§ystem HouseThe monthly review of the financial performance of the UK software and computing services industry

Volume 10 Number 10 Available by subscription only ISSN 0967-2583 August 1999

Deja Vu or Sanity Revisited?In July 98, when we gave our annual CSSA presentation. the unaware of the general situation, then the fault probably resides

newly launched F☁l☂SE lT index had hit a record 1884 - up 88% with them, not the 868 industry.

in its first six months of life. We warned theaudience that these Thirdly, the "pain" has not been felt across the board. In the last

were "crazy, twelve months IT staff

u n s u S far in a b l e HSE IT index V SCSI Share Index agencies have seen

valuations". After all. share prices dive over

average P/Es had hit 50%. Resellers have

nearly 60. A year baCk. slumped by 10%. But

August 98's Sysfem softwarecompanies are

House was headlined up nearly 20% and

☜Increasing unease☝ system houses have

and warned Ola "S!er scared by over 30%,

Iai/"which could have a Given that the pain of

major effect on the new 1999/2000 is likely to be

issue market. ☁. . . felt most by IT staff

By Oct. 98, all of the . i ☁ In,☜ . agencies and resellers.

FfSE ITlndex☂ gain was -' , . 1999HIQh1B7B ' whereas system

lostandthe IPO market " ' ' houses like Fl Group

ground to a halt. might well gain as

There was a feeling of pressures on staff cost

deja vu when we and associated churn

addressed the CSSA rates ease, investors

again this month. Kinda seem to have called the

spooky as the FTSE IT market pretty well.

index had in July 99 Finally, the outlook for

returned to the record the UK economy looks

+88% levels last seen in much healthier than a

July 98. year ago.

Are we likely to see another massive dive So, the logical answeris that a 03 correction

In 03? ☜K ""5"" "☁ "☁1☁" ☜☁☜mm' this year would beunjustified. However, that

FrSE IT (565)

-°-FfSEITIn¢ex 9 SCSllndex

The situation now is quite different. Firstly we does not take account ol'tactors outside ourare a year on. Earnings have risen Druld use control". Our main fear relates to internet

substantially so relative valuations are now Em" (in-"'1'" stocks - in particu ar the high valuations in- - r i G'Olhlm Computing Riva .

back to historicallyo sustainable levels. P/Es High." spun" the .US. so much of the US economy - in

are now neaily 404☂ lower than a year baCk JBA Total particular its ☁feel good factor- is now boundand at "just" 33 are much closer to the 1:355" Triad up in the internet. If there was a major

correction - we aretalking here of total

anticipated °/o growth in

earnings for 1999 and

2000. Quoted UK SCS Companies - Average PIE by valuations falling by

Secondly, perhaps last Month 50%+ - this would have

year the market had not a knock on eflect

throughout the US andfully realised the "special 60would move to the UKmicroclimate☝that would

5356

exist this yearasaresult 55 53 within microseconds,

ot Y2K. We hope that 50 Sound lT services

there is now a better companies would be

understanding of the 45 knocked alongside our

market. We have already own fledgling internet

37 37seen trading statements 40 stocks.

from nearly 20 quoted But we have firmly. 35

805 companies

warning of a slowdown 30

due to the ☜Y2K effect".

33 3331

3" 33so 30 31 predicted the birth of a

2, 29 29 new GOLDEN ERA forI I I I our industry starting in

Although we still expect 25 N" May M M Aug Sep on Nov Dec Jan Feb Ma N☝ Ma J M 2001.30 anydownturn. » - ~ - - - - ~ - - r- - - un- 11- . .

more warnings from 98 93 93 98 98 98 96 99 98 99 59 99 99 99V 99 99 in 03 could be Viewed

others, if investors are still as an opportunity.

A☜9☁15'1999 1 _. System House _

Fl Group plc

PET and Revenue Record

Relative to 1989

l Revenue PBT

Cropper asgentte-the'é aiaw 'Were, however. surprised tq 1:,hear that'David Best (ED); 3t'o' leave "☁to applyknowledge and experience}.lhalp and invest in Smaller:emerging companies☂t. Best- lsrte remain at?! .for a. 1er more.weeks to hand. over to his ☁83?"yet :unnamed l☁sucvoessovr, 'n;addition, long slandirlg 119'years) NED Con'Driacoll I _ , H. _. ☁1 __resigned in- Mart☁QQIV Joining. ☁Fl'sv board a ecend .depuAndrew Buxton; U ☂ :l- _ =

Although Fl Group accepts that ☜the year ghee {é mere, dif cusuch work accounted for just 12% of We bye/pass; Further???☁grom☁h slows☁aomewhaf compared {0 11793 exasp qne☁l {eye/statgoommem: .We were delighted when Fl won metal 1base, This acquisition was the ts: 'maior steer V . 2☁intematlonal. all-round IT services player. The acquisitions 'wo

newslaning in earnest" although we understand no anno neemeand will be looking for quality qut ls like OSl ih Germany,._Benéi'ux,have 100 staff). This makes sense glv'en that AM as a ☁stajnd alone?☝usually comes part and parcel in full-scale IT outsourcing deals. And; '1 n .5jwhich adds credence to We predictions on its tuture pertermance; Wewere also glad'to, arithat☂have one hand on the tiller when she becomés'c'hairma'n nextyeag ,~ alemobth,☁sq¢¢j_ ☁ ☂factor in our books - and we trust Dam Best☁s successor will be able to illi☁hls formidebl beet☁we can see that moves us from our View that 51- is a. Class act - with every-change 'ofjg'e☂tting

tFl☂s share price rose only slightly after the results announcement, and was sh. ☜semewnat off . _372p . probably because these results were p☁resaged ew weeks earlier in their☝ 'sha☁te☁ptacin'g atjthe tlte☁Qs}acquisition, But since then the share price has risen to end Jul. 99 2213831), up 17% tn the month'ahé 16%☁63 the year.

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E13

PhoneLinks results- better late than never?

We missed PhoneLink☂s results forthe year ended 31stMar. 99. Mind you they are hardly stunning and probablyweren☂t announced accompanied by a fanfare of trumpetsor wholesale press releases. Mainly due to acquisitions,revenue went up over three-fold to £1 Om but despite this,losses only tell from £3.7rn to £3.4m.After being the ☜wonderstock☝ of the early 905 and with the

share price rising to over 420p, they missed the internet

boat and the shares have fallen steadily. They ended thismonth on just 36p.

