Revolt pays off at Clarity Commerce

Last year, transaction software specialist Clarity Commerce Solutions was in the throes of an unseemly battle between its then chief executive, the charismatic Graham York, and shareholder rebels, led by formidable ‘company doctor’ Bob Morton. Inadequate financial controls and failure to integrate acquisitions in the UK, USA, France and Germany were among the charges levelled by the rebels against the York regime.

Results from the Basingstoke-based company, which caters for the ticketing, retail, leisure and hospitality sectors, bore out the critics’ fears, with pre-tax losses soaring from £1.1 million to £8.6 million on £15.4 million turnover in the year to last March. That was after accountant Ken Smith, who had previously helped turn around the Alphameric group and played a key role in Clarity’s 2003 takeover of the Cyntergy group, replaced York at the helm, but before the new regime could show its impact.

However, AIM-quoted Clarity has subsequently been making progress under Smith and John O’Hara, the successful New Zealand entrepreneur who became chairman at the same time. The company turned a £1.1 million interim operating loss into £80,000 first-half operating profits in the six months to September on turnover up 23 per cent to
£8.3 million.

Clarity slashed its first-half pre-tax loss from £1.3 million to £39,000. Some analysts now suggest a £1 million pre-tax profit is on the cards for the full year. In the first half-year, the retail side – notably one well-judged acquisition, MATRA – put in the strongest performance, aided by the compatibility of its software, and won a significant contract with Universal Studios in the USA, among others. Ticketing and leisure made progress, but hospitality made a small loss, which Clarity hopes to turn around this year, following a £200,000 contract win with Peel Hotels.The company, which claims ‘significant progress’ in reducing costs, has disposed of certain ‘non-core operations’, renewed its bank facilities for a further 12 months on improved terms and cut net debt by £600,000 to £1.2 million. That is before a £4.1 million deferred payment in shares and cash for an earn-out agreement with the vendors of MATRA, whose co-founder Anthony Houldsworth has joined Clarity’s board.

One particularly pleasing deal in this period was a £468,000 Amsterdam waterways contract. The company says Dienst Binnenwaterbeheer Amsterdam, which handles the commercial management of the waterways of the Dutch port, is to equip all its sites with a central administration and point-of-sale solution from Clarity for collecting tolls from commercial and leisure craft.

The contract is worth an initial 586,000 (£466,000) plus annual maintenance fees and should start to deliver in the second quarter of next year. It comes soon after another, to provide similar point-of-sale solutions for food and beverage sales at Universal Studios in Florida, worth an initial £420,000 plus maintenance fees.

O’Hara and Smith say they expect a good second half-year, with ‘strong acceleration’ in the USA. As yet, however, the stock market remains unconvinced.

Clarity shares, floated at 125p in 2000 and still nearly 70p during the revolt, have now plummeted further to 13.5p. That is little more than half their level last February, when the company raised £1.8 million at 25p. That looks a decidedly grudging rating. Analysts see pre-tax profits reaching £2.5 million by 2010-11, with turnover reaching nearly £21 million over the same period. Clarity, formerly a ragbag of acquired businesses with little central control, has now become an efficient operation, winning good business and potentially in a position to make sensible acquisitions.

Its shares have speculative recovery appeal, overall stock market conditions permitting.