ystem House

The monthly review of the financial performance of the UK software and computing services industry

Volume 11 Number 9 Available by subscription only ISSN 0967-2533 July 2000

It doesn☂t take a Rocket Scientist.As a System House or Holway Report reader, you can, of course,reread our views/forecasts etc made a year back. live yearsback, a decade ago. Without being too dramatic, most of ourpronouncements have initially been greeted with a mixture ofdisbelief and derision. Oh how they laughed when we forecastthe move away from a product licence charging model towardsproviding products as services back in 1996. We still have the☜scorn mail☜ when in 1997/98 we predicted that the IT StatfAgencies would be the first to feel the Y2K slowdown.We coined the ☜Y2K microclimate" tag, called a peak to growthin 1998 and predicted sharply lower growth in 1999. From early1999, we predicted that ☜the hangover will not end with theAlka Selzers on 1st Jan. 00"._When share prices went into unchartedterritory in Q4 1999/01 2000 we rang thealarm bells. You would be surprised at howmany otherwise sensible people thought wewere totally wrong andthat valuations wouldforever continue upwards. ,Our views on the ☜dot.coms☝ are also well

known and proved even more controversial.We invented the mythicalFreeJelIyBeans.com only to find that fact was ,often much stranger than fiction. We wellremember being called old-fashioned whencontinuing to champion profits. ☜Get realHolway, it's a whole new paradigm now".

We then got even more alarmed andintroduced the ☜dot.con☜ to warn of thedangers presented by the plethora of internetincubator funds launching onto AIM.But that was the past. What does Holwaynow think of the near term future?

programmer into a web designer overnight (indeed we doubt ifyou canever make such a change) changing old establishedIT services companies used to 3<year+ project cycles wheretheir main contact is the CTO to 3 month max. contracts wherethe main contact is the CIO or Marketing Director. is just asdifficult.But, unlike. the new upstarts, at least the established playershave deep management experience and have been herebefore. Remember IBM did re-invent itself as a PC company inthe 19805 and then again as the world's leading IT servicescompany in the 19903. Do not underestimate its ability to take

the lead in e-services too.- to gladden the hearts of many readers, the current profile

of IT contracts (short bursts of high resourcerequirements where specialised skills areto the fore) could well put the ITSAs backinto high growth. Don☂t forget over a third ofall ITSA resources went to IT servicescompanies. Traditional IT services havingto deal with the special demands of e-services contracts will turn again to ITSAsfor short term help.

o just as we believe that manyestablished IT services players willultimately be the leaders in e-services too,so we believe even more so that it is today☁sestablished players that will dominate the828 and BZC markets.This month two of the most important "earlymovers" in the B20 space - Freeserve and

Amazon.com - saw their share price tumble.Both probably now regret not using theirprevious sky high valuations to buy into

~we genuinely believe that e-services willbe the key driver for growth in our sector. But we

W von Braun (1912-1977)☜bricks-andmortar☂ in the way of the AOL/

Time Warner ☜merger☝. The internet does not/

wanted subscribers to understand that even with100%+ growth rates, this was still a small part of the sector. e-services would not fully compensate for the downturn in themore ☜traditional☝ parts of the SOS market.

- even in e-services, it should be remembered that asignificant part of the spend was from dot.coms using up theiristIan/ard round fund raising. There might not be quite somany boo.coms around spending £70m on website design infuture.

- that☁s why we believe that 2000 will provide only mediocrerevenue growth and some pretty shocking profit (loss)performances. The hangover is unlikely to clear before 2001and even then growth will be back to the historically sustainable(but lower) levels of the midA19905.

- on that basis, even at today☂s much lower valuations, sectorshare prices might still have some way to fall. It is worth notingthat, although our SCS Index is down 33% from its 16000 highat the beginning of Mar. 00, it is still up 108 % in the 12 monthssince 1st July 99, We predicted a 2000 808 Index low of <9000.We hold by that prediction.

