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As Sage Group shares announced full-year results, when 19% surged in November, they said something about how unreliable the UK’s biggest software company is. They raised dividends and announced a £400 million share buyback, but investors were happy and relieved.
Sage spent a bumpy decade trying to convert desktop software used by millions of small businesses into cloud computing. For a while it seemed unsuccessful. “It felt like we were starting to fight between us over who was at fault,” says CEO Steve Hare.
Northsteinside’s Cobalt Park has a more positive mood with 1,200 Sage employees working at its headquarters, including 400 software developers. This is not Silicon Valley – the nearest ocean is the North Sea facing nearby Whitley Bay rather than the Pacific Ocean, but the FTSE 100 company, founded in Newcastle in 1981, has regained its momentum.
There’s still a lot to achieve. The company has been extended to its value by Intuit, the mountain view business behind the US small business software package QuickBooks. Sage’s market capitalization rose 93% over the past five years to £11.4 billion last week, while Intuit is worth around $165 billion (both affected by global business uncertainty this year).
Sage is also crowded with Xero, a New Zealand cloud computing platform for small businesses that took business in the mid-2000s, especially Xero. Sage has long relied on the incumbent effectiveness of Sage 50, a venerable program dated in 1989. Hare’s predecessor, Stephen Kelly, was removed in 2018, when he responded clumsy.
Last year, 83% of revenue came from subscriptions, growing faster and smoother. Among UK SMEs who are happy with their desktop Sage 50 software, some UK SMEs who are frustrated with the fact that they are strongly armed with conversion to the cloud version, Sage is now rewarding US funds, which account for 40% of its shareholder bases by moving forward.
Hare stated in the assessment Intuit achieved through consistent growth: “After the quarter, they had a revenue growth rate of 10-12% and a margin in the mid-30s (it had an operating profit margin of 23% last year). Sage traditionally grew and relied on acquisitions such as the $850 million acquisition of US cloud startup Intacct in 2017.
Sage cannot become the UK champion in a fragmented global market. It offers 185 products, including France, Germany and the US, but the industry is integrated across borders. “I’m starting to meet the winners and losers of technology. I’m determined to be one of the winners,” Hare says.
Kevin Permenser, senior director of Enterprise Application Research at research group IDC, says Sage needs to be streamlined further to avoid “time and energy splitting” of older products. However, “You can see from the momentum that companies have turned. I think they will grow rapidly as they adopt cloud-native principles and artificial intelligence.”
The benefits of cloud computing are evident in the results of Sage. Its revenues rose 12% in the US last year, compared to 7% in the UK and Ireland. This is primarily due to the growth of Intacct. This software (now called Sage Intacct) is primarily aimed at medium-sized businesses, giving Xero the opportunity to recruit lost small businesses as it expands to Sage in the UK.
Just as we were late to migrate to the cloud, we are trying not to miss out on AI opportunities. Last year, we began rolling out AI upgrades called Sage Copilot to our software products. Hare likens the current iteration of AI tools to “very intelligent toddlers,” but is growing rapidly.
Sage’s future also depends on culture. It is clear that the company is happy and I have been talking to executives on a recent visit. It is one of the largest employers in the Northeast and has a natural Tyneside warmth. However, it cannot recur in self-satisfaction. “You don’t have to be unkind or troublesome to each other. You have to request,” says Hare.
Sage is doing better than before, but it needs to keep on accelerating. There are no signs of small businesses with little technology. The UK is one of the countries that requires the use of financial software when filling out tax returns. But it needs to grab the day, otherwise others will.
john.gapper@ft.com
