Linx believes that the Brazilian market has great growth potential. According to a research carried out by IDC1, the total market potentially accessible for retail management software in Brazil, represented by ERP and POS software, was R$ 7.4 billion, and only 7% was exploited in 2011. The market is expected to grow on average by 18% from 2011 to 2015 in Brazil, driven by: the early stages of the rapid adoption of IT and software, greater formalization and digitalization of the retail industry, growth of the Brazilian middle class, growth of the retail sector, leading to an increase in the number of new stores and the construction of new shopping malls.
Software spending in Brazil will increase significantly in coming years, as the Brazilian companies continue to invest in technology and automation through the use of software, due to the opening of new stores. Linx is also focusing on launching new solutions that allow the realization of successful strategies for cross-selling by retailers, increasing the share of IT spending. The focus of Linx has been on the retail vertical markets that have shown the greatest potential for market growth, particularly small and medium retailers, that many of them are based on the franchise model.
The software offered by Linx allows retailers to adopt changes to their business needs through rapid innovation cycle, with frequent updates, which usually contain new features and support for the complex Brazilian tax system, as well as the country's new regulatory requirements. To meet market demands, the Company software evolves based on performance requirements and user experience. By offering software solutions such as a cloud-based service, Linx allows its customers to operate in constantly updated versions at no cost investment for the cost of upgrades, as well as enabling the configuration of applications to meet the specific business needs of each client.
Linx has focused on the Brazilian retail industry with over 28 years of experience in this market, ensuring the Company a number of competitive advantages by offering simple and effective solutions regarding costs and according to demand, customized for each client, due to its size and vertical retail merchandising. The modular and cloud-based solutions serve customers effectively from small and medium sizes to large multinational retailers and in different verticals, including apparel, car dealers, drug stores, electronics and general merchandise stores, construction material stores and food service chains.
Positioning and business model
The Company is structured into three strategic pillars, while ensuring the quality of its products and services and its leadership in the retail market.
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Focus on the Retail sector |
Customer Focus |
Focus on Innovation |
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Use its experience in the sector to identify opportunities and trends through the data collected by its operation and macroeconomic and regional conditions, also considering regulatory changes. |
Work closely with the client to anticipate their needs and foster a two way partnership building long-term relationships. |
Invest in research and development to provide innovative solutions and quality to the customers. |
Competitive Advantages
Linx has pioneered a number of innovative software solutions, allowing the Brazilian retail sector to increase its level of automation and efficiency. For instance, Linx released the consistent integration of ERP and POS in the 1990´s and the consistent integration of ERP, POS, connectivity and electronic payments in 2003. Its power of innovation puts it at the forefront of technological migration in Brazil, bringing new cutting edge tools to meet the business needs of its customers, increasing demand for cloud-based, e-commerce and mobility solutions. The Linx software has evolved due to performance requirements and user experience.
A key competitive advantage is its range of portfolio solutions combined with depth in each retail vertical market, not only in terms of products, but in terms of implementation teams, and commercial development. Another important Linx advantage is its predictable business model, mainly based on recurring revenue, such as annual contracts that are automatically renewable with clients who pay a monthly fee, that are re-adjustable for inflation at each renewal. This creates a high recurrence and predictability in the Company's results. Linx gets high rates of annual renewal, which today is around 97%. Its broad and diverse base of clients, ranging from small companies and medium to large retail chains, also positions it as a differential against its competitors.
In addition to the profound knowledge of the Brazilian retail market and a scope for different segments of the market, Linx has a number of advantages that promote the unique quality of its work and contribute to the maintenance as the industry leader. Among them the following stand out: a dedicated team with the expertise and local knowledge, features tailored to different segments and sizes of retailers, scalable and flexible service on demand for the simplicity of the processes, adaptability to the complex Brazilian tax system and easy to implement solutions.
Linx believes it possess a solid ability and a history in identifying, negotiating and integrating acquisitions. The Company develops a model that allows the efficient and timely integration of the acquired businesses. With these acquisitions Linx aims to expand its market, adding new retail vertical markets areas to its portfolio. These acquisitions allowed the Company to expand its operations into new regions within Brazil and add new technologies that have accelerated the pace of innovation.
