Elliot Cooper - CEO, Enprise Group
A direct entry into the New Zealand market by MYOB has damaged margins at NZX-listed Enprise's Kilimanjaro Consulting business.
Enprise told shareholders today that Kilimanjaro exceeded revenue growth expectations, achieving 16 per cent for the financial year to 30 June and 20.5 per cent in terms of contracted and recurring revenue.
However, significant challenges with MYOB's entry directly into Kilimanjaro's market and more businesses competing for scare resources put pressure on margins.
"Management is implementing plans to restore margins including a strategic review of operations and suppliers," Enprise said.
In August, Enprise Group advised shareholder that MYOB had "purported" to reduce margins on its MYOB EXO services. The board rejected MYOB's assertion that it was able to unilaterally alter these and initiated dispute resolution process in response.
Kilimanjaro Consulting, it said, supported the largest MYOB Exo installed base of any partner in Australia or New Zealand.
"MYOB have purported to retrospectively reduce the margins that Kilimanjaro Consulting receives on existing sales of MYOB Exo software," the company said.
"The impact of the purported reduction of 42.86 per cent would be approximately $935,000 per annum. This would significantly impact the support services that Kilimanjaro Consulting is able to deliver to their MYOB Exo software customers."
That created a double-whammy for the company as COVID-19 induced rapid change in demand for skilled resources.
"As a professional services consultancy, our people are our greatest asset, and therefore also our greatest cost," Enprise said today.
"We aspire to being an 'Employer of Choice', which includes positioning our remuneration in the top quartile. The time lag between increasing remuneration and passing these increased costs on to clients under contract in a tough trading environment, has significantly hurt the bottom line."
Kilimanjaro's pricing model has since been revised and the coming months would see a continued recovery of margins in the practice, Enprise said.
A restructuring of the support teams, and a focus on a client first initiative had also seen customer satisfaction ratings improve significantly.
"This enables us to align our pricing with our positioning in the market: A premium provider, with high perceived value."
Enprise said Kilimanjaro's experience integrating Exo on-premise software with cloud solutions gave its clients a pathway to transition to the cloud, as and when they chose.
While the Kilimanjaro business had been sharpened, its future strategic direction would largely be dictated by the final resolution of the dispute with MYOB, Enprise said.
"Pending a satisfactory resolution of the MYOB dispute, we intend to remain the best Exo partner in the channel, and at the same time rapidly build the MYOB Advanced side of the business."
Diversification was also being considered.
Enprise is involved in three other businesss: iSell, Datagate Innovation and Vadacom Holdings.
Seventy-five per cent-owned ISell is a provider of business systems to the IT reseller market, offering databases containing over 4.5 million products representing more than 2000 vendors available from over 100 distributors.
Products are sent automatically to hundreds of IT resellers across Australia, New Zealand, UK & Europe, South Africa and USA.
Annual recurring revenue at iSell increased to a shade over $1 million, up 36 per cent while total revenue was up 26 per cent.
Enprise Group associate Datagate, which offers one-stop SaaS-based telecom billing services, grew its annual recurring revenue to over $2.4 million, an increase of 49 per cent.
The online billing portal integrates with software important to MSPs, including ConnectWise and other professional services automation software, tax engines and popular accounting systems such as QuickBooks and Xero.
Unified communications business Vadacom Holdings' recurring and contracted revenue was $2.6 million for the year ended 31 March.
Its recently released cloud PBX phone system, Next Voice, continued to expand to support new and existing customers directly and through resellers, Enprise told shareholders.
MYOB, meanwhile, is relying on its partners for the launch of its connected SaaS platform, MYOB Business.
