In a trading update for the six months to 30 November, Misys reveals that healthcare saw half year revenues on an as reported basis fall 6%, with like for like initial license fee (ILF) order intake down a hefty 23% to £21m. Total revenues for the division are off 3% versus last time.
The group says that, as previously indicated in its October update, ILF order intake in the division's physician systems unit has slowed significantly. It is now clear to the group that ILF order intake across the division as a whole has been behind the performance of the market.
The group blames the underperformance at healthcare on a number of factors including the distraction of a failed takeover bid by Misys founder and former chief Kevin Lomax, and a 'number of sales execution issues'. The division has also been buffeted by increased pricing and competitive pressure at the small community physicians end of the market.
A number of actions have been taken to get healthcare back on track, including a shake-up of management and sales activities. The group reckons it has begun to see some benefit from the actions taken to date. 'Whilst it is too early to tell if these actions will, over time, fully address the shortfall, the early indications are encouraging,' it adds.
In contrast to the woes of the healthcare business, the group's banking business and Sesame unit, which provides services to more than 8,000 UK financial advisers, are both making good progress, with the latter experiencing 'strong operating profit improvement'.
Half year revenues in banking rose 7% on an as reported basis with ILF revenues up 7% and operating margin expected to come in between 14% and 15% versus 12% last time.
Sesame saw revenue increase 3% with operating margin improved to just over 4% compared to 2% last time.
Today's statement also contains some interesting information related the failed Lomax bid. Group costs are expected to be £2m higher than last time, with the increase including a £1.1m payoff for Lomax when he stood down on 2 October, in line, the group hastens to add, with contractual entitlements. There is also a non-cash accounting charge of £400,000 in relation to Lomax's share option entitlements.
Exceptionals related to the attempted takeover by Lomax totalled an eye watering £4m.
The group also notes that, as previously flagged, its sterling numbers will be undermined by the weakening dollar.
To provide some guidance on the currency hit being anticipated, Misys notes that retranslating its results for the first half to November 2005 using the average exchange rates for the first half to November 2006 decreases 2005 revenues by £10m and adjusted operating profit by £2m.
Adjusted earnings per share for the half year are expected to range of 5.5p to 6.0p per share.
Despite the current woes of the business, new chief executive Mike Lawrie, who took over from Lomax in October, remains upbeat on prospects. He insists Misys has 'great assets and opportunities', adding that since he joined six weeks ago, a number of initiatives have been launched to improve performance and confidence in the business.
Speaking to reporters following release of today's update, Lawrie said he is mulling selling Sesame as part of the 3-5 year turnaround programme for the group. Lawrie does not believe Sesame sits easily with the group's other businesses. He stressed however that a disposal is not imminent. Some in the City reckon the business could be worth up to £300m.
Lawrie clearly has his work cut. The group had a miserable 2005 and has been through a period of heavy restructuring. Sentiment over the stock has been dented by indications of drift at the group and lack of a coherent strategy to return it to sustainable organic growth.
In March 2006, for instance, the group appointed Steve Vaughan as chief executive of its banking division. Barely a month after the appointment, however, Vaughan, former boss of Synstar, the pan- European IT service provider now part of Hewlett Packard, was sent packing. Misys said at the time that 'material differences' between Vaughan and the group board had emerged over the future direction of the banking division.
The Lomax bid debacle further reinforced investor suspicion that the company had lost its way.
It has, not surprisingly, been a rollercoaster ride over 2006 for the long-suffering Misys shareholders. The shares have fallen nearly 12% over calendar 2006 to yesterday's close of 215.5p but they been down as much as 27% during the year.
Today's disappointing, mixed update led to Misys Plc shares falling a further 3.5p or 2% to 212p. News that the group might sell off Sesame helped limit the fall.
Based on consensus forecasts ahead of today's statement, the stock trades on a forward 2007 PER of nearly 16, falling to 14 in 2008. The prospective yield is 3.6%.
