OCTOBER–DECEMBER 2012 (FOURTH QUARTER)
JANUARY–DECEMBER 2012 (FULL YEAR)
For 2013, IFS expects strong license revenue growth and an improvement in EBIT.
Improving license sales offset by troubled consulting
The investments in sales and marketing made to improve license sales have resulted in a growth of 13 percent in the quarter on a currency-adjusted basis. New business accounts continue to be won in our target markets and against global competitors; proving that IFS is an attractive choice for global customers. Furthermore, maintenance revenue for the quarter increased by 10 percent on a currency-adjusted basis, meaning overall product revenue yet again experienced double-digit growth.
To achieve our long-term target of much higher margin, there needs to be and will be a continued shift in our business mix towards product revenue. In quarter three, the product revenue share amounted to 54 percent but our aspirations go well beyond this. Besides our push to drive product sales through continued investments in sales, marketing, and product development, as being evident, this trend is also expected to be supported by reducing demand for services to implement IFS Applications; resulting from less need to customize the product as both the functionality and ease of user configuration have increased. Over time, this will mean services will make up a less dominant part of our overall business, but will do so with a higher margin as we will increasingly provide improved ‘value add’ services.
Aside from the longer-term strategic shift, consulting year-to-date has for a variety of reasons underperformed against expectations. Somewhat simplified, consulting revenue is earned on a daily basis and cannot be recovered in the same way as product revenue. For this reason, the guidance on the full year EBIT was reduced in a separate release per October 9. During the year we have adjusted down the headcount of development resources in high-cost regions. Such resources are increasingly based in our large development facility in Sri Lanka. We will continue to focus on consultancy and will take all actions necessary to address any underperformance.
In quarter three, we have continued to make good progress in our strategy to build an ever increasing IFS ecosystem, as exemplified with the go-to-market agreement with Mahindra Satyam.
The acquisitions made in the past year continue to be successfully integrated into IFS. An example being the development of the new generation of mobile client we have announced. This product is based on the mobility framework provided by our recent acquisition of Metrix.
Industry analyst firms such as Forrester and Gartner are prudently optimistic and expect the market will grow in the region of 5 per cent in 2012. They point out that despite the macroeconomic conditions in Europe and the upcoming U.S. elections, which may delay some decisions to sign, buyers in the enterprise application market are still active, albeit cautious.
The outlook for the full year was revised per October 9, and we now expect to deliver yet another year with strong organic growth in license revenue and an EBIT in line with last year.
Alastair Sorbie, President and CEO