Yet another profit warning from MDISThe MDIS Group expects a material operating loss inH199 with any profits from the core UK business ☜morethan offset" by losses in Glovia and PRO W. This is"unacceptable"and they were "reviewing available strategicoptions". The shares have fallen again this month to end

on just 23p - after floating in 1994 at 260p. With revenuesof c£113m and a capitalisation now of just £54m ♥ it all

looks a bit daft to us

Further progress at AlphamericRetail systems supplier Alphameric has gone into profitat the interim stage for the six months to 31st May 99.They made a PET of £1 m (loss £421 K last time) on revenueup 80% at £11.2m. Chairman Rodney Hornstein believes☜the Group is well positioned... and will maintain the progressfrom the strong rst half performance☝.

The ☁new☂ Skillsgroup repositionsOld established Skillsgroup is now a services companyand we don☂t intend to list again here the many changesthey have undertaken over the years. They have spentc£70m on acquisitions to enable them to move into thehigher skills area and have made a number of disposals.In the results for the six months to 31st May 99, revenue

from continuing business increased 25% to £96.4m (incl.26m from acquisitions), operating profit rose from £5.4m

to £7.9m with PBT, after exceptional costs of £1.5m,

actually down slightly at £6.4m. Diluted EPS dropped 9%.

Chairman David Southworth said "The outlook now and forthe next 3/5 years is very exciting... The Board believesthat the outcome for the full year will be at least in line withcurrent market expectations

Comment. its taken a long time for Skillsgroup to moveup the value chain and become a 808 company.The shareprice is now starting to reflect this to end the month on276p - a rise of 52% this year.

uppo services cernpetny:i" ☂ *p3☂84f☂lsto'23☁l m'i

and KDL☂); PBT up ai. ' ☁ctuatl☁ydown 2836.1

- g r. anexpected'pmducti1 as due to ~☜an increase in the;

f'QO'ne, Pl☂usgnote is that the servicesperformance? and; at £9.2m. now

' mover. ☁

Computerland UK plc

Eight year PET and Revenue RecordRelative to1992

I Revenue PBT

1992 199: 1994 1995 1996

n- magnum

1997 i999 1999

Computeriand☁s results reflect others in the PC industry, 3and after the profit warning in March. 11 is disappointing tosee that "product sales in May and June havebeendisappointing and the outlook for the product businesscontinues to be uncertain☝. But ☜services continue to make ☁good progress". After the earlier restructuring of the

company into two operating divisions - Litacycie and;Support Services - the directors are confident that ☁theprospects for the year as a whole will be satisfactory☜.

Afterthe earlier profit warning when the shares plunged (to .

65p), they ended the month on 84p - still a 16% discountto the Sep. 97 lPQ price otrjggp. V r August 1999

System Hébs'ém;

How to mount a US invasionThis is the first in an occasional series of articles showing how enterprising UK software and computer services companies haveexpanded into the highly competitive US marketplace We would be happy to hear about other companies☂ experiences.

; What do you do when you☂re a UK company with what you think is a world class ☁so/ution☂, and you☁re trying to break intoi the lucrative ♥ but highly competitive ♥ US market? Well, you could try setting up your own offices. But how do you getyour name known around town?Or, it you☂ve got deep pockets, you canlook to buy a local firm and use their client baseas your entrée. But if you are a small player even in the UK, then both of these strategies can be prohibitively costly andvery risky. "

This was the dilemma facing insurance software and services company, Sherwood International, back in 1996. Theirresearch had shown that the opportunity in the US for their flagship product Amarta was some ten times greater than inthe UK. But with (then) revenues of some £25m, they needed to find an affordable way to tap that market.

The answer was, of course, to find a partner who could provide the credibility and contacts they needed to get a foot in

the door and the resources and track record to make the system work. Sherwood engaged a US-based agency to lookfor potential partners, with a special focus, not surprisingly, on the ☂Big 5' professional services firms. By the very natureof Amarta (an ERP solution specifically targeted at insurance) they were able to convince potential partners not only

that the Shem/cod solution was ☂best ofbreed☂, but that the partner would be able to generate significant consulting

business for itself on the back of the sale.

The first Big 5 firm that showed any real interest was Deloitte &Touche (D&T), with whom Sherwood went onto sign a

partnership deal in Mar. 97. The basis behind the arrangement is for D&T to provide the initial entree into the prospectorganisation and Sherwood to assist in the selling. If the client goes ahead, they sign the product licence with Sherwoodand a services contract with D&T for implementation, although some Sherwood staff would assist the D&T implementation

team on a fee basis.

It didn☂t take long before D&T scored their first run on the board ♥ with Northwestern Mutual, the largest and mostl respected life products company in the US, in June 1997. Curiously, NML did not have a previous relationship with D&Tand neither had they heard of Sherwood ♥ the introduction actually came from the agency that Sherwood had used to find .a partner. Nonetheless, the implementation was very successful and the new system went live in Apr. 98.

A blue-chip reference site like NML was all that Sherwood really needed to establish a beachhead in the US. A secondclient soon followed - CNA Life ♥ who did already have a strong relationship with D&T but who also used Sherwood'sreinsurance product, Senator. And since then, Sherwood has signed partnership deals with KPMG and Canadian-basedDMR (a subsidiary of AmdahI/Fujitsu). Furthermore, in Sep. 98 Sherwood acquired a 13% share in US-based Allenbrook

☁ Inc. at a cost of up to £7.1rn and formed a joint venture to market Senator in the US.

☁ In just a couple of years, Sherwood has built up its US business to £10m ♥ almost a quarter of its 1998 revenues. They

also expect other players to sign partnership agreements alongside D&T, KPMG and DMR and Sherwood are now

looking for other partners who can introduce them into ☂second tier☂ insurance players in the US. Meanwhile, Sherwood

now have some 12 people in the US full time and are starting to recruit local staff to support their partners' implementationserVIces.By the way, the ☁grand plan☂ doesn☁t stop there. In keeping with the Holway mantra, Sherwood will look to offer itsproducts as an application hosting service perhaps as part of an insurance back office business process outsourcing

: offering and are looking at acquisition opportunities in the US as well as the UK.

