03 March, 2008
IFS enters a new phase – plans to double product revenue and sets new financial goals
IFS, the global enterprise applications company, announces it is entering into a new phase of strengthened growth following an improved financial and competitive position in 2007, it’s third consecutive year of profitable growth. IFS' board of directors has established long-term targets for growth, profitability and financial leverage, and a policy in respect of dividends and repurchasing of shares.
During the five-year period (2008-2012), IFS aims to:
- Double product revenues (licenses, maintenance and support) by the end of the period through organic growth and acquisitions. Product revenue amounted to SKr 1,134 million in 2007, growing by 12%.
- Gradually improve the EBIT margin to 15% and a return of 25% on average operating capital at the end of the period. The EBIT margin amounted to 6% in 2007.
- Over time increase dividends to 50% of earnings after tax. The board of directors proposes a dividend for 2008 of SKr 0.10 per share.
- Use additional surplus capital, which is not required for investments, expansion and other needs relating to the financial position of the group, to repurchase shares.
IFS has a strong financial position with net positive cash. With improved earnings and cash flow it will be possible to strengthen growth by additionally using debt in a controlled manner for acquisitions, preferably to be paid for in cash. Financial leverage, defined as net debt in relation to EBIT, shall not exceed 3 in the long term. Intended acquisitions are expected to be limited in number and size in the short term.
Product revenue is expected to increase at a higher pace than consulting revenue and revenue from other sources as IFS intends to collaborate with partners to a greater extent in order to increase delivery capacity.
Background and strategy for growth
Between 2001 and 2005, IFS implemented actions to reduce cost and increase profitability. The actions included a greater focus on major customers in selected industries. In the short term, this focus resulted in lower revenue. Subsequently, revenue has increased. Growth in product revenue, which amounted to 13% in 2006 and 12% in 2007, combined with a moderate increase in costs has resulted in improved earnings for IFS.
The growth in product revenue mainly stems from a stronger position in capital-intensive sectors such as the defense, energy, communications, construction and process industries. Common to all these industries is the fact that logistics, service, asset management and certain forms of project-based manufacturing are central processes. IFS provides a modern, competitive product with deep functionality, good references and strong partnerships in these industries.
IFS’ overall plan for the coming five-year period is to strengthen its presence in the industries and processes in which it already has a strong position. It will do so by focusing its marketing efforts, investing in product development, making acquisitions, and increasing its collaboration with industry partners. An increasingly large customer base within its targeted industries will lead to synergies and thereby contribute to enhanced profitability to a greater extent.
To achieve economies of scale, IFS intends to acquire profitable companies with well-managed customer bases and recurring revenue in the form of maintenance and support fees. IFS has identified several companies that can constitute value-creating acquisitions within IFS’ targeted market sectors. These companies are to be found primarily in the Western hemisphere, but are often local and too small to efficiently conduct development and new sales in the long term. Acquisitions will enable synergies as parts of development, support and maintenance are moved offshore to low-cost countries—IFS is already represented in Sri Lanka with its largest development center numbering 550 employees—and because it will be possible to use IFS’ existing worldwide resources for sales, marketing and administration. Existing business applications used by acquired customers will be integrated in the long term as their functionality is added to the IFS Applications product set, which is based on market-leading future-proof technology.
IFS (OMX STO: IFS), the global enterprise applications company, provides solutions which enable organizations to respond quickly to market changes - allowing resources to be used in a more agile way to achieve better business performance and competitive advantage.IFS was founded in 1983 and now has 2,600 employees worldwide. IFS has pioneered component-based ERP software with IFS Applications, now in its seventh generation. IFS’ component architecture provides solutions that are easier to implement, run and upgrade. IFS Applications is available in 54 countries in 22 languages.IFS has over 600,000 users across seven key vertical sectors: aerospace & defense; automotive; high-tech; industrial manufacturing; process industries; construction, service & facilities management and utilities & telecom. IFS Applications provides extended ERP functionality including customer relationship management (CRM), supply chain management (SCM), product lifecycle management (PLM), corporate performance management (CPM), enterprise asset management (EAM) and maintenance repair and overhaul (MRO) capabilities.