At 143 pence, down from the dizzy 1985 heights of 970p, Micro Focus Plc shares should be in for a good run later this year if chairman Paul O’Grady’s claim that a revitalisation of Cobol is about to take place proves to be true. O’Grady’s optimism is based on the recent announcements by IBM of Personal System/2 and Systems Applications Architecture, and last year’s adoption by the US Federal Government of the new Cobol standard, ANSI 1985. Micro Focus’s hope must be that programmers will increasingly use Personals and PS/2s to develop Cobol applications that can then be run locally or ported to System 36s, 38s or 370-type mainframes, rather than do their development directly on the larger machines. The company is also looking to the Federal announcement to increase demand for its products from US vendors. And, judging by its full year results, published yesterday, Micro Focus is still in real need of a lift. Pre-tax losses were UKP329,000 on turnover that measured in sterling drooped by a similar amount to UKP13.1m. Expressed in dollars – 53% of the company’s business is in the US – turnover was up, albeit by a still unimpressive 4.5%, at $19.7m. The US business was stagnant but the real disaster was Japan – 10% of turnover – where sales revenue was almost exactly halved. According to managing director Colin West, this was due to all the leading manufacturers finding they were not in a position to talk new business during 1986. He says that discussions are now under way and the margins from Japan should be on a par with those in the US and in Europe. Despite the problems in the US and Japan, Europe, with the remaining 37% of business, had an excellent year with turnover up 42%. West says that Micro Focus will continee to emphasise direct sales which for the first time passed OEM sales in 1986. Breaking down the products, he says that 27% of revenue came from VS Cobol Workbench, 22% from Cobol level II and 20% from VS Cobol with the other 21% spread through various smaller products. On the operating systems side, he says that products under Unix and PC/MS-DOS are running neck-and-neck with around 45% with proprietary operating systems accounting for the other 10%. He promises new ANSI 1985 offerings throughout 1987, believing these will be particularly attractive in the US, and additional productivity tools for Workbench. Over the last two years, Micro Focus has sharply trimmed its cost base. In 1986, this led to a net cash inflow of UKP1.2m against a UKP4.1m outflow in 1985, and help reduce borrowings from UKP3.7m to UKP2.5m. The impact of PS/2 and SAA is unlikely to be felt in 1987 due to IBM’s slothfull introduction schedule but with the second half of 1986 showing a small profit – UKP200,000 – and hopes for an improvement in Japan, Micro Focus should be comfortably back in profit this year and, if IBM’s strategy starts to work, 1988 could see high flying again.
