Accounting software supplier for personal computers Sage Group Plc has shown constant growth over the past five years, underpinned by strong recurring revenues, and a policy of strategic acquisition. Pre-tax profits for the year ending September 30 rose 33% to UKP8.9m, while turnover grew 36% to UKP27.3m. The results include a full year’s contribution from […]
Accounting software supplier for personal computers Sage Group Plc has shown constant growth over the past five years, underpinned by strong recurring revenues, and a policy of strategic acquisition. Pre-tax profits for the year ending September 30 rose 33% to UKP8.9m, while turnover grew 36% to UKP27.3m. The results include a full year’s contribution from DacEasy Inc compared with five months for the same period last year. Sage continued to generate cash, with year-end balances standing at UKP7.2m, up UKP6m on last year. Therefore, total net dividend increased 12% to 9 pence per share to reflect the group’s strong performance. The Newcastle upon Tyne-based company now generates 51% of its revenues from existing customers – an average of 61% in the US and 48% in the UK – its main markets. Chairman David Goldman says that this is a major advantage during a recession because selling products to new customers is more difficult. Existing customers tend to purchase additional features for their current software as well as add-on products.
Training
Sales of supplies, maintenance contracts, and training, in particular, grew 24% at group level. A new customer database has now been installed on both sides of the Atlantic to exploit the group’s existing client base to the full. Sage intends to achieve further growth by expanding geographically through acquisition, and by expanding its portfolio of offerings through purchasing new companies and products. In October 1992, it bought California-based Remote Control International for an initial payment of $6m. This will be followed by performance-related deferred payments up to a maximum of another $6m. Sage believes it got a bargain as it only paid the equivalent of the company’s turnover last year. The current US average is said to be twice the previous year’s revenues. Sage claims that RCI is one of the top three US suppliers of sales automation software for the AS/400 and Unix markets, ‘a product type, which fits well with mainstream accounting software’. Although this market is worth only $20m at the moment, analysts predict that it will be one of the major growth areas over the next five years. In addition, Sage bought 95% of Ciel SA in October for an initial consideration of UKP1.4m. Further performance-related payments, not exceeding UKP5.8m, will be paid over the next two years. Ciel is a Paris-based software house that, like Sage and DacEasy, specialises in accounting software for small businesses. It’s sales are already ahead of last year’s, but Sage is introducing its own business methods to the company to try and accelerate growth still further. Chairman Goldman also expressed interest in the German market, although he said the time wasn’t right just now, adding that Spain was another possibility. The group’s latest acquisition is Yorkshire Business Forms Ltd, bought yesterday for an initial consideration of UKP1.05m. Some UKP525,000 was paid in cash and UKP525,000 by issuing 120,522 new ordinary shares. Additional performance-related payments will be made over the next two years up to a maximum of UKP3m. Up to half of the deferred consideration can be paid by issuing more ordinary shares, if so desired. YBF is a print broker of business forms for insurance companies and banks. The company, with revenues of UKP4m last year, was formerly one of Sage’s major suppliers, but will now be merged with the group’s existing UKP2.5m supplies and stationery division. The aim is to create a larger operation that will benefit from increased purchasing power and specialised management in order to penetrate a wider marketplace. The directors of YBF, who are also the founders, will all keep their jobs. A reshuffle at senior management level, resulting in the creation of several new positions, has taken place to deal with the extra demands being placed on senior personnel. In the UK, Sage says that it has reaped the benefits of an active marketing campaign – over the past two months, it has spent a lot of money promoting brand names, conducting in-house market research, and trying ‘to i
nfluence the influencers’ – accountants are said to hold a lot of sway when advising business customers on which software to buy. Much investment has also been made in providing dealers with better technical support, especially for the high-end Sovereign modular accounting product, which now generates 28% of UK software sales. While UK staff numbers have risen to 198, careful control of overheads has reportedly led to a 12% rise in operating profit per employee. There was a comparable 4% increase in the US. Sage claimed that selling packaged software this year has not been easy, especially in the US, where competition is fierce, if fragmented – the US has approximately 200 accounting software publishers. Nonetheless, UK sales grew 12% in value terms, while DacEasy increased revenues here by nearly 10%, helped by a 45% growth in upgrade sales. DacEasy is now selling three new products via retail channels, and has launched its high-end Flagship product line, based on Sage’s Sovereign. Two other products were launched during the year – Instant Accounting and DacEasy Point of Sale, which is sold directly to users. Both are said to be selling well. UK and European sales of MainLan network products fell 49% compared with last year, representing 6% of UK sales. Goldman claims that the big players such as Novell Inc and LANtastic Corp ‘mowed them down from behind’, and the products are now only sold as upgrades or alongside accounting software. The products are now longer sold in the US at all. The Florida-based operations of MainLan Inc have been closed. Closure costs and trading losses amounted to UKP421,000, which have been fully provided for. Sales at the UK stationery and supplies division grew 12% – ‘a satisfactory performance in the present economic conditions’. Goldman considers this to be one of the group’s key activities and will be focussing attention here over the coming year. In the US, sales rose by 18%, while a change of forms supplier in August led to improved margins. The division now accounts for 26% of US revenues. Sagecover, the UK customer support and maintenance service, showed ‘exceptional’ growth in income, representing 23% of UK revenues compared with 18% for the same period last year. The number of new contracts rose 27%. The US company saw turnover grow 15%. Finally, Sage’s training division, which only operates in the UK, had its best year ever, with sales up 50%. Training was provided for some 4,000 people. Although teaching is purely classroom-based at present, the group is looking at cheaper methods so as to make it accessible to a broader customer base.
