Macro 4 plc (the ‘Company’ or the ‘Group’), the global software company, today reports its unaudited results for the six months ended 31 December 2007. It is also pleased to announce the conclusions of its strategic review and the main elements of its strategic growth plan. These support a clear vision for transforming the Company into a market-leading player in high-growth niche markets. In particular, the Company’s core products and skill sets will be evolved and expanded to deliver a unique and integrated application performance optimisation suite of products and services. These will work across high-profile and interlinked disciplines such as internet transaction path analysis, end-user application experience profiling, and computer energy efficiency monitoring and improvement. We believe that these areas offer substantial and sustainable growth potential.
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Total revenue £14.1m (2006 £14.9m) |
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- Recurring revenues up £147k (2%) to £8.875m |
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- Professional services revenue up £141k (17%) to £984k |
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- Total new business revenue £5.2m (2006 £6.2m) |
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Profit before taxation, amortisation and material one-items £2.135m (2006 £3.405m) |
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Underlying trading profit £1.1m (2006 £2.7m) |
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Profit after taxation £6k (2006 £1.0m) |
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Cash balance increased £1m (28%) to £4.7m |
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Interim dividend maintained at 2.5 pence per share |
Commenting on today's announcement, Ronnie
Wilson, Group Chief Executive Officer, said:
"These results reflect the currently difficult and competitive economic environment, but do not yet benefit from the significant work which has been done, and which is ongoing, to reposition and restructure the Company to take advantage of the new high-growth target markets.
Our strengthened management team has refined and validated our strategic direction and we have moved into the execution phase, extending our core product offerings into new channels and growth areas. In parallel, we are restructuring and repositioning the business to achieve better sales execution and maximise future potential.
The primary objectives of these initiatives are to evolve Macro 4 into a market leader in those functional areas where our core competencies will deliver greatest sustainable growth. Alongside the existing product lines, we are additionally focusing on the new operational challenges facing the IT functions today, building a unique, comprehensive solution set to optimise performance of our customer’s IT systems across their key pressure points, areas such as the end-user application experience, energy efficiency, virtual systems and load testing.
On the document management side, through further product development, a stronger sales organisation and increased use of our professional services skills, we are improving our relationships with channel partners to help them evolve their offering in line with the demands of those markets.
While much work remains, we are now much better positioned to achieve our plans and I am confident that we will deliver the significant potential we see ahead."
Key results summary
David Smyth, Group Finance Director, commented:
"In the current economic climate we have been affected by elongated investment decisions amongst potential customers. However, we have also seen many positive aspects to the results for the period. The increase in recurring revenues, in Professional Services (PS) revenues and in other areas of the business (such as the IBM relationship) are all encouraging and helped support the top line following the delay of a few SMS contracts. These delays resulted in new business revenues falling to £5.2 million (2006 £6.2 million). Total group revenue was £14.1 million compared to £14.9 million in 2006.
For the period, DMS revenue represented 43% of total group revenue (2006 40%), while the DMS new business revenue was 42% of total new business revenue (2006 36%).
Profitability for the period also reflected expenditure and investments in a number of areas, such as re-branding, additional marketing effort, greater product development resource and certain material one-off items as we go through a process of restructuring and repositioning the business for its future needs. We believe that these investments are essential to improve the quality and effectiveness of the sales effort and to properly position the Company to deliver against its strategic plan.
Cost control and cash management have been strong throughout the Company, helping the period-end cash balance to increase 28% (over the same period last year) to £4.7 million. We are pleased to confirm that the dividend for the period will be maintained at 2.5 pence per share."
Operational Results
Revenue
Total revenue for the period was £14.1 million (2006 £14.9 million). Of this, £5.2 million, or 37%, was from new business (2006 £6.2 million, 42%) while recurring revenue increased to £8.9 million, 63% of total revenue (2006 £8.7 million, 58%).
The decrease in new business revenue was primarily attributable to the SMS division, where some anticipated contracts were delayed.
DMS new business revenue was marginally lower at £2.1 million and accounted for 42% of total Group new business revenue (2006 £2.3 million - 36%). Other sources of new business, including Professional Services, performed well. It is planned to increase the focus on the PS activities as we see significant customer demand in this area.
As previously announced, we expect new business revenue to be more heavily weighted towards the second half than last year. Current expectations are that H2 will be stronger than H1, more in line with our original plan.
Recurring revenue increased by £0.2 million to £8.9 million (2006 £8.7 million) with both SMS and DMS divisions showing an increase. Within this, maintenance revenue showed a 5% increase over this period last year following the stronger licence sales in the previous year. This was partially offset by a £0.2 million reduction in licence rental revenue, in line with the established trend of run-off in the legacy product rental contracts.
Operating Expenses
Total operating expenses increased by £0.5 million to £14.3 million (2006 £13.8 million). Staff costs, the Group’s largest type of expense, were down £0.3 million on last year due to sales commissions being £0.1 million lower and administration staff costs being lower by £0.4 million mainly due to reduced EDSIP provisions. These reductions were partly offset by an increase of £0.2 million in product development staff costs.