- although we still believe that the supplier companies thateventually will benefit from e-services will be the establishedIT services companies around today (IBM, EDS, Cap Gemini)the transfiguration required would be long, painful andexpensive. Just as you cannot change a 50-year old Cobol

July 2000 1

will not increase overall market size...it merelyalters the inter1ace with the customer. That☂s why we repeat ourview that the telcos will dominate the ISP market, the banks(like lloydstsb.com) will dominate internet banking, the BAconsortium etc. will dominate internet airline bookings,tesco.com wil dominate on-line groceries and WHSmith willget their act together in internet books/CD5. At one time weexpected more "clicks" buying "bricks". But current valuations,and cash burn, make that less likely.That's why. ultimately, sanity will return. Traditional IT services

companies know about servicing the blue-chip bricks and

mortar companies. indeed they know a lot about projectmanagement, the importance of customer relationships.

recurring revenues, utilisation...even, dare we mention it, profits.Your reactions to this article are reasonably easy to predict. Wehope you will think ☁We/l that☂s all pretty abvious☝...hence the ☜Itdoesn't take a Racket Scientist☝ headline. But on pastperformances, a significant number of you will disagree - someviolently. But before you fire off the flame♥mail, ask yourself ifyou really disagree or if you are just hoping that Holway is

wrong this time and you won☂t have to live through theconsequences 01 his predictions.This industry of our has a long history of "Living in Dental☜.Many companies have paid dearly as a result. Will it happenagain this time too?

_h System House _

Cedar plc

10 year Revenue and PET Record

Relative to 1991

0 Revenue I PBT

☜I☁m-Emisam mam☜52.2":

1992 1994 1995 1996 1998

V-u who am Mar.

UK the Star for SynstarSynstar☂s results for the six months ended 31st Mar. 00 show revenue up 15% to

£119.3m, operating profit (pre-goodwill) up 13% to £5.9m, and adjusted EPS upr INTERNATIONAL58% at 1.9p. ☁Real☂ PBT after goodwill was £5.2m compared to £420K for the sameperiod last year ♥ but this jump was primarily due to interest charges coming down

from £3.3m to £530K after the funds raised in their ☁controversial☂ Mar. 99 lPO were used to repay VC/MBO debt. Theorder book rose 14% to £260m over the past 6 months.

UK was the star with revenue up 30% to £69.9m But the bad news was in continental Europe ♥ France down 10% toEarn, Germany almost made it to line ball at £13.2m ♥ but Italy was the ☁dog☂ with revenue down 18% at £9.5m. Needlessto say, Italian management have been lined up and shot. They were also hit by strong sterling vs the euro ♥ at constantcurrency that would have added another 5% to profits. Synstar☁s core Computer Services activities showed revenue up15% to £109.5m and is still 92% of total turnover. It was this division that was most hit by the Y2K microclimate, ☜the

slowdown in Data Management, Network and large Desktop roll-outs has lasted longer than our industry had anticipated(and) the flow ofshort term projects has slowed". The much more profitable Business Continuity division lifted

revenue 17% to £9.8m ♥ but represents about a third of operating profit. Nevertheless, this "will result in lower than

anticipated pro ts during the second half. As such we anticipate full year operating profit (before goodwill amortisation)to be broadly in line with 1999". CEO Richard Ferre commented that ☜These results show steady progress during theperiod spanning the millennium. They confirm the strength of our primarily contractual business and support our strongbelief that the prospects for Synstar remain positive."

Much as expected ♥ except the wrong way round! Many SCSI companies have taken the Y2K hit mostly in their UK

business ♥ Europe usually being the saving grace. We spoke to Richard Ferre and, although Synstar is suffering

somewhat on the continent (especially in ltaly), he expects this business to turn around by the end of the FY ☜and willcontribute to the bottom line next year☝. Overall these results are a bit of a setback for Synstar although we still believethe types of services they offer ♥ while not very ☁glam☂ ♥ are the sorts of ☁bedrock☂ IT services that will always be indemand.Nonetheless, the market marked their shares down 31% on the day to 94.5p -♥ a 43% discount to their Mar. 99 IPO priceof 165p - but they ended the month overall ☁only☁ down 30% at 82p

☁Pcsitiv arid sans 5a 1

Emir: great confidence for the lung HEbusiness", At. the end of dune Easysc☁gained 33%, finishing at 23531:; I . _

r ☁ This month has seen still more companies ☜blaming☝ thecontinued Y2K hangover for poor performance.So far we have only seen Q1-type results. Next month should see the start of the interim reporting seasonwhen many more companies will have to ☜come clean" on their continued exposure to such problems.

On the next few pages we report on this month☁s crop of Y2K related warnings...

