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The three main Misys activities, Banking, Healthcare and Insurance, were all given a divisional breakdown.
Not only did the two companies perform pretty well in my quest for shareholder information last year, but representatives from the upper echelons of both businesses do take time out to visit the site. Both Alistair MacDonald, Corporate Communications Director at Misys, and Matthew Allen, the PizzaExpress director responsible for marketing and international franchising, post on their respective message boards.
With such pro-activity, it was no surprise then to hear Misys had invited Foolish representatives to attend their interim results presentation last Thursday. Never having been to a Wise "analyst" presentation, and not knowing too much about Misys either, I jumped at the chance to see how "the other half" of the investment world lived.
A delay at King's Cross gave me ample time to study the interim results on the tube. After a quick sprint along Chiswell Street, I found my seat as Misys chairman Kevin Lomax took the stand.
Mr Lomax opened on the half-year highlights with a brief overview. A successful handling of Y2K issues, slow activity due to the millennium "lock down" and general satisfactory trading were his main themes. But Lomax did stress that he was "very confident of a return of the normal rates of growth, around 20%, following Y2K".
Financial director Howard Evans described the financial results. Throughout his presentation, the 1999 interim results were compared to both 1998 and 1997. The two-year period was said to give a "better indication" of performance, given the "exceptional" revenues in 1998. Not attending the 1998 interims, was the euro/Y2K enhanced trade of last year emphasised as strongly as it was this year?
Here are the summary results, as presented by Misys.
Six months ended CAGR
30th November 1999 1998 1997 (97-99)
Revenue (£m) 281 288 178 26%
Operating Profit* (£m) 59 65 35 30%
Profit before tax (£m) 48 59 32 23%
Adjusted EPS (p) 7.8 8.1 5.6 18%
Dividend per share (p) 1.39 1.21 1.05 15%
Net Debt (£m) 82 111 203
*pre goodwill
After the decline of the high margin euro-related revenue, Banking suffered a 9% fall in profits. Insurance revenues had seen "good growth" of 12%. The Healthcare division, lagging 3-6 months behind the Banking and Securities division in terms of post Y2K development, would "hold back progress" for the full year. Second half for Healthcare, historically the more profitable for this division, would be more in line with the first, at a £15m operating profit.
After giving the Wise profit forecasters the nod on interest payments and tax rates for the full year -- anticipated to be similar to that in the first half -- the deterioration in cash flow was discussed. A £10m decrease in creditors and provisions was attributed to the payments of bonuses to IT contractors, and charges associated with the pension mis-selling review. Deferred income, "normally lower" at the November half-year stage, was primarily Y2K related -- initial licence fees for Banking software being 50% below that of the same period last year.
Kevin Lomax returned to the stage full of facts and figures for the future. In the important Banking division, Lomax described the outlook for IT budgets for a typical bank. He suggested that hardware costs, currently 33% of budget, would decline to 20% in the next twelve months. Expenditure on software would fill the gap. He was also more than happy to show predictions from Ernst and Young, forecasting that banks will be allocating 14% of their annual IT budgets to e-commerce in 2002, up from just 3% in 1997. This difference in spending equates to US$9bn.
The future of the Banking division did appear bright. Activity levels were "very high" with a "strong build up of prospects". Howard Evans described demand bursting through after last October and, importantly, being sustained.
Also highlighted was the increasingly key area of "middleware". Banks typically have 50 to 100 back office systems, and the provision of consistent information to the banks' own customers is now all important. Linking the multitude of legacy databases through Misys software is helping to resume the 20% annual organic growth target in this division.
With Misys stating that 40% of all US Internet hits are health related, it's the strategic partnership with Healtheon/WebMD (NASDAQ: HLTH) that caught my eye. The agreement, providing Internet-based services in the US, aims to strip out the costly paperwork in the US medical profession.
Insurance eligibility checks, clinical results and hospital referrals, when electronically automated, will generate huge savings to customers and "attractive revenue sharing arrangements" for Misys. When pressed on that subject, it was revealed that revenue per transaction will vary according to the physician and query, but 25 cents a transaction was an indicated amount.
Misys management quickly rebuffed a later question over a similar link up between IDX Systems (NASDAQ: IDXC) and Healtheon/WebMD. IDX were described as "joining the bandwagon" and their recent deal vindicated the earlier Misys agreement. In terms of technical abilities, Misys were "well ahead" of IDX, and were "miles ahead" in the number of transactions anticipated.
After a rather scary Insurance divisional outlook, in which the dominant IFA channel was frighteningly described as "the most important" in the industry, Kevin Lomax took great delight in giving the audience a demonstration of Screentrade.com, the online insurance facility. "Even the most ardent couch potato could manage this process" he commented when stating the service was to launch on digital television in February. Lomax described digital television as "the big thing that will make a difference", in terms of Screentrade's popularity.
Numerous questions, unsurprisingly, were asked over the Screentrade operation. In a nutshell, the hit-to-quote ratio was 60%, January's quote level was 31% ahead than the best level last year, and the site generates £120,000 commission a year for Misys. When asked about maintaining Screentrade's competitiveness, Misys replied that their site had been established for eighteen months and no other alternative had the same capabilities. Slightly worrying though, was the absence of the words "branding" or "advertising" in the reply. I've only come across Screentrade through Misys corporate research.
Certainly my initial thoughts after the presentation were "business as usual". Although not having a truly in-depth knowledge of the company, the comments and implications from the meeting don't give me any immediate concern about Misys' place in the Qualiport. The outlook for the main Banking division looks robust, and the future with Healtheon/WebMD linkup appears exciting, if financially a little vague, at the moment.
Two things remain in my mind from the day. Firstly, apart from a quibble over margins, there were no Wise questions over the significant Banking division. Everything seemed to revolve around statistics concerning the exciting but financially immaterial new media developments. Maybe the Wise analysts were happy with the 20% long term growth indication to the Banking division that accounts for 60% of group revenues.
And secondly, the Misys share price movement. As I left Fool HQ to the presentation, the share priced had dived from 790p to approach 700p. It's a good job that Fools don't react to knee-jerk price movements. When I returned, the share price was back at 790p, and finished the day at 879p.
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