Ultima Networks Plc, one of the world’s most unsuccessful networking companies which has been operating at a loss for more than two years, wants investors to cough up another 1.5m pounds ($2.3m) to prevent it from going belly-up. Akhter Group Plc, a privately-owned services company, which already owns close to 30% of the shares, has […]
Ultima Networks Plc, one of the world’s most unsuccessful networking companies which has been operating at a loss for more than two years, wants investors to cough up another 1.5m pounds ($2.3m) to prevent it from going belly-up.
Akhter Group Plc, a privately-owned services company, which already owns close to 30% of the shares, has agreed to underwrite the issue. Given that there is unlikely to be a stampede to acquire new shares, Akhter could end up with 49% of the company.
So why is Akhter prepared to put more money into such a loser? Company boss Humayan Mughal, who became chairman of Ultima in 1998, concedes that the company has been badly managed. But, he believes, it has possibilities.
Shares in Chester, UK-based Ultima sank 20% to 3 pence yesterday when the company revealed its plan to persuade investors to part with more money. At the same time, it revealed another dismal set of delayed annual figures that show a rare ability to shrink sales and lose money in some of the most buoyant sectors of the IT industry.
Revenue, which had reached a peak of 65.2m pounds ($103.6m) in 1996, fell 62.5% to 14.4m pounds ($22.8m) in the year through December 31. One consolation is that the rapidly-reducing scale of Ultima’s operations makes it harder to lose so much money and the net loss of 4.9m pounds ($7.7m) was down considerably from the 13m pound ($20.6m) loss in the previous year.
Each of Ultima’s three business divisions has its own sad story as to why it failed to succeed. The networking services operation, which offers remote monitoring and management of client networks, saw sales fall 2.7% to 7.3m pounds ($11.6m) and the operating loss of 1.8m pounds ($2.8m) was well up on the 400,000 pounds ($636,000) recorded the previous year. What went wrong, according to Ultima, is that sales and technical staff were expanded to handle an increased level of business that failed to materialize.
It was a similar story at SilCom, the networking products division. Sales dropped 18% to 4.1m pounds ($6.5m) as the unit moved from break-even to record a loss of 1.2m pounds ($1.9m). After breaches of financial covenants, the Royal Bank of Canada withdrew banking facilities. Another bank has been found but it offers less generous credit facilities and this is one of the reasons why Ultima needs to raise more cash.
The malaise that grips Ultima spread to its software division, as well. It turned a tiny profit into a loss of 233,000 pounds ($370,470), as sales plunged 45.7% to 1.9m pounds ($3m). As the software sales staff who have not left now also have to sell networking services to their clients, this downturn is understandable.
Ultima was still trading at a loss in the first quarter and further efforts are being made to reduce costs. Akhter Group, which partners with Ultima on major projects, may have a reason to put money into the company. Other investors may find it easier to cut their losses and run.