a new company, Sage said. Both companies' products will offer a migration path to the Sage's fully featured mid-market package, Timberline, the company noted.
Sage said it invested £281 million in acquisitions during the period in the U.S. and France (Adonix, a provider of mid-market business software, was acquired last November).
CRM, however, continues to be Sage's fastest-growing product category, with revenues said to have increased 9% from the like period last year. The company, however, didn't detail the performances of individual products or provide a precise revenue figure. The company called out the manufacturing and distribution segments as two areas where customers are embracing Sage software beyond core accounts and payroll management.
Meanwhile, Sage's balance sheet remains relatively solid. For instance, cash flow from operations was £153.9 million, up from £137 million at the like time last year. Debt, however, reached £287 million as of March 31, up from £106.9 million at the beginning of the fiscal year.
In a prepared statement, Sage Group Chief Executive Paul Walker said the first half of 2006 has progressed as expected, with customers continuing to purchase more of its "locally developed software and services." He added, "With a number of new product and service initiatives in place, we expect increased organic revenue growth for the second half and we therefore continue to view 2006 with confidence."