RBMac
The stew may be a hearty one yet . . .
Group West Systems Sees New Partnerships Within a Month
By Deborah Gardner
07/16/1999
Dow Jones News Service
(Copyright © 1999, Dow Jones & Company, Inc.)
TORONTO (Dow Jones) – Group West Systems Ltd. (T.GPW) will be announcing partnerships with “a couple” of software developers within a month, Bill Ste. Marie, president and chief executive, told Dow Jones.
The partnerships will help slingshot the Burnaby, B.C., company into the outsourcing and Application Service Provider, or ASP, market, a direction it has been heading in for about a year.
An ASP company's software is available to its customers via the Internet. So, rather than buying and installing expensive software to keep pace with rapidly changing technology, customers rent it.
The cost of frequent upgrades is prohibitive for many companies and outsourcing offers them a cost-effective solution, Ste. Marie said.
“There's literally hundreds of applications that are much better outsourced. To build and maintain (a database) is a costly project,” Ste. Marie said.
The partnership agreements under negotiation would allow Group West to outsource the partner's software, Ste. Marie said. “We'll become their ASP arm.” He declined to offer further information about the negotiations.
He said Group West is preparing marketing programs to be launched in mid-August. “Some agreements are so close, both sides want to start marketing because a final document is imminent,” Ste. Marie said.
For more than 20 years, Group West has been supplying computer technology products and services to midrange companies, those with revenues between C$50 million and C$500 million. Since fiscal 1997, about 25% of its revenues has come from Y2K-related work.
Strong Customer Base Will Aid New Focus
Martin Gagel of IPO Capital Corp. said Group West's installed customer base will help it pull off the shift in focus.
Just this week, Group West announced it would be outsourcing systems to BC Rail, a customer for the past two years. The details and monetary value of the agreement weren't disclosed.
Although Gagel believes the shift in focus is a good idea, the market has showed little confidence in the company's stock. “How the market's going to respond to this is a little unsure,” he said.
In Toronto trading Friday, the stock is off 0.05 to 1.20. It has a 52-week range of 0.95 to 5.50.
Analyst David Wong at Canaccord Capital Corp. said he is impressed with Group West's aggressive acquisition strategy. “What they do is centralize everything then outsource the services,” he said.
During June, Group West agreed to acquire Wescom Computer Services Ltd., a Victoria, B.C., supplier of software to the public sector, and Platon Consulting Ltd., a Coquitlam, B.C., systems integrator. The Wescom purchase is for up to C$1 million in cash and stock while the price for Platon is up to C$3.1 million in cash and stock.
Ste. Marie said the company has four or five other acquisition possibilities in the pipeline, but he declined to elaborate.
10% of Current Business From Outsourcing
The ASP industry is fairly young, but is growing quickly, Ste. Marie said, noting several analyst reports predict it to grow more than 100% annually.
Outsourcing software represents about 10% of Group West's business and Ste. Marie sees that increasing to 50% within two years and to 80% within four years. However, the company will remain involved in consulting because “our customers require it,” he said.
Revenues will likely jump a total of 35% to 45% by 2001, he noted.
For the six months ended March 31, the company posted revenues of C$9.8 million, up from C$3.2 million a year earlier. Net income rose to $204,000 or 3 Canadian cents a share from C$40,000 or 1 Canadian cent.
Revenues declined to C$4.6 million in the second quarter from C$5.2 million in the first quarter, mainly due to declining revenues from Y2K projects.
Ste. Marie said the third quarter, which ended June 30, bottomed out as a result of declining Y2K revenues and “we're going to have a loss, no question about that in my mind.” Results are expected in about three weeks.
Gagel expects the company to be marginally profitable by the end of fiscal 1999, with total revenues around the C$20 million mark.
Ste. Marie said fiscal 1999 results look positive but he didn't elaborate.
- Deborah Gardner ; 416-306-2100
(END) DOW JONES NEWS 07-16-99
02:30 PM
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
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