Unlike most of its competitors, ICL Plc has managed to stay in the black for the year ending December 31 despite having experienced a character-forming year for the computer industry worldwide and being forced to make major price cuts on its products. According to director of finance and business strategy Keith Todd, average margins dropped 6% to 35%, which represents a reduction in gross margins of UKP109m. Still, although he expects margins to keep on falling during the coming year, he does believe the rate of decline will slow. ICL saw pre-tax profits down 38.1% to $38.6m, while turnover increased 32.1% to UKP2,477.9m. These figures include full contributions from Nokia Data and Sorbus as well as UKP181m from acquisitions made in 1992, such as Technology Plc. Operating costs also fell to 23% from 25% of turnover due to effective working capital management, or careful attention to inventory levels and debtor activity. Although the company ended the year with net debt of UKP94m and gearing of 35%, it did generate UKP240m cash from operations. This was used to buy capital equipment, to finance the integration of new acquisitions and to reduce debt levels. While chairman and chief executive, Peter Bonfield, said he is still not seeing the wide green shoots of recovery, he does expect ICL to stay in the black during the coming year. But he did concede that short-term profits may well be hit as the group invests in trying to grow market share, enter new business sectors, and undertake further restructuring to reduce its cost base. Nonetheless, Bonfield attributes the relative success of the company to a strategy dating from the mid-1980s – one of expanding into Europe; targeting particular industries, such as retail and finance; growing its services-related business; and ensuring that its products are based on open systems standards. The idea behind this strategy was to spread the investment risk so the company would not be dependent on one technology, one market.
Most research and development
And of course, it is in these areas that the company targets most of its research and development spend – UKP242m in 1992, up UKP20m on 1991. Todd believes such levels of expenditure were necesssary last year to maintain our growth momentum and achieve the successful integration of ICL and Nokia Data product ranges. For the first time, ICL generated some UKP1,000m of its revenues in Europe, partially as a result of its Nokia Data Systems acquisition. Todd said the company is now number one and number two in the Finnish and Scandinavian markets respectively. The personal systems business, based in Finland, saw sales increase 34% to UKP350m, and unlike personal computer vendors elsewhere, even managed to make a profit. Germany and France were worth more than UKP100m between them, while sales to Poland, the Czech and Slovak Republics, and Hungary increased 27%, after sustained investment. The company’s main markets in these regions are retail, finance and manufacturing. ICL also now generates about half its revenues from higher margin non-hardware sales, and expects this to increase to between 55% and 60% over the next few years. While turnover from services increased by 36%, Todd said that the fastest growing area was managed services, such as facilities management. As for open systems, Bonfield said that 85% of all the group’s products now come under this category. With mainframes, for example, ICL has won compliance with X/Open Co Ltd standards, and is currently seeking XPG-4 accredation. But Bonfield doesn’t like the term mainframe any more – mainframes are unpopular now, he said, we call them big servers for the open systems market. And although sales of the machines may be flat, at least we haven’t seen a major fall like IBM. Revenues generated from Unix sales, conversely, grew about 28%, although the figure was slightly higher in volume terms. Unit sales of mid-range products also increased 76%, and Todd reckons that ICL is still number one in the UK market for multi-user systems. Technology Plc did its bi
t too, contributing UKP5.5m to pre-tax profits since its acquisition in July. Todd said that the only way to achieve growth and profit from commodity products in changing market conditions is to change your distribution approach. And this was what the Technology purchase was all about – although margins are low, operating costs make up only 10% of company revenues, so profits can and are made. Finally, Bonfield believes ICL’s performance this year demonstrates our resilience and our ability to operate in bad markets. ICL is a good company, he added.
