IFS Interim Report Q1 2011

Highlights and Outlook

Financial reports — Interim Report, January–March 2011

Strong growth in revenue and earnings

January–March 2011 (first quarter)

  • License revenue amounted to SKr 74 million (Q1 '10: SKr 65 million), an improvement of 23 percent currency adjusted.
  • Maintenance revenue was SKr 196 million (Q1 '10: SKr 199 million), an improvement of 6 percent currency adjusted.
  • Consulting revenue amounted to SKr 335 million (Q1 '10: SKr 322 million), an improvement of 12 percent currency adjusted.
  • Net revenue was SKr 607 million (Q1 '10: SKr 589 million) an improvement of 11 percent currency adjusted.
  • EBIT amounted to SKr 10 million (Q1 '10: SKr 8 million). Cash flow after investments was SKr 43 million (Q1 '10: SKr 74 million).
  • Earnings per share after full dilution amounted to SKr 0.15 (Q1 '10: SKr 0.11).

Outlook

IFS expects good organic growth in 2011, with stronger license sales and an improvement in EBIT.

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Financial Overview

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CHIEF EXECUTIVE SUMMARY

Strong growth in revenue and earnings

All revenue streams, currency adjusted, showed strong growth compared with the first quarter last year. We continued to successfully focus on customers in growth markets such as infrastructure, renewable energy, offshore oil and gas, defense, and homeland security. Interest in IFS Applications within these sectors remains high.

During the quarter, we concluded a number of important and competitive contracts in our targeted industries, for instance with Kendrion, a global provider of high-tech electromagnetic components for the automotive market. Furthermore, we benefited from good license sales to two of our defense customers in the United States: Lockheed Martin and the U.S. Army. As a result, license revenue currency adjusted increased 23 percent compared with the first quarter of last year.

The strength of the Swedish krona in relation to the major currencies continued to have a noticeable effect on our reported numbers. This is particularly true for our maintenance revenue, which grew by 6 percent currency adjusted. The underlying margin reached 65 percent, an improvement over the 63 percent for the corresponding period the year before.

New sales, global roll-outs, and customers upgrading to the latest release of IFS Applications have generated a strong demand for our implementation services, which in turn has led to a 12 percent growth in consulting revenue currency adjusted. The corresponding margin improved from 17 percent in the first quarter of last year to 18 percent this year. Although the global economic situation is improving, recovery is slow and hampered by a sluggish growth outlook in the key economies of the United States and Western Europe. However, IFS’s market as a whole continued to improve, as reflected by the 11 percent growth in our net revenue for the quarter, currency adjusted, compared with the previous year.

The first months of 2011 were dominated by the political unrest in North Africa and the Middle East as well as the earthquake in Japan and its devastating consequences. The direct impact of these events on revenue and EBIT is estimated to be SKr 6 million and SKr 4 million respectively.

The software market in general, and the enterprise application market in particular, has developed well in the first quarter and the view among industry analysts is that it will continue to grow in the remainder of 2011. Analyst firms Forrester and Gartner forecast such growth to be 5–10 percent for the whole year.

The market is increasingly picking up our message that our product is a superior alternative to the solutions provided by our giant competitors. IFS Applications is superior in that it offers a lower total cost of ownership, a higher return on investment, and enables speedier and more reliable implementations. Furthermore, we continue to focus on enhancing our product according to our agile methodology, wherein customers are involved early in the development cycle to ensure high usability, better quality, and strong industry functionality. The new mobile solution launched during the quarter is an example of this. Our market positioning and world-class customers make us well-positioned to benefit from the expected, albeit still cautious, upturn in the economy, and our long-term target to achieve an EBIT margin of 15 percent remains in place.

Acquisitions in our key verticals remain a priority, an objective that is well facilitated by our continued strong cash flow. IFS expects good organic growth in 2011, with stronger license sales and an improvement in EBIT.

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