Other operating costs, excluding material one-off items, were £0.6 million higher than last year with increases in particular in marketing costs, provision for bad and doubtful debts and infrastructure costs as well as an adverse movement against last year’s foreign exchange gain. There was also a charge for material one-off items of £0.7 million, relating mainly to reorganisation costs and the termination cost of a former director. We expect further material one-off items in the second half as we complete the restructuring programme.
Group profitability and Earnings Per Share
The Group made an Underlying Trading Profit (UTP) of £1.1 million (2006 £2.7 million). Underlying Trading Profit is the adjusted measure of profit before taxation, after adding back amortisation of intangibles, material one-off items and share-based payment charges, then deducting capitalised development costs. The directors believe that this key performance indicator gives a better understanding of the underlying trading position as it removes the major one-off and non-cash expenses, except depreciation, and recognises product development costs in the year in which they are incurred. UTP basic earnings per share were 3.8 pence per share (2006 9.0 pence per share).
Under IFRS reporting standards, the Group reported a profit after taxation of £6k for the period (2006 £1.0 million).
While it is intended that a replacement long-term Executive Deferred Share Incentive Plan (EDSIP) will be put in place for this year, there is a possibility that it will not be in place by the end of the financial year. Should that be the case, subject to achievement of Company performance targets, a cash bonus scheme could apply instead. This would affect reported results under IFRS rules as a cash bonus is chargeable to the Profit and Loss Account as incurred, rather than over the vesting period for share-based payments. H1 has been reported on the basis that a replacement EDSIP scheme will be in place.
Balance Sheet and Cash Flow
The Group Balance Sheet continues to be strong and the cash balance improved by £1 million on the same point last year. At 31 December 2007 the Group had a cash balance of £4.7 million (31 December 2006 £3.7 million) and no debt. Cash collections have been maintained at the excellent levels achieved last year and the Group’s Days Sales Outstanding (DSOs) are a respectable 30 days (2006 29 days).
Other than trading activities (including reorganisation and re-branding) and dividends, there were no significant cash outflows. In the first half of last year there were payments of £1.3 million for deferred consideration and £1.3 million for the purchase of own shares.
Dividend
The Board has agreed that the interim dividend remain at last year’s level of 2.5 pence per share and will be paid on 15 May 2008 to all shareholders on the register at 25 March 2008.
Capital structure
At 31 December 2007 the Group had 23,031,283 shares in issue (31 December 2006 23,025,781, 30 June 2007 23,026,687) with the increase in the shares in issue being the new shares issued under the scrip dividend scheme. The market price of the Company’s shares at 31 December 2007 was 145.5 pence per share (31 December 2006 212 pence per share) giving a market capitalisation of £33.5 million (31 December 2006 £48.8 million).
Divisional results
Systems Management Solutions (SMS)
The SMS division experienced a fall in new revenue, down to £3.1 million (2006 £3.9 million).
The IBM OEM relationship continues to perform well, with revenue increasing by £0.2 million to £0.7 million.
Recurring revenue was consistent at £5.0 million, of which maintenance revenue accounted for £3.9 million (2006 £3.7 million) and licence rentals accounted for £1.1 million (2006 £1.3 million). The expected decrease in licence rentals, which come from our legacy mainframe products, continued as customers cease to use the old technology from which this income derives. The increase in maintenance revenue of £0.2 million was mainly due to the increase in previous years’ new contract sales.
SMS divisional costs were slightly down on last year at £3.2 million (2006 £3.3 million).
The revenue and cost performance described above has resulted in an overall divisional contribution from SMS of £4.8 million, £0.8 million down on the £5.6 million last year.
Document Management Solutions (DMS)
DMS revenue was unchanged at £6.0 million. New revenue was slightly down at £2.1 million (2006 £2.3 million) but this was offset by an increase in recurring revenue to £3.9 million (2006 £3.7 million).
Licence sales of £1.1 million comprised a number of smaller deals, but, unlike the last year’s £1.4 million, did not benefit from any significant sized deal.
The fall in licence sales was almost matched by an increase in PS revenue. This increase was particularly the case in mainland Europe with gains in Belgium, Germany and France. In each case this revenue was the result of licence sales generated in previous years. This is an area of the business where we shall be putting greater focus in the future as we have seen a healthy customer demand that can be leveraged.
DMS costs rose over last year to £4.0 million from £3.7 million, mainly as a result of additional direct third party costs relating to sales. Staff costs, in particular product development costs also increased.
Overall divisional contribution from DMS was £2.0 million, £0.3 million down on the £2.3 million achieved last year.
Group Business Services (GBS)
The GBS division comprises the central administrative functions, covering finance, computer services, executive, legal, human resources and corporate marketing. The division’s costs were £4.8 million, marginally up from last year’s £4.6 million. This increase was due to essential technology upgrades to the Group’s system infrastructure and an adverse movement on last year’s foreign exchange gain, offset by a reduction in the EDSIP scheme costs.
