CIMdata PLM Industry Summary Online Archive
8 February 2012
Financial News
IFS Year-End Report 2011
Highlights and Outlook
Strong license sales
OCTOBER–DECEMBER 2011 (FOURTH QUARTER)
- License revenue amounted to SKr 166 million (Q4 '10: SKr 135 million), an improvement of 26 percent currency adjusted.
- Maintenance revenue was SKr 220 million (Q4 '10: SKr 206 million), an increase by 8 percent currency adjusted.
- Consulting revenue amounted to SKr 355 million (Q4 '10: SKr 383 million), a decrease by 6 percent currency adjusted.
- Net revenue was SKr 745 million (Q4 '10: SKr 729 million), an improvement of 4 percent currency adjusted.
- EBIT amounted to SKr 126 million (Q4 '10: SKr 110 million). Cash flow after investments was SKr 18 million (Q4 '10: SKr 70 million).
- Earnings per share after full dilution grew by 31 percent and amounted to SKr 3.31 (Q4 '10: SKr 2.52).
JANUARY–DECEMBER 2011 (FULL YEAR)
- License revenue amounted to SKr 431 million ('10: SKr 402 million), an improvement of 13 percent currency adjusted.
- Maintenance revenue was SKr 823 million ('10: SKr 811 million), an increase by 7 percent currency adjusted.
- Consulting revenue amounted to SKr 1,311 million ('10: SKr 1,357 million), an improvement of 1 percent currency adjusted.
- Net revenue was SKr 2,576 million ('10: SKr 2,585 million), an increase by 5 percent currency adjusted.
- EBIT amounted to SKr 233 million ('10: SKr 221 million). Cash flow after investments was SKr 94 million ('10: SKr 234 million).
- Earnings per share after full dilution grew by 20 percent and amounted to SKr 5.96 ('10: SKr 4.96). Proposed dividend for 2011 amounting to SKr 3.50 per share ('10: SKr 3.00).
OUTLOOK
IFS expects strong organic license growth and improved EBIT in 2012.
Financial Overview
Chief Executive Summary
The financial year 2011 saw us executing well in our target markets, as reflected in license sales which grew, adjusted for currency, by 13 percent for the full year and by 26 percent in quarter four. As this growth was not the result of any single abnormally large deal, such as typically seen in for example Defense, means the underlying business has continued to show strong performance.
A number of global events disturbed the world economy in 2011 and trading conditions for the year became more difficult than expected at the onset. In particular, the conflict in Libya and the suspension of trading in that country had a negative impact on EBIT of an estimated SKr 16 million. Delays and changes in projects also negatively impacted our consulting business, and the reorganization of our Scandinavian business, even though beneficial going forward, led to a non-recurring charge in the third quarter of SKr 16 million. Also, even though we maintain focus on strict cost efficiency, we have increased our investment in sales & marketing. This we expect will yield results in the longer term but it has, in the shorter term, added to our cost base. Despite this, 2011 was yet again a year when we succeeded in improving our results as EBIT increased with 7 percent (currency adjusted) to SKr 233 million (221), a clear evidence of the resilience of our business.
The troubles of the global financial markets are a concern for all businesses, including IFS. However as was seen in 2008 and 2009, we were able to continue to grow because our target sectors—such as Oil & Gas, EPCI, Power Generation, Defense, and Homeland Security—tend to be less impacted by financial instability. Against this downbeat global economic backdrop industry analysts such as Gartner forecast the software market in general, and the enterprise application market in particular, to grow in the region of 6–7 percent in 2012.
We continue to be recognized as the intelligent choice for global businesses that need to implement sophisticated international business solutions in a timely and cost effective manner. The ERP market is largely a replacement business and our product, IFS Applications, is an increasingly attractive choice as it offers strong integrated industry functionality on a market leading technology platform.
Overall product revenue adjusted for currency grew by 9 percent while consulting revenue increased by 1 percent. The higher growth stemming from license, maintenance and support revenue means product revenue as a percentage of total revenue increased to 49 percent (47), and this ongoing shift in revenue mix is important to maintain as we pursue higher EBIT margins.
In quarter four we acquired our partner in Brazil. This transaction provides us with a well-established direct operation in a country which sees strong activity in our target sectors; with many international customers having operations in the country or are planning to invest there. Brazil also provides us with a base from which to penetrate other Latin American countries. With this acquisition we now have a direct and established presence in all the BRIC economies. As previously commented upon, although we had identified and engaged with a number of other attractive targets during the year, we found the valuations required by their owners to be unattractively high. However, we remain committed to acquisitions. We reaffirm that our target of a 15 percent EBIT margin remains achievable over time and will be reached by a combination of organic and inorganic growth as has been demonstrated over recent years.
For 2012, we expect yet another year with strong organic growth in license revenue and an improved EBIT.
SIGNIFICANT EVENTS DURING THE QUARTER
A number of significant agreements were signed in the fourth quarter, including:
New solution for the Brazilian market
IFS released standard functionality that supports Brazilian legal requirements in the latest version of IFS Applications, thereby eliminating the need for expensive third-party solutions. Today, IFS has over 100 customers active in Brazil—many of which are global companies active within the oil and gas industry. The localized version caters especially to global companies that operate in Brazil and that use one central database for all of their sites worldwide. The new version complies with the large number of complex legal requirements that regulate the Brazilian market, including handling of a number of taxes and so-called nota fiscal documents.
Acquisition
On December 14, the Group acquired 100 percent of the capital stock in LatinIFS Tecnologia da Informação S.A. The fair value of identified net assets and liabilities in LatinIFS Tecnologia da Informação S.A. amounts to SKr -58 million, of which SKr 17 million in accounts receivable and tangible assets, SKr 16 million in customer relations, SKr 31 million in tax liabilities and deferred tax, and SKr 50 million in other liabilities. The remaining SKr 48 million represents group goodwill.
The goodwill recognized for the acquisition corresponds to the company’s market position and its highly skilled and experienced workforce. Based in São Paulo, with an office in Rio de Janeiro, and with established partners across the Latin American region, the company is well positioned to benefit from the high forecast growth in IFS’s target sectors (notably Oil & Gas, Utilities, and Engineering & Construction) in Brazil and across the wider region, leveraging its proven competence in selling and implementing IFS Applications.
The acquired company is included in consolidated revenue for the fourth quarter with SKr 2 million and in EBIT with SKr 0 million. Deferred license revenue of SKr 19 million and acquisition-related expenditure, amounting to SKr 2 million and recognized as other operating expenses, has been recognized in the consolidated earnings for the period.
The prepared acquisition analysis is preliminary.
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