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August 2, 1988

DRAMATIC FALL FROM GRACE AT SHERWOOD COMPUTER AS TWO ACQUISITIONS TURN SOUR

By CBR Staff Writer

Sherwood Computer Services Plc, Romford, Essex says that it expects to show a pre-tax loss of UKP1.5m for the half-year to June 30 as a result of problems at its recent acquisitions, Corporate Technology Group Plc and Mitronix Computer Ltd. The group’s shares plunged 65p to 195p following the announcement but levelled off at 200p yesterday amidst rumours of a possible takeover bid. Corporate, which was acquired in March last year (CI No 622), specialises in software packages for local authorities and had agreed to supply a number of authorities with its new housing benefit package HB88. Following its introduction earlier this year it became apparent that the system needed a lot more time, resources and money. In addition to the cost overruns, sales of Corporate’s other products suffered as local authorities concentrated on implementing housing benefit systems and prepared for the introduction of the community charge. The net result is an expected loss of UKP1.7m for the first half of 1988. The initial payment of UKP3m for Corporate has been handed over but the earnout second phase of UKP2m will not now be payable. Turnover for insurance systems specialist Mitronix, acquired in May last year (CI No 711), has risen, but margins continue to be squeezed. The company says that combined losses for Mitronix and the recently formed Sherwood Network Services totalled UKP525,000. Payment for the company was UKP500,000 initially, with another UKP2m of cash or shares dependent upon its performance over the next two years which is not likely to be paid. Not surprisingly there have been changes in senior management at the companies, including the appointment of Richard Guy, a main board director, as chief executive of both companies. As well as senior management changes Sherwood warns that it is considering a number of measures to ensure that the company’s core business, which turned in a strong performance, is not jeopardised by the problems at Corporate. The group admits it is unlikely that the measures will result in anything better than break-even for the second half. The news hit the City hard: Sherwood had been one of the best regarded firms in the software sector.

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