Continuing ' '

at 33% l♥A MA. 2.. 9.9In the year ended 31st Mar. 99, on static revenue of

£65.9m. much troubled Kalamazoo (automotive softwareand services) managed to increase losses to £2.2m.To befair, group continuing operations did manage an increasein revenue of 11% and there was another one-off hit of£1 .5m for rationalisation costs (against £1.3m exceptionalslast time). Automotive Division accounts for £45.6mrevenue, where development costs for Elite have hit thebottom line, with Computer Solutions the remaining £20.3m.Chairman Bob Jordan expects "continuing but steadyimprovements in underlying operational performance,revenue growth and a return to profitability is our firstpriority , , . . . .for this financial year☝. Indeed CEO Malcolm Roberts was grew fro 25mm {Nerf 0m ~- etdé☁cqutstttons 'appointed in Jun. 98 to change Kalamazoo radically and now comes mainly☂frolm ermany. and HollandLiThéreturn it to profit by streamlining and focusing the company established software'businefss' alsqgrew revenue 499/610on sustainable growth. More 808 revenues, more recurring £51.6m but made tower profits L☂Anite has air-Gad)"revenues seem to be the recipe. He has made a good start restructured the [63.8. making Anita systEms☂ WhiCilils now- there seems to have been 3 operating profit in H2 - and claimedto be profitabie. ' ☁ 3 .3 ' ' 'most of the reports recently seem to point to a start of a ChairmartAlec Daly commented.☁0l/.étallf

bleaéadta

sustained TeCOVeYY- recon the☂group☂s☁ strong finanbialtie , . has bit-3:913The share performance has been a disaster for some time sustained into the current nancial y .and'r'emainand after hitting a high of over 140p in mid-1996 they had confidentofayearoffurthergood☂growt 2 .} » Ifallen to a low of 32p. But the announcement meant they The shares havestarted to recover quite'well☁ nd endedrose 30% this month to end July on 54p. the mgnth up slightly at 539 - a rise of 33% this year. :

_System HouseW 4 WW August 1999

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August 1999 5 System House h

Quoted Com ames - Results Serv1ce Note: HI hlI hted Names indicate results announced this month.Flolfe a. Nolan plc Sherwood International plc Torex Ic

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'. ' . 3☁ _' *v '3☁ 2' ☁ , ' w R v 220255.000 223,01 0011 vl .0Riva ciaims☁ to be, Europe's-leading s 2:1 21.03330 22.16330 g»:

MCA confirms slowdownThe latest survey from the MCAconfirms the situation we have longreported...lT ☜people-based" revenuesare in a sticky period. Overall revenues

' earned by MCA members (and they do

represent all the large IT consultancyplayers) from IT consultancy dropped

from £154m in 01 to £151m in 02.That☂s' a 10% drop since 02 1998.

Cap Gemini produced excellent resultsfor the six months to 30th Jun. 99 withrevenue up 16% at FFr14.4b. Operatingprofits were up 34% at FFr1.1b.

These discussions are céntinoing- but'werevRiva shares ended July up 65%. at☁S3p.☁

Computer Associates services business starts to sizzleUS-based infrastructure software company Computer Associates (CA) appears to have put last year's abortive bid forsen/ices giant CSC well behind it, and is now pounding the acquisition beat to build a professional services businesspretty well from the ground up. CA set up its ☁Global Professional Services' (GPS) business - originally called 'ProfessionalServices Organisation☂ but mysteriously later renamed - in Apr. 98. GPS is one of the fastest growing units within CA'sworldwide operations, more than doubling revenues in Q1 FY2000. CA's results for the 3 months to 30th Jun. 99 sawtotal revenues rise 17% to $1.22 billion, although the company still recorded a pre-tax loss of $304m due to a $646mR&D charge related to its Jun. 99 acquisition of US software company Platinum Technology. GPS represented $119m ofthe $1.22b - just under 10% - but this compares to $51 m for the same period the year before » a 133% increase. Add to

this $196m in maintenance revenues, and you☂ll see that CA is now generating over 25% of its total revenue from

services. We would expect this proportion to increase substantially and rapidly, but whether they☂ll match the near 60%/40% services/licence fee mix of Oracle is yet to be seen.

☂CA's GPS business in Europe is headed up by Bull France ex-president, Jacques Reboul, who joined CA in Sep. 98.Some 850 of the 4,000 GPS staff are based in Europe, mainly in Germany, UK and France. Reboul expects this number

to more than double to 2.000 by the end of next year. This growth will come both organically and by acquisition - CA hasalready acquired five services-related companies since Aug. 98, including Norwegian e~commerce specialists AventuraSystems. CA is actively pursuing further acquisitions worldwide.

'Comment: CA is the world's 3rd largest independent software company, with 1998 worldwide revenues of $5.25 billionand 1998 UK revenues of £174m. Having previously eschewed any (non-maintenance) services business, they havesince 'seen the light☂ and are going hell for leather to try to capitalise on what they believe is a potential worldwide $12☁billion opportunity for ☁professional☁ services associated with IT infrastructure software implementation and system/inetwork managed services. They are realistic enough to know they can't do this by themselves so are using 'usual

suspect☂ partners such as the ☁Big 5☂, major systems integrators (including Logica, Sema, EDS and CSC), and the

channel, to do the business. indeed, some 50% of GPS Europe☂s revenues come through the partner channel (comparedto 30% worldwide). We think there is a substantial opportunity for planning, implementation and support services related

3 to CA☂s market♥leading application development and system/network management products, so there could be pleasing

j rewards for those partners that are able to get a slice of the action,

_SystemiHouseW 5 August 1999

g?

Beaufort Group, a European business consultancy, has

acquired French internet company Net Architect for £140K.

European e-commerce company lntegra (recently

successfully floated on Nouveau Marche) has bought the

UK☂s #2 web hosting company Aligrafix for £1.8m. BarcroftPartnership acted for Aligrafix.

Guardian iT has acquired the business continuity and

disaster recovery business of French Sogeris group for£28.6m. This part of Sogeris☂ business had 1998 revenues

of £7.8m and an operating profit of £2.5m. The deal isexpected to be "earnings enhancing" before goodwillamortisation. They have also bought Bosch TelecomGmbH☂s disaster recovery operations for £1.3m cash.

Computer manufacturer PC Sciences has crashed with a£8m shortfall. This is founder Charles Forsyth☁s fourthcompany to go under in the last ten years. Not good PR for

the IT industry.

ilion has rejected the 114p per share bid from "disappointed"Dutch Landis as it "seriously undervalues the company".ilion also said that trading for H199 was "satisfactory" and

June revenues were an all-time record.

