Ifa systems: Financial report
Financial result increased by another 39% significantly exceeds targets. Optimism also high for 2015.
Quarterly report by ifa systems AG, Frechen / Period: 4th quarter of 2014
Operating profit and financial result
The 4th quarter of 2014 was concluded according to plan with a Company performance of EUR 3.65 million (previous year EUR 3.55 million). This puts the value for the entire year of 2014 at approximately EUR 10.43 million, corresponding to a growth of 4.6% compared to 2013. The turnover for 2014 rose by approximately 5% (from EUR 7.771 million to approximately EUR 8.16 million).
The profitable runtime licenses (licenses from long-term contractual relationships) rose from a proportion of 45.4% of the turnover to 46.3%. The distribution of turnover across other business areas remained stable.
The annual result (IFRS) before interest and taxes (EBIT) therefore increased by nearly 39% from EUR 1.601 million to approximately EUR 2.23 million. This means that the forecast of approximately 10-12% was exceeded considerably and that within 2 years the result has more than doubled (EBIT 2012: EUR 958,000).
This above average increase in earnings has several reasons: The runtime licenses have led to an improved result of over 12%, the increase in new business approximately 8%, the further reduction of market development expenses nearly 12.5%, and margin optimization (prices/exchange rates) approximately 6.5%. This amounts to an overall improvement in the result of EUR 630,000, corresponding to 39%.
In order to promote a strategic partnership and secure funding for the further expansion, on November 24, 2014, Management decided with the Board of Directors' consent, on a capital increase of the available authorized capital against a cash contribution of up to EUR 250,000 (250,000 shares) under exclusion of the subscription right of the shareholders. All shares were sold as part of a private placement to a future cooperation partner at a price of €7.10 per share.
The funds from the capital increase (approximately EUR 1.7 million) will, as already announced at the ordinary general meeting in 2014, be used for sales financing measures. Attractive financing models were developed for this. These measures (particularly the financing of basic licenses for 3-5 years) have already had a positive impact on incoming orders over the last few months.
The Company has thereby further strengthened its already solid financial structure. At the time of this report (beginning of February 2015), the Company has finances of approximately EUR 2.1 million at its disposal. Currently under borrowed funds there is only a remaining loan of EUR 425,000, which is to be paid off using available funds in May 2015, according to the agreement. As planned, as of December 31, 2014, the receivables increased by approximately EUR 700,000 through sales financing offers.
Development costs for new Health IT products remained constant in 2014 at nearly 20% of the Company performance. This level is not expected to change in 2015. The market development costs included in the expenses were reduced as planned from approximately EUR 550,000 in 2013 to approximately EUR 350,000 in 2014.
The demand for Health IT is also increasing significantly in ophthalmology. This is made clear to the ifa Group by the increased number of orders and offers submitted. At the same time, the requirements also rose for technologies developed specifically for the healthcare area. These relate both to software as well as terminology databases and Clinical Decision Support Systems (CDSS). The ifa systems Group has positioned itself well in the field through its running investments in software and databases, and has also built up a head start over its competitors in the area of Computer Assisted Coding (CAC) applications. This should be useful in the United States when the new diagnostic code is implemented (ICD-10 transition) at the end of 2015.
From 2015, another focus will be on cooperating with other companies on complex Health IT projects, as many requirements can only be met by groups of partners working together. The Company already concluded partnership agreements in 2014 and will, in the subsequent year, negotiate additional cooperation for secondary utilization of licenses (OEM and franchise concepts).
In terms of regional distribution, international sales (focal area: Middle East) rose at the expense of the domestic market, the United States market remained virtually the same (delays in the funding programs). In China, the Company is seeking qualified Health IT companies that can provide skilled expertise, since the Company's personnel is working to capacity.
Outlook for future business development
An order backlog for international hospital projects is already ensured for 7 months of the financial year of 2015 (previous year: 4.5 months). Currently, there are 14 projects being implemented in large eye clinics across 10 countries. Parallel to this, there are negotiations on franchise and OEM agreements with cooperation partners. These expansion instruments were presented in detail at the Annual General Meeting in July 2014. The Management of ifa systems AG expects to see additional momentum for its business operations with the new franchise and OEM agreements, particularly as of the 3rd quarter.
The Management Board plans to recommend at the Annual General Meeting in June 2015, a dividend of EUR 0.12 for the financial year of 2014 (previous year EUR 0.09).
Continued organic sales growth of 5%+ with an EBIT increase of at least another 10-12% are expected for 2015. The Management continues to follow a moderate growth strategy. In the medium term, the target is an EBIT margin of 24-25%. (currently: approximately 21.4% in 2014)
Ifa systems AG is listed in the Entry Standard of the over-the-counter market at the Frankfurt Stock Exchange in Germany (ISIN: DE007830788). American Depository Receipts (ADRs) of ifa shares can also be traded in the United States: OTC Pink Market (Symbol: FYSSY).
The Company, with its subsidiaries integration AG (www.integration-ag.com) and Inoveon Corp. (www.inoveon.com), has positioned itself in the area "Life Science" and is regarded as the leading provider internationally of software, IT services, web applications (e.g. telemedicine), and medical information systems for ophthalmology.
The economic stability of the Company is based on its business model with obligatory runtime licenses for all software and database applications used (over 13,500 named licenses in use internationally). Turnover from these long-term contractual relationships will cover over 80% of the Group's fixed costs in 2014.