Coda Ltd took the next step along the path to Plc-hood yesterday with the launch of its pathfinder prospectus (CI No 2,239). US private investment group General Atlantic Partners has agreed to take 10% of the company. Coda is hoping to raise UKP25m from the placing and an additional UKP5m is being produced for an employees share ownership plan – a complicated arrangement, the company acknowledges, with existing shareholders making a gift of the necessary equity. Coda currently has somewhere over 1,115 customers for its Integrated Accounting System, and Open Accounting System launched in late 1992. Over 700 are using IAS on Digital Equipment Corp VAX, with the AS/400 and the HP 3000 implementations clocking up around 200 each. The Open variant, designed to be portable onto Posix systems can only claim 15 customers. Still, the open, client-server world is where the company is putting most of its efforts and chairman and managing director Rodney Potts says he will very surprised if revenue from OAS hasn’t surpassed that from the proprietary packages in five years’ time, and probably sooner. The current reliance on the VAX could be a something of a millstone in the future, given the mess that VAX sales are going through. However Potts is optimistic that his DEC sales will hold up through Coda’s geographical expansion. Eastern Europe is full of grey market VAXen, he says, and the company is currently in negotiations with a distributor in South Africa. As for why the company is going public now, Potts who, with around 33% of the business is its largest shareholder, says it is partly gut feeling. It is now 15 years old, and the firm’s customers are the kind of finance directors that like to deal with listed companies. At the same time the cash will fund Coda’s research and development into the newer, client-server software, will aid geographical expansion, with employee-held shares helping staff motivation. Research and development averaged 14.5% of turnover – it did UKP3.75m on turnover of UKP23.5m in the year to October – over the last five years, and prudently charges it to the profit and loss account rather than capitalised as an asset. Non-director employees currently own around 10% to 12% which the ESOP should raise to around 20%. Strategy will remain the same, with a single-track concentration on financial packages, says Potts. However, he highlights a couple of areas as potential money-spinners.
Strategic partners
Last year, 10% of Coda’s revenues came from arrangements with strategic partners that incorporated Coda software into their own offerings. The ideal partner has a vertical application, such as manufacturing or health care, and wants to build in some financial modules. Coda is touting its OAS code, written in Posix-compliant C, to fill the gap. There is tremendous scope for us to increase our business in this area, Potts says, adding that he hopes to use General Atlantic’s US contacts to promote this business. Another area with growth potential is services and consultancy. Quite apart from the recurring maintenance charge on its software, Coda makes some money from additional consultancy services and is looking to build upon this. To put the figures in perspective, last year licence sales amounted to UKP13.4m; recurring maintenance sales bought in revenue of UKP5.2m while consultancy and training bought in UKP4.9m. Since 1989 turnover has shown a compound annual growth rate of 39.4%, while pre-tax profits have risen at a slower, but respectable 19.6%. The company ascribes the discrepancy in growth rates to the cost of its geographical expansion over the years – it now operates 23 offices in 15 countries. With turnover from the America accounting for 46% of business Potts says he was tempted to go for a Nasdaq, rather than London stock exchange placing, adding that he may still go for a second tranche in the short to medium term. In the shorter term trading should will begin on the February, six days after the shares are priced.