Outlook for for full FY 2008
In the current economic climate, we see the longer lead times in bringing opportunities to closure continuing. However, as previously announced, we expect that H2 new business revenues should be in line with plan and accordingly should be stronger than in H1.
H2 FY2008 will also see the continuation of the reorganisation and restructuring programme, resulting in further material one-off items as the Company is repositioned to deliver the potential in the strategic plan.
Strategy and vision
In a comprehensive strategic review of the company, all aspects of the business were examined, determining the potential for each solutions area. This review identified significant opportunities for both divisions and management are now in the process of implementing the necessary changes to drive the Company forward.
The Board of the Company has been considerably strengthened by the appointment of Patrick Gallagher as Chairman, Richard Burns as Non-Executive Director, and David Smyth as Finance Director.
The field sales organisation has been restructured and strengthened with three new, highly experienced senior sales managers appointed in the USA, UK, and Europe. The product development, support, and marketing functions have also been restructured and strengthened and the brand has undergone a complete refresh.
Both divisional product lines have been thoroughly reviewed and clear plans for delivering their growth potential have been laid down. Execution against these plans has begun.
DMS
Our portfolio of products and capability within the document printing and on-line document storage business is already comprehensive. Market demand for these types of solutions is growing in line with the dramatically increasing volume of document-based information within organisations.
We believe that success with this portfolio can best be achieved through a very targeted focus regarding product development, market positioning and route to market.
Accordingly, Macro 4 DMS Office Printing solutions are now focused almost entirely on achieving market reach through external sales channels, in particular the specialist hardware providers to whom large companies are increasingly outsourcing their office printing needs. These suppliers, such as Xerox, Ricoh, and HP have a strategic imperative to offer a software-based print management infrastructure to support their existing hardware offering and deliver the services required of them.
Macro 4 provides such an infrastructure and our product development, marketing, and sales resource is aligned to the evolving needs of these suppliers. We believe that this offers Macro 4 significant growth potential.
The DMS on-line document storage solutions compete in the Enterprise Content Management (ECM) market, now dominated by IBM and EMC. These companies offer very sophisticated solutions that deliver enterprise wide solutions to large companies. However, these solutions are not appropriate (and are too expensive) for large SMEs. Macro 4 has an outstanding track record within such companies, providing solutions which support and enhance targeted business processes such as accounts receivable, payroll, and call centre support. Macro 4 has an opportunity to become the leading provider in this sector of the market, providing our solutions to SMEs at an affordable price which delivers quick returns on investment. The sales organisation is structured towards this end.
SMS
Within the SMS business, we have identified that Macro 4’s strengths, which include our deep domain expertise for mainframe applications fault and performance management, have many applications beyond the current product set.
The Company recently extended its solution set into the distributed computing world, with the launch of our A.P.P. platform, an independent performance monitoring and diagnostics tool specifically aimed at Java based applications.
The internet is now a well established part of modern business applications. Such applications not only automate and streamline the running of the business, they are also used for marketing, revenue generation, customer acquisition and service. They are of critical importance to organisations (and their customers), and increasingly so.
In this context, applications performance management deals with the reliability and scalability of the business application, the responsiveness from the end customer’s perspective, and the environmental impact of the application in terms of resource and energy consumption. No one vendor currently provides this depth and breath of understanding across all these areas.
This represents a significant opportunity for Macro 4’s long-term growth in SMS.
Using its excellent foundation of customers, products and expertise, Macro 4 plans to evolve into an innovator and leader in the high growth Applications Performance Management area. We will provide a comprehensive software and services solution to assist the CIOs of large companies optimise the performance of their business critical applications.
Macro 4 will provide an ‘Applications Performance Ecosystem’, with end to end transaction profiling, applications behaviour analysis, end-user experience monitoring, and energy metering. These services will evolve over the course of the next three years, considering a combination of product development and targeted acquisitions.
Our vision will create a unique business model, with long-term strategic relationships with customers to deliver sustainable, and predictable revenue and profit growth.
We are excited by the prospects and potential of this vision.
Notes:
Note A – Profit before taxation, amortisation and material one-off items (‘PBTae’)
Note B - Underlying Trading Profit, the adjusted measure of profit before taxation, after adding back amortisation of intangibles, material one-off items and share-based payment charges, then deducting capitalised development costs. The directors believe that this key performance indicator gives a better understanding of the underlying trading position. This is because it removes all the major one-off and non-cash expenses, except depreciation, and recognises product development costs in the year in which they are incurred.
| For more information, please contact: |
Macro 4 plc
Ronnie Wilson, Group Chief Executive Officer
David Smyth,
Group Finance Director
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Phone: +44 (0)1293 872000
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Piper Jaffray Ltd
Nigel Daly |
Phone: +44 (0)20 3142 8700 |
Interim Results - Further Details
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