1992 1 993 10 year Revenue and PBT Record

Merant plc

Relative to1991

El Revenue I PBT

1994 1995 1996 1997

Year ending 3m M. u at as, previously cm: Jan

£117K in ear to sist- Mar ☜Very tough☝at Electronic Data ProcessmgElectronic Data Processing (EDP) was yet another in a

long line of IT Services companies reporting continued"very tough☜ trading conditions.In the six months to 31st Mar. 00, PBT reduced by 18% to21m on revenue down 28% at £4.53m. EPS was down21% at 2.56p. Any simple minded journalist or analyst wouldnot have easily picked that up asEDP choose to headline

"recurring revenues represent 58% of total revenue" and

"Cash balances of £11.6m (£10,9m)". We have longcriticised EDP for not taking advantage of this "cash pile".At least the "silly prices☝ that EDP has complained of inthe past are ...in the past. Mind you EDP shares are down

from 417p earlier this year to 109p toolY2K hangover was clearly blamed. "IT budgets have beendrastically out back and there are few signs of any

signi cant upturn in the near term". Chairman Mike Hellerexpects full year results to be "acceptable".

EDP has also announced the acquisition of DisysAssociates (s/w for independent builders merchants) for£226K. Disys had revenue of £968K and pre-tax losses of

ICMjoins the Y2KHangover Club!ICM Computer Group issued a tradingstatement advising that ☜growth in profits is

expected to fall short of current marketexpectations☝. The problems are pretty well

across the board in all of ICM☁s divisions. ITSolutions suffered margin pressure and☜growth will be lower than originally budgeted☁ - customersare apparently slow to sign solution-based contracts whilethey sort out their e-commerce strategies. lCM's businesscontinuity activities saw ☜contract signings clusteredtowards the end of the period which will affect revenues insecond hall☁. Their IT Support division suffered from ☜higherthan expected attrition in the contract base" due to the lossof three large public sector contracts. although demand fortheir new Managed Services Directory is ☜healthy☁.ICM also took the opportunity to announce they hadacquired the just profitable Scottish IT support and solutionscompany Altor tor £2.5m (£500K cash plus shares). Altorhad revenue of £8.2m and PET ot £53K.ICM's CEO Barry Roberts is ☜confident, that in the longerterm there will continue to be demand☝. While IT supportand business continuity are good candidates for long term

relationships and long term contracts, project work is inthe doldrums - and is likely to remain piecemeal for sometime as customers decide which path to take with e-

business. We think there will be few customers braveenough now to take on large scale, long term developmentprojects - too risky given the immature and rapidly changing

technologies. So we think it will be a ☁softly softly catchee

monkey☂ approach to new systems development. and muchof the focus will be on integrating new (prototype) e-business front ends to legacy applications and databases.We believe customers are more likely to go to specialistintegrators rather than ☁mixed businesses☁.ICM ended the month down 38% at 343p.

♥ System House _

,7 ☁ A Tale of White Knights, Suitors and Profits Warnings! 0. As we went to print with last month☂s edition Computacenter had just made C _M PEL

an offer to buy Compel at 275p - a 35% premium on the previous day☂s close

' A of 203p. Compel in reply issued a statement which not surprisingly called the bid "opportunistic andsignificantly undervalues the company☂. Nonetheless, they are letting Computacenter do ☁due diligence☁

☜provided acceptable terms can be reached". Compel also said its prospects remain positive (well they would say thatetc etc) and advised shareholders to take no action. At the end of the month. Compel's shares are up 24% to 263p.

A few days later it was revealed that Compel had approached SCH to see if it would act as ☜white knight☝. By this timeSCH☁s owner, Peter Rigby, had upped his stake in Compel to 11.42% making SCH the largest shareholder in Compel.

SApparently it was considered not ☜strategically appropriate" for SCH to take on such a role.

In a strange twist to the tale, Computacenter then issued a profits warnings in the wake of the much☜slower than expected recovery' post Y2K (not slower thanexpected if you read our analysis!) CEO Mike

-♥♥♥-♥♥ Norris said ☜whilst profits were in line with our expectations in

m the rst quarter, We are seeing a shortfall relative to budget in f f ,-"°"☁"9' 02. We also anticipate the delayed recovery will affect 03, DU8 eralbeit to a lesser extent☝. Consequently results for this financial year ☜are likelyto fall short of current analysts☂ expectations☂. But on a more positive note, the Inland Revenue had signed a three-yearframework agreement with Computacenter, worth an estimated £42m p.a., for the on-line procurement of all its IT and

telecoms products and associated supply services.Keeping up the suspense, Compel later confirmed that it had held discussions with SCH regarding a possible bid to rival

Computacenter☂s stating ☜Specialist Computer Holdings con rms it has held discussions with Compel and its advisors

following the announcement of Computacenter☁s proposed ofler. SCH is currently reviewing its options which may or maynot lead to an offer☝.

