Electronic Data Processing Plc has been committed to expansion by acquisition for the last two years. It knows what it wants to buy, has a seller and the money to do it, but can’t agree the price. Rather than overpay, the Sheffield-based software publisher and services company is prepared to wait. But as it moves away from hardware and towards software and services, now viewing its AT&T Corp-derived hardware purely as a vehicle for selling its software, it has experienced a fairly weak year. Turnover for the year to September 30 was virtually flat, falling 2.3% to UKP14.0m, while profit before tax was down 11.8% to UKP4.1m. This weak performance was attributed to the company’s margins being squeezed in all areas of its business: the company sold more units in the year, but margins on hardware were tight; it makes 7.5% on the cost price of AT&T kit. Also blamed were increasing research and development costs, up 11.3% to UKP1.6m and and lower revenues from interest, down 11.7% at UKP642,000. Revenues from recurring services, including software licensing fees, were UKP7.5m, but maintenance revenues were hit by the warranty agreements now demanded by hardware purchasers. However, the dividend rises 9% to 2.0p from 1.8p last time. The company made two-for-one capitalisation issue in February because at 660 pence, it felt investors were shying away from the ‘heavy’ shares and the issue has made the shares more tradable. The company’s policy is to use cash only for acquisitions so as not to dilute holders, and it has been looking to use its large cash balances for the acquisition of suitable software businesses for some 18 months. The company’s cash pile rose 12% to UKP12.2m and it plans to fund any acquisitions from this, rather than hand over equity. Electronic Data Processing wants to buy rivals in the wholesale distribution vertical market, but the potential acquisitions are exaggerating the ‘marriage value’ of any deal. The company thinks prices will ease as rivals realise they can not fund the necessary rewriting of legacy applications to object orientation. This realisation, the company believes, will be accelerated by the arrival of Microsoft Corp’s Windows NT and the separation of data repository and the application execution and management. The company’s principal products, UniVision and WinLink are yet to have a significant impact on the figures. The former, an object-based database has been available for three months, while the latter, a front-end to provide cross-system access to database management systems under Microsoft Windows, was only released earlier this month, but the firm reported very significant orders already.
