iSOFT Group Limited (ASX:ISF) Provides Market Update On CSC Joint Venture And FY11 Outlook

Sydney, June 15, 2010 AEST (ABN Newswire) - iSOFT Group Limited (ASX:ISF) - ISF provides the following additional information to the market following the release on Wednesday 2nd June 2010.

1. The Relationship with CSC (NYSE:CSC) and the National Program

The current contractual arrangement between the Company and CSC in relation to the National Program is in respect of the three northern clusters of hospital trusts in the United Kingdom (the "Northern Cluster Contract").

Some investors have inferred that the background to the announcement on 2 June 2010 resulted from issues under the Northern Cluster Contract. This is not correct. Our relationship with CSC is strong and the joint achievement of the successful "go live" of Lorenzo Regional Care 1.9 at The University Hospitals of Morecambe Bay under the Northern Cluster Contract is a significant achievement as it operates as a validation of the Lorenzo platform in an Acute Care environment.

The Northern Cluster Contract remains on foot and we continue to work with CSC in the continued roll out of the Early Adopter program for hospital trusts in that region.

2. Business Outside the National Program

While we have still not finalised all order intake for FY10, we expect that the revenue derived from CSC under the Northern Cluster Contract is likely to represent 15% to 20% of our total revenue in this financial year.

Our current best estimate is that the balance of our business (being 80% to 85% of our forecast revenue) will be slightly ahead of the FY09 base when measured on a local currency basis.

We have a core business base with strong recurring revenues across many markets - not just the UK. We continue to experience success in several markets. Notwithstanding the economic environment we are seeing significant growth in our revenue backlog for FY11 and beyond.

There have been some delays in order placement in the last six months across many of our regions but we believe that this is more symptomatic of the current economic environment than any suggestion that it relates to iSOFT product performance or loss of share to our competitors.

Profitability is adversely affected when there is a significant change in the timing of forecast license revenues, such as occurred this year. The cost base of the company is dominated by employee costs, especially around the product development area, which is necessary for the continued delivery into existing contracts and to provide next generation product for sale into future years. This year, like last, we will expense around 80% of our total development costs, even though that effort is designed to produce revenue growth in future years. We have, however, already commenced adjusting our cost base for FY11 and we would expect that there will be significant reduction in run rate costs over the course of the coming financial year.

3. FY11 Outlook

The events of the past weeks have not interrupted the ordinary course of business. We are well advanced in the budgeting process for the coming fiscal year and are at the same time working toward a close of the current fiscal year.

It is too early to be giving any guidance on FY11. However, it is worth noting that as envisaged in the half year guidance update under the existing contractual arrangements with CSC in respect of the Northern Cluster it was expected that the FY11 revenue would be significantly less than in FY10, which is why we have been working to build the order book of the company outside the CSC relationship.

Overall, we do expect revenue growth on a constant currency basis between FY10 and FY11; even with the expected decline in contracted revenue that will be earned under the CSC contract in respect of the Northern Cluster Contract.

4. Banking Position

We have kept our banks fully informed, especially on matters surrounding the National Program. We are not in breach of any banking covenants. With the significant negative effect caused by the translation of regional earnings to Australian dollars together with the changes to our cash flow, we believe it is likely that a resetting of some of the covenants will be required. We are working constructively with our banks to ensure there are no future issues and we expect this process will be concluded over the next few months.

5. Board Changes

Pursuant to the process the company started some two years ago of improving the company's corporate governance a number of changes have been made to increase the separation between executive and non executive representation on the Board. Accordingly, Gary Cohen has stood down as Executive Chairman in order to allow him to fully focus on his role as Chief Executive Officer. In support of this long standing board initiative, Steve Garrington, who is currently an Executive Director, has decided to resign from the Board, although continuing in his role as head of Business Development. Robert Moran has been appointed as Non Executive Chairman. Robert is the Managing Director of Oceania Capital Partners Limited (ASX:OCP), the company's largest shareholder and underpins the support of the company by OCP. With the appointment of Robert Moran as Non Executive Chairman, Dr Jim Fox has resigned from the Board.

Following these changes five of the six directors are non-executive, three are independent and two represent the company's largest shareholder.

Contact

Gary Cohen Executive Chairman & CEO iSOFT Group Limited Tel: +61-2-8251-6700 Email: gary.cohen@isofthealth.com Stuart Kelly Director, Corporate Affairs iSOFT Group Limited Tel: +61-2-8251-6769 Mob: +61-404-082-361 Email: stuart.kelly@isofthealth.com