Strong execution in target sectors continues to deliver growth
For 2014, IFS expects strong license growth and a significant improvement in EBIT.
With license revenue growth of 11 percent, currency adjusted, we have seen strong business development in all three quarters this year. This continued growth has been achieved by our success in providing attractive business solutions to our target markets including aerospace and defense, offshore, EPCI, infrastructure, and service industries. We continue to invest to be able to deliver global projects to these sophisticated markets and so build upon our differentiation of being the ‘intelligent alternative’ to our larger generalist competitors. During quarter three we have had both major wins of new business accounts and seen existing customers extend their global use of IFS Applications.
Maintenance revenue year to date increased 11 percent, currency adjusted, resulting from the continued good growth in license sales and a high level of customer retention. The margin continues to improve, which is in part attributable to ongoing improvements to our global support operation.
Our drive to build and expand our service ecosystem aspires to provide customer choice and access to new markets, and above all scalability to our business. We have already undertaken a significant investment to support this process, for example, in partner management and by the creation of the IFS Academy, set up to provide partner training and certification. Even though the take up of customers contracting directly with partners is developing slower than expected, resulting in the service revenue being delivered by IFS with the associated bought in costs, we will over time see customers increasingly contracting directly with our partners to implement and extend the use of our products. As this trend becomes more established our growth in services revenue will reduce whilst our product revenue will continue to grow. The result will be a more scalable and capable IFS, with the capacity for higher growth. Year to date, consulting revenue increased by 10 percent, currency adjusted. The higher utilization of our own resources, together with an improved margin on services delivered by partners, will result in an improved consulting margin.
EBIT for the year improved significantly but was in line with last year for the third quarter. However, this was partly the result of higher amortization of capitalized product development. Adjusted EBITDA continued to improve and was 25 percent higher in the quarter and 50 percent higher year to date compared with last year.
Our offerings on Cloud were further advanced with the launch of IFS Applications provided on Microsoft Azure Cloud. The launch, which was made at Oracle Open World in September, illustrates the support we are receiving from our community of partners in the market today. Our overall partner community—technology, infrastructure, integration, and services—now numbers in excess of 300 companies globally.
Companies are showing sustained interest in the ERP market and those in need of consolidating their business solution or expanding its functionality are moving forward with their investments. The gradual improvement of the buying environment seen over the last couple of years is expected to continue. This leads industry analyst firms such as Gartner to anticipate the ERP market to grow in 2014 in the region of 6 to 7 percent.
IFS goes into the fourth quarter of 2014 with a strong pipeline and consequently, we continue to expect strong license revenue growth and a significant improvement in EBIT for the full year.
President & CEO
IFS interim report January–September 2014
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