Beleaguered iSoft chief faces axe over funding crisis

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The Independent Online

Tim Whiston, the chief executive of the beleaguered software group iSoft, is facing the sack after an overhaul of its accounting policy sent its shares to a record low last week.

Several shareholders have voiced concerns about Mr Whiston in recent weeks. John Weston, iSoft's chairman, is moving to oust his chief executive. Headhunters are to be contacted soon and asked to search for a replacement to lead the company.

ISoft is also looking into a sale of its business systems division in an attempt to extricate itself from its funding crisis.

The company moved on to the critical list on Thursday after disclosure that a change to accountancy policy, which some critics argued should have taken place long ago, would in effect wipe out its stated profits for the last two years. ISoft, which is involved in the overhaul of the NHS information technology systems, also admitted that it had breached its banking covenants.

The company's own broker, Morgan Stanley, suspended its recommendation on the shares and argued that they may be worth anything between 60p each and nothing.

The news sparked a near-40 per cent fall in iSoft's share price in a year in which the company has issued a brace of profits warnings and its market value has plummeted by almost 87 per cent.

RSM Robson Rhodes, the company's auditor, has yet to sign off the accounts and the announcement of full-year results has been set back three weeks. ISoft is now looking into ways to shore up its finances to avoid the need for a deeply discounted rights issue. Some 150 workers, 15 per cent of iSoft's staff, are to be made redundant.

Two years ago iSoft and Mr Whiston, who stepped up from finance director to chief executive in August 2004, sought and were granted a High Court injunction to block a newspaper publishing leaked documents that examined iSoft's accounting practices.

Founded in 1994 by the consultant KPMG, iSoft floated in July 2000 before making a series of acquisitions.

In 2003 the company merged with its biggest rival, Torex, to take better advantage of the multibillion-pound NHS upgrade. The deal created a clear market leader in the healthcare software market and put iSoft at the front of the queue for NHS contracts. It landed three of the five contracts on offer, won the 2004 TechMark company of the year award and looked set to join the FTSE 100 index.

Mr Whiston, who has been with the company since 1997, looked to parts of the world where healthcare systems would be upgraded. However, delays in implementing and delivering systems to the NHS have slowed down the project and hurt iSoft's financial health.

ISoft's decision to change its policy on revenue recognition last week was not wholly unexpected after criticism that its accounting was too aggressive.

Previously, the company booked all the licence revenue from a contract when the healthcare system was delivered. Now it will phase the recognition of licence revenue over the life of the contract, in line with standard practice across the industry. However, the accounting change eliminated £165m of historic revenue. Analysts at the stockbroker Numis Securities declared that iSoft has never made a profit under the new policy.

The £6.2bn NHS project has proved troublesome for the Government and the companies involved. With scant evidence of successful implementations of iSoft's advanced "Lorenzo" system across the NHS, some industry observers are starting to question whether iSoft would lose its key selling point.