Is work by Cerner on the NHS’s National Programme for IT hitting its cash flow?

The recent financial results of Cerner, the main supplier of NHS software in London and the South of England, are strong. But Cerner’s local paper in Kansas, USA, is a little irresolute in its support for the company.


Cerner’s headquarters is in Kansas. The company is the main subcontractor to BT and Fujitsu, which are two of the three local service providers to the NHS under the £12.3bn National Programme for IT [NPfIT]. Cerner’s Millennium software is due to be installed by NHS trusts across London and the South of England.

On 24 July 2007 the Kansas City Star reported an “earnings jump for Cerner”. It quoted Cerner’s President, Trace Devanny, as saying: “ We continue to be very bullish on the global health care IT marketplace.”

The company had reported a 30 percent increase in second-quarter earnings. Cerner said its second-quarter bookings included $97.8 [£49.3] million from its participation in a $24bn [£12.1bn] project to computerise medical records for the National Health Service in England.

The Kansas City Star said:

“Cerner separates bookings from that [NPfIT] project because the numbers from such a large project can fluctuate widely. Minus the English National Health Service booking, Cerner’s second-quarter bookings totalled $389m [£196.1m], 25 percent higher than in the second quarter of 2006.”

Marc Naughton, Cerner chief financial officer, was quoted as saying that Cerner could begin to recognise in its accounts profits from the National Health Service contract after it completes the software aspects of the contract. That is expected in late 2008, Naughton was quoted as saying.

The next day the Kansas City Star said that the company’s financial performance met Wall Street’s expectations and was largely praised by analysts, but there were concerns about “cash flow related to Cerner’s part of a $24 billion project to computerize medical records for the National Health Service in England”.

Analysts Steven Halper of Thomas Weisel and Todd Weller of Stifel Nicolaus & Co. were quoted as expressing concern about cash flow and margins related to the NPfIT contract, which has generated “zero profit margin” for Cerner.

Cerner shares are up more than 25 percent since the start of the year.

I asked Cerner for a reaction to these articles. It said:

“Cerner Corporation has multi-year contracts that reflect our multi-year commitment to the National Health Service modernisation programme. We have additional software to develop to meet our contractual requirements and, under US GAAP [generally-accepted accounting principles], the proper accounting treatment is to report revenue equal to expense with no margin recognised until all software elements are delivered. We anticipate being able to begin recognising margin on these contracts in 2009.”

Links:

Cerner Millennium goes live in Surrey and Sussex – a success but some queues at the reception desk

Minister Ben Bradshaw defends Cerner systems – July 2007

Kansas City Star

Cerner Millennium software

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