Acquisitions ‘part of our DNA’, says Sage FD

Acquisitions have become ‘part of our DNA’, the finance director of Sage has
said, in comments that may raise fears the FTSE100 software group will continue
to neglect software development in favour of more purchases.

Sage announced strong numbers for 2005 last week and was bullish about its
acquisition prospects, noting global opportunities and pointing to a potential
£500m war chest it could draw on to purchase more software groups.

Businesses are spending more and more on their accounting software, Sage
disclosed, in numbers for the year to September 2005.

Revealing the reasons for a 14% growth in turnover, Sage said that software
revenues were growing as customers upgraded products, while support contracts
were generating more cash ‘as a result of an increase in spend per customer’.
Organic growth in revenues stood at 6%, Sage said.

But the acquisition talk could have an unnerving effect. UK and Ireland
managing director Paul Stobart apologised recently for the way in which Sage had
treated accountants, reflecting criticisms from the profession that its software
platforms have not received the attention they needed.

UK finance director Paul Harrison pledged that those days were gone. ‘Some of
our accountant customers did experience inconvenience. Those days are behind us
now, and it wasn’t a particularly happy time,’ he said.

Harrison noted opportunities to develop in Italy and Scandinavia, among other
possibilities. The heavily undergeared balance sheet would allow the company to
spend up to £500m to pursue such a strategy, after a year in which the company
made five separate purchases, most recently its huge deal to buy Adonix in

‘We have done scores of acquisitions, and it has become part of our DNA,’
Harrison told Accountancy Age.

Chief executive Paul Walker also said the company was confident it would keep
Microsoft at bay, in spite of the increased competition. ‘Since Microsoft e
ntered the market in 2001, we’ve been able to grow our revenues faster than it
has,’ he said.

Sage unveiled double-digit increases in its turnover and profits for 2005
last week, with turnover up 14% to £776.6m and pre-tax profit up 13% to £205.4m.
The group announced that it would also be increasing its total dividend, up to
2.875p per share, compared with 2.33p in 2004.

David Bradshaw of technology consultancy Ovum said it had ‘undeniably been a
good year for Sage’. But he added: ‘The figures Sage gave in its comparison
tables last year nearly all had foreign earnings re-converted at current
exchange rates to flatter the growth numbers.’

At constant currency rates the numbers looked different. ‘Sage’s organic
growth is good but not spectacular, with 5.7% at constant currency rates, or
5.1% if the “non-core” businesses (which Sage is winding down) are included in
the growth numbers,’ he said.

Bradshaw also pointed to the fact that Sage did not report its intangibles:
‘We just hope that we won’t have to put up with “we told you so!” when its first
results under IFRS begin to appear next year.’

The shares dipped in early trading last week, rallying later, with the
company saying tough market conditions had been responsible for the change
rather than investors’ response to the results. Harrison was confident the
numbers would be ‘well received’.

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