Until 2012, Linx had acquired 11 companies, with these acquisitions and the strategy to diversify its portfolio and add new retail vertical markets to its operations, expanding and consolidating its position in the sector of software for the retail sector. In 2012, the activities of Microvix were incorporated . Other important movements in the year were the acquisition of CompactaTecnologia and the acquisition of Bitix technology. The funding for these acquisitions were mainly derived from corporate partnerships with BNDES Participações held in 2010, and with General Atlantic in 2011. With the IPO of 2013, Linx gets another important source of funds to continue its expansion strategy.
The Linx intention is to continue looking selectively for strategically complementary acquisitions in the Information Technology sector for retail and that are consistent with the growth strategy of the Company.
Linx has been restructuring its operations to support its growth strategy. In 2012, the Human Resources Department was reorganized and a number of changes were promoted in the commercial and operational areas. The creation of a commercial controllership and sales planning area has generated more assertiveness to the sales processes. In addition, the Company has established the executive board of Infrastructure mainly to provide greater support operations of cloud solutions.
For a continue growth, Linx bets on a business management that is focused on the customer base, in order to generate value for the retailer and the consumer. The Company strategically wagers on a business model that is focused on software solutions for the retail and cloud computing sector.
Linx will continue to invest in its direct and indirect sales and marketing in order to gain new customers. The Company intends to expand the relationship with its current customers, meeting their growing business needs to the extent that these customers continue opening new stores throughout Brazil. Linx also focuses on increasing the amount of business done with customers through the sale of sophisticated products and cross-selling, with integrated and complementary solutions. Another Linx investment point is the adoption of solutions for e-commerce and mobility, which allow customers to continue to expand their sales channels.
The Company focuses its sales efforts on direct sales from its head-office and nine branch offices in the main Brazilian states. As a way to supplement its operations geographically, especially in states that are less representative, the Company also uses indirect channels, such as franchises and business representatives.
It is through continuous innovation and a constantly expanding portfolio that Linx will continue its growth path, providing the market with innovative solutions and enhanced functions for the current group of comprehensive and integrated products. The Linx Retail CRM, an important example of this strategy, has been developed to provide transparency with regard to the customers through different channels and the seamless integration between front office and back office. This tool will allow retailers to track and understand their customers throughout the life-cycle of their relationship, in store, on the web, on mobile phones and on social networks.
Business opportunities
The strong stimulus to consumption, the steady decline in the unemployment rate, the increase in income and social mobility are some of the factors that contribute to an optimistic scenario and growth in the retail sector.
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Expenditure of the middle class: 2x - 5x greater in the retail sector 1 |
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Class D/E |
Class C |
Class B |
Class A |
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Clothing and footwear |
1.0x |
2.3x |
5.4x |
12.6x |
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Personal care |
1.0x |
2.3x |
5.3x |
11.2x |
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Electronics |
1.0x |
1.9x |
4.4x |
10.1x |
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Medications (prescription and non-prescription) |
1.0x
|
1.9x |
4.3x |
9.3x |
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Food, beverages and |
1.0x |
1.7x |
3.3x |
5.4x |
Source: Global Insight, Gartner, IBGE, FGV, LCA, Bain & Co., BCG and RG
¹ Linked to expenses of Class D/E
Only in 2013, 47 new malls are planning to open their doors, according to the Brazilian Association of Shopping Centers (Abrasce). Another strong growth factor has been the franchises and dealerships, which are booming, increasing the number of outlets available in the country and therefore thepotential market for Linx.
Meanwhile, Brazil presents trends of computerization and formalization of the retail sector. The first can be perceived by the increasingly common use of electronic invoices (NFe), the greater use of electronic payment methods and the professional management of shopping malls. Whereas in the field of formalization there are intense efforts of the IRS to modernize its systems and reduce the informal sector.
These conditions provide the foundation for the growth of the software used in the management of the retail sector. This scenario is very positive for the Company, which operates in different verticals and provides cutting edge technology for the increasingly effective management of a multi-channel retailer.