Biotech company Xenova has sold is US software

business MetaXen for £245K to Exelixis Pharmaceuticals.

"One of the leading independent retail systems providers

in the UK"...hmmmm, Ranzau Group has completed a£7m MBO with the assistance of VCs Nash, Sells and

Partners (who invested £42m). Ranzauhad FY99 revenues

of £6.8m and 70% of this is services. What☂s more 57% of

services revenue is recurring. Pretty good stuff. Ranzauare aiming for £10m revenue by 2000.Torex has ☁Signilicantly strengthened its position in the

GP software market" with the acquisition of AAH Mediteland Peak Systems for a total of £6.5m. AAH have 220staff, £12.7m revenue and PET of £322K in FY98, and

Peak 35 staff, £1.3m revenue but made a loss of £92K in

FY98.Cable and Wireless have bought ISPInternet NetworkServices for an undisclosed sum. INS had net liabilities of

28m and specialises in the business and corporate market.

Aim quoted distributor Fayrewood is floating its

ComputerLinks business (they will keep 53%) on theGerman Neuer market. The offer was 4-times

oversubscribed which means a valuation of c£64m - higher

than that of Fayrewood alone. Not surprisingly their shareprice has risen considerably to end on 156p - a valuationfor Fayrewood of £44m.VC syndicate Ouester, Abingworth and Alta Berkeleymade a £1.5m investment in C♥Dilla (copy protection rightsfor CD-ROM and ISP) in Oct. 96. They have now made asuccessful exit as C-Dilla has been sold to NASDAQ quotedMacrovision Corp. which valued the company at $22mrMERANT has acquired Marathon Group (internetprofessional services) for $15m. Marathon will now serve

as the foundation of new MERANT interactive Services.

Policy Master has conditionally agreed to buy Media Makerfor a max. of £3.4m and a placing of 425K shares at 2359.They have also acquired the business and lPFls ofMediquote from Paul Ackrill & Assoc. No amount given.Morse Holdings has exercised its option and has acquiredthe remaining 66% of French Partner Systems for up to amax. FFr57m in total after an initial FFr35m (£3.5m) now.Tertio (telecomms industry specialist) has received a £20m

investment boost from VCs Apax Partners and AdventInternational to fund overseas expansion prior to a

possible float in 2/3 years time.

Mergers and acquisitions - continuedTouchstone Group is to acquire Resource Systems for

an initial £644K with up to a max. of £756K more. Resource

had 1999 revenues of £1 .6m and operating profits of £61K.

Touchstone has acquired Resource Systems for £644K +

£756K in 12 months. RSL had profits of £61K on revenueof £1.6m in FY99.. They also said they were "in talks" toacquire another similarly-sized support company.

Kewill has acquired US e-commerce company Aristo forup to £11.6m (25m in cash, 176K shares + £3.5m over 2

years). Aristo specialises in the ☜multi carrier shippingcompliance arena"(which we are sure you understand) and

had revenues of £3.7m and a remarkable £1.7m PET in

year to 30th Sept. 98.

Kewill shares soared this month by 19% to £19.50p as a

result.Microsoft has acquired UK cellular software company

STNC and its 40 staff "who will remain in the UK".Flomerics ("thermal management software") has acquired

Kimberley Communications Consultants for £700K

(£35K cash, £190K bond redeemable after 12 months and

rest in Flomerics shares). Kimberley had revenue of £658Kand PET of £61K in year to 30☁h Oct. 98.Flomerics also announced revenue up17% at £3.44m andLoss before Tax reduced (from £269K to £150K) in the sixmonths to 30☁h June 99.Financial Objects has acquired Global Financial

Systems for £10m. GFS had rev. of £42m and PET of

£57K in year to 30th Apr. 99

August 1999

Geac to buy "bargain" JBA?Canadian Geac Computer Corp. has announced an

"agreed" bid for JBA Holdings at 250p per share, valuingJBA at c£92.5m. This represents a premium of 070% onthe closing mid-market price on 13th July - the last dealingday before JBA indicated that a bid had been made. Geacalready had a 2.7% stake and now have agreementsamounting to another 116%.

But this does not seem to be the end of the affair. Lazards,

Specialist Computer Holdings and others representing

at least 24% of the shares oppose the deal. We wouldsuspect that those with memories of a 1257p JBA share

price as recently as early 1998 might well also think that250p ain☂t high enough.Those with even longer memories will remember that JBA

was one of our rare Boring Award winners - nowignominiously stripped of the title. Like Coda and others inthe same field have found, small players are finding itincreasingly hard to compete against much larger rivals.Particularly when the market for such systems are volatile

as a result ofY2K and other issue.

The story will clearly continue.

Specialist Computer Holdings also announced theacquisition of the UK reselling operations of ElcomInternational (formerly Lantech) for c£20m < "$12m/$13mplus stock at valuation☝). Just shows what a ☂profitable"

revenue reseller with revenue of c2140m (E40m distribution,

£100m dealer business) is worth nowadays. SCH claimedthat this will boost SCH's "reseller" revenues to c£700m »second only to Computacenter. Mike Norris ofComputacenter is reported as saying (lT Europa Jul. 99) that

the deal ☜looks like an attempt to shore up SCH☂s dealerarm which is fading☝. A comment dismissed by Rigby as☜ridiculous☝. Neville Davis of Compel was equally dismissiveof SCH☁s claims, believing that their reseller (rather than

distribution) business (after their Info Products acquisition)

was larger than SCH☂s.

We will have to wait for SCH's current year's breakdown(to Mar. 99) on sales before we can judge.

_ System House

_System House

System Houses

j IT Staff Agencies

scsiinueiFI'SE IT (SOS) Index

FTSE 100

Month (30/5/99 to 31/7/99)From 15th Apr 89

From tst Jan 90From tst Jan 91From 151 Jan 92

From tst Jan 93

From 1st Jan 94

From 1st Jan 95

From 151 Jan 96From 151 Jan 97From 1st Jan 98

☜34.86%+481.31%+655.59%+411.90%

+235.63%+220.36°u

+68.92%+51.31%

21.35%9

COMAX, featured before in our BPO watch, and claims to

be ☜the market leader in the provision of secure business

services" has been acquired by Amey for £86m, plus therepayment of £59m net debt. COMAX was an inspired MBO☁from the MoD in Apr. 97 at c£60m with ClNVen providingbacking and owning c80°/o equity with staff/directors therest. Not a bad return in just two years for all concerned.

