Braces For Its Ongoing Roller-Coaster Ride
- July 15, 2002
June 12, Intentia International AB (XSSE: INT B), a Swedish provider
of enterprise business applications for mid-size and large enterprises,
vehemently denied certain erroneous information in media about its Q1
2002 cash flow situation. In issue no.23, the Swedish publication Affrsvrlden
published an article that compared, in terms of liquidity, the financial
situations of a selection of the IT companies listed on the Stockholm
Stock Exchange. The article generated a great deal of attention and was
cited by a variety of other media sources.
first quarter is traditionally the one in which Intentia's cash flow is
affected by once-a-year payments such as employee bonuses for the previous
year. In the first quarter of 2002 bonus payments accounted for SEK 220
million. Because the calculations in the article were based on cash flow
before investments a figure that includes one-time payouts related to
bonus payments the resulting estimate of future cash flow was inaccurate.
Intentia pointed this out to Affrsvrlden, which subsequently published
the following correction:
the compilation of IT companies' cash flows (Affrsvrlden no. 23) the
entire amount of bonus payouts for 2001 was included for Intentia. This
payment should have been time phased, thus resulting in a positive cash
flow for Intentia. The company therefore should not have been included
on the list."
retraction was only a crumb of comfort in light of Intentia's announcement
of Q1 2002 results on April 24, though. The profitability restoration
plan, which was launched back in 2000 with the intention to ensure the
company would continue to generate higher license revenue within the constraints
of its current product development and sales organization, has yet to
result in consistently improved earnings and cash flow. As mentioned above,
cash flow from operating activities of negative SEK 126 million (~$12.1
million) for the quarter was impacted by tax and employee bonus payments
that totaled ~$21.1 million for 2001. Yet, cash and bank balances and
current investments were at solid SEK 310 million (~$29.7 million), while
liquidity continues to exceed borrowings. In addition to the cash position,
the company disposes with an undisclosed (for competitive reasons) notable
amount of available cash within its borrowing facilities. Still, license
revenue was down by 11% to SEK 211 million (~$20.2 million), while consulting
revenue was up by 8% to SEK 673 million (~$64.5 million) despite the lower
number of billable days during the quarter. Total revenue of SEK 903 (~$86.5
million) represents a 3% increase compared to Q1 2001 (See Figure 1).
a result of somewhat improved capacity utilization, Intentia's consulting
margin increased to 18%, which still could not counteract an operating
loss of SEK 33 million (~$3.2 million). Net loss of SEK 39 million (~$3.7
million), attributable mainly to poorer license revenue and increased
personnel costs, was nevertheless slightly lower compared to a SEK 42
million net loss from a year ago (See Figure 1). Its geographic regions
reportedly posted mixed results.
net revenue for the Northern Europe region fell by 14% and license revenue
declined by 29%, net revenue in Central Europe was flat as the continued
increase in consulting revenue offset the lower license revenue, and in
Northwest Europe, where higher consulting revenue offset lower license
revenue, net revenue was still down by 7%. Better performing regions were
Southern Europe, which enjoyed higher license and consulting revenue during
the quarter compared to the same period last year and had net revenue
up by 26%.
revenue in the Americas rose by 4%, as license revenue was unchanged and
consulting revenue rose by 20%, along with a continuing increase in the
consulting margin. Net revenue in Asia Pacific climbed by 11% as the improvement
reflected higher consulting revenue as a result of solid license trends
in 2001, while license revenue decreased in the region. Still, these better
performing regions still represent a small fraction of the company's total
revenue (e.g., the Americas contributed to less than 6% of total revenues).
Intentia does not break down profit figures by regions, nor does it provide
detailed forecasts or a breakdown of its new business versus existing
is Part One of a two-part Event Note on Intentia. Part Two will continue
the Market Impact and Make User Recommendations.
focus remains on measures to further improve cost-effectiveness and to
ensure that growth continues within the current organizational structure.