Today, Linx is the market leader in management software for the retail sector using cloud based solutions and on-premise in Brazil, with over 29% market share, according to an IDC1 survey, over 85% of direct sales, approximately 12,711 customers in the retail sector and with national coverage, at the end of 2012. It is present in the ten largest clothing and footwear retailers, seven of the ten largest department stores, five of the top ten players in the food service, two of the five largest retailers of building materials and seven of the top ten automotive outlets, and three of the largest pharmacies networks and seven of the top ten retailers listed in Brazil.
Linx endeavors to work quite closely with customers to understand their business and their needs, and, thus provide software solutions that have a great degree of acceptance. By being in the market for so long, the Company can, in addition to develop products for the retail industry with a high degree of acceptance, develop dedicated expertise and local knowledge of the best vertical retail market practices, including clothing stores, car dealers, pharmacies, electronics shops and appliance stores, general merchandise stores, building materials and restaurants. As a result of this leading position, Linx attracts and retains qualified professionals in the software technology industry for the retail sector in the country.
1 IDC is a renowned research and market intelligence firm focused on information technology and telecommunications, which brings together more than a thousand analysts in 110 countries.
The franchise market has grown a lot in Brazil. From 2011 to 2012 this market grew 16.2% and the number of units rose 12.3%, with a total of 104,500 franchised units throughout the country, according to the Brazilian Franchising Association (ABF). Amongst the range of products that Linx offers to this segment, is the feature available through cloud computing, which allows scalability to the franchisor and complete on-line monitoring, via a control panel, in real time, of everything that happens to the franchise network and the full interaction between the franchisor and franchisee. The tool also permits the integration of systems, reducing costs to the store owner.
During the ABF Franchising Expo 2012, the largest Latin American fair on franchises held in June 2012 in São Paulo, Linx presented its portfolio specifically designed to meet the needs of the sector. The Company also participated in the Rio Franchising Business 2012, which occurred in September. Among the solutions presented during the event were the Linx Degust Web version 3.0, a new software product that provides a panel of indicators so that allows users to quickly identify, unified and efficient management processes of various stores, such as percentage growth , total number of customers, average ticket value, inventory control, purchasing and other forecasts. The software also performs analysis of sales performance, of costs and per period, and issues alerts relating to payments and receipts, amongst other innovations.
Another product launch that was on display during the event was the Linx Degust Mobile, enabling attendance via tablet with a high degree of practicality and agility. Especially for food service chains, the solution may be used to provide service on the tables, so that the waiter can process the customer´s request, request closing accounts and even transfer tables. The product can transform the tablet in an electronic menu, displaying products categorized by sales group, with pictures and information about them.
Linx solutions were also highlighted at the 12th ABF Franchising Convention, held in October in Comandatuba Island, Bahia.
Risk management
GRI 1.2
Linx has a policy of the constant analysis of the risks to which it is exposed and that may adversely affect its business, financial condition and results of its operations . The Company continuously monitors changes in macroeconomic and sectorial scenarios and operates with a focus on financial discipline and conservative cash management, as well as having a specific management for governance systems and data centers, in order to mitigate the risks inherent in the operations.
Credit risk
This is basically an assessment of the losses to Linx if a customer or a counterpart to a financial instrument fails to meet its contractual obligations. This risk varies from client to client. For new contracts, a strict policy is adopted to verify their ability to honor their commitments. Linx also establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of accounts receivable.
Liquidity risk
This occurs when the Company encounters difficulties in meeting its obligations associated with its financial liabilities, which are then settled by cash payments or with other financial assets. The management of the liquidity risk implies maintaining a safe level of cash on hand. By virtue of its liability management and good cash flow, the Company has access to immediate funds through short-term funding from financial institutions.
Market risk
This is associated with interest and inflation and occurs when a portion of the debt - referenced to the Long Term Interest Rate (TJLP), the National Full Consumer Price Index (IPCA), the Consumer Prices Index of São Paulo (IPC) and the rate of interest and financial investments in CDI - can negatively affect income or financial expenses. Linx considers its degree of leverage as low, which means it has sufficient funds in cash to meet its short term needs. In addition, the Company has included in all commercial contracts for software licenses, the annual correction to the inflation rates.
