Software AG posts second quarter growth, license revenue up 23%, net income more than trebled
Darmstadt, 7/29/2004
Software AG (TecDAX: SOW) announced its financial results for the second quarter ending June 30th, 2004. License revenue and profit continued to increase. License revenue rose by 23% to EUR 29.4 million. Total revenues were up 3% to EUR 106.3 million (103.1 million in Q2, 2003). The company reported EBIT of EUR 48.7 million, an increase of 180% compared to Q2, 2003. Income before tax rose to EUR 49.6 million compared to EUR 18.2 million in Q2, 2003. Net income after tax more than trebled to EUR 39.4 million.
View detailed Q2 results here.
Commenting on developments in the second quarter, Karl-Heinz Streibich, Software AG’s CEO said: “These results are a strong indication that our strategy of focusing on our core strengths of Enterprise Transaction System modernization and XML Business Integration is working.” License revenue, full quarterly revenue and earnings came in above market expectations.
Revenue
Software AG’s second-quarter product revenues remained strong, up
6% to EUR 76.2 million (EUR 72.0 million in Q2, 2003). License
revenue showed an increase of 23% to EUR 29.4 million (EUR 24.0
million in 2003). Maintenance remained stable net of currency
effects contributing EUR 46.8 million (EUR 48.0 million in
2003).
Project services revenue of EUR 29.6 million was posted in the second quarter (EUR 30.7 million in 2003). However, the downward trend of recent quarters has bottomed out; Q2 shows a 6% increase over Q1. This represents an upturn in business in most regions with Germany still experiencing over capacity and downward pressure on prices.
Compared to Q2, 2003 both business lines showed license revenue growth. License revenue for Enterprise Transaction Systems grew by 21% to EUR 21.5 million (EUR 17.7 million in 2003). This growing investment in Adabas and Natural mirrors the positive reaction of customers to the ‘Customer First’ program initiated in 2003 and the new ETS packages launched. License revenue for XML Business Integration was up 2% to EUR 4.6 million.
License revenues increased in three of Software AG’s business regions: Northern Europe/Asia posted a 57% increase, Central and Eastern Europe a 54% increase and Southern and Western Europe a 23% increase. The Americas region reported stable revenues of EUR 32.7 million, a decrease of just under 1% at constant currency rates.
Income
The restructuring initiated in 2003 has delivered decreasing
operating expenses over the past fifteen months. Administrative
costs were down by 12% compared to Q2, 2003. Likewise, sales and
marketing costs were down by 9% and research and development down
by 32%.
With reduced costs and increased revenue the company returned an
adjusted EBIT (net of extraordinary income) of EUR 24.2 million, a
39% increase on Q2, 2003. Extraordinary income of EUR 24.5 million
through the sale of Software AG’s stake in SAP SI was realized and
the company also received financial income of EUR 0.9 million. The
company reported profit before tax of EUR 49.6 million (compared to
EUR 18.2 million in Q1, 2003). Net income was EUR 39.4 million,
(against EUR 11.2 million in Q2, 2003), which represents earnings
per share for the second quarter of EUR 1.45.
Software AG has cash reserves of EUR 110.5 million, which is 21% of
total assets, and continues to have no bank debts.
Q2 Highlights
Major highlights in Q2 include the worldwide launch of Software
AG’s new Business Integration Portfolio at the Gartner Application
Integration summits in Los Angeles, Amsterdam and Sydney.
Targeting developing markets, Software AG signed a major distribution agreement with Value Added Reseller Shanghai 5A Technology Development Co. Ltd. in the People’s Republic of China. This is a major step in gaining access to the burgeoning IT market in China for Software AG’s XML Business Integration products. Shanghai 5A focused on the ability of Software AG XML and integration technologies to deliver real-time actionable information.
In South Africa, Software AG established a direct presence ending the distribution deal with Dimension Data. The new company hired all staff with Software AG experience from Dimension Data and aims to double its size through recruitment and acquisition. The company has targeted a 20% annual revenue growth rate.
Software AG also obtained governmental security certification in Russia for mainframe products. With leading Russian partner NICEVT, Software AG has established a mainframe modernization and optimization center.
First Half Development
Total revenue remained stable at EUR 202 million, -2% including
currency effects and an increase of 1% net of currency effects.
Total product revenue (license and maintenance) grew by 2% to EUR
143.5 million, (5% net of currency effects), with license revenue
up 15% to EUR 52.6 million.
Compared to the same period in 2003, administration costs were down by 20%, marketing and sales costs by 15% and research and development costs by 19%. Software AG posted EBIT of EUR 63.9 million (-EUR 6.4 million in first half 2003).
Strong Cash Flow and Balance Sheet
The free cash flow almost doubled to EUR 10.4 million in the first
half of 2004 (EUR 5.3 million in the first half of 2003). This
increase is despite a EUR 19.3 million cash-out for restructuring.
Organic cash flow rose to EUR 35.2 million, that is 17.4% of total
revenue.
Liquid assets increased to EUR 110.5 million (EUR 75.1 million in 2003). Fixed assets of EUR 229.6 million were posted (EUR 248.9 million in 2003). The drop in fixed assets was due to the sale of Software AG’s interest in SAP SI.
Total assets increased to EUR 533.1 million (EUR 520.3 million in 2003), and the shareholder’s equity to EUR 301.5 million (EUR 256.2 million in 2003). The equity-to-total-assets ratio rose to 57%, the highest since the initial public offering.
The restructuring first announced in December 2003 has been
completed ahead of schedule. As a result the effective headcount
dropped between the 30th of June 2003 and the 30th of June 2004 to
2,435. Some growth in headcount can be expected in the second half
of 2004.
Business Outlook
The general market outlook is more cautious than earlier in the
year. IT analyst forecast growth rates of 5% are being
reduced as companies are still consolidating existing capacities.
Software AG remains moderately optimistic about the second half of
the year and expects to fulfill the forecast of level revenue and
raise the operating income forecast from 25% to 40%.
The concentration on two business lines will continue to result
in license revenue growth with continuing lower operating
expenses.
Earnings per share are expected to be in the range of EUR 2.75 to
EUR 2.85 (including EUR 0.88 for the sales of the company interest
in SAP SI).
*IFRS & HGB
These financial results are being presented under IFRS. Previously,
Software AG has presented financial information under the German
accounting regulations HGB. All 2003 figures have been restated to
comply with IFRS and may differ from previously stated or published
financial accounts. Full details of all changes will be published
in the notes to the quarterly financial statements.
View detailed Q2 results here.
Software AG provides a real-time single view of strategic business information by integrating applications and systems, in addition to modernizing mainframe and open system IT environments. Its offerings are based on the product families Adabas, Natural, EntireX and Tamino. Over 2,500 employees in 59 countries support the mission-critical systems of 3,000 customers around the world. The company maintains four regional R&D facilities across three continents. Founded in 1969, Software AG today is Europe’s largest and most established systems software provider. It is headquartered in Darmstadt, Germany and is listed on the Frankfurt Stock Exchange (TecDAX, ISIN DE 0003304002 / SOW). In 2003 Software AG posted 422 million euros in total revenue.
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Contact: Software AG Susanne Eyrich VP Corporate Communications Uhlandstr.12 64297 Darmstadt Germany Tel: +49 6151 92-1511 Mobile: + 49 170 4522702 Fax: +49 6151 92-1621 press@softwareag.com http://www.softwareag.com |
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