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  1. Technology
November 1, 1999

New Chief Takes Over as MDIS Disappoints Again

By CBR Staff Writer

MDIS Group Plc, the Hemel Hempstead, UK-based software and IT services company, has announced an imminent turnaround in its dismal fortunes so often that its stock market credibility is in tatters. So even the news that the chairman and managing director are to depart and a high-flier from Andersen Consulting is to take charge of the company could not prevent the shares from slumping 16.3% to 19.25 pence.

What transfixed the market was not the latest prediction of a new dawn, but a familiar tale of worse than expected mid-term figures. (MDIS has issued seven profit warnings since it floated in 1994). The figures show a net loss of 6.7m pounds ($11m) in the six months to June 30, up from a loss of 346,000 pounds ($570,900) on revenue up just 11.5% at 68.6m pounds ($113.1m).

The figures were savaged again by MDIS’ remaining applications activities, though the company put them up for sale in July (CI No 3,703). Its Glovia International LLC subsidiary, a Los Angeles, California business which specializes in enterprise resource planning systems for technology companies, produced a first half loss of 4.2m pounds ($6.9m), up from a loss of 0.5m pounds ($825,000) on revenue just 4.8% higher at 17.4m pounds.

The PRO IV applications development tools business produced an operating loss of 2m pounds ($3.3m) up from a profit of 38,000 pounds ($62,700) though the 39.6% increase in revenue to 7.4m pounds ($12.2m) was below directors expectations.

The first task of new managing director Chris Stone will be to get rid of these two burdens. While they both show long-term promise, MDIS is too small and fragile an operation to carry them itself through hard times. A number of potential buyers are sniffing round and there is particular interest in PRO IV, a fourth-generation, multi-platform rapid application development tool.

The obvious buyer is Fujitsu Ltd, which owns a 30.5% shareholding in Glovia. Stone is looking for an arrangement by which the portions they own in its equity is reversed, possibly with PRO IV bundled into a new jointly owned operation. The need for a deal is urgent as the Glovia and PRO IV operations are both currently performing worse than the same period last year and MDIS needs cash from a sale.

MDIS’ human resources operations, which offers facilities such as outsourced payroll services, has clawed its way out of the red and increased revenue by 25% to 5.5m pounds ($9m). But the other UK businesses performed dismally, a performance that Stone puts down to his predecessors’s preoccupation with the sale of the applications businesses.

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MDIS is particularly strong in the public sector but revenue was virtually unchanged in the first half at 20.2m pounds ($33.3m) and operating profit nose-dived from 2.5m pounds ($4.1m) to 1m pounds ($1.6m). Nor did the private sector offer any compensation. While revenue did grow 11% to 19.8m pounds, operating profit dived 71% to 200,000 pounds ($330,000).

Given such an uninspired performance, possibly the best service that Stone could serve investors would be to seek a buyer for the whole business. Indeed, given that he is in discussions with Fujitsu anyway, perhaps he could persuade them to fold MDIS in with its ICL Plc subsidiary to enlarge the customer base before next year’s planned IPO?

Stone however has no such ambitions and, given that a new share option scheme is being set up for him and his team, it is clear that he is at MDIS for the long haul. What attracts him to the company is a strong customer base, 2,300 in total, which includes all 52 UK police forces and a big chunk of local health providers and central government organizations.

Given the evidence that MDIS has been poorly managed in the past, Stone may well push it in the right direction. He speaks of concentrating of the few things that the company does best and selling additional services to its customer base and a fast-growing consultancy operation has been one of MDIS’s few success stories. Stone also sees benefits from moving strongly into the storage business on the basis of its partnership with EMC. Turning MDIS round is unlikely to be a quick operation but at least the board has finally shown a willingness to shed blood.

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