Sage suffers organic revenue decline

(By Richard Holway 8.00 am 6th May 09 - updated 7:30pm 7th May) Sage’s results for the six months to 30th Mar 09 show the first organic revenue and profits decline that I can remember in the long history of the group. Although headline revenues increased 17% to £748.4m, this would have been a decline of 3% in constant currency or minus 4% if acquisitions are also ignored. PBT rose 14% to £139.2m. But this too would have decline by 3% in constant currency terms. EPS was up 15% at 7.43p – so, at least, Sage has retained its Holway Boring Awards (thanks to the strength of the $).

Not surprisingly, it was Sage’s software and software-related services (SSRS) revenues which really took a bashing – down 15% on an organic basis. For the avoidance of confusion (and with apologies to readers of the earlier version of this posting), the ‘SRS’ bit refers to professional services, training and other odds and sods, not support revenues, which we’ll come to in a minute. SSRS revenues were down an even higher 19% in the UK.

Subscription revenues – the majority of which come from support contracts – grew 2% organically and remain the mainstay (64%) of Sage’s business. The only disappointment – perhaps also an unfortunate first for Sage – was that subscription revenues actually fell 3% in North America, vs +7% in the UK and Mainland Europe, and +14% in RoW. This was the inevitable effect of the continuing decline in new license sales.

Indeed, NA was again Sage’s worst performing region. Revenues contracted 9%, with SSRS revenues down 22%. This is just woeful, especially as NA is Sage’s largest geography, comprising 41% of revenues and 32% of EBITA. On the bright side, if so it can be called, margins held steady, at a still depressed 18%. This was partly due to a triumphant margin recovery in Sage’s Healthcare division (the erstwhile Emdeon Practice Services), more than doubling to 15%. However, this was mainly due to cost reduction; revenues fell 6%. As we have said many times before, we still believe Emdeon was the ‘wrong’ acquisition for Sage and doubt it will ever give the level of payback management so dearly hope for.

After a brief 4% rise earlier today, Sage’s shares ended 1% down at 194p. All we can say is ‘thank goodness for those recurring support revenues’!