Learmonth & Burchett Management Systems Plc stunned the market with a cut-price rights issue and potentially huge legal bill over a contract for project management on development of a new computer system – plus bad year-end results. The effect of all this was unsurprisingly drastic, slicing 30% off Learmonth’s share price to 87 pence. The claims made by an, as yet, unnamed company total at least ?15.9m, with ?7.9m for amounts spent and ?8.0m for consequential losses. Proceedings have not started but the group has been notified that they will soon. The group regards the size of the claim as unrealistic, though it is still too early to make a detailed assessment of the merits. However it is the directors’ intention is to resist any proceedings strenuously, Learmonth said. The group has not made any provision in 1993-94 accounts against the claim or costs of defending it, which may be significant. The group will also make a one-for-five rights issue at 70 pence, which should have been a large discount on the underlying price, to raise about ?2.3m. A US consortium will hold between 7.9% and 16.7%, depending on the take-up of rights of the company after the issue and has said that, although it may acquire further shares, it will not take more than 29.9%. The issue has been underwritten by Bessemer Venture Partners III LP, a US venture capital firm which leads the consortium taking a stake in the company. The company will use the ?2.3m cash, and ?1.75m from the sale of its information technology consulting division to Parity, nee Comac, Plc, to pay off debt, strengthen its balance sheet and expand US sales. If this were all not bad enough the group reported pre-tax losses for the year to April 30 of ?750,000 against a profit last time of ?1.6m, on turnover up 12% to ?26.4m. The company attributed the poor results to disappointing trade in continental Europe and the UK. The company says that since its flotation in 1987 the geographical and product mix has shifted substantially. In particular the group’s business in the US has shown impressive growth: annual dollar turnover increased at an average compound rate of over 50%, while other parts have suffered from difficult trading conditions. Pre-tax profits in the US jumped 70% to ?2.9m, and consequently the group is to move its management team to Houston, Texas. Similarly the group’s focus has shifted to software products and away from consultancy and training. For whereas consultancy and training turnover has shrunk over the last three years by 17.3% to ?10.4m, software has grown 73.9% to ?16.0m. The company believes that if it is to remain at the forefront of its market, it must be centred in the US, where software market trends start. The move will also enhance its partnerships with US software vendors such as Powersoft Corp and Gupta Corp. The introduction of the US consortium and the relocation to Houston, may lead to Learmonth moving its share listing to the US as well.
