ISoft: ‘We should have acted sooner’

ISoft has told investors that it should have acted sooner to recognise the risk posed by its rapidly rising costs and uncertain revenues.

In its annual report, Robert Moran, the chairman who is also a major stakeholder in the company, admitted that it has been a “difficult” year for iSoft, which is one of the major contractors to the National Programme for IT in the NHS.

He said it had hit a “number of hurdles and “encountered unforeseen challenges” that had a significant impact on its financial performance and share price.

Earlier this year, iSoft posted a statutory loss of £221m (AUS $383m) for the financial year 2010, with total revenue down 20% to £249m (AUS $431m).

Last week, its share price dropped to an all time low of 10 cents and remain fixed at that rate.

The company has said consistently that currency fluctuations have hit its revenue and profitability and that hard economic times have a negative impact, particularly in the UK and continental Europe.

Moran added: “With hindsight, we should have acted sooner to recognise the risk. The simple fact is that we allowed our expenses to risk in anticipation of revenues that did not materialise.”

He added that the shortfall in expected revenues from NPfIT “was another disappointing factor.”

He said implementation of the company’s Lorenzo system in the North, Midlands and East of England “had been slower than expected.”

As a result, iSoft has yet to receive a number of milestone payments associated with the programme, and other related revenues.

EHI understands that large payments will be triggered to local service provider CSC and iSoft as its subcontractor when four milestone trusts go-live with the latest release of Lorenzo.

NHS Bury and University Hospitals of Morecambe NHS Foundation Trust have both gone live over the past year, while Birmingham Women’s NHS Foundation Trust went live yesterday.

Both companies are now waiting on Pennine Care NHS Foundation Trust to go live. It says it is reviewing its go-live options.

Moran said iSoft has launched a “three pronged action plan” to get it back on track. This includes restructuring the business to decrease its operating expenses by AUS $50m by June 2011.

ISoft is also “considering selling some assets and closing some outlying business units” as well as working towards strengthening its balance sheet by “rationalising its product line and geographic exposure." 

The annual report says iSoft will focus on the areas that will "provide greatest profitability and that generate cash flow.”

Moran adds that he is “encouraged by the Department of Health’s recent decision to continue with national applications already procured while moving to a more locally-led plural system for new contracts.”

Link: iSoft Group Annual Report 2010