IFS open to acquisitions and aims to double its earnings
As IT investments and budgets are cut down, CIOs in large enterprises are looking at achieving maximum operational efficiency at minimum cost. This has to be done keeping in mind industry standards and organisational needs, and they are looking for alternatives. In the ERP (enterprise resource planning) product space, large enterprise customers opt for an Oracle or a SAP solution, but there are other companies competing, too.
Swedish Industrial and Financial Systems (IFS) is one of them, which has been competing with the big players since 1983. Though the company has 2,000 customers globally it opted not to invest in brand visibility while establishing its office in 2002. IFS preferred to focus its energies on building its customer base in the region.
Emirates Business met up with Ian Fleming, Managing Director, IFS, Middle East, Africa & South Asia to get an insight into its strategy to compete in ERP space.
With your earnings up, how do you plan to use your cash reserves on the balance sheet?
Our strategy is to double our earnings in a five-year period and embark on an acquisition strategy. The company will embark on an acquisition strategy and look at products that complement our solutions. Our last acquisition was in the defence space. We looked at other prospectives but did not come close to completing anything. Going forward the agenda would be to be cautious. Therefore, the company would be careful with its cash position. There are good bargains available but we are not a product collector and are not looking at collecting maintenance
IFS's products and solutions focus mainly on the ERP space that has competition from the likes of Oracle and SAP. How difficult is it to convince your customers?
These companies are huge and IFS competes selectively with them. Customers realise there are other alternatives as they look for functionality, flexibility of solution and commitment of the ERP company, ROI and, therefore, these factors help us be a complete alternative.
The pricing model is similar, that is licence fees upfront but it is component-based, so customers only pay for the particular component purchased. They don't pay for the entire solution and our annual maintenance fee is lower. The annual maintenance fee eats into customer budgets as it's a recurring cost and with this there are upgrade costs that is also significant.
IFS also competes among the top five ERP companies globally but in specific sectors. In defence and logistics sectors we are number one, while in utilities space IFS is always the first or second choice for customers. IFS is also a small company with 2,700 employees globally. And our 2008 revenue stood at SKR2.6 billion (Dh1.03bn).
With so much consolidation happening in the ERP space have you received offers from big players in this space?
Yes, there have been discussions in the past and there is always significant consolidation in this space. Shareholders of IFS want to keep it as an independent company. And consolidation phase is also coming to a close given the liquidity position in the market. IFS has decided to target and focus on customer and product segments where it has a strong hold.
How is IFS working on making the brand popular among your enterprise customers?
When IFS ventured into the Middle East it did not work on publicity, instead we worked on building our customers. This is mainly because customers want to have other references who have used the same ERP solution. Unless we are able to provide a reference there will be a lot of struggle. Therefore, our first strategy was to tie-up with a local customer to build our business.
Our vertical focus is different as we work limitedly with partners, and this is the difference between us and competiton, as the customer is dealing directly with IFS or with a semi-exclusive partner in the region. Therefore, through an implementation customers are in touch with the owner of the product.
In fact, IFS has planned an awareness drive this year and is also in the early stages of building a partner framework. IFS had a few business partners and are now working on building it. For instance, we had worked in Saudi Arabia with a partner and then appointed Al Taqynah in December 2008 for GCC and Pakistan, Futech in Egypt and another partner in Oman. IFS is yet to start business in Qatar, Kuwait and Bahrain.
IFS is Emea-driven as 73 per cent of its revenue comes from this region. My area of responsibility is MEA and South Asia and they have an immunity to what is happening worldwide. In Africa, global issues haven't affected the region like the banking crisis and that is to their benefit.
Has the economic scenario impacted customer purchases?
The key verticals for IFS are aerospace, defence, automotive companies not the OEM but the suppliers, construction and facility management. Other key areas are processes and utility industries.
In a downturn our key areas would also be EPCI (engineering, procurement, construction and installation), we don't see any effect in any of these sectors as they are resilient because expenditures are controlled.
In utilities and telecom it is all project centric businesses and governments are still investing money in infrastructure projects to get economies back on track. IFS is well placed to work with such industries as they are project centric and we provide that capability.
In 2008, our earnings were up 26 per cent, a double digit growth in our primary areas such as license, consulting and maintenance. The outlook for 2009 is to be cautious as we don't see significant global growth but don't see a downturn either in these sectors. This region has seen growth and India is also a key market.
PROFILE: Ian Fleming, Managing Director, IFS, Middle East, Africa and South Asia
Fleming, a Chartered Accountant, is also the Chairman of the Board of IFS India, Director of the IFS Africa operations and sits on the Executive Management Committee of IFS AB. He has worked with IFS for the past seven years and is responsible for the establishment of IFS Middle East operation in 2002,one of the most successful regions in IFS globally.
Fleming's past experience includes working with Dun & Bradstreet in the United Kingdom and spending six years as a financial analyst with Mobil Oil in London.
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