Dear Ladies and Gentlemen,
Software AG maintained its profitable growth trend in early fiscal 2008. Despite the slowing economy, we continued to experience stable IT demand in our market segment of infrastructure software for business customers. Our US business was particularly robust: we met all of our targets there during the first quarter in both divisions, and are confident of further positive performance in this market.
What were the highlights of the first quarter? We continued to grow, despite difficult macroeconomic conditions. The strongest drivers of this growth were our outstanding product portfolio in both divisions and our ongoing geographic expansion, as well as our positioning as a technology leader at CeBIT. All of these factors, together with yet another increase in profitability, leave us confident of further growth in the current fiscal year.
Increases in revenues in all segments
We enjoyed growth in all revenue segments in the first quarter of 2008 compared to 2007. In the ETS Division, we were able to report continuous positive business performance worldwide. The constant growth in licensing revenues at ETS provides Software AG with a profitable core business. The maintenance business also turned in a positive performance. This reflects the restructuring and efficiency enhancement measures introduced in recent months. With operating revenues of €91.1 million, ETS has doubled its sales in five years, and is now helping customers adapt to the future with its modern products, while also making a positive contribution to the future of Software AG.
We have similarly been able to successfully build webMethods into a second division. This has brought our company into the top tier of the integration software market. The webMethods Division turned in a strong performance in its domestic market in the USA, our most important individual market, during the first quarter. We still have some work to do, however, in EMEA and Asia. Our successes from the USA should help in these regions over the coming months. We have already introduced the necessary measures.
Total currency-adjusted group revenue increased by 37 percent compared to the same quarter of the previous year, to €159.4 million compared to €124.7 million in Q1 2007.
Particularly strong growth in profitability
The trend in profitability was particularly encouraging. Thanks to significantly improved economies of scale in the wake of the acquisition of webMethods Inc., increased process efficiency, and the effects of synergies, we were able to increase our EBIT by 44 percent to €36.0 million and our EBIT margin from 20.0 percent to 22.6 percent. Earnings per share rose to €0.79, a new record for the first quarter, and a figure that provides us with a solid foundation for achieving our targets for the year.
Successful entry into the Brazilian market
One of the growth engines for Software AG’s business is growth through geographic expansion. Our goal is to increase revenues by replacing indirect sales through distributors with a direct market presence in Israel, Venezuela, South Africa, Japan, and Brazil. Other Latin American countries are to follow. We are also planning to expand in the burgeoning markets of countries in the Near East, Eastern Europe, and Russia.
With regard to this direct entry strategy, I would like to make a few brief points about the Brazilian market in particular: As a prerequisite for this market entry, we won all court proceedings in the first instance, and have been directly represented in Brazil by an expert team since the beginning of the year. More than 150 companies and public institutions already use Software AG products. We signed our first major maintenance contract in April. Because the potential in Brazil is even higher than originally assumed, we have increased our projections for total revenue from Brazil in 2008 from US$25 million to US$30 million.
CeBIT participation reinforces technology leadership
Our participation in the world’s largest computer trade show, CeBIT in Hannover, Germany, was also important this year, providing us with the opportunity to enhance our image as SOA experts. We spoke with more than 450 customers as well as 70 government representatives and politicians from 50 countries, including German Chancellor Angela Merkel. Media coverage in more than 20 countries speaks for the international reach of this event. Visitors to the show were once again able to verify our products’ technology leadership. We believe more new awards and evaluation from independent market research companies also support our position as a leader: Forrester Research recognized Software AG as a ‘Leader’ in The Forrester Wave™: SOA Service Life-Cycle Management, Q1 20081), Gartner positioned Software AG in the Leader’s Quadrant for Business Process Management Suites2) and SOA Governance3)4). In a market assessment issued December 31, 2007, Current Analysis recognized Software AG as a market leader in application infrastructure. In a similar assessment issued December 14, 2007, the research firm also named Software AG a market leader in Service-Oriented architecture.
SearchSOA.com recognized the webMethods ESB v.7.1 and webMethods BPMS v.7.1 as “2007 Products of the Year” in their respective categories.
We also have an impressive list of new sales contracts to report in both the ETS and webMethods divisions. For example, we have expanded our customer list with the addition of Coca-Cola Enterprises in the USA and Woolworths in Australia.
Confirmation of forecasts for 2008
We have reaffirmed our ambitious goals for the current fiscal year: We are planning a currency-adjusted improvement of 24-27 percent in Group operating revenues for 2008. The EBIT margin should be approximately 24 percent for the year as a whole. Our improved operational measures will help us to reach these targets. These measures include growth in the area of operations, utilization of the potential presented by burgeoning markets, further strengthening of sales and distribution structures for webMethods in the EMEA and APJ regions, new technical innovations, and the expansion of our partner network, to name only a few.
Our vision is to further enhance our market position as a leading independent provider of infrastructure software and to become the world leader in the markets of the future, SOA and BPM. We consider ourselves well-equipped to reach our goal!
Chief Executive Officer
1) The Forrester Wave™: SOA Service Life-Cycle Management, Q1 2008 (by Larry Fulton with Randy Heffner and David D’Silva (January 28, 2008))
2) Gartner, Inc., Magic Quadrant for Business Process Management Suites, 2007 by Janelle Hill, Michele Cantara, Eric Deitert and Marc Kerremans (December 14, 2007)
3) Magic Quadrant for Integrated SOA Governance Technology Sets, 2007 by L. Frank Kenney and Darryl C. Plummer (December 31, 2007)
4) The Magic Quadrant is copyrighted 2007 by Gartner, Inc. and is reused with permission. The Magic Quadrant is a graphical representation of a marketplace at and for a specific time period. It depicts Gartner’s analysis of how certain vendors measure against criteria for that marketplace, as defined by Gartner. Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the “Leaders” quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action. Gartner disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.