A trading update, to be delivered tomorrow, is expected to include bad news that could eventually lead to its removal from the list of the UK’s top 100 companies.
The software groups’ shares took a dive on Friday, when US-based PeopleSoft complained of reduced capital spending and uncertainty caused by the Iraqi conflict. Around half of Sage’s revenue comes from the US.
The news, when combined with similar signs from software giant Oracle, the sale of £7.1m worth of stock by Sage’s co-founder Graham Wylie, and the downgrade of Sage’s shares by UBS Warburg, have led to a downbeat mood in the City about the prospects for the company.
Speaking last week, however, chief executive Paul Walker, was in an upbeat mood. ‘With a large customer base of three million we think that providing more industry-specific functionality is right for customers and part of the growth strategy,’ he said.
There is no doubt that the small and medium sized business sector has been more resilient to the downturn, and in turn helped protect Sage’s position.
Walker also said the replacement market, where companies decide to buy new software packages rather than upgrade to the latest versions, will be increasingly important.
‘In a good economic climate companies will replace their software every four or five years. At the moment it’s out to six or seven years,’ he said. ‘We are in a strong position to make sure that when they replace software it is with our next product up the scale.’
He added that, despite dire conditions in the industry, the future could be rosy.
‘In an upturn, where the renewal market is more active, you could see software companies like Sage move back into double-digit organic growth.’
Responding to the FTSE-100 rumours, Walker claimed not to be too concerned. ‘It isn’t something that occupies too much of my time,’ he said.
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