COMAX☁ IS DirectorWilt Emsley hadjust sent us provisionalyears results to Mar. 99 showing revenue up 41% at £21 1 mand net operating profit (after amortisation) of £10.4m - upfrom a net £4.9m (after over 23m exceptional costs). Mindyou after net interest paid in FY98 of nearly £5.5m, COMAX

made a loss before tax in FY98 of £542K.

NSB merges with Unlimited Solutions Inc.NSB Retail (software solutions etc. forthe retail industry)has merged with US Unlimited Solutions (retail softwareproducts and services) in a £37.7m share deal. Bothcompanies have been in partnership for some time. NSBwill issue 08m shares and will also place another c1 m to

raise £4m for working capital. The merger is expected to☁ be "immediately earnings enhancing☝.☁Comment. This is great news for N88. They were only(formed in 1995 and joined AIM in Sep. 97 at 115p. Since

the lPO their performance has been superb - our only worry☁ was their lack of size.Well this deal seems to take care ofthat as they have now doubled in size. They now plan a

i move to the main market later this year (October?). Themarket loved the news with an immediate £1 (021%) rise

in the share price and the shares rose further later in the

. month to end up 41% on 633p.

Broadview confirms European appetite for M&A

Forthe first time in at least a decade, European companies☁ spent more buying IT companies in the US than vice versa.

Broadview recorded 94 such Euro purchasesin the US☁worth some $73b in H1 1999. Indeed UK companies1 represented the lion☂s share - c50% v compared with France

1 (17%) and Germany (1 1%). As might be expected, "internet

i fever gripped the entire M&A world☝ with 447 deals worthLS§S137☝.5b. More on www.broadview.com.

Resellers

S° wa☂9.?l9d9?§,. '.

More M&A.... More IP05....

Amey buys COMAX RDL GroupWe have to confess that even with our massive 02,500

company database we had never heardof IT staff agencyFlDL Group until they floated on AIM this month.

FlDL were established way back in 1992 and tend to focuson "premium" skills such as Oracle and SAP. They have

grown rapidly recently, virtually doubling in size between

1996 and 1998. Latest figures give 1998 revenue of £15.7m

and a PET of£1.1m.They currently have c210 contractorson site with c110 on the ☜premium☝ business. These☜premium☝ contractors generated 74% revenue and 72%

of total protits.They have a wide range of clients such asVirgin Atlantic, Flailtrack, Tate & Lyle and the BBC etc.

RDL floated at 90p, valuing the group at £10.1 m -

somewhat less than had originally been anticipated.They

ended the month at 96p - a premium of 6%.The company

raised a net £810K for working capital and for possible

acquisitions in order to increase their geographical

coverage.

MBA Michael BaileyAssociatesMBA Michael Bailey Associates chose the EASDAQ routethis month.They secured a valuation of 俉 57.6m - not bad

given they made revenue of 俉 28m and PET of 俉 2.65min year to 31st Aug. 98. However, H1 FY00 produced

revenue of 俉 21.1m and PET of 俉 1 .9m. Although operatingin the UK, MBA☂s main market is Benelux.

FreeserveThere☂s probably been more column inches devoted tothe

Freeserve IPO this month than any other IT stock. As Wehave included every other ISP in our coverage - but notcontent or information suppliers ~ we will include Freeserve

in our SCSI Index.

We won☂t repeat the story. But the headlines are thatFreeserve had revenue of just £2.7m and a loss of £1 m inthe seven months to May. The initial price of 150p implied

a value of £1 .5 billion -rising to 238p/22.4b by end of July.

The good news is that Freeserve has put a real bombunder UK☂s attitudes towards both the internet and relatedstockThe bad news is that a hiccup here could also affect

other UK 808 companies with little or no internet exposure.

August 1999

S stem House SCSI Share Prices and Ca italisation

91m PSH SCSI snare 01105 5113:: price cauknllsalicn CapilalLsahDFTE IT 5☁3 P1106 Capiislsalim 111510111: Haliu Index 11m! since % move rwveslnce We (0☜)1111190 051. 31-31199 315N199 P/E Cap/Rev. M99 314111-99 In 1999 mm☝ in 1999

Yes CS £7.16 ☜59.20111 27.0 3.12 33161.67 21.60% -36.41% 42136.00!" £279.4051☂ 21.8 222.20!☜ L115 27.44 1020.63 0.00% 12.90% 26.30111 [5. I

CS 24.01 661. 44.2 4.66 2660.00 0.50% 74.35% 23.50111VES CS 俉0.51 2130.301☜ 16.9 0.72 305.56 1.44% 32.50% 121150111

SF [2.75 [134.2% 98.2 6.70 1565.71 0.90% 57.14% {0.70111VIS H 20.70 ☜4.40m 27.2 0.22 336.96 40.32% 13.01% {14.00111

SF 510.00 2302♥00111 Loss 30.56 7364.62 36.69% 132.56% 265.701☜SP 51.13 215.1011 24.5 1.53 1553.55 4.55% 19.55% 51.5511SP 21.57 53100111 15.2 1.74 905.00 3.04% 25.43% 50.5011CS 26.96 [1.437. 66.3 6.04 59144.14 5.94% 25.20% 2110.00!☜SP £1.23 £44. 15.7 1.53 1042.55 12.33% 27.45% 55.10111SF 121.65 £26.21Jm 14.6 2.39 1672.22 9.63% 65.63% £1.50mSF 120.36 29.54111 34.5 3.14 266.8 7.04% 4.11% 1:0.63m

Yes CS 217.15 1:2.202.001n 53.5 4.95 11445.25 3.49% 12.55% 131.001nYES R 24.23 2133.901☜ 17.4 0.64 3012.00 12.22% 5.16% £14.50!☜V55 R £4.33 £854.00!☜ 17.9 0.54 727.61 4.03% 9.66% [39.60111

CS £3.19 [43.40 21.0 2.33 2450.00 0.16% 53.73% £1.60☜Yes CS £5.20 2125.601☜ 24.4 1.14 9766.67 41.26% -3.70% {19.40111

