11. Forecast
11.1 Future direction of the Group
We will continue along our profitable path to growth in 2009 as well. In doing so, we will still focus our attention on implementing strategic measures to expand our business (refer to Corporate Strategy and Objectives).
Essential operational measures in 2009 include the following:
- Taking advantage of opportunities offered by acquisitions
- Expanding the consulting and product business in the new high-growth webMethods business
- Continuing to penetrate markets, especially in Brazil and Japan
- Expanding technological leadership through ongoing new developments and advancements, especially in the field of SOA
- Expanding the partner network
Long-term goals confirmed
We continue to be committed to our previously set revenue and earnings target: We will exceed €1 billion in revenue in fiscal 2011.
11.2 Overall economic outlook
Seldom has it been more difficult to forecast further economic development than it is now. The duration and the depth of the recession and its effects on IT demand are very hard to estimate. Much will depend on how far the reorganization efforts of monetary policy and the supporting measures of individual governments go. In general, however, the most serious global recession in years is predicted, as suggested by the clearly falling indicators at the end of 2008. In addition, the downturn is now also hitting emerging markets, which were still expected to experience substantial economic expansion. According to the assessment of the Institute for the World Economy (IfW), the global economy will scarcely expand in 2009. The growth rate of world production – at 0.4 percent – could be even lower than in the recession year 1982.
A slump in economic performance is expected in the United States in early 2009. U.S. industry is suffering in particular from the strong decline in international demand as well as the increase in the dollar’s value. However, domestic momentum is weak as well. Rising unemployment, consumers’ losses on the stock market and in real estate, a growing savings rate and continuing more restrictive lending practices on the part of banks mean private consumption is caving in. Even all the measures enacted by the U.S. Federal Reserve and the new administration cannot stop the downswing. The U.S. economy is expected to decline 1.6 percent overall.
The euro zone economy will suffer considerable losses in 2009 as well: This is related to exports and the fact that investments will cave in as a result of tightened financing conditions and pessimistic sales and profit expectations. Furthermore, consumption will likely fall in some countries in light of rising unemployment and sinking assets. The International Monetary Fund expects a decline in the gross domestic product of 2 percent in the euro zone and 2.5 percent in Germany. Eastern European countries should be affected even more by the recession.
As already indicated in late 2008, Asia also will not be able to withstand the pull of the global recession. The Purchasing Managers Indexes of the region’s largest national economies, Japan and China, were at record lows recently. Growth in China, which will be affected primarily by a further slump in exports and the near standstill in investments in the building sector, is expected to reach only 6.7 percent. The Japanese economy will probably even shrink by 2.6 percent.
Early indicators for the Latin American economy also are showing a negative trend: Here slight gross domestic product growth of only 0.3 percent is anticipated. Nevertheless, growth of 1.8 percent is forecast for 2009 in Brazil.
11.3 Expected sector trend
The ICT market’s global growth will weaken in 2009 largely due to the effects of the economic crisis on the high-tech industry.
Nevertheless, according to an estimate of the German Association for Information Technology, Telecommunications and New Media (BITKOM), the global IT market will grow about 2.7 percent in 2009 to €983.0 billion, in spite of the current economic crisis. With reference to the European technology news service EITO, according to BITKOM, suppliers of software and IT services especially will show significant increases. Their global revenues are estimated to increase by 3.4 percent in 2009 to €670 billion.
A leading market research and consulting firm believes that the world market for corporate software will grow 6.6 percent in 2009. This includes software products for use in companies, such as infrastructure solutions and business applications for ERP, CRM, and SCM. EITO believes the ICT market in the European Union will grow by about 3 percent in the coming year, with the software and IT services segments making a particular contribution. BITKOM expects total revenues for the German ICT market to reach €135 billion in 2009, which is similar to the level in 2008. The latest BITKOM forecast has the German IT market growing by 1.5 percent to €67 billion.
11.4 Future financial performance
We want to continue our present profitable growth in fiscal year 2009 as well. However, precise forecasts are still difficult because of the unpredictability of the general economic development worldwide. Therefore, our estimate from today's perspective is as follows: Our medium-term organic growth target continues to be about 10 percent per year. We are expecting revenue growth of 4-8 percent (taking into account currency translation effects) for 2009, however. We anticipate growth for the ETS business line at about 4-6 percent, and 4-10 percent for webMethods. The EBIT margin is expected to reach to 24.5-25.5 percent in 2009.
Continued attractive dividend policy
We plan to maintain our attractive dividend policy in the future as well, but this of course depends on further world economic developments.
Forecast for 2009
| 2008
| Forecast
|
Revenue | 720.6 | + 4 – 8 % |
ETS division | 404.9 | + 4 – 6 % |
webMethods division | 315.7 | + 4 – 10 % |
EBIT margin | 25.1 % | 24.5 – 25.5 % |
* taking into account currency translation effects / in local currency
Because of the uncertain global economic situation, there will be no additional forecast for 2009.
11.5 Corporate strategy opportunities
We also see various opportunities for Software AG that we intend to take consistent advantage of in the current financial year.
The right conditions are in place: The competitiveness of our products, the continuous development of webMethods sales, the market’s demand for IT modernization, our customers’ integration of applications and integration with business partners, as well as the necessary increased efficiency of their processes – all this creates excellent opportunities for Software AG to achieve our stated goal of becoming a market leader in the SOA integration technology segment. Another positive outlook is presented by our global presence in countries with high growth rates and the promotion of the webMethods project business by cross selling in a large, stable ETS customer base. Not least, we have a very competent staff with a customer-oriented corporate culture, which continues to focus in difficult times on added value for the customer.
Even the ongoing negative development of the world economy offers us opportunities. Within the scope of our strategy, we will take consistent advantage of opportunities for acquisitions and keep a sharp lookout for them on the market. We have our eye on some smaller companies that either complement us technologically or make a product that is similar to our product portfolio and on consulting firms that could strengthen Software AG’s Professional Services. In addition, the economic crisis is also increasing demand for process-optimizing software applications; we can meet this demand with our customer-oriented solutions.
11.6 General statement on the anticipated development of the Group
Over the last few years, Software AG set the stage for continued positive business development, and we want to build on it in the coming years. In fiscal year 2008, we proved that we can achieve excellent results even in light of increasingly difficult and uncertain economic conditions. Once again, we had the best results in our 40-year history. Our business model – focusing on two complementary business lines, a large customer base and broad geographic distribution – has proven to be robust.
The following factors should contribute to achieving our revenue and profit goals: In the ETS business division, we will continue our market penetration in Brazil and Japan, and our customers in our existing markets will further develop or modernize their applications. In the webMethods business division, we want to gain new customers and benefit from the growth amounting to 8-17 percent in the relevant sectors of the market. Our Professional Services business unit will concentrate increasingly on major projects and position itself as a strategic SOA consulting firm.
Thus, we have all the necessary conditions to become the global market leader for SOA integration technology in the medium term, as planned.
