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Sage
grows but fires North America management
Computers & BusinessWorld News
David Bradshaw (Ovum)
Boston
Massachusetts, USA
This morning, Sage released a trading update
saying that, for the year to 30 September, it
expects to report total revenues of £1.16bn, in
'line with market consensus'. It also gave
numbers for its regional operations as follows:
UK £224m and EBITA (estimated earnings before
interest, tax and amortisation) of £83m,
Mainland Europe £349m revenue and £80m EBITA,
North America £508m revenue and £100m EBITA,
Rest of the World £77m revenue and £20m EBITA.
This gives and overall EBITA of £283m, or an
EBITA margin of 24.4%.
It also said that it had decided that a 'change
in leadership' was needed in North American and
that Ron Verni, CEO of North America, and Jim
Eckstaedt, CFO, were leaving with immediate
effect. The remaining senior management in North
America will stay but will report to Paul Walker,
overall CEO of Sage, until a replacement CEO is
appointed.
We should not be surprised that Sage has taken
drastic steps when results continue to be
disappointing, especially after some of the
exchanges when it announced its interim results
in May and the 5% fall in share price.
Just how disappointing are the North America
results? Its EBITA margin of 19.7% is the lowest
of any of the operating units, and its organic
growth of 4% (compensated for shifting exchange
rates) is also the lowest of the divisions. (And
thanks to the dollar trading at more than $2/£
we suspect in pounds the situation is rather
worse).
But there are some challenges built into this
unit, as well as in the overall North American
market. For a start, this is the unit that had
Sage's biggest ever acquisition, Emdeon, a
software and services provider for doctor's
practices. This is part of Sage's ambition to
widen its revenue mix, but getting into a new
market is also a risk and needs careful
management.
Sage has of course grown considerably through
acquisition, but this is becoming far less
practical than in the past. Stock prices of
software companies have risen markedly, and
nowhere more so than in the United States. With
such high prices bargains are few and far
between, so the company has to rely more on
organic growth - at least until prices cool off.
Sage also faces far stronger competition in the
US than in most other markets. In particular, we
see Microsoft Dynamics competing ever more
strongly at the top end of Sage's market. SAP is
also re-doubling its efforts here. Its Business
ByDesign will not have serious customer numbers
for some time (if at all_) but it all goes to
muddy the marketing water.
With the wisdom of hindsight, the disappointing
results made it inevitable that Sage had to make
a management change. But one has to ask to what
extent it was the now departed North American
management's fault, or simply their misfortune at
being in the wrong place at the wrong time. |
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