Software AG: Stable Performance Continues in Q2 2009
- Group revenue rises 5 percent to €176.4 million
- Product revenues increase 9 percent to €133.7 million
- Free cash flow improves by 30 percent to €29.8 million
- EBIT margin up from 24.3 to 25.1 percent
- Takeover bid for IDS Scheer: Majority stake secured
- Change of 2009 outlook announced due to takeover
Darmstadt, Germany, 22/07/2009
Software AG (Frankfurt TecDAX: SOW) continued to deliver a solid performance in the second quarter of 2009. Group revenue was €176.4 million, a 5 percent rise year on year (Q2 2008: €168.8 million). The high-margin product revenue (licenses and maintenance) increased by a total of 9 percent to €133.7 million (Q2 2008: €123.2 million), more than offsetting the weaker performance of the service business (down 7 percent from Q2 2008). These figures demonstrate that the company is continuing its profitable growth. Operating earnings (EBIT) improved by 8 percent to €44.2 million (Q2 2008: €40.9 million). Free cash flow rose 30 percent in the second quarter, up from €23.0 million to €29.8 million. In connection with the takeover bid for IDS Scheer AG, Software AG has already acquired more than 10 percent of IDS Scheer AG’s stock on the open market. Subject to antitrust approval, this means that including the 48 percent stake contracted with the principal shareholders, Software AG will become the majority shareholder. As a consequence, the proposed acquisition will alter the existing forecast for the current fiscal year.
In the second quarter of 2009, Software AG continued its stable performance despite the persistently difficult economic environment. Unlike many competitors, the company maintained its solid growth due to its robust business model and broad global presence. In particular, this growth resulted from the continuous expansion of the maintenance business with Software AG’s stable customer base. This area improved by 20 percent to €73.9 million in the reporting period (Q2 2008: €61.8 million). However, the acquisition of new projects from new customers remained difficult in the second quarter. Nonetheless, licensing revenues were nearly at the same level as in the prior year at €59.8 million. At €41.7 million, revenue from Professional Services was down 7 percent year on year (Q2 2008: €44.8 million). This reflects the trend in the IT services industry, but had only a marginal effect on Software AG’s earnings.
The webMethods business division saw further confirmation that new projects and customers are harder to come by in the current market environment, in particular in countries where Software AG is lacking sufficient market presence. Critical size and an in-depth understanding of customers are two important advantages for sustained project success in the webMethods business. In the second quarter of 2009, the revenues from the webMethods activities remained at €75.5 million, roughly the same level as in the prior year (Q2 2008: €76.7 million). The weaker project business was compensated by increased product revenues.
Thanks to the favorable upward trend in Brazil, revenues improved in the ETS business, rising 10 percent from €92.1 million in the second quarter of 2008 to €100.9 million. This was significantly supported by maintenance revenues, which increased by 19 percent to €46.7 million (Q2 2008: €39.3 million). ETS contributed 57 percent of total revenues in the reporting period (webMethods 43 percent).
“Software AG is continuing its profitable growth. A five percent increase in revenue is good in a recession. The basis is our solid business model, in particular our sustainable and profitable maintenance business,” said Karl-Heinz Streibich, CEO of Software AG. Commenting on the takeover bid for IDS Scheer AG, Streibich added: “The planned acquisition of IDS Scheer will strengthen our business even more. Our joint strategy will be clearly focused on growth. In the first week after the announcement, we were able to acquire more than ten percent of IDS Scheer stock on the open market. As a consequence, we have secured a voting majority.”
Earnings and cash flow
Beyond expanding its revenues, Software AG has also been able to continue to improve its earnings. The EBIT margin rose from 24.3 to 25.1 percent in the quarter under review. As in the past, the improvement of free cash flow is particularly pleasing. It increased by a significant 30 percent to €29.8 million (Q2 2008: €23.0 million). “In expanding our business, we always focus on continuing to improve our EBIT margin and increasing cash flow for the long term,” said CFO Arnd Zinnhardt. "This has now put us in a position to fund a considerable portion of the planned acquisition with our own capital.”
On June 30, 2009, Software AG had ca. 3,600 employees (full-time equivalents), up 5 percent from the prior year (3,427 employees). With a 14 percent increase to 863 employees, the growth in the German workforce was stronger than in the rest of the world. The above-average rise was a result of the acquisition of a majority stake in the Leipzig based software company itCampus in March 2009.
First half of 2009
Software AG’s Group revenue totaled €341.7 million in the first half of 2009 (H1 2008: €328.2 million), a 4 percent increase year on year. In the same period, product revenues were €256.2 million, or 8 percent higher than in the prior year (H1 2008: €237.9 million). Maintenance revenues grew particularly well, increasing by 21 percent to €147.1 million (H1 2008: €121.1 million). Conversely, licensing revenues declined 7 percent from €116.8 million to €109.1 million. Revenues from the Professional Services business were €84.0 million, down 5 percent year on year (H1 2008: €88.7 million).
Revised forecast for 2009
Originally, Software AG’s forecast for the full year anticipated an increase in revenue by between 4 and 8 percent and an EBIT margin of between 24.5 and 25.5 percent. The forecast will change due to the takeover bid for IDS Scheer AG (also listed on the TecDax) announced on July 13, 2009, and the expected consolidation of its revenues for ca. three months. “When we publish our financials for the third quarter of 2009, we will also provide a new outlook for fiscal 2009. It is still too early for a detailed estimate at this point,” said Arnd Zinnhardt.
∆ in %
|Financial statements in accordance with IFRS|
- Product revenue
- Service revenue
- ETS business division
- webMethods business division
EBIT margin (in %)
Earnings per share (in €)
Free cash flow
* Growth into comparison to 2008 at constant currency rates
Software AG | Uhlandstraße 12 | 64297 Darmstadt | Germany
Software AG is the world’s largest independent provider of Business Infrastructure Software. Our 4,000 global enterprise customers achieve business results faster by modernizing, integrating and automating their IT systems and processes. As a result, they rapidly build measurable business value and meet changing business demands. Based on our solutions, organizations are able to liberate and govern their data, systems, applications, processes and services – achieving new levels of business flexibility.
Our leading product portfolio includes solutions for high performance data management, developing and modernizing applications, enabling service-oriented architecture, and improving business processes. By combining our technology with industry expertise and best practices experience, our customers improve and differentiate their businesses – faster.
Software AG has 40 years of global IT experience and over 3,500 employees serving customers in 70 countries. The company is headquartered in Germany and listed on the Frankfurt Stock Exchange (TecDAX, ISIN DE 0003304002 / SOW). Software AG posted total revenues of €721 million in 2008.
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