SYSTEMS SERVICES GROU

Highems Systems Services Group

9 year Revenue and PET Record

Relative to 1992can.» [15,☜

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:2 "21m D-7mcmk

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VI-MIIIM-l

Tough Times for New Spring CEO

Spring Group☂s new CEO Jon Chait (ex-Manpower) has spring Group plc

had the tough task of announcing Spring☂s results for the Ten Yea.- pBT and Revenue Recordyear ended 30th Apr. 00. Flevenue has fallen slightly to Relative", 1991 mm

£396.1m and, as foreshadowed, the previous PBT of £14.2m m☝

is now a loss before tax of £6.4m (exceptional costs were [Revenue Per£17m mainly due to litigation write offs of £3.2m and thelaunch of Springcom costing £11.9m). Of course the

headline Spring would like us to concentrate on is the talk my,☜ ☜mamof ☜operating profit from continuing operations before goodwill m umwhum Wm am a,☝ may.amortisation and exceptional costs is £11.5m" (down from g h?☝ '2☜ k£17.3m, but at least in the black!) They have now furtherstrengthened the board with the appointment of Richard W☝Banield (from Northgate) as Group FD. Chait said ☜Spring ☁99☁ ☁99? '99☜ ☁99☁ ☁995 ☁9☜ ☁997 ☜'95 ☁999 2°00will now focus its business on global vertical market Var-WWW"!segments within the staffing industry which are suitable forour e♥commerce model of 'clicks and some bricks☂, combining the power of the internet with human intermediation. inthe short term, our focus remains on the lT staf ng segment in the UK.... we intend to divest businesses which do notfit these parameters". Proposed divestments are Spring Skills, Spring Personnel and Spring Education.The IT Services division (inc. Springcom, IT Training and IT Solutions) had revenues down 6.7% to £270.1m and OP(before exceptionals and goodwill) down from £12m to £5.7m. All three businesses were Y2K affected and Springcomsaw contractor numbers fall. IT Training made a loss but IT Solutions returned to profit. General Services divisionincreased revenue 6.3% to £91.8m with profits down from £9.5m to £8.4m. Education Services managed to increaserevenues 33% to £34.2m with profits up from £13m to £28m.Comment. No mention of the contractor share options scheme...Chait seems to have the ☁big ITSA' pedigree to take the reins over from Karl Chapman, but now he really has his workcut out. At the end of the month Spring was up 16% at 134p.

_System House __ 4 July 2000

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July2000 5 __ System House ♥♥

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TOUCHSTONE

Exchange IPO "due to unfavourable market conditions". Thegreat general public who had already reserved their shares

Touchstone Group pic10 year ananue and PET Record

From 1991

Year BMW 315iMar.

:1 Revenue I PET

£12.07☜

£100"!

£801"

£6.07☜

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£20," 1.6!☜ £1.7m

£0.0m [:1 [♥l

4120'☜ £43K {14K {27K £103K Beak ☁24ng EGD1K £B41K

1991 1592 1993 1994 1995 1996 1997 1998

21m £1.2m

1999 2000

6 July 2000

Kewill Systems pic10 year Revenue and PET Record

Relative to 1991

:15 2m

new mmzmEl lievenue I PET

mellllll-

Comino Enjoys Recurring RevenuesComino Group, provider of software solutions for the socialhousing, occupational pensions and local government sectors,

has announced results for the yearended 31 Mar. 00. Highlights:turnover up 10% to £20.5m, PBT more than doubled to 26m

(profit on disposal £2.55m), Operating Profit grew by 28% to£3.1m, and EPS up 18% to 17.9p.

Comino pl:

7 year Revenue and PET Record

Relative to 1994

D Revenue I PET

CEO Garth Selvey, said: ☜Comino starts the new nancial year

with clearly identi able opportunities, a substantial order bookand a base of recurring revenue from support contracts for

existing customers." Comino gained 21% to 480p.

