After standing still in terms of revenue growth for five years, Macro 4 Plc, the UK-based software house, is finally on the move. Ronnie Wilson, the CEO appointed in May 1998, has refocused the company’s operations, pruned the dead wood, and sales are bounding ahead.
The company’s shares however dipped 5% to 682.5 pence on the results as all this rapid expansion has yet to feed through to the bottom line. Net profit in the year to June 30 was up just 3.7% at 6.8m pounds ($10.8m) on revenue up 28% at 31m pounds ($49.6m). What held back the growth in profit was a 44.1% increase in operating expenses to 21.6m pounds ($34.5m).
Macro 4 had been chugging along, supplying software for IBM mainframes, with the decline in the VM and VSE markets more or less compensated by the growth in OS/390 sales when Wilson decided to go for serious growth. He is unabashed about the higher costs this has necessitated, arguing that this spending is necessary to correct the lack of any substantial investment undertaken for many years.
What Wilson has done is to discern a change in the market, with companies looking for complete solutions rather than just discrete products. This requires a more sophisticated, and expensive, sales effort, he says. The focus on the buoyant OS/390 sector has led to a 22.7% increase in its mainframe business revenue which now accounts for 40.5% of total revenue up from 33.1% a year ago, while VM/VSE products now represent 39.7% of sales compared with 50.9% a year earlier. A push into the open systems business – Unix and Windows NT – has brought a 78% increase in sales to 4.2m pounds and brought a modest profit compared with a loss in the previous year.
Macro 4 is up against competitors such as BMC, Compuware and Platinum, and the company said a substantial increase in spending was necessary to survive. Further heavy investment is likely in the current year as the company cranks up its sales effort in the US which accounts for around 37% of total revenue. With 16m pounds ($25.7m) of cash in the bank, Macro 4 is not short of funds and says it is on the lookout for acquisitions to improve its product range.
