The move to abolish PCT’s took its toll on Allocate Software during H1 2011 (to November 30 2011) and was one of the factors resulting in flat YOY revenue (£16m vs £15.9m). EBITDA dropped over a half (£1.6m vs £3.8m) due in part to a £3.9m impairment charge. These types of numbers would normally be a cause for concern but the negatives are heavily driven by UK healthcare reform rather than Allocate failing to execute and there is a lot of momentum elsewhere in the business.
CEO Ian Bowles cites 15% organic revenue growth if acquisitions and a £3m+ fiscal 2010 Australian healthcare contract are factored out (he had already said he did not expect a similarly sized agreement to secured in the first half of this year). This is a positive interpretation naturally, but is not unreasonable when you consider what is happening operationally.
The company is still winning new NHS Trust customers for HealthRoster (11 vs 12 in H1 last year), and contract extensions with existing customers. Sales to the acute and mental health segments of the UK healthcare sector are replacing some of the lost PCT revenue. Bowles told us that he sees £75m - £80m of licence cross sell opportunities within its existing customer base. International business and the defence segments are both progressing. Activity includes a major healthcare deal with the state of Brunei, and a large new multi year licence extension with the Australian Defence Force that just missed the H1 cut and will be included in the H2 results.
Allocate does have work to do to replace lost business and grow its international operations but the business is in pretty good state once you look past the top line revenue and EDITDA numbers. Subscribers will be able to read further analysis of Allocate Software’s performance in HotViewsExtra.