Accenture profit dives on UK health system woes

IT services giant Accenture reported a steep drop in its second-quarter profit due to a charge to cover expected losses from its contracts to upgrade the U.K. National Health Service IT infrastructure.

IT services giant Accenture reported a steep drop in its second-quarter profit because of a charge to cover expected losses from its contracts to upgrade the U.K. National Health Service IT infrastructure.

Accenture reported earnings for the quarter ended Feb. 28 of $0.11 per share, down from $0.35 per share a year earlier, due to a pretax provision of $450 million to cover expected losses from its two NHS contracts, which cover deployment and services, it said Tuesday.

The ambitious IT upgrade will link some 50 million patients in England with doctors and other health-care providers. Aimed for completion around the end of the decade, its goal is to let health-care workers do much of their work online, including accessing patient records and using an e-booking service.

Accenture now believes the costs for its deployment contract will exceed revenue from the work, CFO Mike McGrath said in a conference call Tuesday. He blamed the losses on delays in the delivery of important software from a subcontractor, iSoft Group, as well as higher-than-expected development and integration costs.

In addition, demand for the systems is likely to come later and be slower than anticipated, he said. That’s mostly caused by the development delays, but also because the U.K. government decided recently to let health-care providers choose a different system from the one being built by the contracted service providers.

“All three of these factors contributed into what I would call the perfect storm,” McGrath said.

The company has assigned additional top-level managers to fix the problems as quickly as possible, said Bill Green, Accenture’s CEO.

Some analysts on the conference call asked why Accenture didn’t cut and run from the NHS project, especially after the government appeared to have “changed the rules” by allowing health providers to choose alternative systems. Green insisted that he believes in the work the NHS is trying to do and said the project will be completed in a way that is “fair to the NHS but also fair to Accenture.”

He did suggest that the company is trying to renegotiate its contracts, however. “We’re currently talking to the NHS about revisions to the approach and deployment schedule,” he said.

The NHS work represent only about 1% of Accenture’s annual revenue for this year, McGrath noted. “While this is a significant issue, it is in fact an isolated one,” he said.

Without the NHS charge, Accenture would have made $0.38 per share for the quarter, up from $0.35 a year ago and higher than its original forecast, it said. Revenue for the quarter grew 13% in local currency terms, to $4.1 billion, helped by a record increase in consulting revenue, the company said.

Nevertheless, the NHS woes are “a tremendous blow” for the company, according to analyst company Ovum. Accenture had already announced a $140 million aggregate loss from the NHS project in its previous fiscal year, Ovum noted.