PEOPLESCPC STAFF ★ Figuring out the phenomenon ★

Sugar Story #2 : Figuring out the phenomenon (New Computer Express)Peoples Cpc Staff
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Part two: William Poel reveals the financial secrets at Amstrad

Although it's difficult, in this instalment I'll try and separate Amstrad from the man most perceived as Mr. Amstrad. It is unavoidable that the Amstrad story revolves around Alan Sugar, but there is another facet to the way the company grew and developed in the years up to the encounter with their first home computer.

Amstrad was founded in 1968, and went to the Stock Market in 1980. This is a pretty good amount of time for an organisation to learn the hard way. With a turnover based on organic growth (i.e. not much borrowing) of £9m in 1980. Alan Sugar decided to cash in a few of the chips. There was. though, really no good reason to do so.

I guess the lure of the cash was hard to resist, as Alan Sugar has never been anyone's idea of a workaholic, and has always maintained a separate and very private life. But only around 20 per cent of the issued share capital was placed in the hands of the public. Alan Sugar kept hold of most of the stock for himself and only sold some 25 per cent in the first place, subsequently watering down to 50.66 per cent at the end of the 84/85 year.

The popular view is that 35 per cent of a public company held in one place represents effective voting control, and only a lunatic would choose to vote against the wishes of the founder of an enterprise where the founder was the enterprise. But it does happen occasionally.

Slaughter the goose?

The current Amstrad accounts indicate that shares held by Alan Sugar (in his own name) account for some 249m of a total of 556m paid up. This is only 45 per cent, so theoretically, the shareholders could now gang up and slaughter the golden goose on a show of hands. This is unlikely, and one of the reasons for this gradual dilution is reputed to be a desire by the City to see the guaranteed autocracy of Alan Sugar somewhat less guaranteed as evidence of his good faith in the way the City works. And pigs may fly.

Should Amstrad ever become the target of takeover rumours, many of the gamblers in the City would stand to make a fortune, as the company is languishing with probably the lowest value rating - based on historic performance and that wonderful thing called 'track record' - of any share in the world.

For many years, Alan Sugar did not extract his entitlement to dividend, and waived this possibly huge drain on the company's resources. This act of magnanimity went a long way to pacifying the shareholders who have historically received only a meagre dividend from Amstrad. settling instead for capital growth as the share price generally doubled on an annual basis.

So although the company may have earned 12p per share in 1985. it only distributed a penny or so to the shareholders, the rest being retained. And using this tactic, Amstrad has ploughed its money straight back into the business to fund its startling growth. Amstrad tops the league on turnover per employees and return on capital employed over the past few years, and those are the best measures of entrepreneurial skill and enterprise of all. Any clot can earn £100m with shareholders' funds of billions...just stick it in a building society.

In examining the company. it's also worth observing that Amstrad pays its managers (relatively) very little in the UK published accounts. A public company is obliged to list the 'emoluments' of its higher paid employees in the published accounts, so it is interesting to see that in the 87/88 period. Mr. S took home a meagre £130.000. Which although some of you may find hard to digest is absolute peanuts for a company of the size and profitability of Amstrad. However, his technical slice of the wedge from his shareholding was £40.000.000. so he ain't on his uppers just yet, John.

Other directors were paid in the region of £60 - 90K according to the UK accounts. Again, bolstered by share options, but otherwise rather modest by industrial standards.

Growing up in public

When a company goes public', part or all of Its shares are offered on the open market, and the proceeds of the sale go (In theory) straight into the pockets of the private shareholders. Most flotations also manage some form of rights' issue, where the number of nominal shares is increased. If the existing shareholders choose not to buy these new shares, then the cash goes into the company's coffers for expansion' and other bullish-like City-speak.

Flying in the teeth of wisdom

In fact. Amstrad has a well-earned reputation for paying its staff rather modestly, as Alan Sugar believes that well disciplined 'low fliers' are more useful as the soldiers in his organisation than properly rewarded, talented (and highly mobile) whizz-kids. This philosophy is largely proven to be correct by results, but probably another of the reasons why the City regards him with suspicion. This is not the conventional wisdom.

This philosophy is also encouraged and endorsed by his fellow directors, and when he was once faced with the task of hiring a couple of new faces at rates perilously close to those being paid to his existing lifers, he was obliged to construct a scheme to make the apparent salary being paid rather less, in order to keep the old guard happy. And we are not talking seriously large sums of money here, I know, because I was one of those new faces...

But however irritated an observer can get at the frustrations of being close to Amstrad and watchmg what many perceive as opportunities being wasted (the PPC is my pet frustration, so near and yet so far off the mark), the fact remains that on balance Amstrad delivers, and is now doing so with the inestimable buffer of parallel operations around the world.

Amstrad can't get it right all the time, and Mr S. does not want to have the same sort of mouthpiece mechanism that more conventional public enterprises can employ to apply the vanishing cream to the warts (it's called PR), the Amstrad gets unfairly exposed as the bad news is always more interesting than good news. Particularly when the proportions are so heavily weighted in favour of boringly good news.

Dialogue of the deaf

For someone who can charge from O to furious at the drop of an ditch. The City is a red rag to Alan Sugar. The relationship between the two parties is at best distant The City slickers regard Mr S's outfit as a phenomenon that they can t quite believe and certainly can't at all understand. From his penthouse in downtown Brentwood, Sugar is derisory about the incessant yo-yoing of his firm s share price, and incredulous of its being so low - even when The City reckons it's so high.

For sure, Amstrad presents the occasional City talk-in to persuade the pin-striped gamblers of the Square Mile that it really doesn't eat babies, boil rivals, drop nuclear bombs etc etc. Equally, Sugar has tried to raise his public image via appearing in the Department of Trade & Industry's Europe Open For Business campaign.

The effect is minimal. The City can't quite believe that the one man band Amstrad can continue being successful. The one man band himself can't quite believe that The City can get it so wrong so often.


He should be so lucky
Just as Alan Sugar's Amstrad was about to launch itself as a computer company with the CPC, so the rest of the market was variously set to nosedive. Back in April '84, Sinclair, Commodore, Acorn and Atari were just months away from disasters which very nearly killed off all of them. The great computer adventure was just starting...

New Computer Express #4

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L'Amstrad CPC est une machine 8 bits à base d'un Z80 à 4MHz. Le premier de la gamme fut le CPC 464 en 1984, équipé d'un lecteur de cassettes intégré il se plaçait en concurrent  du Commodore C64 beaucoup plus compliqué à utiliser et plus cher. Ce fut un réel succès et sorti cette même années le CPC 664 équipé d'un lecteur de disquettes trois pouces intégré. Sa vie fut de courte durée puisqu'en 1985 il fut remplacé par le CPC 6128 qui était plus compact, plus soigné et surtout qui avait 128Ko de RAM au lieu de 64Ko.