May 9, 2012 5:22 pm

Sage looks to cloud for sales growth

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Exterior of Sage Software, Sage HQ, Newcastle great Park, Newcastle Upon Tyne, 13/1 2005.

Sage warned that weak economic conditions in southern Europe were weighing on the business, but the UK’s largest listed software company is hoping that a shift to cloud computing will help speed up sales growth.

“I am not happy with the pace of revenue growth. I want it to accelerate,” said Guy Berruyer, chief executive, on Wednesday as Sage revealed that underlying sales had grown just 2 per cent to £661.2m in the six months to the end of March, less than analysts had expected.

Revenues in Spain fell sharply, the company said, as many of its small business customers closed down as a result of the country’s economic woes. Trading has also been poor in France amid an uncertain business outlook and the presidential elections. These offset stronger performances in Germany and the UK.

Sage provides accounting and other business software for more than 6m small and medium-sized businesses, and its performance largely reflects overall economic sentiment.

However, Mr Berruyer is hoping to defy the effects of the economic downturn by increasing the amount of business software Sage offers over the internet or “the cloud”. Sage has been criticised for being slow to get into internet-based software.

It launched a product in the UK last year, which has so far gained around 3,000 paying customers. But that is still a tiny fraction of Sage’s 6m customer base and there is no indication of the impact on revenues. However, customer numbers could start to grow faster when the cloud-based product launches in the US next week.

“I don’t doubt that next year will be challenging,” said Mr Berruyer, noting that in the US there is already a strong online rival, Intuit’s QuickBooks, whereas competition in the UK has been more fragmented.

“But I am pleased with the pace we have seen so far in the UK, with customer numbers doubling over the last six months,” he said. “It was not a given we would do well in the UK.”

Mr Berruyer has ruled out acquisitions to build Sage’s cloud software capabilities. A number of software companies such as SAP and Oracle have spent large amounts of money buying cloud computing companies after admitting they could not build these offerings fast enough inhouse. However, Mr Berruyer said Sage had the capability to do its own development.

“Our business is quite different. It is about simplicity and usability, not about depth of features. Building accounting software is our core knowledge and we have set out to do this internally. We have that cloud culture,” he said.

Sage is also planning to streamline its portfolio of 270 products to focus investment on just on the top-performing lines. This would free up cash to speed up cloud developments, Mr Berruyer said.

Pre-tax profit for the six-month period rose 3 per cent to £167.1m, and earnings per share were also up 3 per cent at 9.06p. It raised its interim dividend 30 per cent to 3.48p in line with a pledge last year to return more money to shareholders.

Shares in Sage fell 5.5 per cent. They are down more than 15 per cent since the start of the year.

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