Problems with software development and a customer push for one-stop-shopping has eaten into the profits of electronics and information systems group Instem Plc. The Stafford-based company – largely involved in project management in the electrical transmission and nuclear fuel processing industry – saw net profits tumble 24% to UKP271,000 while turnover rose 34.6% to UKP9.5m. Accounting for this is a complex question according to chairman David Gare, but the figures were not helped by the failure of a development team to complete an update to the company’s pharmaceutical analysis package Datatox. The existing F0 package is feeling its age since it was originally written for Digital Equipment Corp’s PDP-11, before being converted for the VAX. The F1 generation was intended to usher Datatox into the open Unix world, and builds the package on the Oracle database. Unfortunately when F1 went into beta test this April its shortcomings were revealed: heads rolled in the development team and the company took a long hard look at whether to continue with the development at all. In the end it decided to stick with it, but the package is now due for belated release early next year. While software accounts for only around 5% of the company’s turnover it is highly profitable compared with Intem’s bread and butter project management work, and Gare does not expect many sales of the package this year. At the same time, project management margins have also been squeezed. The company has changed its emphasis over the last couple of years with a decision to manage whole projects, rather than just take on specific parts of them.
Efficiency drives
While this has been in response to customer demand, it has meant that the company has had to subcontract more work out than that in the past, with a consequent drop in profits. Still, Gare believes that margins can be improved through standardisation and efficiency drives. He remains bullish about the prospects for the company, pointing to a record order intake for the period. However he remains pessimistic about the general UK industrial recovery, to which Instem’s fortunes are closely linked. One result of the uncertain climate is that big banker orders in the pipeline are still taking longer to close than expected – the company was grumbling about this when it reported its year-end results last time, and to highlight the problem Gare says that at least one big order that missed the boat to get into the year-end figures last time, didn’t make it into the first half results either, and is still pending a decision. The company’s interim dividend is maintained at the 1992 level of 1.3 pence net per ordinary share.
