Monday, 7 September 2009

Kofax looks forward to a better 2010

(By Philip Carnelley, 7 Sep 09, 18.00) As we said earlier (Kofax lays out FY10 plans and acquires in US), document capture and processing company Kofax reported a fairly troubled FY09 (to June 30). At today’s briefing, Kofax CEO Reynolds Bish didn’t hide his disappointment that, after a record run up to the end of 2008, sales dived in 2009. Once the (flattering) effect of currency movements is removed, turnover declined 6%, and the software business (56% of t/o) took the brunt, down 8% (ccy). The problems - particularly in licence sales) were seen across all its regions – EMEA, the US and AP. Profitability also fell: operating margin was down from 5% to just under 4%, although the company remains cash generative and debt free. Bish commented that Kofax’s markets seem to have stabilised but are not improving.

Bish has inaugurated considerable change, changes that are all the more necessary than when they were announced 18 months ago. Since he was appointed in late 2007, the company has slimmed down, restructured and replaced several of its senior management team. Most profound is that the company has moved from 100% channel sales to a mixed model: direct sales have reached 28%. This gives the company more control of its own destiny and makes it easier to sell into major enterprises who prefer to buy direct.

Kofax also today announced its purchase of 170 Systems, a company offering workflow solutions for Accounts Payable (A/P) and invoice processing. It’s a good buy: while 170 Systems is fairly small and US-centric, it is well-known in its niche and Kofax should be able to grow the business while reducing its cost base through back-office and other synergies. The real significance is that a major use for Kofax products is in automating A/P. Moving A/P into shared services (A/P is the most common finance process in shared service centres) generally requires electronic capture of invoices. Companies prefer an integrated solution: image capture, workflow and ERP – 170 Systems integrates with both SAP and Oracle ERP as well as Kofax products. The cross-sell opportunities are considerable: 170 Systems will help Kofax in its quest for direct sales into larger companies, while Kofax introduces 170 to a larger, global audience.

Kofax remains the recognised market leader in document capture and associated markets, though its share has fallen. It continues to add customers – almost 1700 new customers this year. If it can leverage the 170 Systems buy, and continue to build its hybrid sales model, then FY2010 should look a whole lot better than 2009.

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