At the same time as the company released a trading update it announced that the CEO for North America, Ron Verni, and the CFO for the region Jim Eckstaedt, had left with immediate effect. Verni has also resigned from the board of directors.
Following a review of its North American business, the board has concluded that a change in leadership is required to realize the full potential of this business, said Sage. On current figures the North American operation is trailing other regions by a large margin.
The group as a whole is expected to meet consensus expectations, with revenue of 1.16bn pounds ($2.36bn) compared to 892m pounds ($1.81bn) in 2006, and EBITA of approximately 283m pounds, ($576m) up from 239m pounds ($486m) last year. Organic revenue growth is expected to be around 7%.
However, while the UK, mainland Europe, and the rest of the world are delivering organic growth of 7%, 10% and 17% respectively for the year, North America is trailing behind with only 4% organic growth. Lack of growth in North America is significant because its represents Sage’s largest region in terms of revenue, contributing 44% in the first half of the year. The UK contributed 19% of revenue, and mainland Europe 31%.
Sage’s US story has not been a particularly happy one. A trademark dispute meant that only in the last year or so has it been able to use the Sage brand in the region, having to operate under the Best Software banner previously. It has a portfolio of disparate, mostly acquired applications. Unlike in the UK it has not embarked on an integrated suite strategy, which would go a long way to help customers and prospects make sense of its offerings and deal with competitive pressure from Microsoft and Intuit. In addition, the trading statement indicates that work to reorganize the business within the region does not appear to have paid off.
In May Sage organized the North American business into into four operating divisions, each under the direction of an executive team with the aim of improving customer focus and product integration.
Sage in North America is a strong and competitive business with market-leading brand names. The board remains confident about the opportunities to develop this business and to deliver further growth going forward, said the company.
Reports indicate that following the reorganization Sage realized it needed a management team experienced in running several divisions rather than a single top-down operation, and a team of CFOs instead of a finance team.
A search is under way for replacements. Sage was unavailable for comment. The company will release preliminary results for the year on November 28.
Our View
This level of action by conservative Sage will cause some disturbance, but if it results in a more dynamic North American operation it can only be positive.
