NHS software firm in £351m write-off

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The Independent Online

Shares in the troubled software provider iSoft soared 32 per cent yesterday after the company confirmed it had secured financing for the next 15 months, giving hope that another delay to the upgrade of the NHS's computer system can be avoided.

Alongside the agreement with its bankers, iSoft also posted annual results that saw it slump to a loss before tax of £343m for the year to 30 April.

The group had until Monday to unveil results, otherwise its shares faced being delisted from the London Stock Exchange.

Brokers said the rise in the stock, which closed 13.5p higher at 56p, had been exacerbated by a sizeable short position among traders betting on the company's collapse. ISoft's survival forced many to rush into the market to close their positions by repurchasing shares.

Under the agreement with its bankers, iSoft is fully funded until November 2007. In exchange, it will pay higher interest rates and issue warrants equivalent to a 3.7 per cent stake in the company to its banks, which include HSBC, Barclays and Lloyds TSB, with a strike price of 10p. Analysts said that, without the deal, the company's future would have been highly uncertain.

ISoft provides software to Computer Sciences Corporation (CSC) and Accenture, two firms leading the £6bn upgrade of the National Health Service's patient records system. Yesterday, iSoft said it had signed a memorandum of understanding which confirmed its contract with CSC. It covers upgrade work to the NHS in the North-west. Alongside this agreement came news that iSoft would continue to supply software to seven healthcare trusts in London and southern England. John Weston, the chairman and acting chief executive, said the news was a "show of confidence in the company by those trusts".

As part of its restructuring, iSoft plans to sell non-core assets, including some properties, and to cut costs by making at least 150 employees, about 15 per cent of its workforce, redundant. This is expected to reduce its annual cost base from £209m to £185m. The loss the group posted was mainly due to the write-off of £351m of goodwill, chiefly associated with its acquisition of its rival Torex in 2004. This loss compared with a profit of £2m in the same period last year.

However, iSoft's auditors, Deloitte, were unable to approve these accounts, in part because of an investigation by the Financial Services Authority. At the start of the month, the company confirmed an internal inquiry by Deloitte had unearthed evidence that revenues in 2004 and 2005 had been recognised in iSoft accounts earlier than was appropriate. That provisional finding led to the suspension of Steven Graham, one of the company's founders and its commercial director, and another unnamed employee. On Thursday, it was announced that the UK's financial services watchdog would investigate the matter.

The crisis at iSoft started in January when the company warned delays to its contract with the NHS would hit profits. Since then, its shares have lost nearly 90 per cent. Another profit warning followed in April, while in June iSoft decided that it would change its accounting policy. Before this, the group recognised the lion's share of its revenues from any licensing contract as soon as its software was delivered and ahead of actual payment, usually in instalments, by customers. The change in accounting policy - revenues are now booked over the lifetime of a contract - forced iSoft to restate its accounts for the past two years and renegotiate its banking covenants.

At its peak, iSoft was worth more than £1bn. Yesterday, it was valued at £129m.