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A brutal landing for NHS computer firm(Daily Mail Via Thomson Dialog NewsEdge)SHARES in NHS software supplier iSoft collapsed as fresh rumours swept the market that the firm is on the verge of financial meltdown. The rout coincided with confirmation that the Manchester-based group is planning savage job cuts from its 3,500-strong workforce. The cuts were prompted by sliding sales and profits linked to perilously delayed contracts for the NHS National Programme to overhaul IT systems. Analysts reckon there is worse to come. ISoft could be served with a crippling legal action either by the NHS or by its key partner for the project, US consultancy Accenture. Accenture has already taken a GBP260m hit from the delays, for which it publicly blamed iSoft. Any action taken by the NHS against Accenture would almost certainly end up involving iSoft. Others suggest the NHS will slap an onerous fine on the technology firm. BT has already been forced to pay up after falling up to year behind schedule for another part of the work. Back when the deal was struck, the 10-year project promised to bring in GBP500m for iSoft. The company hoped it would also help sell its Lorenzo patient records software around the world. Tim Whiston, the chief executive who was on the board when iSoft bid for the work, is now facing calls for his head as shareholder confidence hits an all-time low. The situation is bound to be an embarrassment for former BAE boss John Weston, who stepped up as chairman last year. He replaced Patrick Crayne, one of five directors who sold iSoft stock worth GBP44m only three weeks before a significant share price slump. ISoft denies it is preparing to launch an emergency rights issue. It claims there is 'no risk' of breaching banking covenants on the basis of numbers for the year ended April 2006. In response, one commentator said: 'The City wants to know that iSoft will meet its covenants in six or three months' time, not next week.' The decline in the share price - now at an all-time low of 911/4p after falling more than 8pc yesterday - is a plain indication of what the market thinks. The company is now heading for Footsie 250 relegation in the June reshuffle. House broker Bridgewell says iSoft needs to shave GBP20m from costs to meet its profit forecasts of GBP18m for 2006 and GBP19m in 2007. Fears over accounting issues are also weighing on the shares. Critics say iSoft has been quick to book revenues for maintenance work on contracts. Eyebrows have been raised over the way the company has been using a GBP70m offbalance sheet credit facility. Kevin Lomax, the Misys boss, is rumoured to be contemplating a bid for iSoft, but that would not do anything to get him back into the City's good books. 'Until - or unless - iSoft sorts out its accounting procedures and can give greater clarity on the NHS contracts, why would Lomax touch it?' one analyst said. MINNOW THAT WAS IN OVER ITS HEAD WHEN big guns IBM and Lockheed Martin walked away from the scramble to win contracts to oversee the modernisation of the NHS's computer systems, it could have been an ominous sign. The GBP6.2bn project was one of the largest public-sector contracts ever awarded.Yet British software minnow iSoft rushed in alongside larger US rivals Cerner and IDX, effectively betting the business on the work. The temptation to bid low must have been strong. Whatever the terms, former chairman Patrick Cryne and chief executive Tim Whiston certainly could not resist chasing the contract. Three years on and it has led iSoft to the brink. Management have issued two profit warnings so far this year. In March, consultants Accenture heaped embarrassment on iSoft after blaming it for a costly GBP260m charge arising from delays. Others have suffered too, but are bigger and better placed to take it. BT, which is putting the systems into London, has forked out millions of pounds to the NHS for contract delays. Fujitsu Services, behind a GBP896m contract for the South-West, last year sacked its software supplier IDX, leading to a small hit. So far, NHS systems boss Richard Granger has rejected Accenture's request to renegotiate the electronic patient record branch of the project. Analysts say they would not be surprised to see further fines, legal action, or the scrapping of all or part of the NHS project.That could spell disaster for iSoft. Investors' faith in the firm is a low point. Analysts doubt whether its software is capable of delivering what the NHS needs, even within an extended timetable. If only Cryne and Whiston had followed IBM's lead. |