Letter to shareholders
Karl-Heinz Streibich
Chief Executive Officer
Dear Ladies and Gentlemen,
2008 was the most successful fiscal year in Software AG’s 40-year history. Software AG is 40 years old. This is an ideal point in time to reflect briefly on Software AG’s achievements over the past four decades.
The firm that first opened its doors in the year 1969 in Darmstadt, Germany has grown to become one of the world’s top 25 software companies. Indeed, a great deal has changed since then. But one thing has stayed the same: Software AG develops enterprise software that is recognized all over the world. Products, whose development began 40 years ago, are still in use today. Adabas, for instance, remains the fastest and most efficient mainframe database in the world.
Our newly added webMethods division, which encompasses integration software, complements our traditional database management business extremely well. In 2008, we achieved organic growth in all areas of our business – ETS data management, webMethods and Professional Services. This is proof that our strategy was right on track. We remained committed to our four growth drivers: organic growth through innovation, geographic expansion, growth through acquisitions and new customer groups through partnerships.
Our financial performance in fiscal 2008 illustrates that we operate successfully even in challenging economic times. Our revenue increased by 16 percent to reach €720.6 million, while operating earnings (EBIT) improved by 32 percent to hit €180.5 million. Our EBIT margin was posted at 25.1 percent. We surpassed the market’s expectations with these record-breaking results.
Our two business divisions released a number of new products, which were received with enthusiasm by customers. CentraSite ActiveSOA , for example, is the first fully integrated product by Software AG and webMethods and is the cornerstone of our SOA Suite.
Furthermore, our products were repeatedly recognized by top IT analysts as leaders in the global market. This makes us the only software vendor to be a technology leader in both service-oriented architecture (SOA ) and business process management (BPM ). We have laid an excellent foundation for future development and achieving our goal of becoming the world’s market leader in infrastructure software.
One of Software AG’s major milestones last year was our direct market entry in Brazil following the transfer of distribution rights in the region. Since the beginning of 2008, we have had a direct presence there. And during the year we signed deals with more than 45 customers worth a total of over €30 million.
Following our acquisition of SPL Israel, webMethods, Inc. and Jacada in 2007, our efforts last year were focused on assimilating them effectively into our company. Particularly the incorporation of U.S.-based webMethods, Inc. helped us make a quantum leap in the high-opportunity integration software market and expand our position in the U.S. market. We continue gaining market share in the SOA and BPM segments.
In looking toward the future, one thing is certain. Growth in 2009 will not be easy. Due to the worldwide recession, we expect slower revenue gains, but are optimistic that we can grow despite the economic crisis. We have a robust business model with a high percentage of recurring revenue sources. More than 70 percent of our revenue falls under the category of our customers’ recurring operating costs, whereas only 30 percent of our revenue is investment spending. Our enterprise customers will continue running their mission-critical systems, which in turn secures Software AG’s licensing and maintenance revenue.
In fiscal 2009 we will concentrate on further developing sales activities in our solutions business line and expanding Professional Services. Thanks to our strong cash flow, we are well equipped for future acquisitions that strengthen our technology or our Professional Services division. We expect overall growth between four and eight percent and an EBIT margin between 24.5 and 25.5 percent in the current fiscal year. We are resolute in achieving our medium-term goal of surpassing one billion euros in revenue in 2011. We are very proud of this successful fiscal year. It would not have been possible without such highly motivated and qualified employees. On behalf of the entire Executive Board, I would like to express my gratitude to them for their work.
I would also like to draw your attention to a unique aspect of this annual report. For the first time, we dedicated a great deal of energy to the subject of corporate social responsibility. As Europe’s fourth largest software company and one of the biggest IT vendors in the world, we have a corporate responsibility to foster technological innovation, customers, employees and society. In the Corporate Social Responsibility section we depict for you a number of examples of our initiatives in this direction. The illustrations in this section were contributed by staff members’ children.
Esteemed shareholders, we want to share Software AG’s excellent results with you as well. So the Executive and Supervisory Boards will propose a dividend of €1.10 per share at the Annual Shareholders’ Meeting.
Stay with us on this exciting journey!
Yours sincerely,
Karl-Heinz Streibich
Chief Executive Officer
