McDonnell Information Systems Plc is having a torrid time at the moment. A poor set of figures was released yesterday, the chief executive resigned and the share price almost halved at the news, before recovering slightly. To cap it all, chairman Ian Hay Davison warned that the year-end figures are likely to fall well below current market expectations. Chief executive until Monday, Jerry Causley said at the full-year stage that headcount reductions will enable the group to take full advantage of its potential, and as if to prove that he was not just saying it for effect, he resigned (CI No 2,613). A successor has not yet been found, so Davison is increasing his workload for the time being. Pre-tax losses at the Hemel Hempstead, Hertfordshire company were ú1.7m, against ú5.0m profits last time, on turnover up 15% to ú79.1m. Things were thought to have turned around at McDonnell in June, after a profits warning was issued (CI No 2,676). Davison said at the time that almost all of the company’s profits would come in the second half, but yesterday he warned in his statement that the results for the year are not likely to make pleasant reading. McDonnell is to refocus its business by reassessing its commitment to certain European businesses, making no further investment in its libraries business in the UK or Germany and seek a partner for what is a non-core business, and finally to seek a partner to develop the PRO-IV International Banking System, as research costs were getting out of control. The first half losses stem from three main areas. The completion of two major contracts in the health sector, where turnover fell 27% to ú14.4m and profits were down significantly, was only achieved after a major re-appraisal of costs. The company expects the sector to return to profit next year, both in the UK and Australia. The second culprit was an exceptional charge of ú1.1m, which, along with an identical charge last year, is the price for a total headcount reduction of 150 people, around 8%, since January. The rest of the charge is down to senior management changes and consultants brought in to sort things out. During the half, appointments were made in three board-level and three senior management positions. The financial sector is racing to get the development work on the banking products finished, and the board intends to seek help in reducing the costs, as detailed above. Financial revenues were down 10% to ú5.6m and losses increased to ú1.2m. There was some good news to report, however. The commercial and industrial sector saw turnover increase from ú17.7m to ú27.9m.
Health and libraries
Operating profits did fall 70% to ú3.5m, but this was after a ú1.5m loss from the Chess business, which the company said was expected when it was acquired from Xerox Corp in October 1994. Chess is expected to continue to grow and break even for the year. Apart from the health and libraries businesses, the remaining public sector areas, police and local and central government fared reasonably well. Selling systems to the police increased revenues by 110% to ú6.1m, and profits modestly. Profits were up but turnover down in the local and central government sectors due to cost savings. The PRO-IV Business Rates and PRO-IV Housing Management applications won new orders in the half. The aforementioned libraries business lost ú800,000 from just ú1.5m turnover, and is being dealt with accordingly. Human Resources systems performed reasonably, with turnover and profits up. During the period it won an order from the UK National Health Service Pensions Administration to upgrade and manage pension systems for 400,000 e mployees. The facilities management business grew its revenues by 58% to ú4.1m in what is a rapidly expanding market, so the growth should continue through the second half. Last of McDonnell’s topsy-turvey sectors is PRO-IV application development tools, which broke even after a loss last time and edged turnover up to ú2.9m. New management has been brought in to what should be a core business. Cash balances at
the half way stage were just ú1.8m. Looking beyond the second half, the management shake-up will have to make a change for the better, and because of the proposed concentration on core profit-making business in the UK and Australia, Davison expressed himself confident of a return to acceptable profit levels. An interim dividend of 1.2 pence per share will be paid, which is down from 2.3 pence in the corresponding period last year. Following their 46% plunge at the start of the day, the shares settled down 28 pence, 31%, at 62 pence by mid-afternoon. A legacy of Barings Bank Plc, McDonnell was bought out for ú120m, floated at ú260m and is now valued at some ú62m.
