Kalamazoo this week received a #17.7 million cash injection from new US-based stakeholder, Reynolds & Reynolds. But although this will help it out of its current sticky financial situation, analysts have warned that worse is still to come.
The UK-based software company, which specialises in applications for motor dealers, also admitted that it faced first half trading losses of #3 million because of the higher than expected costs of rewriting its flagship Elite software to make it suitable for the European market.
The product?s shipment date will have slipped by six months by the time it ships at the end of the year, but the delays have already hit current sales.
However, the losses will be partially offset by Kalamazoo?s sale last month of its traditional printing business to Adare Printing.
Richard Holway, managing director of consultants Holway Ltd, said: ?This year has been a catalogue of disasters for Kalamazoo and the fact that the share price has hardly moved as a result of this stake is very strange. The City obviously expects worse to come. I?ve never known a shareholder come in when the shares were worth 75 pence and pay #1.30, which is a 75 per cent premium, and not have the share price move.?
He added that the resignation of Paul Heaven, managing director of Kalamazoo?s UK computer division, was out of character and could only have been a result of his disillusionment with the situation. It was the longer than expected development cycle of his product that was blamed for the profit warning.
But Mike Farley, managing director of Kalamazoo?s international division, denied reports that if Reynolds & Reynolds had not taken its 26.5 per cent stake, the firm would have been close to breaching its banking facilities.
?We?re borrowed like most PLCs, but we?re not busting bank overdrafts. This will give us space and help us. Last year, we spent what we budgeted for, but due to other pressures [the extended development cycle of Elite], we?ll have exceeded our budget by $500,000 this year,? Farley said.
Although he refused to comment on why Heaven had left the company, he claimed that it was necessary to suffer short term pain as a result of the redevelopment of Elite and the high costs involved, to put Kalamazoo in a position to compete globally into the future.
He expected the company to be back in the black by the second half of the year, however, he said.
Reynolds & Reynolds, which also sells systems for motor dealers, is subscribing at 130 pence a share for 13.6 million new Kalamazoo shares as a part of a package, including a joint reseller agreement and product development, although details have not yet been ironed out.
The US firm is also tendering 2.93 million existing shares at 130 pence, but is subject to restrictions on increasing or selling its stake over the next two years.
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