Now for the good news

Peter Koenig talks to the head of a British software firm hit by the global hurricane

THE headquarters of the computer software firm Midas-Kapiti look out over Wimbledon station in south London, and during the 1990s boom Rupert Soames liked to steal a few minutes here and there to play Thomas the Tank Engine. If Soames, the company's chief executive, wanted to pretend he was the Fat Controller, who was to tell him no?

Recently, however, the irrepressible Soames - whose management style is to use his larger-than-life personality to bully his troops, then to fussily and comically deprecate himself to sweeten the pill - has not had time for Thomas. He has, indeed, even attempted to keep the wilder side of his personality under control.

This is because Midas-Kapiti is the core division of Misys, the high- flying information technology company, and Soames and his bosses, led by Misys executive chairman Kevin Lomax, suddenly find themselves on the hot seat: neat examples of what it is to be like quietly going about your business one day, only to get sucked into the vortex of the global financial crisis the next.

Misys' shares peaked at 739p in May. They fell 10 per cent in July after the company results for the financial year ending 31 May. Misys reported that profits before tax and exceptional items for the financial year soared 42 per cent to pounds 89m. But pounds 30m of this was knocked off the bottom line after the company took a one-time charge for discontinued operations.

From the collapse of Russia on 17 August until the end of September, Misys' share price held up well compared with other FT-SE 100 companies, drifting downward to 500p. But then on Friday, 2 October the company got clobbered after Merrill Lynch downrated it. The share price collapsed to 300p. Last Monday it rebounded 13 per cent as investors continued their yo-yo buying and selling. On Friday the share price closed at 338p.

"I will not talk about Misys' share price," says an uncharacteristically subdued Soames. "What I will talk about is my business, and where it goes from here."

Soames is, of course, aware that he stands in the hurricane path of the global financial crisis. Midas-Kapiti's core client base is 1,000 banks scattered round the world. Soames and his team make standardised software programmes complementing banks' own computer systems. "You could say that as banks get into trouble they will cut costs; and as they cuts costs, our business will be hit," he concedes.

But Soames argues that the opposite is actually the case: the more banks cut costs, the more they will rely on Midas-Kapiti. To make this argument he differentiates Misys from the big names in the global information technology industry. The company is not a personal computer maker (like Compaq, Dell or Toshiba). Nor is it a chip or semi-conductor manufacturer (like Intel or National Semi-Conductor). It is thus not caught in the vicious price battles raging since overcapacity hit these sectors.

But nor, says Soames, is Misys like its fellow British IT companies - the likes of Sema, Sage and Logica. These, he argues, have focused on high-end consulting - taking the hardware and software sold by big companies and adapting it for clients' specific use. Much of the British IT industry is thus vulnerable to cutbacks in bank consulting budgets, he suggests.

Misys makes 40 per cent of its revenues from the initial licensing fees it charges for its bank computer programmes (typically pounds 250,000 to pounds 1m a pop). It makes 30 per cent from recurring licence fees, and the remaining 30 per cent from installation, training and consultation.

"Maybe initial licensing fees will slow down," Soames says. "But the products used by our existing clients are built into their systems. It will be more expensive than it's worth to unplug them."

Soames also takes comfort from the fact that Misys' client base is geographically diversified. Initially, the company knew it had no chance of providing software for bank headquarters in the City or on Wall Street. So it concentrated its fire on supplying the branches of international banks in rim regions.

This, Soames acknowledges, may leave the company exposed to the recession in emerging markets. But now more than ever, Soames contends, banks in emerging markets need the information technology to accurately calculate their positions - as well as to service customers, while cutting staff levels.

Besides that, Soames says the company has now reached critical mass. Size means that the 13 per cent of annual sales Misys spends on research and development is enough to generate products banks themselves can no longer afford to generate. Soames gives a case in point: Misys recently unveiled its Middleware product - a standardised software programme that allows different parts of bank back offices to talk to each other even though in the past their programming has been incompatible.

Is Soames simply talking his book? Yes, of course, he says, and even in the relatively protected niche of the information technology industry he occupies, competition is fierce.

Will the logic of his arguments translate into support for Misys' share price as the world goes bearish? Officially, Soames still won't comment on the company's share price.

Unofficially, however, he shrugs. "Your crystal ball is as good as mine," he says.