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October 30, 1995

CHAPTERS OF UNFORESEEN ACCIDENTS ADD UP TO A TALE OF WOE FOR WAKEBOURNE, WHICH LOST ú356,000 IN THE HALF

By CBR Staff Writer

Wakebourne Plc is one of the tardiest reporters around, taking nearly four months to reveal its interim figures. But life is never dull at Wakebourne, and the first half of this year included more than its fair share of calamities. The Hanworth, Middlesex-based personal computer, network equipment and application software reseller warned in September of losses in the half and delivered them bang on target. An exceptional charge of ú409,000 arose from an aborted acquisition, severance costs and a provision against application software contracts pushed a small trading profit into a ú356,000 pre-tax loss, against profits of ú1.1m a year ago. Turnover in the half edged up 4% to ú18.8m. Chairman Leslie Warman promised forceful action to rectify the situation, which was caused by a combination of expanding too fast, a slowdown in the application software business, slower than anticipated growth in network services, reduced maintenance margins and the high cost of employing suitably-skilled staff. The most serious problem for the company appears to have been one of too rapid expansion that put a strain on the administrative and accounting systems, which groaned under the pressure. Warman also said the company took on more staff than the level of business warranted and the expansion did not take sufficient advantage of the company’s existing areas of expertise. In particular, the service business’s move from personal computer-based contracts into network service contracts has taken longer than expected. This is doubly important as the company is counting on high-margin network contracts to replace the high-margin, but dwindling maintenance revenues. It did, however, win a contract to manage remotely and support the on- and offshore systems of Broken Hill Pty Ltd’s petroleum business. Overall the company’s headcount fell by about 30 in the half, and stands at 366 at present, according to chief executive Frank Emerson. Wakebourne’s Projects business, which includes branch automation and Connect Data, its cabling firm, actually generated profits above expectations, according to Warman. However, he bemoaned the higher wages that those with specialist skills can command, which depressed margins, as wages have a tendency to do. But the company is sticking with its human investments and has introduced new tendering procedures, pricing structures and billing systems to improve margins. The application software business gave a nasty surprise by suffering a downturn in profits of ú300,000 – of which ú160,000 was the provision in the exceptional charge – which resulted in an overall loss. Emerson was reluctant to reveal details of the provision, other than that it involved bad debts and contracts that were not renewed, possibly relating to an acquisition the company made in 1994. In that year Wakebourne acquired Source Two Ltd, a Sun Microsystems Inc reseller and distributor of AutoCAD products (CI No 2,346), and Computer Answers Europe Ltd, an accounting software and support company (CI No 2,490).

Old technology on its hands

The application software business did manage to win contracts from a financial regulator and a Formula One racing team, which wanted to remain anonymous. Wakebourne’s board is currently reviewing its stock of spare parts that support its maintenance contracts. The rush to upgrade, exacerbated by the arrival of Windows95, has resulted in the company being left with a lot of old technology on its hands, which had a net book value of ú4.4m on June 30 this year. Warman warned that the review could result in a writedown of the order of ú2m, which would be treated as an exceptional item in the full-year figures. No hit was taken in the first half because the review was not completed at the time. The review is still on-going, but will be completed before the year-end, according to Emerson. The changes are not expected to benefit the bottom line until the next financial year, according to Warman. He said the company’s future lies in high-margin networking products aimed at the corporate market, exploiting its blue-chip customer base and staff skills. But the company is not at that stage yet and will obviously feel the effect of the transition in the full year figures, due next May. Wakebourne will not pay an interim dividend and does not intend to at the full-year stage either.

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