SF 120.64 24.93111 Les 0.36 321.15 0.00% 79.57% {0.17m

V25 05 [2.96 9231.10!" 38.2 3.29 4979.52 -13.56% 22.52% {23.40111cs 20.59 2104.501n 55.1 5.61 545.45 25.51% 15.97% {44.70111SF {0.22 £7.701n Lnss 1.14 250.00 49.09% 74.51% {1.47111

was as 59.55 1:27.501☜ 34.0 5.55 35:15.35 5.54% >2524% {22.00111Yes CS £5.55 1:71. 11.5 1.15 535.42 412.30% 54.59% -1::14.101n

SP £0.59 £15.10 11.3 1.57 2035.13 3.75% 2.22% mzomSP 1:31.10 15722 15.4 2.53 20550.00 45.15% 230.55% £223.20rn

75s cs £3.53 1:572. 55.4 5.52 5355.95 17.33% 15.44% 5151.30mSF 172.70 EGJOm 25.5 4.44 1534.75 13.45% 10.20% 1:11.401115P £2.63 56.53111 17.5 0.99 2355.35 44.53% 59.35% {1.17mcs 52.35 52.395.5om N5 in 2355.35 - 58.33% 55.33% £555.50m05 20.97 241-90111 14.5 4.32 1311.93 -20.49% .4.43% ~26.70111

V5 C5 俉6.13 0313.601" 67.4 10.56 15.69 9.41% 26.95% £26.90m

A 12.3.02 [65.90111 13.3 0.32 1614.29 5.04% 2.74% {4.60111

A 20.46 66.96111 6.0 0.26 1130.56 11.76% 44.12% {0.25m

CS 俉2.37 £44.90m 19.0 1.25 1297.22 1.20% -6.71% 120.501☜

R £1.10 C27. LOB 0.11 473.111 43.79% 94.69% 116.401☜

SP 1:17.92 [35.50 Les 5.50 9211.21 5.75% 155.52% 1:11.10111CS £1.53 [72.40 We 11.59 7625.00 0.00% 9.23% {2.0011

CS (2.65 [12.70 19.2 1.45 1956.96 0.95% 29.27% [0.20111

V55 cs 54.24 12290.1 55.7 2.52 1221.43 0.52% 40.25% (5.40111Yes 51° 52.53 1:93.50m Loss 0.32 R513 117.17% 35.75% 1:43.10111

SF [3.45 {41.20111 175 12.25 1250.00 39.20% 69.76% 2125011113 1:17.54 123.20m L 0.35 1155.71 30.12% 35.71% 125.4011

115s SP 1:19.50 1259.1: 37.4 4.48 5452.45 19.27% 52.94% {48.00111Yes cs 25.73 52.557. 1 55.5 5.54 9107.07 1.13% 25.71% 2252.001☜v5: 517 mesa 1:545. 105.1 25.57 9900.09 5.93% 52.91% [14.50111

A 51.20 223.501☜ 5.9 0.17 1450.50 47.51% 45.09% {5.10111us SP 51.35 [144.1 14.5 0.80 4200.00 49.54% {11.59% {19.50111Yes SP £6.35 [125.11 19.4 5.16 2570.56 039% 86.76% {0.50111VS CS 130.23 1154.10 16.5 0.41 97.12 4.92% ~49 46% £1.60!☜v.5 SF £2.04 1:407. I 55.1 1.55 1202.52 13.55% 173.51% [45.20111

CS Q.m [106. 23.4 1.52 771.37 13.85% 50.00% 1:20.601☜Yes SP 1.5.47 113.090.- 32.7 5.31 5755.55 0.74% 25.15% {:11 .00111as cs £5.50 £112.30 13.4 2.24 4241.07 4.55% 27.47% {3.90111

SP [0.64 66.00111 L055 6.36 913.33 -7.30% 25. 74% {6.36171CS 23.00 235.10 23.6 4.20 4683.09 6.11% 30.43% [2.60111a 12.06 2251.3 27.9 1.15 9:12.00 41.50% 47.50% {41.5%

Ves A 51.55 233.7% 4.4 0.15 1034.21 45.03% 51.47% {3.50111SP 51.35 211.1 37.4 3.51 1350.52 3.05% 25.75% 50.20111as 52.25 525.20 r115 2.57 1350.52 - 3.53% 13.00% {1.20111SP 126.53 1:72.- 555 5.71 4195.55 41.45% 301.47% 5157011151☂ 00.40 1234.60 Loss 1.62 606.25 47.53% 47.53% {8.30m

75 A 52.29 [113930111 25.5 1.17 34599.57 5.51% 19 53% (27.4011151☂ £2.54 {17 I 13.6 1.19 665.65 0.79% 46.03% {0.20111CS £0.35 1:24.40 Loss 2.44 241.54 5.33% 29.59% -1:3.101n51" £2.60 [36.60 37.2 3.23 15621.33 5.26% 36.94% 23.40111

SF 120.36 [26.60 L055 36.2 470.24 666% 1 41% {2.601115F 55.33 1:75.70 17.2 1.55 1345.65 3.90% 50.00% 57.5011111 [0.45 1:19. 7.1 1.29 353.05 1.05% 04.25% (0.201115P 10.17 1:40.20 24.4 11.10 557.59 13.79% 100.00% 53.5%55 £13.96 £10. 1 10.5 0.58 557.59 p 5.11% 6.11% {0.50111SP £7.05 249.40 16.7 2.94 "$2.65 23.66% 46.1191 [9.7011155' 1:11.15 £11.50 Loss 14.59 207.14 5.90% 55.00% [0.40111CS £0.63 [21. 14.6 17.27 270.07 54.47% 53.62% {7.30111

1155 SP £5.59 5541.40.11 52.5 4.13 14255.71 17.70% 25.57% 251.40111SP [2.28 £30.30 Log 1.44 2555.29 4.50% 30.00% :1 .40111CS 20.64 12.3.37m 32.0 0.96 1016.00 0.00% 46.99% [0.00171

veg SF 5.53 5155.101n 42.1 5.39 2557.05 25 14% 51 53% 1:35.10mv.35 51> 1:25.55 53.125.00111 73.5 15.32 55735.77 13.75% 53 35% 1:375 00mVa: 55 £1.59 554.1 12.7 1.14 25:14.04 1.20% 5.77% 50.40111

