TECHMARK Report

The markets' extreme volatility in the run-up to and then reality of war with Iraq has dominated both the headlines and the thoughts of City folk – putting the March results season somewhat into the shade.

In actual fact, news from the coalface of corporate Britain is much as it was before, with technology companies continuing to cut back their operations in attempts to keep their heads above water. As yet there is no sign of an improvement in conditions, though takeover bids and management buy-outs continue to hang in the air. Despite recent falls the techMARK 100, is two per cent higher than it was a month ago at 607.94.

Biotech boon

One of the brighter sparks on the tech scene has been vaccine provider Acambis, which has moved up 18 per cent to 249p after announcing a maiden set of profits, making a total of £11.1 million pre-tax in 2002. Its smallpox vaccine contract in the US was the main driver – because of this deal Acambis expects 2003 to be significantly more profitable, with a pre-tax forecast of £51.1 million made by KBC Peel Hunt. Analyst Gary Waanders advises investors to buy the shares on the back of this, forecasting 41.3p of earnings this year, with £27 million of cash to provide additional security.

Microbiological and life sciences specialist Biotrace International fell three per cent to 104p, despite announcing £2.2 million of pre-exceptional, pre-tax profits in 2002, an increase of 25 per cent.

Meanwhile, the board of Oxford Glycosciences (OGS) did a Clare Short-style U-turn by withdrawing its approval for Cambridge Antibody Technology's (CAT) all-share merger proposal. This was after FTSE 100 group Celltech put up a competing cash offer pitched at 182p per share – a bid that OGS' chief executive David Ebsworth said was 'opportunistic and does not reflect fairly the value of the business and cash of OGS'.

Celltech welcomed the withdrawal of approval, though, and then acted to pick up 10.5 per cent of OGS' shares in a bid to have its way if and when another proposal comes up. If agreed, that would create a group with aggregate net cash of £260 million at the end of 2002. OGS is down a touch at 187.5p over the past month while CAT has gained two per cent to 428.5p.

Clearing out the debris

Many IT companies have been taking the opportunity to restructure their balance sheets, having already undergone the more onerous and practical exercise of restructuring their operations, shedding staff in great numbers and incurring plenty of lovely 'exceptional' costs and asset write-offs as a result.

Plushly-domiciled telematics group Trafficmaster went so far as to write a whopping £53 million from its asset base, leaving it to report total losses of £63 million for 2002, up from £20 million the year before. Its shares actually recovered after some director buying to end up a quarter of a penny at 9.75p

Irish IT integrator and distributor Horizon Technology moved up 21 per cent to 23.5p, having announced that it has cut its staff numbers from 720 at their peak two years ago to just 208 now. Although reporting good cash generation last year, the company pointed to an 'over-capacity' in its sector, saying that there is 'no sign of IT spending improving'. It also announced a €7.5 million provision for rental payments due from an empty property still held after a subsidiary's disposal.

Indeed, empty properties are something of a theme for tech companies of late, with software group IDS making a £500,000 provision on its vacant Basingstoke site. Meanwhile, call-centre 'voice-based solutions' group Vocalis (down 19 per cent at 1.63p) revealed provisions as it released a profit warning saying that sales had been less than expected in its first half.

Vocalis was joined in warning by IT services firm Touchstone, which has suffered similar sales shortfalls. IDS joined many others in the market by confirming that it is in talks that may result in a bid. This was as Azlan's 125p per share bid from TechData (UK) got overwhelming support from shareholders.

Coming up

Given the almost unanimously positive attitude of City biotech analysts, gastrointestinal drug specialist Alizyme's statement in April could be well worth keeping an eye out for. The figures themselves are unlikely to provide much to write home about, with more than £10 million of losses forecast. But it is the future that investors should focus on, with first sales of one of its drugs expected this year.

WestLB Panmure's Nick Staples expects losses for the next year, but with £15 million secured from a recent fundraising, he reckons the group has plenty of cash to last it through.