Sage results show market slowdown

Sage Group announced its full year results this morning, providing the first real indication of what is happening in the SMB market and how SMB’s are responding to the current economic realties.

Although revenue for the whole year was up 7% on 2007, Q2 growth shuddered to a halt in its major markets. There were some hot spots – Spain chipped in +25% but the real vipers nest continues to be the troubled US Healthcare Division. In North America, total year’s organic growth was 1% with the Healthcare Division reteating 11% accompanied by an overall 2 point fall in margin to 18%. But that couldn’t mask an overall 3% fall in North America’s revenue.

For the UK, the company reported softening demand for its mid-market solutions and discretionary CRM spend products. The realty is that Sage has been fighting competitors with product that is not as attractive as that offered by the likes of Microsoft. Overall, Sage reported 10% total UK revenue growth. Not shabby but not spectacular either.

Sage is now relying heavily on its maintenance and support revenue which contributes 61% to the top line. CEO Paul Walker was quick to point out that the company has not yet seen any softening in subscription renewal rates but December and January are the crunch months. Regardless of what happens in the coming weeks, I expect Sage will announce what happened in that period as this is such a huge contributor to bottom line profitability and cash flow

It should be no surprise that acquisitions were very much on the back burner as the company sought to preserve cash. I expect the same next year.

Sage is wisely expressing caution while attempting to put a reasonable gloss on the current situation. Even so, there must be considerable concern that subscription renewals wont come in as they’d like.

Financial analysts had already baked the result into this morning’s share price which took a 5% hit yesterday and was drifting down 1-2%in after results trading.

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Tagged as: Microsoft, Sage Group