Neural networks firm Recognition Systems Group Plc has yet to see the fruits of the sales and marketing effort on which it has been spending the spoils from its May flotation (CI No 2,918). The Birmingham, UK-based company saw losses for the year to September 30 grow to 1.3m UK pounds from 397,000 pounds last year, on revenue that fell 52% to 324,000 pounds. Although the company did not make actual revenue predictions at the time of the flotation, chairman David Bounds admits that it was hoping to turn over around 1m pounds in the year. The shortfall, it seems, was caused by two big companies that were trying out the company’s software, and who should have signed up for licenses by the end of the year. Both companies are still carrying out trials, and one, US pharmaceuticals company Schering-Plough Corp, has extended its trial until the spring. Another factor was that the company had no sales force to speak of, and Bounds, who was doing most of the selling himself, found his time taken up by the flotation last year. The big problem, it seems, is that the type of systems Recognition offers do not lend themselves to quick sales, and instant receipt of income.
More than 250,000 customers
The company provides neural network-based customer relations systems, in other words software that analyzes huge customer databases, using neural computing to recognize and find patterns in the data. The software is aimed at large companies with large amounts of data about their large customer base, typically ones with more than 250,000 customers. It enables companies to target marketing campaigns more tightly to individual requirements. It can also help identify for example insurance or telecommunications customers that are likely to not renew their policies or subscriptions, so that they can be specifically targeted. Recognition’s software is fully developed and tried and tested. In the UK, the Department of Social Security has been using it to help it to predict the amount of social security payments it is likely to have to make in any one year. The company also has a marketing agreement in place in the US with SPSS Inc, for a personal computer version of its software (CI No 2,739) and a licensing deal with AT&T Corp’s AT&T Istel. Unfortunately, until the company has some major reference sites in the commercial sector, it is having to spend a long time doing pilot trials for prospective customers, and in the meantime, the money isn’t pouring in. The company is pitching at the insurance, banking, pharmaceutical, government and health markets in particular. Bounds says a typical insurance company loses around 20% of customers a year. If the neural systems help a company to save 2% or 3% of those, it will see an almost immediate return on its investment. Recognition raised 3.2m pounds through the flotation, and said at the time it would use the money to build a sales and marketing team, both in the UK and the US. Eight months on, it has grown from two sales people to 15, has appointed a group sales director, Bryan Black from Oracle Corp, opened a sales office in Chicago and one in Charlotte, North Carolina. Bounds says it has taken time to find the right people and train them, and it will take even longer before the actual sales start coming through. However, when they do, he reckons the profit margin on these systems is around 80%. He said he does not expect to see significant impact on revenue until the second half of this year. The company is focusing its efforts on the UK and the US markets. Bounds is confident it has the right products and the right markets. The nail-biting question is whether it can hold out long enough to see the revenue come through. The company will not pay any dividends.