It’s not often we hear a supplier planning to decrease turnover. But IS Solutions, the AIM-listed web focused SITS provider, did just that, executing on its ‘planned strategy’ to reduce turnover and increase its gross margin in full year 2011.
Revenue for the twelve months ended 31 December fell 17.5% to £9.1m, and the gross margin increased 12 points to 41%. Group operating margin (before tax and share based payments) also rose – although not as steeply - to 9.2% vs. 6.4% in FY10.
ISS’ hand has been forced by the UK Government cut backs as a key customer for its software (see IS Solutions shrinks as Government cuts hits licence sales). ISS now hopes to become less reliant on this side of the business and increase the amount of recurring revenue as it seeks to become ‘a leading managed services provider in the fields of web-based analytics and portals’.
This is just as well since software licence sales effectively halved in the year to £2.02m. However recurring revenue also remained flat at £4.56m. So while this has had the intended effect of increasing recurring revenue’s share of the business mix (50% vs. 41%) this is due to the downsizing of the software business, rather than any significant rise in managed services/recurring revenues. In fact, it was project work, which grew best, up 2.2% to £2.48m having bounced back in the second half, following adverse impact from the Japanese Tsunami – itself a curious admission for a company that generates 100% of its revenue in the UK.
In terms of opportunities ahead, ISS is looking to analytics services based around its partnership with SAS to deliver growth. Through this partnership ISS' aim is to broaden its reach outside of 'web-based analytics' into 'pure line business analytics'. This seems a sensible move since it will increase ISS’ addressable market opportunity and allow it to tap into a hot area of enterprise demand. However there is also plenty of much larger competition here too (see IBM software benefits from analytics and middleware).