12 July 2006


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Business Today



iSoft’s future uncertain, finds no deal with banks

Matthew Vella

Share prices for troubled software company iSoft Group slumped a further 16 per cent last week after announcing it had again delayed publication of its full year results because it had been unable to conclude negotiations with its banks.
The company is currently one of the final two bidders for the installation of Mater Dei hospital’s integrated health information system. The other bidder is the AME consortium, which includes Italian firm Inso, suppliers of Mater Dei’s medical equipment.
The software and IT tender for Mater Dei will need to be concluded in the next few weeks if government intends sticking to its deadline of opening the hospital by 1 July 2007. The contracts committee that will be adjudicating the tender has said it was monitoring events in Britain closely. However, industry observers talking to Business Today have expressed surprise at the contracts committee’s decision to simply monitor the situation since the Mater Dei tender made it amply clear that importance was being given to the financial stability of the companies bidding for the lucrative contract.
The indications are that iSoft’s two key contracts with Accenture for the North-east and Eastern regions of the British national health service’s National Programme for IT (NPfIT), valued at GBP300 million, are uncertain.
Since January, iSoft, which is listed in the FTSE 250, has lost 84 per cent of its market value and revealed plans to sack 15 per cent of its workers. Now it is looking possible that it will be booted off the NHS project, its single biggest source of revenue.
iSoft is a key supplier to the delayed GBP6.2 billion IT modernisation programme. But its key partner Accenture said last week it was considering alternatives to the software company.
According to Bridgewell, there were concerns that Accenture might replace it with another software supplier, possibly with American rivals Epic or Cerner. But the broker played down speculation that iSoft could be a takeover target for BT and General Electric – the parent company of software supplier IDX.
With iSoft facing the chop from the multi-million contract, its banks have been unwilling to conclude a new deal with the firm after it broke its banking covenants.
The group had issued three profit warnings in the past five months, mainly due to delays in delivering software to the NHS. However it was after iSoft restated its accounts, that it saw GBP165 million of historic revenues wiped out, meaning it had never made a profit.
iSoft, which was trading at just under 400p at the start of the year, crashed to as low as 49p. Franklin Templeton, a US investor which buys out distressed companies, is iSoft’s biggest shareholder at present with a stake of over 12 per cent.
iSoft had a valuation of more than GBP1 billion, marking its spectacular climb by winning the GBP300 million subcontract on the GBP6.2bn NHS programme in 2004. Last month, the National Audit Office said the NHS contract was two years late and would cost twice the original estimate, with the set-up of contractors and subcontractors having proven cumbersome.
It turned out that its exponential growth from sales of just GBP6 million in 1998 to a reported GBP262 million last year was not entirely correct.
iSoft provides software packages for the transmission of information from patients to doctors to hospitals and healthcare organisations. Such contracts are usually spread out over several years.
Some companies pay a lump sum upfront, others pay in staggered amounts over the life of the agreement. Under previous chief executive Tim Whiston however, iSoft often booked the full value of contracts and services as revenue upfront, regardless of how customers paid.
This meant that in many cases it booked as revenue which it would not see for several years.
mvella@mediatoday.com.mt



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