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Financial performance

2.1 Group revenue grows in a challenging environment

Software AG continued to experience stable growth in the second quarter of 2009 despite the ongoing difficult economic climate. Group revenue increased by 5 percent to €176.4 million (Q2 2008: €168.8 million), buoyed in particular by our high-margin product business.

The effect of exchange rates – especially the U.S. dollar – on revenue was again less in the quarter under review than in the previous years. This was due in part to our broad geographical expansion in recent years. Software AG generated 33 percent of its revenues in euros and 67 percent in foreign currencies in Q2 2009. A total of 27 percent of revenues were generated in U.S. dollars. Currency effects led to a decrease of 2.7 percent in revenues in the second quarter.

2.2 Sales by revenue type

Robust product business

Software AG ’s profitable growth is attributable in particular to the Company’s strong, high-margin product business (licenses and maintenance), which rose by a total of 9 percent to €133.7 million (Q2 2008: €123.2 million). This encouraging performance resulted solely from the renewed expansion of our maintenance business, which increased by 20 percent in the quarter under review to €73.9 million (Q2 2008: €61.8 million). The acquisition of new projects from new clients continued to be more difficult than in previous years in the second quarter. Nonetheless, licensing revenues amounted to €59.8 million, nearly reaching last year’s high level (Q2 2008: €61.4 million).

Product revenues accounted for three-quarters of total revenue, as in the previous quarter. Accordingly, Professional Services made up onefourth of revenue.

Professional Services business weaker

Revenue from our Professional Services decreased by 7 percent, from €44.8 million to €41.7 million year-on-year. The decline was due to the current economic situation and is in line with the trend in the IT services industry. However, we expect the restructuring of the business unit together with an economic recovery over the next few months to result in fresh potential.

2.3 Revenues by division

Momentum slows for webMethods

As we predicted, it has proved to be more difficult for the webMethods division to win new projects and customers in the current market environment. This is especially the case in certain countries in which an adequate market presence has not yet been established. A critical mass on the part of the supplier and precise knowledge of the customer are of advantage for ensuring sustained project success in the webMethods division. Revenue in the quarter under review reached approximately the previous year’s level, decreasing 2 percent to €75.5 million after €76.7 million in the previous year. webMethod‘s licensing revenues fell 15 percent to €22.6 million (Q2 2008: €26.6 million), while maintenance revenues registered strong growth of 20 percent to €27.1 million (Q2 2008: €22.5 million). Professional Services dropped 7 percent to €25.8 million (Q2 2008: €27.6 million).

The webMethods division contributed €22.1 million to revenue in the second quarter (Q2 2008: €23.4 million). Cost of sales rose by 3 percent to €29.8 million (Q2 2008: €28.9 million). Selling expenses decreased by 3 percent, from €24.4 million to €23.6 million.

ETS very encouraging

Licensing revenues from the ETS business line rose by 10 percent in the quarter under review to €100.9 million (Q2 2008: €92.1 million). The increase was thanks in part to the division’s good performance in Brazil and South Africa. Maintenance revenues represented a particularly positive note, rising 19 percent to €46.7 million (Q2 2008: €39.3 million). However, licensing revenues also performed well with growth of 7 percent, from €34.7 million to €37.3 million. Professional Services declined by 7 percent year-on-year, from €18.1 million to €16.9 million. ETS had a share of 57 percent in revenue and webMethods 43 percent in the quarter under review.

ETS contributed €62.1 million to earnings in Q2 2009, an increase of 7 percent over the prior year (Q2 2008: €57.8 million). Because of the expansion of sales, cost of sales increased by 11 percent to €21.0 million (Q2 2008: €18.9 million). Selling expenses rose by 16 percent to €17.8 million (Q2 2008: €15.4 million).

EBIT again outperforms revenue

EBITA outperformed revenues and grew by 9 percent in the quarter under review, increasing to €48.4 million (Q2 2008: €44.4 million). EBIT gained 8 percent year-on-year, rising from €40.9 million to €44.2 million. The EBIT margin thus improved to 25.1 percent (Q2 2008: 24.3 percent).

Expenses increased more or less in line with revenues. Research and development expenses rose 4 percent to €19.2 million in the 2nd quarter, up from €18.5 million in Q2 2008. Marketing and selling expenses also increased by 4 percent to €41.3 million (Q2 2008: €39.8 million). We succeeded in reducing general and administrative expenses by 2 percent to €16.3 million (Q2 2008: €16.7 million).

REVENUES BY DIVISION
IFRS, unaudited

in € million

Q2|2009

Q2|2008

Change
in %

webMethods


Licenses

22,59126,604– 15

Maintenance

27,12222,49020

Professional Services

24,99227,520– 9
Other82044 
Total75,52576,658– 2
ETS


Licenses

37,26034,7487

Maintenance

46,73339,29019

Service

16,69817,261-3
Other161810 
Total100,85292,10910

  

KEY EARNIINGS INDICATORS

in € million

Q2|2009

Q2|2008

Change
in %

EBIT44,23240,9368
EBITA48,37144,4209
Financial income/expense, net– 661– 1,418
Net income28,93027,1097
Earnings per share in (€ basic)1.020.957

 

Marked improvement in net income and earnings

Profit after tax rose by 7 percent in the quarter under review to €28.9 million (Q2 2008: €27.1 million), thanks in particular to the improvement in net financial income/expense. Earnings per share increased to €1.02 in the second quarter, up from €0.95 in Q2 2008. This reflects an increase of 7 percent. As of June 30, 2009, 28.7 million shares were in circulation (basic), an increase of approximately 89,000 shares yearon- year.

Half-year figures confirm stable business trend

Group revenue of Software AG rose by 4 percent to €341.7 million, up from €328.2 million in the first half of 2008. Product revenue increased by 8 percent in the same period to €256.2 million (H1 2008: €327.9 million). Maintenance revenues performed outstandingly with a rise of 21 percent to €147.1 million, up from €121.1 million in the previous period. However, licensing revenues for both divisions fell 7 percent, from €116.8 million to €109.1 million. As a result, revenue from Professional Services also declined, dropping 5 percent from €87.7 million to €84.0 million.

By contrast, profit before tax (EBIT) increased by 7 percent to €82.3 million in the first half of 2009 (H1 2008: €77.0 million) thanks to strict cost management. The EBIT margin rose from 23.5 percent to 24.1 percent.