UPDATE 2-Sage profit up, expects to weather tough times

* Sales rise 7 percent, in line with forecasts

* Adjusted pretax 273.4 million pounds, just below consensus

* Says subscription sales offsetting software weakness

(Adds Chief Executive comments, analyst reaction, shares)

By Paul Sandle

LONDON, Dec 3 (Reuters) - British software firm Sage Group Plc (SGE.L) reported a 3 percent rise in underlying full-year profit, slightly below expectations, but said its market position would allow it to weather difficult economic times.

Chief Executive Paul Walker said software sales had started to slow in the United States and Britain in the second half but subscriptions, many of which include support packages, were holding up.

"We have to acknowledge that visibility is difficult," he told reporters on Wednesday.

"But 61 percent of revenue is from subscription contracts (and) there is no evidence that customers are trading down. We see that 61 percent of the business in good health."

Sage, which sells business management software to more than 5 million small and medium-sized companies, posted a 7 percent rise in sales to 1.29 billion pounds ($1.9 billion) for the year to end-September, in line with forecasts.

Adjusted pretax profit was 273.4 million pounds, below the 279.7 million pounds expected by analysts according to Reuters Estimates and a 277 million consensus forecast provided by Sage.

Sage shares, which have lost a quarter of their value in the past 12 months, a decline broadly in line with the company's peers .FTNMX9530, were down 0.63 percent to 156.8 pence at 1022 GMT.

Seymour Pierce analyst Derek Brown said high levels of uncertainty in the first half of 2009 would affect sentiment towards Sage stock.

"Sage is now relying on its subscription revenues to offset weakness in software and software-related services," he said in a note. "This will make it challenging for Sage to meet expectations for 2008/00."

HEALTHCARE STABLISED

Walker said Sage recorded a strong performance in Britain, with total sales up 10 percent despite challenging market conditions, and was seeing continued strong growth in mainland Europe and other markets outside the United States.

A new management team had been installed in the United States, he said, which would improve customer service levels.

The group's healthcare division suffered an 11 percent fall in revenue as management concentrated on improving operations.

"Our goal this year is to stabilise revenues in healthcare," Finance Director Paul Harrison said.

Harrison said Sage had a strong balance sheet, but he was focusing on preserving cash rather than looking for deals until market conditions were clearer.

"Some of the valuations haven't caught up with the economic climate," he said. "In 12 -18 months there will be lots of opportunities."

Walker said the broader economic climate remained uncertain, but the company's large and geographically diverse market would prove resilient.

"Although we remain cautious in our outlook, we expect demand for our customer support to continue, which combined with tight cost control and our strong geographic market positions, will allow us to weather these turbulent times," he said. (Reporting by Paul Sandle; Editing by Hans Peters)