Gresham confirms increased lossesGresham issued a trading statement saying ☜results forthe six months ending 30 Apr. will show losses slightlygreater than those of the previous six months. It isanticipated, however, that the Group will return to month on

month pro tability by the end of the yeaf☂. ☜Processes andtechnologies which do not fit within the chosen coreactivities of the Group in the future and which have yet tobe exploited to the full.....will be developed to a stage wheredivestment can take place". The new management teamput in place in April new claim to have a ☜clear strategy☂...

Tell us TelMe.comTeIMe.comannounced results forthe year ended 31☜ Mar. 00 Highlights: turnover increasedby 40% to £14m, gross sales increased 62% to £51.6m,

LBT decreased by 38% to £2.1m and Loss Per Share of3p compared to 5.4p in 1999. Sir Gordon Brunton,Chairman, commented on the outlook saying ☜it is ourstrong expectation that our improving performance in the

year ahead will create a Group of stability and strengtShares ended the month up 4% at 43p.

Maiden Results from OXL0XL.com, the on-Iine auction company, has announced

results for year ended 31☜ Mar. 00 - its first results sinceadmission to the main market in Oct. 99. Highlights:turnover increased 170% to £6.9m, but LBT deepenedfrom 22m to £75.8m, Commenting on the results Jim Rose,

Chief Executive Officer, said: ☜We now believe that the

nature of our integrated offering, combined with the local

customisation of our sites... position us well to take

advantage of the growth in the European on-Iine auction

market".

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[Lt , ☁ snareprice☁gatned -t_ 2%.ta and the monthit and almost hack to the tlo'tattott price of 195p.

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SCSI Index I 'FI☂SE IT (sc3) IndextechMARK 100

FTSE 100

FI'SE AIM

+329. 67%+270. 75°

664.0%

16 °

Freeserve shares have slumped 39% or 205p to 325p this month on news that a bid is

( Freeserveunlikely in the near term. There had been speculation that T-Online would confirm their bid at

as much as 600p, but press speculation had suggested that differenCes of approach/reward

expectations amongst Freeserve's management had scuppered the deal.

Freeserve brought fowvard its results announcement. In year to 29th April pretax losses increased from £1.51m to

£22.9m on sales up from £2.74m to £19.56m.

Although most of the figures were what analyst☁s expected, the number of active subscribers was 1.93m against 2.05m

expected. Freeserve blamed the large number of un-metered internet access deals which had unsettled the market.

AIT, suppliers of eCFlM .

a tAlTGroup pic I

results for the year

Another Year of Growth

software for the retail

financial services sector,

ended 31☜ Mar. 00 show turnover up 24% to £21.7m, PBT

up 32% to £3.7m, and EPS up 30% to 11.81p.

AIT Group pic

6 year Revenue and PET Record

Relatlve to 1995

D evenua IPBT

Richard Hicks, who moves to become non-exec Chairman,

commented: ☜The Board remains convinced that theGroup☂s approach and structure are right, and that 2000/2001 will see yet another year of success and progress."AIT shares enjoyed a massive rise of 60% to end themonth on £12.35p.

Computer/and into the redReseller Computerland saw revenue in the year to 30thApr. 00 tall 25% to £28.3m and the previous PBT of £914Kturn into a LBT of £182K. But the good news is that H2

was much better than H1 - indeed in H2 the companyactually made a trading profit.

July2000

HolwgylSystem House SCS Share Prices and Ca italisation

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July2000

Tough Trading for Lara & Friends!

(due to £88m profit on disposals), and EPS down 5%.Commenting on the outlook Charles Cornwall, CEO said:☜The video games market is being adversely affected bythe impending launch ofa newgeneration ofgamingplatformsdue in late calendar 2000 and during 2001. The hiatus indemand for games software which this transition isoccasioning is expected to continue throughout our currentfinancial year. Although this market environment will inevitably

affect the profitability of the Group in the short term, theDirectors are confident..... ..(of) strong growth over themedium and longer term, and the underlying potential forprofit generation☝.

since to end the month up 62% overall at 485p

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Eidos (computer games, many featuring Lara Croft) has announced revenues down 10% to £203.3m in year to alst

Mar 00, operating losses of £26.8m comparedto previous year's operating profit of £39.2m, PBT up 30% to £49.3m

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On the 20th June Eidos issued a statement noting ☜the recent rise in share price" and confirmed they are in talks "whichmay or may not lead etc. etc☝. Eidos share price gained 28% on the day of the statement closing at 550p, but has fallen

Hefocus at SkillsgroupSkillsgroup has sold its IT staff agency 0A Myriad to asubsidiary of Hays for £31 .2m. The statement says that☜the Board's perception is that scale is becoming moreimportant in the IT staf ng market leading to a drive forconsolidation. . . . the consideration payable by Hays, a Group

which has a much larger share of the staffing market,recognises the fact that GM Myriad has more potential valueunder their ownership than under ours'. The statement goes

on to say that the sale of QA Myriad ☜will allow Skillsgroupto focus management and financial resources moreeffectively on its core IT training and consulting businessed☂.

