Good underlying business development
January–March 2016 (first quarter)
- License revenue amounted to SKr 102 million (Q1 '15: SKr 115 million), a decrease of 8 percent, currency adjusted.
- Maintenance revenue was SKr 296 million (Q1 '15: SKr 291 million), an improvement of 5 percent currency adjusted.
- Consulting revenue amounted to SKr 404 million (Q1 '15: SKr 374 million), an increase of 12 percent currency adjusted.
- Net revenue totaled SKr 811 million (Q1 '15: SKr 782 million), an improvement of 7 percent currency adjusted.
- Adjusted EBITDA was SKr 56 million (Q1 '15: SKr 63 million). EBIT amounted to SKr 1 million (Q1 ‘15: SKr 51 million).
- Cash flow after investments was SKr 46 million (Q1 '15: SKr 72 million).
- Earnings per share after full dilution amounted to SKr 0.00 (Q1 '15: SKr 1.47).
For 2016, IFS expects growth in both product revenue and EBIT.
Good underlying business development
Although license sales were down in the quarter, this does not reflect the underlying strength of the business, where we are winning key customers and continuing to develop a successful customer base. As always our business is affected by the timing of deals with long sales cycles. We remain confident for the full-year growth in license sales.
We continue to see strong interest for IFS Applications in our target markets of infrastructure, manufacturing, service, aerospace and defense, and other asset-intensive sectors. IFS offers a flexible and modern solution that is easy to implement, especially for businesses that need a reliable and cost-effective solution in a dynamic and challenging market.
Our overall net revenue grew by 7 percent, currency adjusted. The maintenance revenue grew at the expected rate of 5 percent, currency adjusted, with an improved support margin of 77 percent (75), which reflects both strong customer retention and improving cost efficiencies from our global support initiative. The margin in our consulting business also increased to 23 percent (20) on revenue that grew by 12 percent, currency adjusted.
Partnering across the group is increasing both in scale and momentum as we sign new partners and deepen our co-operation with existing strategic partners such as Accenture. On April 5, 2016, IFS entered into a binding agreement with its long-standing local partner Addovation AS to transfer a small number of IFS consultants, as well as an office in Jönköping, Sweden to Addovation. This move will help our partner to sell and deliver IFS Applications to the fast-growing SME market in Scandinavia. The transaction is expected to close at the end of April and will not have a material impact at a group level. During the first quarter we implemented an efficiency measure, also in Scandinavia, to align our resources with our ever-evolving business, which had an associated cost of SKr 35 million that is expected to be recovered in savings through the year.
During 2016 we will increase our M&A activity; evidence of this is seen with the acquisition in March in Finland of MainIoT Software Oy, which increases our presence in both the enterprise asset management (EAM) and enterprise service management (ESM) sectors.
The view of the analysts is that the gradual improvement of the buying environment seen in recent years has continued. The overall ERP market grew by 6 percent in 2015, while revenues related to EAM increased by 3 percent. Companies in need of consolidating their business solution or expanding its functionality are moving forward with their investments and industry analyst firms such as Gartner expect the ERP market’s development to remain positive, with a growth in software revenue in the 7 percent range in 2016.
IFS is increasing both its brand awareness, as seen in our recent sponsorship of the Sauber Formula One racing team, and its reputation, as seen by the improved rating from recognized analysts such as Gartner. These factors together with an improved ability to execute provided by our expanding partner ecosystem will enable IFS to grow both product revenue and EBIT during 2016.