NMW Computers Plc has had the misfortune to fall foul of the throwaways of the UK computer trade press which like nothing better than technological catastrophe – more so if it concerns the only remaining vestige of UK large computer manufacturing, ICL. In this respect, it is NMW’s misfortune that it has based its brokers’ and financial services computer bureau on ICL mainframes. For in throwing out the old and bringing in the latest, with two hot new ICL Series 39 mainframes, the company also took on the problems of a less than bug-free release of the VME mainframe operating system. This caused a string of interruptions to the service, generating considerable resentment among NMW’s customers in the City as Big Bang came to a head. As the company’s software engineers worked through the night to get it right, the company plugged back in the two old machines (which themselves had started to show signs of ageing last spring with the odd breakdown of their own) to take some of the strain. Stories were thrown around the papers – trade and national – and the City itself reflected its disenchantment by ensuring that NMW’s share price did little more than crawl. At the beginning of the year just ended, investors in the company were looking for NMW to follow its 1985 pre-tax total of UKP1.5m with a giant leap forward to UKP2.5m.
This would have been entirely possible on last year’s performance, had it not been for the direct, and incalculable indirect, costs caused by the bugged operating system that came with the two ICL mainframes. In anticipation of the deregulation of the City NMW took the decision two years ago to replace what were already ageing ICL 2900 mainframes. In the summer it took delivery of the two Series 39s. The cash for these purchases came out of the proceeds of a one-for-four rights issue in April, which raised UKP2.85m and which also brought the company back into a net cash position. The balance sheet is still clear. It could be argued that NMW was imprudent not to take delivery of the machines earlier in order to allow for a margin for error, to cope with any teething problems. But then ICL is, despite frequent press reports to the contrary, a reliable supplier of well made and technically excellent computer equipment. And the costs of running two systems concurrently, just to make sure, would have been enormous. As it was, NMW found itself, perhaps ironically, in just that position – for a whole year rather than only three months as planned. The cost was an estimated UKP500,000. NMW was not the only ICL user to find bugs in its new operating system, in fact the problems were well known, and to ICL’s credit, NMW managing director Nigel Bannister reports that the company did everything it could to rectify the situation as quickly as possible. The other major direct cost to NMW of this series of untimely disasters from VME was the two free days of bureau time offered to the company’s customers as an act of goodwill: that cost UKP200,000 in lost revenue. But Bannister believes it was worth it, and a necessary expression of gratitude to customers who had stuck sympathetically with the company during the sticky phase. The indirect costs of such a breakdown are hard to quantify: the company lost some major customers, creating further bad publicity; it probably put a few prospective clients off; software technicians and engineers spent a lot of valuable time sorting out problems instead of installing, maintaining and servicing customers or developing and enhancing new products. Bannister agrees that the calculable, direct costs to the company were of the order of UKP750,000, but says that this damage was offset by activity in the market. NMW charges its customers using the Capital securities accounting system on the basis of throughput, and not on a fixed charge. Therefore as volume of business rises, so does the company’s income. The rise in trading volumes that followed Big Bang (and the decrease in commissions) means that NMW has benefitted, and the flotation of both British Gas and the Trust
ee Savings Bank did no harm either. All of this activity came in the latter half of the company’s year and was enough to buoy NMW up through hard times. However, it wasn’t an unexpected rise in trade volume and NMW had budgetted for it, hoping for pre-tax profits closer to that elusive UKP2.5m than they are now likely to report. For the year ahead, indeed a few years ahead, the market looks good for NMW as further privatisations take place according to the Government programme, and as brokers do all they can to increase volume to compensate for lower commissions. Bannister reports strong business activity continuing through the end of 1986 and into the New Year. Looking at the recent record of the company, interims to June, announced in October saw pre-tax profits up 40% to UKP989,000 on sales up, disproportiontely, by 114% at UKP6.8m. This uneven growth was a direct result, so the official rationale went at the time, of a strong increase in hardware sales through systems subsidiary Timon. The first half saw some heavy capital expenditure and investment in systems, an acquisition and a number of new ventures, and this has been continued into the second half. During this period, and despite reports of major customers defecting, NMW has increased its share of the market to about 50% by the end of 1986 from 35% in 1984. NMW now has around 100 customers using the Capital service. Timon, the 76%-owned software subsidiary responsible for software development and bespoke systems moved into profit in the second half of 1985 and has remained so during 1986. A new project, Broker Services Ltd, a partnership with Barclays Bank, started trading in August. BSL offers two services to the financial community. The first is a full back-room service for brokers who don’t want the hassle of their own computers, or staff to administer their own dealings. This is backed up by remote bureaux in London and Glasgow.
BSL also offers other diverse wholesale financial services to both brokers and their larger clients. The stated objective in August was to win 10 customers by year-end: in the event it had 12. The BSL service is proving most attractive to foreign securities houses and to smaller brokers. Bannister is confident of having minimised the negative effects of the technical problems of the last half of 1986, and is positively bullish about 1987, with three very clear and simple strategic initiatives up his sleeve. The first is to develop the in-house, or non-bureau, side to the business, and already NMW is negotiating the release of its software to a number of major hardware manufacturers which would lead to some useful rental generated revenues judging by current interest. Installation, service, maintenance and further product enhancement should remain in NMW’s hands if that side of the business develops. The other major move by NMW has been its X25 packet-switched network. It has spent almost UKP1m over the last year on establishing its network and, bar a few inevitable software teething problems, the network is operable and will start to offer services to the financial community in three weeks’ time. NMW will initially use it as a vehicle for its own service but eventually will offer other electronic services to the finance industry. NMW has stolen a lead here, and is in strong position to sell the product to the City when the network is up and running.