This deal makes heaps of sense for both parties. ForSkillsgroup it rounds off the transformation from ☁mixedbusiness☂ to ☁pure☂ services (once Acuma is gone) and finallyanswers the question "what☂s the knitting?". The answer is

"training and complementary consultancy☝. We spoke to

Skillsgroup☂s retiring chairman David Southworth whopointed out that the disposal of Myriad and Acuma willleave Skillsgroup with a "20% net margin business"♥ awhole lot better than the c6% atYE1999. Meanwhile, Haysgets another lift up the UK IT staff agency (ITSA) rankings♥ perhaps as high as #2 ♥ it☂s hard to say as Hays are verycoy about their lTSA business.

' Ultrasis Static atlnterimsUltrasis results for the six months ended 31st Jan. 00showed turnover static at £1.1m, LBT of £1 .8m (compared

to a LBT of £149K in the six months to 31☜ Jan. 99).But their shares rose this month by 16% to end on 27p.

_System House _♥

10

Double whammy

time at......Kalamazoo hasannounced its full year results to 31st Mar. 00 and at the

same time issued a profits warning stating that whilst they .have seencontinuing performance in H2 ☜demand since

January 2000 has been weaker than envisaged as a result

of both completed Y2K projects and general lack ofinvestment by car dealers in the light of dif cult tradingconditions in the automotive sector, particularly in the UK".The headline results to March show total revenue down

5% to £62.8m (but up 4% at £59.2m on continuing ops)

and the loss before tax went up from £2.2m to £6.9m. The

LPS increased from 3.3p to 11.7p. Included in this years

figures are exceptional costs totalling £7.3m includinggoodwill written off on disposals (1999 exc. were 'only☂£1.6m). But the good news is that at least there was a

small OP of £352K on continuing ops.

CEO Malcolm Roberts stressed the difficult market

conditions but is ☜confident that core product Elite 4 will

help us gain significant market share in Europe☝. ChairmanBob Jordan ☜believes that market demand will improve inthe medium term☝ and then went on to say that the Group"will report a trading loss in H1. However we expect animprovement towards the end of the nancial year".Comment. Kalamazoo has suffered the double whammyof Y2K combined with the woes of the UK car industry.They can expect more touch times ahead. And this wasreflected in the share price - down this month15% to 32p.

July2000

EKALAMAZOOINII'RNATIONAI.

@150?

Baltimore is to merge Cyber Trust Japan (it acquired aminority in CyberTrust through the acquisition of US parentCyber Trust Solutions, for $150m in Jan. 00) withBaltimore Technologies Japan. Baltimore dropped out ofthe FFSE100 in the recent review.Anite has acquired Datavance Group SARL, a Paris-based

company that ☜provides IT consultancy sen/ices to banking,telecoms, public sector and other customers in France",

for a max. of FFr 520.3m (£49.4m) comprising an initialconsideration of £29.4m, plus a maximum earnout of £20m

based on profits. Anite has also announced a placing of

8.6m shares at 138.5p to raise £12m, partly to satisfy the

cash element of the acquisition.

Hilfe Communications has acquire 83.3% of Paston

Chase, a NonNich-based ISP, for £900K. .

