3. Business trend and economic situation
3.1 Summary of business trends
2008 was a very successful fiscal year for Software AG, despite the worsening global conditions. We clearly improved all key indicators, and had the best fiscal year in the company’s 40-year history. The positive trend was also due to our successful market entry in Brazil, the successful integration of webMethods, Inc. and the organic growth of the webMethods business division.
Important steps in 2008
In the year under review we took important steps to achieve our targets for the year as a whole and equip the company for future challenges. These include the restructuring of the sales divisions and the changes in the Executive Board, the complete integration of webMethods, Inc. and the exploitation of the associated synergies and the further development of our leading product portfolio.
ETS
In our ETS business division, we continued to develop at all levels: We developed new products that were well received by the market, acquired renowned customers and large projects and achieved excellent results in license and maintenance revenues. Our geographic expansion played a significant role in this positive trend. Since the replacement of indirect sales in October 2006, business in Japan has developed excellently. Within just two years, Japan has become one of Software AG’s biggest revenue generators, and its revenue over this period has almost tripled. In the fiscal year we were also able to surpass our expected figures.
Our direct market entry in Brazil, where we have been represented with our own company since the start of 2008 and have therefore switched from selling via a distributor, was more successful than planned. We were able to increase our forecast figures over the course of the year. In the past fiscal year, the team in Brazil was able to win 45 new customers with more than 50 new contracts, including the largest order in Software AG’s history. This was achieved by focusing on large users, through comprehensive and qualified support and the modernization of old IT infrastructures, thereby maximizing the value of customers’ existing infrastructures.
In the year under review, we also concluded integration of software companies SPL and webMethods, Inc., acquired in 2007/2008, and the application modernization division of Jacada in Israel, acquired January 1, 2008. Jacada was an extension to our ETS business division. The integration of this Jacada division ran smoothly in the 2008 fiscal year, included the acquisition of more than 200 primarily U.S. corporate customers and enabled us to strengthen our leading position on the market for application modernization.
webMethods
In the first half of the 2008 fiscal year, development of the webMethods business division was characterized by the integration of webMethods, Inc., acquired in 2007. By the end of 2008, all integration measures had been completed. We made significant progress expanding sales, with the reorganization of the Executive Board structure (see Organization section) and the strengthening of the Company through numerous new employees in key positions playing an important role here.
With webMethods we have built up a second strong line of business. The enhancement of our database business with the new integration technology provides us with a basis on which we can benefit extensively from market trends. We are thus able to provide our existing ETS customers with significant added value with our webMethods products. We will also offer new customers a complete SOA product portfolio. We have competitive advantages, which we want to exploit to increase our market share.
Overall, the acquisition of the U.S.-based webMethods, Inc. was a major success for Software AG. It resulted in numerous positive synergy effects and further increased our profitability. However, the really important advantage was the additional customer base, which we will continue to extend with the webMethods portfolio. In the past fiscal year, we were able to sign on new customers with large-scale projects.
Professional Services
With the acquisition of webMethods, our Professional Services business unit has become even more important from a strategic point of view. A competent partner is needed for customer services for complex IT architecture solutions such as SOA and BPM – and we can offer this expertise in the form of Professional Services. The business unit implements its own products, and in doing so builds a long-term connection with the customer and also positions SOA expert services on the market. In the past year we merged the many local units to form one global service provider, which uses the same management methods worldwide. As a result, Professional Services also contributes to Software AG’s ongoing development.
In order to turn the business unit into a growth driver over the long term, we enhanced its role and established a separate Executive Board area for it (see Organization section). The core aims are to contribute to growth, ensure profitability and communicate an image of expertise as Software AG moves toward market leadership for Web-based business applications (SOA Business Solutions).
3.2 Overall statement on financial position
Thanks to the continued growth in revenue and improvements in profitability, Software AG is on a solid financial footing. For many years, process optimization has improved profitability and ensured a constantly growing cash flow, part of which we invest in new technologies and the expansion of our business.
