One of the companies with upside potential mentioned in our bargain basement summary of the UK computer sector (CI No 1,334) was Real Time Control Plc, the Electronic Point of Sale and keyboard suppliers from Watford, Hertfordshire, whose start of January share price tag of 38 pence valued it at a paltry UKP2.66m. Real Time came to the Unlisted Securities Market in August 1983 by placing 25% of its equity at 196 pence; figures for the year ending March 31 1989 showed pre-tax profit down 72% to UKP272,000 on sales remaining static at around UKP4m – no higher than the figure recorded three years ago. As the vast majority of Real Time’s point-of-sale customers are quite naturally in the retail sector, it would have been all to easy to blame the disappointing growth rate on the recession that has befallen that industry in the past year or so, but with considerable frankness, financial director Tony Wheeler admits that Real Time has not really seen the impact of that recession yet – in fact, with profit margins down in that sector, the move to point-of-sale should appear all the more attractive to retail firms anxious to reduce their costs.
IBM logo
The real problem, continues Wheeler, has been the nature of a distribution agreement signed with IBM in the autumn of 1986. At that time, it was apparent that many potential customers considering the significant investment that point-of-sale systems require were put off by the size of Real Time – sales were running at around UKP4m, it was capitalised at UKP4.5m, and faced competition from the likes of ICL, NCR, Nixdorf Computer and IBM. Then, the agreement was signed with IBM that allowed Real Time to market the IBM 4863 point-of-sale terminal with various Real Time-developed add-on boards and software applications, a strategy that at the time seemed to have a lot going for it: the IBM logo that adorned the packages was seen as a confidence-builder to timorous customers, and Real Time’s in-house developed technology could, by eliminating the need for an IBM AT, reduce the price of a four-terminal system from UKP25,000 down to a more acceptable UKP14,000. But as Computergram prognosticated at the time, product does not guarantee sales and as a new venture for both IBM and Real Time, which had no experience in selling non-proprietary products, it has proved a difficult road to travel down; Wheeler states that over the last three years it has been a matter of learning from these problems and, ultimately, of revising the nature of the agreement with IBM. Despite the advantages that the deal seemed to offer, volume system sales – crucial to Real Time’s growth were not forthcoming, and about a year ago IBM announced the 4684, which, unlike the old multiple check-out 4683 system, was a small configuration point-of-sale terminal.
Two or three years back, we took a close look at retailing systems and keyboards specialist Real Time Controls Plc and high lighted the company’s strategic moves: things have not worked out quite as the company had hoped, but there are hopeful signs that things are looking up, Mark John discovered.-It is now hoped that by distributing the 4684, combined with a move on Real Time’s part towards value-added software, the volume that has in the past been so elusive will finally come to Real Time; the acquisition of Applied Retail Technology a year ago also means that Real Time will be benefiting from the addition of a low-entry IBM-compatible point-of-sale terminal to its range, and, what is more, a manufacturer’s profit margin as opposed to that of a dealer. The validity of US side of the operation is still open to question: set up in the spring of 1988 to respond to an intense US interest in IBM point-of-sale systems, Boston-based Real Time Controlling had a successful first nine months after which it has made steady losses; with a staff of around half a dozen, however, Wheeler sees it as a low-risk operation that may in future prove its worth. If the lack of volume sales has been a major stumbling block of the point-of-sale business, the same can al
so be cited as a problem for Real Time’s keyboard manufacturing subsidiary Rotec. Three years ago, Rotec accounted for around 60% of the total business of the group; unfortunately for Real Time, the keyboard market is yet another area to have the bottom kicked out of it over the last few years, and although remaining modestly profitable, Rotec’s significance within the group as a whole has declined accordingly. The decline has not been helped by two major product rethinks: at the start of 1987, Rotec saw a change in demand away from high-quality, specialist keyboards to cheaper, low-end products; following this trend, Rotec developed a keyboard with a 20m keystroke life against the 100m key life of the previous generation.
Keyboards
But as Computergram again pointed out at the time, if you move down to the mass market, economies of scale become more important as profit margins fall; tiny compared with its main rival Alphameric Plc, which at the time had an annual turnover above UKP12m, Rotec could not compete effectively in a market which moreover was facing an onslaught of cheap Far Eastern-manufactured goods. Rotec has now made the reversion back to a producer of higher-value keyboards, and with the greater profit margins these garner, the need for volume sales is not as acute. The various changes undergone at Real Time could augur well: the renegotiated agreement with IBM and the move towards smaller-configuration and low-end point-of-sale terminals could prove attractive to a retail sector on the look out for cheaper systems; Rotec, meanwhile, may find more success in the top-end of the keyboard market. With this potential valued by the market at the bargain basement UKP2.66m quoted above, is Real Time not extremely susceptible to a takeover bid? According to Wheeler, this would be more likely if Real Time’s shares were widely held; but at the moment, to succeed, any offer for the company would have to appeal very strongly to managing director and founder Barney Carrell, who still has a controlling stake in Real Time.
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