Guardian iT acquired the business continuity and disasterrecovery business of Catalyst Solutions (for £26.6m incash), and Safetynet Group (for £170m, funded by a 1 for4 rights issue of 13.4m new shares at 1000p per shareraising £128.4m and 2.4m consideration shares). WithSafetynet, Guardian reckons to be the largest supplier ofdisaster recovery services in the UK and the third largestin Europe.AIM-listed Goodwood Group has announced theacquisition of Names.co Internet Services, a provider ofdomain registration and web hosting services, for £11.4m.Macro 4, the systems software company, has acquiredManchester-based Viewpoint Systems including its whollyowned subsidiary Image System Integrators. Viewpointdevelops document archiving and analysis software. Thetotal consideration of £19m is made up 985K shares at710p per share, £11.6m in loan notes. and £400K cash.Planit, developer of interactive design and sales software.has acquired Cabnetware Inc. (☜design to manufacturesoftware for furniture retailers and manufacturers") throughits USA subsidiary ICADS USA. for $5.1m cash.Affinity Internet has acquired Amsterdam-based MisterMail. an email and web content provider, for an initialconsideration of £300K plus 30K in shares, with up to 20Kadditional shares dependent upon performance.Diagonal has acquired Datel☂s SAP reseller and supportbusiness, for a maximum consideration of £457K, madeup of an initial consideration of E297K in cash and furtherpayments dependent upon customer contracts.Hemscott.net -the on-line financial news and informationservice - is in talks with Bridgend (a shell company)regarding a reverse takeover.Myratech, the AlM»Iisted web and e- commerce solutionsprovider and accounting software VAR has acquired

Forsyth Whitehead, a Sage VAR for £600K cash.Updata has acquired Fairshares Software, the portfoliomanagement software provider.

PA Consulting, the employee-owned consultancy, hasacquired us consultancy Haggler Bailly for £63m. Hagglerhas expertise in the energy and transport sectors, and willadd 700 staff to PA☁s 2700.ICL has announced a significant investment in US♥basedBillMatrix, who will provide payment solutions as part oflCL☂s e-business offerings.Freecom.Net has announced that its talks to sell asignificant part of the group have collapsed. On the otherhand, Freecom (Soon to be renamed Systems UnionGroup) said that it expecis mat its reorganisation willgenerate profits earlier than expected. They will develop anew Sun Systems product

11July 2000

Mergers and acquisitions - continued

MSI International (ITSA) for a "nominal" sum MSI hasrevenue of c£1.6m. Interestingly Systems Internationalreports a significant improvement in trading in H1 2000.Debug Holdings has called in the receivers blaming "themillennium-related slowdown in business". Debug madelosses of £144K on revenue of I£10.1m in FY99.JSB Software Technologies has acquired Cyber Patrol("intemet ltering s/w for corporate, education and homemarkets☝) from Mattrec Inc. for $100m.Orchestream enjoyed a 9 times oversubscription for its

placing this month of 42m shares at 185p. Orchestreamhas raised c£49m, and was valued at £214m when itjoined

the main market on 28th Jun. It provides software thatmanages the performance of IP networks.Hays has acquired Argon Groupe, a French consultancy

specialising in supply chain and CRM, for £6.5m in cash.

All changeCSC Europe President Fton Mackintosh is leaving 080 tostart up his own pan-European e-business servicescompany. It's an amicable split - Ron will hand over toMike Laphen (080 US) over the next few weeks.Oracle has confirmed the departure of its long standingPresident and CEO Flay Lane. Given his amazing trackrecord (Oracle stock up 4500% in last four years) he is

unlikely to be on the dole for long. The CEO positions atHP or Compaq were rumoured in the press.

Philip Crawford is also leaving his top European role atEDS which he only joined from Oracle UK in Q4 99 and is

taking up the reins as Chief Exec of lnterX.

We are delighted to learn that Mike Lynch's Autonomy is

likely to move its primary listing to London (it was originally

launched onto EASDAQ in July 98 with a NASDAQ quote

last month). Lynch and Autonomy (with a market cap. of

c£3.5b and a FI'SE100 contender) are exactly the kind of

people and company that we need in the UK.

Dimension Data Holdings Ltd, ☜an international network

and interactive integration services group☂ with over 10,000

employees and revenue c$1.14b is currently listed on theJohannesburg Stock Exchange, is to list on the LSE inJuly. The directors anticipate that the newly formedDimension Data Holdings plc will qualify for inclusion in

the FTSE 100 with its c£4.8b capitalisation.

A few more Y2K hangover warningsIt wasn☂tjust the UK orthe minnows which are suffenng

-> from theY2K hangover (see furtherwarnings p3/4etc), EDS has issued a profits warning stating that 02

revenue growth will be low single digit not the mid-single digit as expected. However EDS remains confident that

it will meet expectations for the year with revenues picking upand continuing to improve in H2.

