Orion Health expects return to profit after rights issue

Orion Health chief executive Ian McCrae. Photo / Greg Bowker

Specialised software developer Orion Health says it expects to return to profitability in the second half of this financial year after strengthening its balance sheet through a $31.9 million underwritten rights issue.

The company, which hit the market with great fanfare in 2014, reported a $34.2m loss in the year to March, down from a $54.4m loss a year earlier.

It said it planned to raise funds through a discounted two-for-nine rights issue at 90c per share, compared with Monday's closing price of $1.20.

Orion said the loss reflected weaker sales in Europe, the Middle East and Africa but that it expects to be profitable in 2018, even after a drop in recurring income from a US customer.

As part of a strategic review focused on sources of additional capital including minority investments, the company had also received "expressions of interest" for partnerships. Chief executive Ian McCrae said that did not mean a potential takeover was in the wings.

"We have spoken to a lot of parties and gained a lot of interest from other organisations in the sector," he said.

"They find us, as an organisation, attractive because of our global footprint, and we have a number of great 'marquee' customers around the world," he told the Herald.

"Secondly our technology is really modern and we are also in the cloud, so these are very appealing things that make us a good organisation to partner with."

He said the company had spent too much - 32 per cent of its total spending - on research and development and that the aim was to bring that back down to the industry norm of just below 20 per cent.

McCrae, who owns 50.8 per cent of the company, said he had no immediate plans to step down, as some commentators suggested when the company's share price took a dive earlier this year.

"In the short term, I am working on running the company as best we can," he said.

"In the medium term, I'm sure there is going to be a succession plan. I've done this job for 25 years and it's unlikely that I will do it for 30."

The company listed in November 2014 amid heightened investor interest in technology companies, but has since turned out to be one of the market's bigger disappointments.

On debut in November 2014, the stock traded at $6.50 a share, up from its $5.70 offer price.

The stock closed yesterday at $1.04, down 16c on the day and an all time low. Orion's market capitalisation now stands at just $166.5m, compared with more than $1 billion at its peak.

McCrae acknowledged that it had been a "challenging" time for shareholders. "With our performance, there were certainly things that we could have done better," he said.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the company had a "bombed out" share price and that it was "completely out of favour with the market".

"The second half needs to be pretty good for them to meet the forecast that they are talking about," Lister said.

In its result, Orion said its operating revenue fell to $199m from $206.9m and total net cash outflows grew to $51.5m from $38.5m, leaving Orion with cash reserves of $6m at balance date, $30m in working capital debt facilities and a $10m standby facility.

A loss is forecast in the first half of the year "of similar magnitude" to the first-half loss in the year just ended.

McCrae said he would take up his full $15m entitlement under the rights issue, along with 9.6 per cent shareholder Geoff Cumming and the company's New Zealand-based directors.