Capping off a year in which it saw marginal increases in revenue and strong growth in earnings, enterprise software vendor IFS yesterday reported its results for the fourth quarter and full year ended December 31.
The Swedish-based company closed 2006 with revenues of SKr 2.2 billion, up 3% over 2005's total. The ERP stalwart has been working to reverse a long-standing decline in sales that saw revenue drop from a peak of SKr 3 billion in 2001 to a low of SKr 2.1 billion in 2005. Part of the turnaround plan involves a greater reliance on indirect sales, and 2006's results offer the first glimmer of hope that expansion may be the new normal for IFS.
Another positive for IFS in 2006 was the reception customers gave its products. At SKr 433 million, license sales of the company's enterprise products were up 13% in 2006, besting the projected ERP market average of 8%-10% growth. Maintenance revenue reached SKr 600 million, growing 14% year over year, while EBIT margin declined by 3% due to continuing weakness in the company's consulting business. The bottom line showed improvement, with EBIT (earnings before interest and tax) growing 24% to SKr 120 million.
On a conference call with financial analysts, IFS Chief Executive Alastair Sorbie, who assumed the head job last January, said the company met its goals for 2006 to grow license sales while containing costs. He also said the 2006 results show that his company is "much more resilient than in previous years," driven by a strong product and balance sheet, as well as strong regional performance in Europe and particularly in the U.S.
A new version of the vendor's ERP suite, Applications 7, which was released in April 2006, garnered 188 new customers, as well as 481 existing customers who added new modules to their existing IFS system and 112 customers who upgraded to the full new version of Applications, Sorbie said.
Sorbie attributed much of IFS's overall success in 2006 to restructured product development and marketing operations, which have enabled improved speed to market for new releases as well as increased brand awareness through the "Agile IFS" moniker, he said.
Sorbie also cited market-wide factors such as globalization, changes in ERP customers' business models from traditional manufacturing toward distribution, as well as more interest in project- and service-based solutions — which Applications 7 functions reflects heavily — as reasons for IFS's solid results.
Other contributing factors, he said, include an ongoing drive for lean practices in manufacturing, continued consolidation in the ERP market — which means fewer competitors, and increased awareness of and interest in technology such as service-oriented architectures. Applications 7 is IFS's second-generation of SOA-based applications.
Sorbie also that noted that regulatory and compliance issues are forcing companies to upgrade to new systems, which plays in the company's favor. Mergers and acquisitions among IFS's customers also continue to drive the need for installations as new locations are brought online, he added.
The consulting business's challenges, including high turnover rates, continued in 2006, particularly in IFS's home region of Scandinavia. The company said it expects such issues to decrease in 2007 and thereafter.
IFS will continue its strategy of focusing on seven core industries in 2007, including aerospace and defense; automotive, high tech; industrial manufacturing; process industries; construction, service, and facilities management; and utilities and telecom, Sorbie said.
Sorbie noted that in North America in particular, IFS experienced "good growth where we needed to see it," as full-year software license revenue increased from SKr 67 million in 2005 to SKr 97 million, a 49% gain. License revenues for the fourth quarter in North America, however, were comparatively weak, at SKr 23 million, down from SKr 35 million in the same period of 2005. This was due to the timing of several deals that were originally expected to close during fiscal 2006 but will be pushed into 2007, company officials said.
IFS North America President and CEO Cindy Jaudon told Managing Automation that her company closed several deals during 2006, mostly in the aerospace and defense segment, including a substantial deal in the second quarter with the United States Air Force that Sorbie said "established IFS nicely in the U.S. defense market."
Jaudon said IFS North America will continue to focus on the company's target industries, with aerospace and defense a priority. She noted increased activity in the high-tech and industrial manufacturing sectors as well, where customers are moving toward a project-oriented environment with increased demand for MRO capabilities from their ERP solutions.
Jaudon attributed much of North America's license revenue to the release of Applications 7 and its component-based architecture. New functionality in the ERP suite, Jaudon said, includes engineering, project management, and audit capabilities, as well as vertical-specific enhancements to the aerospace and defense application that were driven largely by customer feedback. Jaudon said another significant part of the release is an enhanced user interface in the suite's asset management module.