Sage, the UK's biggest software group, has turned in a good first half, with pre-tax profits up 19 per cent to £113.7m (2005: £95.8m) on sales up 18 per cent to £455.9m (2005: £385.6m). Organic growth - i.e. sales with new acquisitions stripped out - was five per cent.

Claims by many analysts that the company would buckle under pressure from Microsoft's entry a few years ago into the business apps market, now look overly pessimistic. The two companies may bump into each other from time to time in mid-market accounts, but they operate in largely different customer niches.

Sage has built an efficient cash-generating machine by targeting small and medium-sized businesses with its accountancy and business apps software. These days, the UK accounts for just a quarter of turnover - it claims five million businesses worldwide at the end of March as customers.

However, Sage's balance sheet remains a thing of controversy - saved from the ignominy of negative equity only by the company's decision not to amortise goodwill from acquisitions. Goodwill currently stands at £1,275.4m, up from £995.7m in 2005, contributing to shareholders' equity of £957.3m.

Sage robustly defends its policy on goodwill arising from acquisitions - the company instead takes an impairment charge if it thinks the acquisitions are worth less than it paid. The company's position is not exactly conservative but it is logically sound - a successful software vendor is typically valued at a huge premium over the value of its net assets. And that value - contained in the customer base, the intellectual property and the brand - implied in the premium does not vanish simply because it has been bought by another company.

Sage's appetite for acquisitions shows no signs of letting-up; yesterday, for instance it splashed out $6m for Master Builder, an app for the US construction industry previously owned by Intuit. ®