Expansion will be selective in the sense that it must be commensurate
with the requirements of the company's existing business volume. The total
number of employees rose by 67 to 3,392 during the quarter, of which 27
were the result of new acquisitions.
most prominent one is Intentia's acquisition of all rights to the source
code and software of Catalog International AS in Denmark. Catalog-International
AS has built a competence in Internet-based products for sales and indirect
materials procurement. Through open interfaces to many ERP systems, Catalog
has made it possible for its customers to get a quick start in opening
a new sales channel and/or benefit from the cost savings more efficient
indirect procurement routines can give. The integration of Catalog's expertise
in the field of Internet-based e-procurement and sales products with Intentia's
Movex might considerably strengthen its product offering.
the past couple of years, Intentia has focused on developing a complete
range of integrated e-business components. It has repositioned itself
from being a traditional ERP vendor to an e-collaboration provider. In
the autumn of 2001, Intentia launched Movex version 12, an integrated
enterprise application that supports collaborative business processes.
The incorporation of additional functional improvements in the first quarter
of 2002 reinforces Intentia's belief of a leadership in terms of technology
the company's competitors increasingly turn to Java as the development
environment of the future, that potential precursor position might solidify
further. Consequently, Intentia's development effort shifted during the
quarter from technology and architecture toward a greater focus on future
functionality. The company believes that might further increase its present
leadership in such top-priority areas as supply chain management (SCM),
e-business and customer relationship management (CRM). Finally, although
the market remains highly uncertain about the seriousness and length of
the economic slowdown, based on its prospect pipeline, order backlog and
the current customer base, Intentia anticipates positive operating earnings
and considerably improved cash flow for the full fiscal year through a
combination of sales growth and greater cost-effectiveness.
many products coming from Scandinavia, Intentia's Movex has shown quality
and sturdiness, but one cannot help feeling that the product holds much
more potential than the market is aware of. As for Intentia's market position,
like many others in its upper Tier 2 ERP league, it has reinvented itself
as a 'collaborative commerce' solutions provider. Intentia has indeed
rounded out its platform-independent product portfolio, which also features
strong industry-specific functionality and expertise.
NextGen (standing for the next generation of Movex) release, the flagship
ERP system launched in 1999, is now a Java-based software suite deployable
agnostically across multiple platforms rather than solely on the IBM
iServer (formerly AS/400). Looking at the product scope, the
Movex 'collaborative enterprise solution' strives to cover end-to-end
supply chain requirements, the ultimate objective being information flowing
seamlessly between manufacturers' employees and trading partners (suppliers,
and customers). It consists of six main application suites, each of which
can be implemented on a stand-alone basis: Enterprise Management, Customer
Relationship Management (CRM), Supply Chain Management (SCM), Business
Performance Measurement (BPM), Value Chain Collaboration, and e-Business
Enterprise Management is a comprehensive ERP suite, which supports
traditional back-office functions, including manufacturing, finance, product
data management (PDM), logistics, and human resources (HR). For a Tier
2 vendor, Movex is one of the most natively functional ERP products in
the market that caters for almost all manufacturing environments from
assemble-to-order (ATO) to hybrid batch process manufacturing. Contrary
to its peer mid-market products, Movex features strong financial and distribution
functionality as well.
has also complemented this wealth of horizontal functionality with specific
solutions for several different industries, such as distribution, fashion,
food & beverage, furniture, paper & pulp, service & rental, steel, aviation,
and automotive. The company has incorporated specific functions to accommodate
the unique requirements of each industry. For example, it added the accommodations'
feature to handle large volumes of items with short life cycles for the
fashion/apparel industry, and functions to manage by-products and co-products,
or alternative recipes and production lines for the food & beverage market.
it can handle parameter- or attribute-based planning for pulp & paper
and steel industries, retailer commissions and quotation handling for
the furniture industry, and support for just in time (JIT), Kanban, line-balanced/leveled
scheduling, mixed modeling, and synchronization to accommodate requirements
of the automotive industry. For some of the above industries, Movex also
offers campaign-planning functionality, integrated laboratory information
management system (LIMS), and material safety data sheets (MSDS), as well
as the ability to perform planning simulations that take both financial
and multilevel manufacturing resource planning factors into consideration.
