Continues to Blossom
Jakovljevic - March 8th, 2000
On February 14, Industrial & Financial Systems (IFS AB) announced an increase
in net revenue for 1999 to Swedish Kroner (SEK) 1,948 M compared to SEK 1,238
M in 1998, an increase of 57% compared with the previous year. License revenue
rose by 49% to SEK 552 M as compared to SEK 371 M in 1998. IFS reported a loss
after net financial items of SEK 147 M as compared to SEK 10 M in 1998.
has been the fastest-growing vendor among the world's largest suppliers of enterprise
applications over the past two years. Bengt Nilsson, president of IFS, commented:
"IFS reports continued strong growth in revenue compared with our competitors.
This can be attributed to major new sales of IFS' enterprise applications, among
other things. The third generation of our component-based enterprise applications
- IFS Applications - was shipped in September and has been well received by
the market. Moreover, interest in IFS' e-business solutions increased significantly
during the end of 1999. During the last quarter, IFS license revenue increased
by no less than 70%, which is proof of the increasing demand for our advanced
component-based enterprise applications and eBusiness modules."
sales on the whole were considerably lower than expected during the latter part
of the year due to customers' wait-and-see attitude toward the new millennium,"
continued Bengt Nilsson. "The lower growth rate in consulting revenue reported
in the third quarter continued into the fourth, resulting in excess capacity
among IFS consultants during the second half of the year. We expect our capacity
to be fully utilized during the first half of 2000."
the fall, IFS has further enhanced IFS Applications with an increased number
of components for e-business. The 2000 generation of IFS Applications, because
of its component-based architecture and rich array of Internet functions, is
particularly suited to projects within e-business. Bengt Nilsson explained:
"Today, a significant part of our sales to both new and existing customers encompasses
e-business. A large number of IFS' 3000-strong customer base will need various
types of e-business solutions, and IFS has developed systems to help them find
the right solution."
made major investments in the USA during the year through the acquisition of
the US Manufacturing Execution Systems (MES) vendor, EMS, Inc. During the last
quarter, 12 new contracts were signed, and net revenue in the USA for the fourth
quarter rose by 283%. Bengt Nilsson commented: "Integration of EMS has gone
well. IFS is now well positioned in the USA, which represents 40% of the world
market. In the coming years, US operations will significantly increase their
share of the Group's overall net revenue."
In November, IFS started its outsourcing unit, @IFS, which operates and maintains
enterprise applications and e-business operations for IFS customers. The first
customers were signed in November. In the middle of February, @IFS had nine
new customers. "This operation has got off to a flying start. Customers hire
us to do what we are best at, which allows them to concentrate on what they
do best. We started in the Nordic region, and the USA is next in line," continued
market for enterprise applications is expected to improve successively during
2000, reaching a growth rate of 20-35%. Bengt Nilsson adds: " In our assessment,
IFS will continue to grow faster than the market. Moreover, operating margins
in several of IFS' established markets are expected to increase as demand can
be met with only a limited need for new recruitment." IFS had 3,226 employees
at the end of the year, an increase of 67%.
We believe that IFS is in the driver's seat. It was one of the first ERP vendors
to incorporate concepts of component technology, Internet and e-Commerce, and
a high-level of integration with both its own and other vendors' components;
all providing for flexibility, modularity, ongoing post-implementation system
agility, and incremental deployment.
with componentization of its suite, IFS has also developed the functionality
depth and breath of its product. IFS Applications encompasses Front Office,
Supply Chain Management, and E-Commerce functionality, in addition to conventional
ERP modules. Moreover, the future incorporation of EMS's MES functionality may
provide the Company with an almost "one-stop shop" functionality.
also faces notable challenges. In order to maintain its strong growth, particularly
in its global service and support execution, the Company will have to continue
with service provider acquisitions. This may lead to both financial indigestion
and poor management effectiveness.
profit margins in fiscal 1998 and a hefty loss in 1999 (See Figures 1 & 2) will
not be looked upon favorably by discerning non-European investors. This could
be an impediment to providing equity for the channel acquisitions needed to
continue strong growth and increase its currently developing global market presence.
IFS's product portfolio, assembled through a number of recent acquisitions may
see delays and costs resulting from resolving integration issues. Some modules,
like Payroll, and more comprehensive Customer Relationship Management and Business
Intelligence modules, are also not available at this stage and require an interface
to 3rd-party software.
We generally recommend including IFS in a long list of an enterprise application
selection to mid-market and low end tier 1 companies (with $50M-$1B in revenue)
within the following industries: Energy, Engineer-to-Order and Project delivery,
Forest Segments, Automotive, Service Management, and Transportation.
should be included on a short list in any selection within the following industries:
Aviation, Engineer-to-Order and Project delivery, Service Management, and Transportation,
on the condition that a Payroll module is not of primary significance to the
However, potential clients should conduct preliminary research on industry expertise
and reference sites of a regional IFS office or an affiliate service provider
when IFS is included in the selection process due to its nascent distribution
network outside of the European market.