A 121.15 59.50111 5.5 5.25 1575.00 25.57% {4.00111CS £2.19 237.10 24.4 1.53 1693.60 0.00% [0.00111

1155 CS £5.15 52.552.001n 45.5 2.25 7555.11 0. . 5143 00111v35 (:5 £4.55 £174.80m 45.7 4.10 17490.35 41.43% {9 40mVs: cs £2.75 1:241.501n 24.0 0.64 1325.11 5.50% -25 20m

A [1.53 Q3500m 15.0 0.54 1553.33 7.25% 55.7011151: 52.45 1:11.40 225.0 1.42 1155.55 «1.51% ~22 5011151> 51.14 1:14. Loss 3.32 511.11 520-. {130111CS [1.35 0216.60!☜ 45.3 1.33 754.55 6.039- 217 90111SF 110.37 124.991☜ L055 3 99 291.30 11.19% [D 37111(:5 £1.44 :97. 35.5 4.59 291.30 5.57% £5 1011:CS 52.55 E8820 40.2 4.05 4125 21 2512*☝. 51540111CS [0.55 [5.5211 12.9 1.75 971.75 5 74% 50.45111SP 51.25 1:12.517 15.7 1.53 1252 35 255% 7:0 50111as £1.35 219.30 15.2 1.35 950.00 10.20% 21.50111

1155 CS £2.95 274.55 12.5 1.51 2355.55 75.37% {17 50111R 1:17.03 25.75111 14.3 0.40 57.07 9.055. :2 00m(:5 £5.73 £120.40m 35.4 4.15 5245.50 5 08% £15 5011-cs £1.53 557.90 15.3 a 75 514.29 1.57☜. 20.70111cs 121.35 231. - Na 1.12 5:13 33 .2 56% {0.90111

Nola: Mam Syslsm HouseSCS Index 591511000 on 15111 Agni 1989. Any newenlvanlslolhe Slack Exchange are allocalan an 111091101 1000 655511 on 1115 issue price The 1:51 (11051115 ncl Vtsvgmed.a change ☁111 me share mice 01 1115 lavgesl company has 1119 same e ec1 as a similar change 101 me smellesx company.

Gunnery Coda: CS= Compulav Services SP = Sonware Product 11 = Hessllel A = 17 Agency 0 = O1he1

August 1999 9

System House _

. to £58231. Organic ☁grovvth-WES'..23% UKa 25% {spot on the☝ industry average} .1tip-aim at Sworn. U "84% {asia ☝

☁ acquisition and its orga☁ cgrowth) aexceeds the UK torthe its} timOperating profit :wa

☜adjusted Peri (i.

Misys - EPS Record

I Diluted EPS Plus 'Myusled' EPS

iPs-dN-I-um ☜(I☁- i...☜ .m-p...i.n-...M.mm....n

: Mays Division-I Anllysil

Banking and Semnties. Haallhtzm

Insurance

Imamet Senvioes

GroupTOTAL

. 3257p a☁pdit e dividend up 3a:ibeengsiashed from £135m2to£49

S☂Zf☂é isé i☝fi☂n☂;n☂§§i☂£é☁if s stems Them'a'wsadswrya'Wan!!! customer fmerac ve softvgarg) has Total Systems was a new IPO in 1988 at 85p. They ended July on 56p.

announced a great set of results for me six Why? Well according to Chairman Terry Bourne (who was there in 1988)months to 30th Jun 99 Revenue wem up it☂s not Total☂s fault. In the past. he has put the blame fairly and squarely

35%10217 9m PBT'incréased 51%☜) £2 7m with their customers for not having the necessary foresight to buy theirwith diluted☁ EP☂S up 49% Overseas reve'nue products. Now ☜the impact of Y2K has been much more severe than

- 1 expected, particularly in the insurance sector☝.

:1:znglgamorgueagzl w three years ago Results for the year to 31st Mar. 99 show revenue down 22% to £3.3m.Chief Executive John H'amer said "order PBT dropped 38% to £630K with EPS down 36%. But Bourne is full of

_ levels are comfortably ahead of last year's con dence ☁"' ☁ ' i - the tutu re_ The "progress" at Total Systems plc

equrvalent figures and prowde little evidence I , Twelve ear PET and Revenue Record

of any Y2000 slowdown... royalblue is well The fumre ☂5 V

positioned to make further progress" m☝ 0" Rela vem 1988 ("Nation date)

v potential... we - Revenue Pet

Comment. We have always had a high regard willpursue the u_ mm.for royalblue and John Hamer. royalblue is

exactly the kind of company the UK needs

and is grasping the overseas potential. Hamer, [O☂g☂OW☂h Find u» ☁

who debated the product v services issue expénjloz

with us at the SEN conference, is now W ☂ _ u

1

opportunities

thinking of selling fidessa on a service Egégu fsénh'e

provision basis in the US - rather than by p

way 0( a one♥off licences Great ideal has more was 1989 1990 isai 1992 1993 1994 1595 l996 1997 1993 1595

' ~ I . ☁ V cm 13th h

Perhaps they are one of the few ☜millennium success m " m ☂ ",. ~ i the new

Ef gy] 322:3??? Shares ended the millennium than during the last decade or so.i 0v ... ☁

_System HOUSE __ 10 August 1999

.☁s bouth. his;

Diagonal finds Darwin!SAP consultancy/staff agency Diagonal have clearly gotthe message about climbing up the ☁Darwinian☂ evolutionaryvalue chain (don☂t say you missed Anthony Miller☂s cameo☁performance☂ at the CSSA Holway evening?). They☂replanning to move their business mix much more towardsSAP implementation and support services over the nextcouple of years, aiming to reduce revenue from the staffagency side of their business from 56% to 30% by the endof 2000. This was the key message from Chairman MarkSamuels in his interim results statement for the six monthsto 30th May 99. Revenue for the period rose ☁just' 17% to£37,1m, but PET and EPS rose a healthier 43% to £4.4mand 3.7p respectively. Mind you, anyone unconvinced aboutthe slowdown in their market should ☁compare and contrast'this with last year☂s interims, which showed at 79% increasein revenue and 185% increase in PBT. Diagonal warnedthat "demand for contract staff has softened considerablyahead of the millennium". Indeed their staff agency revenuedeclined by 5% to £17.5m, in contrast to the consultingbusinesses, which boosted turnover 44%. Star performerwas Diagonal's SAP Support services division, whichdoubled revenues to £6.2m. Recent acquisition MFT was"looking very strong". On the staff agency side, permanentrecruitment is "very strong and very profitable"with revenueup 50%. Samuels expects ☜a similar pattern of growth☜fromconsulting in H2. Acquisitions are on the cards. August 1999 1 1

