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June 28, 1990

ACQUISITIONS PAY OFF FOR KEWILL, 50% AHEAD AT UKP2.7M, BUT IT MUST TRIM 20% BY ATTRITION

By CBR Staff Writer

Kewill Systems Plc chairman Kevin Overstall yesterday announced preliminary sales and pre-tax profits for the year both up by around 50% – a growth consistent with that experienced for the last seven years – but continued that in preparation for tougher trading conditions expected for next year, the Walton-on-Thames, Surrey-based designer of manufacturing and business software and systems for MS-DOS, Unix and Pick environments is already taking steps that will see its overall staff reduced by 20%. Kewill’s financial director Richard Broad added however that the reduction, which will put total staff level at some 200, could be achieved in large simply by freezing recruitment – the high staff turnover in the software sector should mean that the cuts come about relatively quickly through natural wastage, while some employees will be given the chance to move to the more profitable areas of business. Within the group, Kewill’s main business of providing the micro-based computer aided design system Micross rose by only 10% to UKP7.3m, mainly because many of Kewill’s clients had by now installed the required hardware: accordingly, Kewill had seen a marked shift towards revenue from support and service. Trifid Software, which was acquired by the group in November 1987 to supply minicomputer-based manufacturing systems to larger companies, saw sales rise 30% to UKP5.0m, but has already begun to implement cost cuts as it is seen as being particularly vulnerable in next year’s trading environment. Of the newly-acquired operations, only the start-up consultancy Helix turned in losses, while Xetal Systems, which topped UKP1m in manufacturing system sales to the clothing industry with pre-tax profit of UKP109,000, was expected to continue in its own modest way. Overstall invested much hope for the future in Omicron Management Systems, acquired March 1989 and contributing just over UKP2m in sales this time. Omicron is currently negotiating a large contract with an international company to install its Unix-based Xis ledger system set to be officially announced this October; Sun Microsystems is also known to be competing for the deal with its future Unix-based financial ledger offering, but Omicron managing director Mark Horne is convinced that the higher functionality of Xis will win through despite being about 20% more expensive. Horne is currently on the look-out for companies with the expertise to distribute Xis, saying that of his present distributors, only 10 to 15 are in a position to do the job properly. On the horizon for Kewill will be the fruits of its participation in the two-year EC project Esprit, through which Kewill has been given a grant of ECU850,000 (UKP600,000); Kewill’s role in the project is to develop a system capable of building bespoke manufacturing control systems at off the shelf prices; whether or not the project will be completed will depend on whether Kewill gets the funding for a third year, which it originally estimated was needed for the venture – the EC decided that funding for the third year would have to depend on performance. But the most exciting prospect for Kewill will be the incorporation of HAN Dataport into the group, which by itself will see sales double to over UKP35m. HAN was acquired in April (CI No 1,386) and markets complementary products to Kewill mainly in German-speaking Europe. HAN also has distributorship deals with IBM in Luxemburg, Belgium and Hungary, while Hewlett-Packard has been selling its products for some time in the Soviet Union. Indeed, HAN’s East European activity could turn out to the most interesting of all: its Soviet customers, after widespread financial problems, have at last started coming up with the money for goods received, and HAN already has a significant presence in Jugoslavia; big things in East Germany are also expected from the newly-opened Dresden office. Moreover, one thing HAN is always likely to have in its favour is steady cash-flow.

Shortage of German salespeople

Some time ago, it convinced its distributors that they should pay HAN a fixed monthl

y sum for royalties regardless of sales; for those that meet their targets, HAN will offer discounts to make for bigger margins, while those that fall short are not entitled to claim back any of the monthly installments they have paid to HAN. Perhaps surprisingly, HAN’s main worry at the moment is that it can’t find enough highly qualified German sales people and has had to introduce its own graduate training scheme. In the US, the San Francisco-based manufacturing systems group Micro-MRP, which was acquired by Kewill last December, contributed a satisfactory UKP161,000 to final quarter profits; a former distributor for Micro-MRP has pulled out of its attempts to litigate against the company for the loss of its distribution rights. As a whole, Overstall stated that Kewill’s plan for the next year was to concentrate on the computer integrated manufacturing market and look at developing common interfaces between its various product ranges, while maintaining its yearly growth at 50%. Overstall was talking with one or two companies with a view to buy, but nothing was expected to come through in the short term. Yesterday’s results included good news for shareholders, with earnings per share up 38% to 27.1 pence, and the proposed dividend up 50% to 4.5 pence. – Mark John

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