Sage accounting tweak causes a moment of panic in the City

Sage reports a healthy set of financials, but a tweak in accounting policies causes a moment of panic amongst investors

Sage today reported a healthy set of figures for the financial year ended September 30, but a change in accounting policies caused a mini sell-off.

The northern powerhouse met many of its key targets, such as organic revenue growth of 6% and a 28% operating margin. Revenue was £1.44bn, up from £1.35bn a year earlier.

However an accounting change, which related to how the company recognises third-party revenues, led many investors to believe that Sage had missed its earnings target, causing a few hours of panic. Shares were down by as much as 5%, before the City realised that the accounting software provider had tweaked its own accounts. Shares quickly rebounded.

There was a bit of genuine bad news. Pre-tax profit was £275m, down from £278.7m in 2014. The company said that the fall was down the currency headwinds as well as a £62m ‘goodwill impairment charge’ in Brazil.

Sage’s future growth is very much reliant on its cloud offering – Sage One; and for all intents and purposes, the numbers seem to be headed in the right direction.

The Newcastle-based firm said that it now has 173,000 actively paying subscribers on the Sage One platform, up from 86,000 in 2014. Nearly 60% (100,000) of those are in the UK, but Sage is actively expanding its global operations. Recurring revenues increased to £1.4bn in 2015, up 6% from £1.32bn in 2014.

“Sage One is fast becoming the accounting product of choice for small businesses, with UK subscribers growing at 4,600 per month and many turning to Sage One for its simplicity and our 24/7 customer support,” said Stephen Kelly, CEO in a canned statement.

“Sage One is central to our strategy of addressing the white space opportunity of Small & Medium Businesses which are not using any means of accounting software currently.”

While Kelly is acutely aware of the cloud’s critical role in future growth, he has been careful – and perhaps wise – to avoid alienating traditional users. The likes of Adobe have faced hostility by forcing their users into cloud subscriptions and Kelly has been keen to stress that Sage will continue supporting both deployment models.

Shift in channel strategy

There has been a noticeable difference in how Sage has approached the channel over the past year. The firm has struck up a number of key partnerships with the likes of Salesforce, Microsoft, PwC, Deloitte, Barclays, Telefonica, Google, Constant Contact, Neat and Costco. It has signed ISV agreements with Kimble, Fairsale, Xactly, e-Filecabinet, DocuSign and Apptus and is hoping that its new open ethos will encourage a wide range of ISVs to built preintegrated vertical solutions using the Sage Live/Salesforce1 platforms.

Last month, the accounting software provider also launched its revamped and massively simplified Global Partner Programme. The four-tier programme, which is open to System Integrators, resellers, VARs, ISVs and developers, aims to support partners as they evolve from on-premise sales strategies to cloud-based ones.

Speaking at the time, Alan Laing, EVP, Global  Partnerships and Alliances, said: “We want to help partners expand their offerings, while gaining new customers and growing their business as a result. Whether they are on-premise or operating in a hybrid or pure cloud platform, this is about supporting Sage partners in offering better support, infrastructure and benefits.”




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