In a move said to be designed to "improve its market position and profitability," IFS, a developer of enterprise software applications, said it has named the head of its largest regional operation as the company's new chief executive officer, effective March 10.
The regional executive, Alastair Sorbie, will replace Michael Hallén, IFS's CEO for the past three years and before that the head of research and development. Sorbie has been responsible for IFS's European, Middle East, and Asian (EMEA) operations, which account for 70% of the Linkoping, Sweden company's revenue and 40% of its employees.
Separately, IFS adjusted its financial guidance for 2005, saying that preliminary earnings before interest and taxes (EBIT) would be about SKr97 million, instead of the more than SKr100 million it had expected earlier. But profit will be about SKr67 million, compared with a loss of SKr204 million in 2004. The results for 2005 represent the first time in five years that IFS has achieved full-year profitability.
It was that achievement that was cited by company officials commenting on Hallén's departure from IFS. Cindy Jaudon, president of IFS North America, said in an interview today that the foundation Hallén built during his tenure at IFS has enabled the company to move to the next step in its evolution as a software provider.
"Michael's task was to consolidate the company, make us more efficient, and make us more stable," Jaudon said. "He completed the return to profitability. Now, it's time for the next evolution -- growing revenue profitability."
Industry analysts agree with Jaudon's assessment. Judy Sweeney, an analyst with AMR Research, said that IFS must now focus on sales and marketing.
"The product architecture is good," Sweeney said. "I have heard no complaints from customers about the product. What [IFS has] really lacked is marketing and sales execution. Is Sorbie the right guy to do this? Time will tell."
When he takes over as CEO in March, Sorbie will be based in IFS's office in High Wycombe, not far from London. He is 52 years old and has been with IFS since 1997.
As CEO he will inherit a strategy that includes a major change in how IFS sells its software. That strategy, undertaken about two years ago, has involved a greater reliance on reseller partnerships. In its third-quarter January to September 2005 report, IFS said that the change in sales strategy had resulted in partners generating 25% of new license sales during the preceding 12 months, up eight percentage points compared to the like period of 2004.
Asked whether she expected Sorbie to continue with this strategy, Jaudon said, "Alastair believes different geographies need different models. He will do what we need to do to grow."
In its revised guidance, IFS said the EBIT change includes provisions for a possible bad debt of SKr25 million and bad debts of SKr9 million, both of which pertain to operations in Eastern Europe. Earlier guidance concerning cash flow was maintained and will exceed SKr 25 million, compared with a loss of SKr76 million in 2004.
IFS will report fourth quarter and full year 2005 results on February 1.