Anyone that wants to study the difficulties of buying a US company should take a look at Rolfe & Nolan Plc, which reported yesterday (figures, page seven). In April, the company, specialising in software for the futures and options financial market finally bought out Brokerage Systems Inc, changed its name to Rolfe & Nolan (USA) […]
Anyone that wants to study the difficulties of buying a US company should take a look at Rolfe & Nolan Plc, which reported yesterday (figures, page seven). In April, the company, specialising in software for the futures and options financial market finally bought out Brokerage Systems Inc, changed its name to Rolfe & Nolan (USA) Inc and set about putting it to rights. Out went the old US president and a layer of senior management; cutting costs, and exorcising the company of leadership which UK chief executive Michael Warburg describes as very poor. The US subsidiary is now headed by Britishers, though the plan is to bring in more American blood. Though Warburg fully expected the management changes, he did not foresee trouble in Brokerage Systems’ software development operation. Then, earlier this year, a new release of Brokerage Systems’ RISC software hit big problems and had to be aborted.
Immediately Rolfe & Nolan’s UK software director flew over and discovered a mess. Where RISC had been represented to Rolfe & Nolan as a standard application, it actually contained significant amounts of bespoke code – with various customers having slightly different versions. They [the developers] did hide it from us – because they were afraid of losing their jobs Warburg says. Programmers were being sent out to do support work. The result was that when a major release of RISC came out, many customers were not willing or able to upgrade – it’s the best way to lose customers Warburg says frankly. After six months, the software director believes that the situation under control and two days ago Rolfe & Nolan offered the post of chief information officer to a tough American, charged with rationalising the software releases. The short-term result of this rationalisation however is to cut off one of the US operation’s money-spinners. Around a year ago, the company was pulling in nearly $130,000 a month from bespoke programming, but this has fallen to $40,000 a month and the intention is to eliminate it almost completely. Meanwhile there are the problems of coming to terms with transatlantic culture shock especially if you are English, you just don’t realise the cultural differences Warburg say, adding that it has made me feel very European. One difference that they have discovered is the US financial community’s affinity for renting software rather than buying licences for it.
By Chris Rose
Part of this may be due to the way in which the company’s biggest competitor, GMI, does business, says Warburg, but whatever the reason, the result is that the company has switched its marketing emphasis to give customers a choice between outright purchase or rental. Again the immediate effect of this will be to hit revenues, though it should give the company a nice source of recurring income. It’s not all gloom and doom though, and overall Rolfe & Nolan describes RISC’s progress as excellent, with a steady stream of new users coming on board. The total installed base numbers 23, six of which were added in the last six weeks. These orders include two long-term facilities management contracts, one of them with a big-name US brokerage house. As for how long it will take to turn the US operation around, Warburg is quite straightforward – last year I would have said this year he says, now I would be happy if we did it next year… though I would not stake my life on it. Looking at the figures then, the European operation saw half-year pre-tax profits to August 31 shoot up by 48% to UKP1,2m on turnover up 16% to UKP4.5m. On the other side of the pond the operating loss jumped by a horrible 466% to UKP600,000 on turnover that grew by 9% to UKP1.5m. The way that the company is structured means that it is looking at a nasty UKP441,000 tax hit, since the European growth cannot be offset against the US losses. In Europe the majority of the growth came from its bureau, facilities management and software support activities, which together saw revenues increase by 27%. Recurring revenue now accounts for 77% of Rolfe & Nolan’s Euro
pean turnover. The rest comes from software licences for its financial support software.
Back in June the company warned that European software sales would be slow in this half, before picking up in the six months to come, and this is still the prediction. Back in July the company announced a new system, Lighthouse, designed to handle the administration of various Treasury and Over The Counter products that banks and other financial institutions handle. It won a UKP2.5m order from Credit Suisse in September, and the Rolfe & Nolan US operation was apparently instrumental in winning this. Market prospects for Lighthouse are described as substantial with active marketing under way with the aim of obtaining additional orders for delivery in the second half of 1994-1995. Despite the problems in the US Warburg is adamant that it is a move that the company had to make we had to do this… I could have been a hero now on the back of the European figures, but it would have been a false victory. The financial markets are global in scope – and had Rolfe & Nolan tried to stick to the European market, the story would have been one of slow but inevitable decline, he says.