Triad Group plc

Nine year PET and Revenue Record

Relative to 1991

I Revenue PET

1991 1992 1993 1994 1995 1996 1997 I998

v.1 ☜mam Much

ECsoft has reported operating profits down 35% at £1.7m onrevenues up a pretty low 13% to £34.2m in the six months to

30'☜ Jun. 99. PET was unchanged. however, at £2.8m due to amassive increase in interest received as a result ofthe recentfund raising. The UK was ☜at fault☝ with profits plunging from£1.15m to £241K on static revenues. Profits (£1.4m) reducedmarginally in Scandinavia too although revenue here was up14% at £19.8m. ECsoft repeated their warning of ☜uncertaintycausedbyYZK and its aftermath". Interestingly ECsoft confirmeda continued reduction in the use of freelance contractors used,

' ' ' ☁ ☁ ☁ This monthwevisited DrTom Black, MD

= Sm It '1 of a (currentiyi privately owried 898 l. H _ company - The Smith Group ☁ in E

Guiidfordgt☂hey are "atop☁quality, tee-based consultancy/system ideveloper; subject of a, Candover (currently 50% of the equity)

packed .M30 in June '97, 44% of revenues stiil☁come from ;Defence the rest from Transport (26%), Utilities (15%) etc. i

:QQtSide Defence, specialisation is CRM and information iMobility. . . 1Latest results justissued show revenue up a modest 15% to 1☁

£16.6m in year to 315☁ Mar, 99 butPBT up 58% at £2.4m . 5.3. a 1☁145% margin. A 20% growth to revenue of £20,511! and PBT t

9193,4053 expected in the current FY.We await to See their next move. An IPO?♥well theywould be ☁1

well received. we are sure. But they lack both mass and sizzle. iOnthe other hand. they would make an excellent addvon for ione of the larger players. I

♥ system House _

_System House

Synteyra buys'0ontrol Data-Systems ☂BT, through syntegra; has at lastvvstarted to splash out tofurther expandthe merger of their Syntegra☁and Syncordiaoffshoots whioh☁:vtrili create a'£ '4bbusin☂e☁s{acquired us sy 'for sewage$180m W11?! (5 ... ..☁Long overdue'aoquist . v . . . . .5T5 01 results (to 130☁☜ June '95) reported that Synoordlaand Syntegra boosted external revenues to 27% in thequarter.- Unfor'tu☁ te☁lyv rt a ☁oljute gures. areigiven.However, the'notes to-the accountststtowthat Syntegra☜only☝ increased its revenue by 9% to £97m in the quarteralthough operating profit was up froth 122111 to £3m.'l☁horeis a f☁Sotutloris☜ line in the aocounts which shows a. 29%

rolled ou to . , . . .2000. Th ' V deed __t'fr☜e'a'ftycould

.. 'internet scene as ell as making.~ :. h-

Highams System Services saw its shares fall, then riseagain, this month when they told shareholders at their AGMthat Y2K uncertainties had contributed to an 11% drop in

the number of contractors placed with clients.

Apologies are due 10....Guardian iT for calling them a TPM company in our

Synstar article last month. They are of course a business

continuity and disaster recovery specialist. See also p7.

...Cedar Group whose interim losses were due to extrasales staff and not the Teleconnect acquisition (we were

in fact correct in our latest Holway Report), We also saidthat they capitalised Fl&D - not correct either.

Regent Associates. We read so many press releases

thttt we ☜understandably☝ (according to Recent) mls.interpreted Heyde's figures alter they acquired Tantus. Itlooked as though the figures given were for Tantus but

Regent have pointed out that they actually referred toHeyde. Regent would never allow their client Tantus to sella company with 27m profit for just a max. of 55ml

Plans on PIrinitWe are commencing coverage of Planit Holdings. Planit(basically design software for retailers like kitchen design,

furniture, bathrooms etc.) was a ☜reverse☝ into a packagingcompany (these activities have since been sold). Then in

Jan. 99 they acquired Cabinet Vision (software for thedesign to manufacturing processfor furniture andwoodworking companies) of the US for $6.62m.

Any comparison with previous performance are bit

meaningless because of the changes, but in 13 months

to 30☁" Apr. 99 they achieved revenue of £9.7m (£1.6rn ☁

from discontinued operations) and operating profit of 922.1 m.

subscribers the latest/6th

edition of the survey of ITexpenditure produced by

Kew Associates inassociation with ComputerWeekly. The report covers 20categories of hardware and

808 spend analysed by

industry sector, organisationsize and region based on adetailed survey of 4,500 UK

lT budget holders.The report costs £2000.

☂ ☂ UK IT Expenditure How would you like toSurvey 1999 work for us?

We are delighted to be able to We are looking to appoint amake available to our seniormanagerto spearhead

our new growth phase. Youshould combine SOS

research expertise andmanagement experience.

Taylor-made package + share

options available.

Also looking for one or more

research consultants to helpmeet our rapidly expanding

workload.

Contact Richard Holway asbelow.

Delivery address:

1999 Holway Report

[:| Master copy @ £2,450 E]Mtg-Le

CD-ROM Package £4900 + VAT I] Additional copies @2850

DOne year's subscription 6 E340 pa D☜! - copy subscript/on☝@ £680 pm. Dita licence 6 21000 p.a.+VAT Diranet Version 21500 pa. + VAT

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D Cheque enclosed D Please invoice my company

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System Housed! is published monthly by RichardHolway Limited. PO Boxisa, Farnham, Surrey. GU10 1YG. Telephon901252 781545: Fax: 01252 781546;E-mail lnternet:Holway@ Compuservecom which also publishes the annual "HolwayReport' andthe☁Software andComputingServices Industry in Europe Report".Richard Holway has been a director of several computing services companies and might hold stock in companies featured.O 1999 Richard Holway Limited. The information contained in this publication may not be reproduced without the written permission of the publishers. Whilst every carehas been taken to ensure the accuracy of the information contained in ths document. the publishers cannot be held responsible for any errors or any consequencesthereof. Subscribers are advised to take independent advice before taking any action. System Hause® is a registered trademark of Richard Holway Limited.

12

August 1999