Operational risk
This is related to the direct or indirect losses arising from a variety of causes associated to the processes, personnel, technology and infrastructure of the Company and external factors (other than credit, market and liquidity risks), such as those arising from legal and regulatory requirements and generally accepted standards of corporate conduct. Linx works to manage the operational risk and the risk to the quality of services to avoid financial losses and damage to its reputation. The risks inherent in the Company's operating activities and the economy are minimized by the constant improvement of the system of corporate governance and effective management tools.
Labor risk
Involves the risk of key people from top management leaving the Linx workforce, which could create difficulties in the definition and execution of its business strategies and incur significant costs in the hiring new people with the key same qualifications. Furthermore, the continued strong competition in the software sector for hiring highly trained professionals in the Commercial and Technical areas, among others, can lead to the paying of higher salaries to attract and retain skilled labor. Linx considers that the attraction and retention of talent as essential for the success of the business and the development of human capital, that is why it seeks to stimulate and contribute to maintaining a healthy work environment, characterized by good relationships. Another important factor for the attraction is that the Company is in a high value-added segment with significant growth opportunities in the short and long term.
Risk information security
Relates to the possibility of failures, errors or interruptions in the products and services offered. Such situations may incur higher costs to the Company, indemnities imposed by its customers, damage to reputation in the market and even regulatory penalties.
Investments
The main Linx investments are focused on acquisitions and research and development (R & D), in order to ensure that the Company is always in line with the retail market and in a position to meet the demands of its customers. Since 2008, Linx has had BNDESPar as strategic partner to finance its investments, using special lines of credit for research and development, quality training and certification and the opening of new customer relationship units, with the geographic expansion in the country, in the BNDES Program for the Development of National Software and Information Technology Services. In the two acquisitions in 2012, R$ 46.9 million was invested. Whereas, the R & D investment in the year totaled R$ 34.7 million, 8% higher than that in 2011.
GRI EC4
Intangible assets
For Linx, human capital is the main asset in the business. Its employees are the pillars of support, enabling the growth that Linx has had in recent years and its current strategic position in the retail software market. Another important aspect is innovation, point also associated with the employees who are responsible for bringing knowledge and market intelligence to the new product development process.
Innovation is singularly the main growth factor for Linx, without which the Company would be unable to maintain its mission to meet the growing needs of its clients in an ever changing retail market not only due to market factors, but also the trends and purchasing power of the final consumer. Added to this equation is the advancement of global technology, using new tools like tablets and smartphones. To generate differentiation, Linx invests heavily in research and development as well as training of the staff, which acts as a catalyst for innovation.
The sector in which Linx operates is constantly evolving and therefore, Research and Development (R & D) is a very important factor in the investment plan. The R & D area allows us to develop solutions that are most appropriate to the needs of customers and deliver technological innovations that provide users with greater productivity solutions.
The Company develops its solutions internally and, therefore, has an exclusively dedicated area, with 157 employees. Linx has one of the largest investments in innovation in the sector, representing about 15% of its net sales in 2012. The Research & Development works with a focus on:
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Technical improvements to the software to increase efficiency.
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Development, evaluation and adoption of new technologies.
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Improvements to existing software products.
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Development of methods to increase software quality and efficiency.
Spending on innovation allows receiving benefit from Lei do Bem (The Good Law), which grants tax benefits to technology research and development of innovation. Among the incentives obtained by Linx are: the reduction, for purposes of determining net income of a value corresponding to the sum of expenditures made during the period of investigations on technological research and development of technological innovation classified as operating expenses by the Income Tax (IRPJ) law, accelerated depreciation, by deducting as costs or operational expenses in the calculation period in which they were carried out, the expenditure on the purchase of intangible assets linked solely to technology research and development of technological innovation, classifiable in deferred tax assets of the Company, for purposes of calculating the income tax.
