Sydney, Jan 22, 2008 AEST (ABN Newswire) - IBA Health (ASX:IBA) Present An Open Briefing With Chairman Gary Cohen on "Financial Strength"
Record of interview:
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IBA Health Group Limited had estimated debt of AUD345 million as at the end of December 2007. To what extent does the group have adequate operational funding for the medium term? What ability would you have to refinance the existing debt in the current credit environment?
Executive Chairman & CEO Gary Cohen
We're more than adequately funded for the foreseeable future and have no immediate need to refinance our existing debt. As at the end of December we had cash of about AUD55 million. Our borrowings comprise AUD200 million under a four-year debt facility with ABN AMRO and AUD56 million under a 12-month facility with Allco Equity Partners (AEP). The remaining AUD91 million of debt represents contract financing put in place by iSOFT historically to finance its existing contracts. This financing is reduced progressively over the life of the contracts, and will be substantially eliminated over the next two years. The AUD50 million working capital facility we announced at our AGM has not yet been drawn down.
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You recently announced iSOFT had achieved a key milestone in its EU56 million patient management system installation project with Ireland's Health Service Executive (HSE) and resolved a number of outstanding contractual matters with HSE, including the settlement of outstanding payments due to iSOFT. How will this impact IBA's cash flow and reported earnings in the current year ending June 2008 and what's the outlook for earnings from the project over its remaining life?
Executive Chairman & CEO Gary Cohen
With the settlement of the outstanding payments, we received AUD11.6 million cash prior to the end of December and there's a further AUD5 million cash to come in the second half of the financial year. A portion of this amount relates to the period subsequent to our ownership and is expected to be included in our full-year revenue.
We have about AUD50 million worth of license and service fees to be earned over the remaining five years of the HSE contract. In addition, given we're the major supplier of software for HSE hospitals across Ireland, there are significant opportunities to drive further value from the relationship now that iSOFT is part of a stronger and better capitalised group and has resolved the contractual issues that previously existed.
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Can you provide an update on the integration of the iSOFT business and the organisational restructuring of the group?
Executive Chairman & CEO Gary Cohen
We've largely completed the integration in the corporate area: marketing, legal, HR, finance, business development, etc. and we'll be completing the balance over the next couple of months. We've completed the Australia-New Zealand integration, which operationally had the largest area of overlap. In Southeast Asia we've completed the integration of our people and we'll complete our office integration when a lease expires in about four weeks. In India, we've agreed with CSC on a closure strategy for the Hyderabad facility over the next few months. We'll then have two core facilities in India, being in Chennai and Bangalore.
Importantly, we're well on track to achieve the expected synergy savings from the iSOFT acquisition of AUD27 million for the 2009 financial year, and management is now focused on rebuilding and growing the integrated business.
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Given the group's expanded product offer, how are you seeking to change your product strategy?
Executive Chairman & CEO Gary Cohen
We have three important initiatives underway. First, we're significantly rationalising our older products to improve the profitability of our product portfolio. Second, we've identified our core product sets across the group and we're investing to improve and enhance our customers' product experience.
And third, we're ensuring those core products have a migration path to our future products, particularly the LORENZO platform.
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Can you comment on the current sales pipeline across the group and the response of customers to the expanded product offer?
Executive Chairman & CEO Gary Cohen
The response from iSOFT customers has been hugely positive; our ownership and re-capitalisation of the business has substantially restored confidence. We've had significant sales successes in our first two months as an enlarged group, including wins for our IB Solutions business in financial applications for a number of UK National Health Service (NHS) bodies. Those deals, which include new contracts and contract renewals, total over AUD35 million and we have further NHS deals in the pipeline. The re-establishment of iSOFT's relationship with the HSE, which was tied to our financial performance, is further evidence of the renewal of trust and customer confidence in the iSOFT business.
In Australia, we're the preferred bidder in three state government contracts for hospital and pharmacy systems, where our expanded product offer has enabled us to submit an integrated solution. We also recently signed a AUD14 million seven-year contract with Healthscope, one of Australia's leading private hospital groups and a AUD3 million contract with Otago District Health Board in New Zealand.
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For 2007, the combined revenue of the group was AUD490 million on a proforma basis. With signs of weaker economic growth as a result of the recent tightening of credit markets, do you foresee revenue growth in the short term?
Executive Chairman & CEO Gary Cohen
Our primary market is the public sector, which isn't directly impacted by shortterm economic or credit issues. In fact, the public sector is increasing its investment in health IT and we see growth in the market. We'll be giving the market an update on the outlook in the coming weeks.
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Historically, the iSOFT business had an EBIT margin of less than 10 percent compared with IBA's margin of 30 percent. Can you provide any guidance on the expected profile of the group's margin going forward?
Executive Chairman & CEO Gary Cohen
When we bought iSOFT we advised that we saw margin improvement occurring and we're adhering to that. We'd expect to be able to give the market an update on the margin as part of our guidance in the coming weeks.
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With the majority of the group's revenue now derived from the UK, what's the expected impact on earnings of the strengthening Australian dollar?
Executive Chairman & CEO Gary Cohen
Whilst the UK contributes about 50 percent of revenue, it currently contributes a lesser amount to overall profitability. The Australian dollar has appreciated by about 10 percent, so we'd expect that to have some impact on the UK contribution. It's important to note that the majority of our borrowings are also in sterling, so our debt and interest costs have are also reduced in Australian dollar terms.
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What's been the recent progress in the development of iSOFT's LORENZO system for the National Project for IT (NPfIT) in the UK and under your ownership, what's iSOFT's working relationship with CSC, the company implementing the system, and Connecting for Health (CfH), the NHS group responsible for NPfIT?
Executive Chairman & CEO Gary Cohen
Our relationships with CSC and CfH are excellent. We've had very constructive discussions with both groups over the past two months and we see significant opportunities to grow our business, and substantial revenue upside, with both CSC and CfH.
The first release of LORENZO will go live during the current half and representatives from CfH have recently been to Chennai for a series of product demonstrations. Their feedback has been exceptionally positive; they're very excited about LORENZO.
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An existing iSOFT services agreement covering 2,000 NHS contracts is due for renewal in April. Can you comment on the renewal process and the prospects for the agreement being renewed?
Executive Chairman & CEO Gary Cohen
iSOFT supplies about 60 percent of the NHS's existing IT across the UK and Ireland. The existing services agreement is completely separate from the NPfIT and was entered into three years ago to provide finance to iSOFT in respect of the underlying NHS contracts. In return for this finance, iSOFT gave a 17 percent discount on the services it provided. We're in the final stages of negotiations with the NHS to do away with the agreement and enhance the underlying contract profitability.
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In its independent expert's report released in November, Grant Thornton valued IBA at AUD1.11 to AUD1.36 per share. This compares with a trading range since the beginning of 2008 of AUD0.91 to AUD0.59. Has there been any change in the operating environment or outlook since Grant Thornton conducted its research?
Executive Chairman & CEO Gary Cohen
No. As discussed, the integration of iSOFT is on track and the expanded group continues to win new contracts. We have a strong balance sheet and are well positioned to compete in a healthcare IT market that continues to grow and where demand is resilient in the face of potential economic weakness. We're now one of the key players in a market where scale and financial strength are more and more crucial to winning the increasingly large and complex government and private sector contracts.
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Thank you Gary.
Contact
www.ibahealth.com
Gary Cohen or Greg King
TEL: +61-2-8251- 6700
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