Unisys' shares crashed as 02 rev. down 13% and profitshalved. Computer Sciences, Getronics, Perot Systems andWM-data were amongst other internationals putting out

warnings.

Logica issued a "revenue" rather than "profits" warning.Although they "expectto meet market forecasts for profit" forthe year ending 30th Jun. 00 with "Margins slightly aboveexpectations" revenues are likely to be below forecast/£890m.ECsoft's CEO Terje Laugerud commented that "marketconditions in the first quarter of2000 were challenging and theunderlying trend as anticipated showed a very weak start tothe quarter followed bya profit in March.☝The outlook for H2 is"positive☝with the company anticipating to benefit from "a returnto normal market dynamics". ECsoft now generate 17% ofrevenues from e~business related activities (up from 9% in theperiod last year).

a System House

Excellent results from Fl GroupFl Group is one of the leading suppliers of application management (AM) services in the UK. They now have a substantialconsultancy business as well as smaller recruitment and training divisions. In the year ended 30th Apr. 00, they have produced

some excellent figures. Revenue was up 35% to £307.7m (organic

growth was up 10%), PBT increased 59% at £27m pre goodwill Fl Group plcamortisation but only up 2% to £17.4m after.Mind you PET was boosted Ten Year PET and Revenue Record

by some one-offs including reversal of provisions for property now let Relative to 1991

plus no payout on the staff profit share scheme. Diluted EPS actually

fell 30% after goodwill (up 34% pre-goodwill). Fl expect margins to be law-«us PET

down a tad next year but ☜still in the high eights☝. The forward order

book stands at a record £443m (yes, that's c1.4x revenue) boosted by

the £197m/5 year extension to the excellent First Banking Systems JV

with Bank of Scotland. Overseas revenue did well and was up 15% « Fl

now has plans tomove into

The Richard & Anthony Gemany, .gg. .. .Show But it's not all vww-wm☁w

good news. Even

Your laSt Chance Fl have not been immune to the Y2K hangover. ☜The market is not fullyAs we write there are hardly any tickets left recovered, especially in the ERP arena the priority is to restore Druid to

for Thursday 13th July - Holivay's acceptable pro tability in H2". Indeed recent acquisition Druid lost £1.8m

Presentation on bet-1a☝ of the CSSA at (he although another acquisition OSI did better with a £2,4m profit - still only a

Grosvenor House, Park Lane, London. Over 4-7% margin Which needs some attention.

400 top CEOs already booked Comment. Good results despite a pretty dire 03 although 04 was ☜quite a bit

The advance orders (his year are fantastic bettef☂(unlike some others). Not surprisingly their ITSA business suffered

with atmosi every C50 of note booked months with revenue down 8%. OSl seems to be fitting in well and we are impressed

in advance by the e-services capabilities of their indian operation. With their record order

The evening slams at 5.30pm (for 6.00pm) book and their long term relationships with clients. Fl is as safe a haven asand includes drinks and a' really Special you are likely to get-Druid needs sorting as ERP is currently out otfavour'anddinner. Even its CRM actIVIties havae began atffetcted toy progtulctdelays} But Hilary

. ropper "remains convince a e 5 re egic ogic o e acquisi ion"- even

some;$211!ltuztforivéfgdai gopilrlc ggg though it didn☂t come cheap. Fl shares fell 13% this month to end on 385p.

before that date. An advance order form is

enclosed.

Normal price for the evening from theCSSA (Tel: 020 7395 6717 or

you can 6-mail:zoe.hemming@cssa.oo.uk)

is £180 + VAT for CSSAmembers and £230 + VAT fornon-members.

V

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' bI From: Delivery address: II || |i l

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_iData-System Hausao is published monthly by Richard Holway Limited, PO Box 183, Famham, Surrey, GU1 0 We. Telephoneot 252 740900; Fax: 01 252 740919:E♥mail Intemet:mai|@holway.com which also publishes theannual ☁Holway Repon' and the ☜Software and Computing Services Industry in Europe Repon'.Richard Holway has been a director of several computing services companies and might hold stock in companies featured.0 2000 Richard Holway Limited. The information contained in this publication may not be reproduced without the written permission of the publishers. Whilst every carehas been taken to ensure the accuracy of the information contained in this document, the publishers cannot be held responsible lor any errors or any consequencestheieol. Subscribers are advised to take independent advice before taking any action. System House® is a registered trademark of Richard Holway Limited.

_System House 12 July 2000