In engineer-to-order (ETO) industries, its integrated product configurator
and PDM functionality again stand out among the like competitive products.
Movex Fashion and Movex Food & Beverage products are the
main contributors to the company's revenue and offer some functionality
that is still unmatched even by more recognized competitors. Additionally,
Intentia's successful shift in technology, the evolution toward e-collaboration
and the considerably improved functionality of prioritized industry applications
should have made Movex even more competitive. Indeed, Intentia now offers
a set of applications that expand far beyond traditional ERP functionality
to natively provide Supply Chain Planning & Execution (SCP & E), Customer
Relationship Management (CRM), Partner Relationship Management (PRM),
Business Performance Measurement (BPM) and integrated e-business components.
CRM, SCM, BPM, and eBusiness
CRM involves sales management, sales force automation (SFA), service
and rental management and marketing management and automation, whereas
Movex SCM covers primarily planning and execution, along with resource
and material planning, scheduling, and fulfillment activities along the
supply chain. The system offers strategic planning, including supply chain
design, as well as tactical plans with their cost optimization and supply/demand
balancing requirements. In general, today Intentia can offer the full
suite of SCM & E including Multi-site Planner, Global Capability to Promise
(CTP), and Real-time optimization.
BPM, on its hand, is the extended analytics suite, while Movex
Value Chain Collaboration is the XML-based web connector interoperability
suite with its associated sales, logistics, procurement and catalog functionality,
as well as automatic document capture, web-based electronic data interchange
(EDI) and other features.
the Movex eBusiness suite covers the web storefront technology,
and business-to-business (B2B) and business-to-customer (B2C) pertinent
functionality pieces. The company also offers maintenance, repair & overhaul
(MRO) e-procurement and web portal functionality bites, currently including
employee self-service (ESS), and facilities for remote contract management
and wireless applications protocol (WAP)-based remote service. Intentia
has furthermore articulated an attractive strategy to support e-marketplaces
with new developments in its portal technology for corporate and private
trading exchanges (PTX). Good example is e-Collaborator module,
which was devised to handle the transmission of all commonly used types
of business information among companies over the Internet and thereby
extend the customer's ability to interact outside the four walls of the
on substantially improved breadth and functionality, the company's hopes
that the new release will further strengthen its leadership in the markets
on which it focuses are not unfounded. The new attractive applications,
some already mentioned above, include Multi-Site Planner, e-Collaborator,
and Movex Business Messages (XML-based business transactions).
Additional new functionality includes Call Center Integration,
Demand Planner, and Employee Self-service. Movex version
12 also offers new functionality in the areas of point-of-sales (POS)
integration, scarce and alternate sources of supply identification, cross-docking,
vendor managed inventory (VMI), self-billing, e-billing, Web-based product
configuration and personalized corporate portals.
now is possibly the most difficult time ever to differentiate enterprise
applications providers at this upper mid-market level, Intentia has some
differentiation traits, partly because of its web- and Java-based component
technology (which it espoused earlier than most vendors of its size) and
partly because of its integrated and broad c-commerce software footprint.
Intentia, with Movex Version 11, embarked on advancing its original
RPG-based client/server architecture to support a network-centric environment
accommodating integrated e-business components and interoperability with
other applications along the supply chain.
Movex NextGen architecture is Java based, enabling it to be deployed on
any hardware platform supporting a Java Virtual Machine (JVM). Another
crucial tenet in the NextGen architecture is its component design orientation,
which, like in the case of IFS Applications experience, simplifies
and speeds the development and testing of individual applications and
their update cycles, and it also allows companies to deploy solutions
incrementally in a building block fashion. Although an enterprise application
source code rewrite is always a daunting task, Intentia's efforts were
largely alleviated by the fact that its former RPG-based system was already
quite componentized and standardized. And finally, the basis in Java and
components means genuinely faster implementation.
concludes Part One of a two-part Event Note on Intentia. Part Two continues
to examine the Market Impact, including the Challenges faced by Intentia,
and makes User Recommendations.