EC4
Linx Retail Forum
In May 2012, the Company held the Linx Retail Forum in Sao Paulo, an event that brought together top executives from retail companies to discuss IT strategies, best practices and market trends. Over 700 people, representing about 350 customers attended the event, which strengthened the relationship between Linx and this important audience. On this occasion, the Company presented its products pipeline and innovations scheduled for release in 2013. The event, which offered solution for the following four areas proposed by the Company: availability, customer centralization aimed at multiple channels, adaptability and governance.
The forum brought to Brazil international speakers such as Mike Walsh, CEO of Tomorrow Institute, who spoke on "The Consumer and the Retail Sector of the Future." Also present was JairoOkret, senior client partner at Korn/Ferry International, who spoke about the "Role of CIO in New Retail", with branding expert Helio Carvalho, Director General of FutureBrand Brazil, who discussed the importance of managing and building brands in the retail sector and Henrique Meirelles, former president of the Central Bank of Brazil who spoke about mergers and acquisitions. Linx executives also took to the stage to talk about mobility, cloud services, CRM, loyalty, governance, franchise management, dealership management, e-commerce, planning and business analytics, connectivity and the Linx Retail Academy.
Relationship with stakeholders
GRI 4.14 | 4.16
The Company determines its stakeholders by aligning the economic-financial, strategic and environmental interests. To commit these, Linx seeks to adopt the best practices in the market and follow its principles and values.
GRI 4.15
Employees
The Company has a number of communication channels with this important audience, described in the Chapter Linx Talent.
Shareholders
The Linx relationship with its shareholders is made primarily by the IR team and through the website dedicated to this audience (www.linx.com.br/ir), which provides the main documents of the Company, as well as all financial results. With the completion of the IPO, Linx now provides quarterly reports to its shareholders.
Clients
Various channels of contact are maintained with customers. In addition to the sales team focused on vertical retail markets and the corporate website (www.linx.com.br), the Company is present in social media (Facebook, Linkedin, Twitter and YouTube), disclosing interesting facts via marketing e-mails and events to promote the sharing of practices, such as the Linx Retail Forum. Especially for verticals of dealerships and apparel, the Company has a specific publications, respectively the DMS Linx and Linx Fashion magazine. Linx also conducts a satisfaction survey with its customers using the TRI-M from TNS methodology, which uses sound statistical samples in all stages (pre-sales to support) and takes into account the vertical retail markets where Linx operates.
GRI PR5
Suppliers
Relationships with suppliers takes place directly with the purchasing department and the managers of departments of the Company that are the main users of the services or products. The Company's suppliers benefit from the practices of respect and appreciation of the relationship, represented by transparency in the relationship and the timely payments. Linx favors an ethical attitude from its suppliers, especially regarding the quality and strategic alignment of these suppliers in relation to demand chain of the Linx stakeholders. The Company also observes and suggests the performance aimed at social responsibility from their suppliers. As described in the Linx Code of Ethics, the Company repudiates child labor, forced or compulsory labor and does not condone this practice with its suppliers.
GRI HR6 | HR7
Indirect Channels
The Company considers indirect channels important to increase its capacity, allowing its presence in locations where it does not have its own units. Linx has processes and a program focused on the relations with its representatives and franchises. With this, the company has a structured department that supports the development of the indirect channels. The structure includes a channels directory, directing the specific and specialized communication for this assistance.
Communities
Linx's commitment to social responsibility has been established in several initiatives in the benefit of society. The company supports the Brazilian -Israeli Union of Social Welfare - UNIBES, located in São Paulo. The institution serves more than 14,000 people, including families, children and the elderly, with a variety of projects related to social welfare, education, culture and health support. Since 2006, Linx has provided software and technology solutions that optimize business management and the fund-raising operations of the institution. Linx also supports the Instituto Arredondar, which aims to provide financial support to social organizations in São Paulo and Rio de Janeiro. The purpose of the partnership is to promote the adhesion of retailers to the movement and make available on its software platform, installed in more than 12 thousand customers, the features that comply with the functional and legal "rounding off".
Government and Society
Linx has good relationships with the government and seeks to contribute in whatever way possible to the development, formalization and computerization of the retail sector. A large part of Linx software needs to be approved by the Departments of Finance (Sefaz) of state governments, as the software for business automation and electronic invoice (NF-e).