Sage Group has boosted its full-year dividend by 25 per cent, but the software vendor warned of gathering clouds ahead for small and medium-sized businesses and said organic growth could slow next year.
Newcastle upon Tyne-based Sage, which supplies accountancy and payroll software to more than 6m companies worldwide, serves as a barometer of business sentiment, and is heavily reliant upon SMEs.
“There are clearly significant macroeconomic concerns that may impact small and medium-sized enterprises, particularly in the eurozone,” Guy Berruyer, chief executive, said. “In the short term, the organic growth prospects are more limited.”
However, he said Sage had not yet seen widespread signs of downturn, apart from in Spain, where sales fell four per cent in the second half of the year.
“We are not where we were three years ago, after the Lehman crash, where the trend downwards, month on month, was very clear. We are not seeing a freefall.”
For the year to the end of September, Sage reported an 11 per cent increase in pre-tax profit to £331m, with revenues up 4 per cent at £1.33bn, driven by the addition of 261,000 new customers over the period.
Earlier this year, Sage returned to growth in all regions for the first time in 18 months, as SMEs tentatively began spending again on business software.
Nevertheless, Sage is remaining cautious, and indicated that there may be less emphasis on big acquisitions in the near future.
“We do have a pipeline of acquisitions but not doing an acquisition is not a failure. We acquire to support our strategy, not as a strategy in itself,” Mr Berruyer said. “It is a question of where to invest our cash flow, in returning cash to shareholders or in M&A.”
Earlier this year, the company walked away from a $1.3bn deal to buy MYOB, an Australian business software business, which would have been its largest deal to date. The company now faces legal action from Archer Capital, one of MYOB’s owners, over the ending of those talks. Mr Berruyer declined to comment on the case, which is due to have its first hearing in an Australian court on Friday.
Sage is continuing a £200m share buy-back programme announced earlier this year, funded by the £297m sale of its US healthcare unit, to Vista Equity Partners, to Vista Equity Partners, the US private equity group.
“[Wednesday’s] outlook statement is more guarded than we expected – it flags up a range of ‘macro’ worries and this will make for a subdued share price,” George O’Connor, an analyst at Panmure Gordon, said.
Diluted earnings per share rose from 16.26p to 19.29p, and a final dividend of 7.07p per share was proposed (5.22p), bringing the total pay-out for the year to 9.75p, up from 7.8p last year.
Sage shares closed up 5.5 per cent at 290.1p.