RJH writes...

Today's final results and commentary are a testament to John Weston and team's making the best of a bad hand. Few thought it possible; and it is the financial equivalent of the 1940 Dunkirk evacuation. These accounts are likely to be qualified by the auditors (see nota bene below) but the group lives to fight another day.

Management have avoided both a cash call (so far) and a debt for equity swap; they have secured funding through 2007 (subject to conditions and at extra cost including warrant issues to lenders); scrubbed the accounts with a huge write-off relating to the Torex merger (thumping book value down to 11p/share); and protected (somewhat) their flagship product through a memorandum of understanding with CSC.

However, the path forward is still fraught with risk as the US 10k style "Risk Factors" section makes plain (a welcome change from the previous régime's idea of "need to know"). Key amongst these is the reputational impact. As the commentary says:

"...concerns surrounding iSOFT have had an impact on the propensity of customers to enter into contracts with the company. In this regard the group has revised its bank facilities providing a period of stability during which it can consider and implement a suitable long term financial strategy."
Other firms have faced similar - worse even - reputational disasters. Perhaps iSoft can draw something from the experience of ValuJet Airlines, a no-frills domestic US carrier whose attractions for passengers disappeared with the crash of one of its flights in 1996. ValuJet changed name, operating strategy and merged with AirTran Airways. The group is now arguably the leanest and best placed domestic carrier in the US.

Today's announcement makes much possible and probable for iSoft. Name changes. Strategic reviews.

And bids.

NB: A legacy of the previous regime is a lack of records of cost and activity on a contract by contract basis. The new accounting policy of the firm demands this. But in its historical absence the auditors (say iSoft) cannot confirm on a 'true and fair' basis that revenue from existing contracts is being matched correctly to activity.

The author owns iSoft plc equity but this should not influence readers into thinking that iSoft is in anything other than a very very bad way.

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