Why is this company getting so much bad press in the UK – and what does it mean for Malta. BY MATTHEW VELLA
There is no coyness about the extent of iSoft’s financial troubles. The UK healthcare software company has faced worsening share prices ever since first announcing a profit warning due to delays in the delivery of its Lorenzo software, which it is supplying to some two-thirds of the UK’s National Programme for IT.
From a share price which started in 2006 at over 400p, the company’s value has been cut down to some 42.75p until yesterday. A host of reasons – including profit warnings, the delayed Lorenzo, and a restatement of its accounts – have contributed to force the group into discussions with its bank to rebase its covenants. Its auditors Deloitte have now also unveiled accounting irregularities and iSoft faces the prospect of a formal inquiry.
The date for an impending decision over Mater Dei’s EUR30 million Integrated Health Information System is to be expected shortly, while installation of the crucial first phase is expected to be ready by December 2006, in time for Prime Minister Lawrence Gonzi to cut the inaugurating ribbon for the over-delayed hospital on his fifty-fourth birthday in July 2007.
With such a vertiginous state of affairs, it is inevitable to ask whether iSoft’s current tribulations are being taken into account by the government committees evaluating its tender. That’s because the financial experts government has commissioned on the tender, Gartner, have recently revised its rating for iSoft downwards to “caution” – a state of affairs prompted by the firm’s worsening position in the UK.
Among the reasons for Gartner’s downwards revision was the change in accounting policy for iSoft which prompted the resignation of CEO Tim Whiston.
Under Tim Whiston, iSoft had been booking revenues from its software licences upfront. Given that the revenue from software is usually spread over a licence’s lifespan, iSoft had been booking revenues which were actually receivable in forthcoming years – effectively revenue which had not yet been squarely in the group’s hands.
With the new accounting policy, operating profit for 2005 will be restated at breakeven, while revenues will be revised to GBP190m. The previously more aggressive treatment recorded these figures as GBP72m and GBP262m respectively.
Revising the policy forced iSoft to renegotiate terms with its banks, LloydsTSB, Royal Bank of Scotland, Barclays and HSBC. Until yesterday afternoon, HSBC had purchased some 9 million shares in the company, a sign that as an institutional investor, the bank wants to have a greater say in the direction taken by this company, probably as part of some forthcoming agreement on re-financing its banking covenants.
On Friday, iSoft will be expected to publish its much delayed accounting figures for 2006 – or face suspension of its shares on the London Stock Exchange.
If that wasn’t enough, The Guardian and its sister newspaper The Observer last Sunday revealed the confidential review of Lorenzo drawn up by Accenture and CSC, a month after iSoft’s profit warning in January. The latter are two main contractors of the NPfIT, which have contracted iSoft to provide the software for over 60 per cent of the programme.
According to the critical report, Lorenzo has no “believable” date for delivery, which means there are no immediate prospects for either completion or delivery of the electronic patient software, the key programme for three out of five regions of the multi-billion NHS IT programme.
The Accenture-CSC report also claims there is no credible release schedule, and that the clinical safety of the product is a critical concern.
Crucial government contracts always have a tendency of turning out to be ugly and messy affairs. It is not so much the nasty allegations that sour the whole process. There is a constant suspicion that mistakes in procurement are tolerated, despite the eventual loss of public monies.
When sister newspaper MaltaToday latched on to the award of a contract for the replacement of the St Luke’s hospital incinerator, the government had to plod on for six months in the knowledge that the provider it had chosen could not honour its obligations. The reason: a bankrupt American firm, clearly proven by MaltaToday. On delivery day, the microwave replacement was nowhere to be seen.
Many of the problems concerning iSoft have been largely ignored by the local press. If iSoft’s centrepiece software Lorenzo will not be ready before 2008, it will be inevitable to ask which software package the firm is offering Mater Dei. At St Luke’s, iSoft supplies the hospital with its Clinicom software, the very programme it is replacing in the UK. To go by the Accenture-CSC review, it is possible that iSoft could have a basic version of Lorenzo lined up.
Government may be still experiencing a bad hangover from the debacle caused during the tendering for Mater Dei’s medical equipment. Inso SpA, which today is part of the AME consortium that is bidding for the IT tender, was chosen to supply Mater Dei’s equipment as the cheapest tenderer back in December 2004.
Dutch bidders Simed had contested the decision, and in a successful appeal before the public contracts appeals board, the decision to award the contract to Inso was annulled. Instead the board decided that Simed qualified for the award of the tender on condition that it supplied further clarifications on its offer.
When Simed’s clarifications failed to impress the Foundation for Medical Services, which was responsible for the construction of the hospital, the contracts committee decided to recommend the minister of finance to use his executive powers and overrule the appeals board to award the contract to Inso. The contracts committee claimed it was not in the public interest to prolong the tender process, and that Inso had never been disqualified by the appeals board.