quarterlyreports2009Select a Country Site
Image 01 Image 02 Image 03 Image 04 Image 05 Image 06 Image 07 Image 08 Image 09 Image 10

Financial performance

2.1 Group revenue grows with IDS Scheer AG

Software AG continued its profitable growth in Q3 2009 despite the ongoing challenging economic environment. Group revenue rose by 19 percent to €213.6 million (2008: €180.1 million). For the first time, this included revenues from IDS Scheer AG, which were consolidated as of August 20, 2009. These revenues are being presented in this interim management report for the first time as a third business division.

In the quarter under review, there were no significant currency translation effects on the revenue, which is why they are not being listed separately. The consolidation of IDS Scheer AG contributed to this, because its revenues are largely earned in the euro zone. In the third quarter, 36 percent of revenue was attributable to euros and 26 percent to U.S. dollars. The total currency translation effect on revenues amounted to -0.6 percent in the quarter under review and +1.2 percent for the first nine months of the year.

2.2 Sales by revenue type

Renewed growth for product business
Software AG’s margin-enhancing product business (licenses and maintenance) grew by 4 percent to €143.2 million (2008: €138.0 million). Once again, the revenue driver in the quarter under review was the maintenance business, which was up 16 percent to €81.1 million (2008: €70.2 million). As in previous quarters, customers’ reluctance to close new projects was reflected in the licensing business. Thus, licensing revenues fell by 8 percent to €62.1 million. In Q3 2008, they amounted to €67.8 million. Products accounted for 67 percent of the total revenue during the quarter under review. The services business contributed 33 percent to Group revenues, also via the consolidation of IDS Scheer Consulting.

Services business expanded significantly
Revenue from services amounted to €69.5 million in the third quarter of 2009. This corresponds to a rise of 66 percent over the previous year’s figure of €41.8 million, which can be traced back to the contribution of IDS Scheer AG.

2.3 Revenue by Business division

The business divisions’ shares of the revenue are distributed approximately as follows: ETS 46 percent, webMethods 36 percent, IDS Scheer 18 percent (since August 20, 2009).

ETS still robust
The ETS (data management) division’s revenues amounted to €99.2 million in the quarter under review, which was only slightly lower than the previous year’s strong figure of €101.1 million. At €83.1 million, product revenue remained on par with the previous year’s value (€83.8 million). This is due to continued strong expansion of the data management business in Brazil, as well as our customers’ continual investment in operational business. Our maintenance revenues improved by 4 percent, reaching €48.6 million (2008: €46.7 million). Licensing revenues fell 7 percent, to €34.5 million, from the previous year’s figure of €37.1 million. However, last year’s figure included the largest individual order in the history of the Company, from Brazil, which had the one-time effect of increasing the previous year’s basis of comparison. Services, at €16.0 million, also came out 6 percent lower than in 2008 (€17.0 million).

The contribution of the ETS segment to operating Group results before administrative costs, as well as research and development, amounted to €61.7 million in the third quarter, 3 percent less than in the previous year (€63.4 million). Production costs rose by 5 percent to €20.6 million (2008: €19.6 million), while sales costs diminished by 7 percent to €16.9 million (2008: €18.1 million) thanks to optimized sales efficiency.

webMethods restrained
As expected, the webMethods business division is operating in a more difficult market environment than ETS because of the recession. Revenues amounted to €75.8 million in the quarter under review, as opposed to €79.0 million in 2008, a decrease of 4 percent. This substantiates the current difficult market situation for new projects. A comparison with the second quarter of 2009 (€75.5 million) shows that the situation is already improving slightly, however. In normal years, revenues from the third quarter are subject to seasonal influences and below those of the second quarter. webMethods licensing revenues, at €21.4 million, came in 30 percent lower than in 2008 (€30.6 million). Maintenance revenues, in contrast, grew by 21 percent, from €23.5 million to €28.4 million. And services picked up over the previous year (€24.8 million) by 3 percent to €25.5 million. If basic economic conditions improve as expected, the webMethods business division will profit considerably thanks to its leading technologies.

The increased contribution of webMethods to Group earnings is especially encouraging. That business division’s operating margin continued to improve in the third quarter of 2009. In consequence of greater sales efficiency as well as larger closed deals, the business division’s segment contribution climbed by 7 percent to €29.8 million (2008: €28.0 million). Production costs, at €26.7 million, were about the same as in the previous year (€26.9 million). Sales costs fell significantly by 20 percent to €19.3 million (2008: €24.1 million).

Key Figures
IFRS, unaudited
in € millions

Q3|2009

Q3|2008

Change

in %

Total revenue213.6
180.1
19

Product revenue (Licenses & maintenance)

143.2138.04

Professional Services revenue

69.541.866

Revenue ETS

99.2101.1– 2
Revenue webMethods75.879.0– 4
Earnings before interest and taxes (EBIT)56.448.716
in % of margin26.4
27.0

Net income

38.131.023

Earnings per share (€)

1.351.0825

Free cash flow

47.034.237

 

IDS Scheer consolidated for the first time
Since consolidation on August 20, IDS Scheer AG has contributed €38.6 million to Group revenues. Of that, €10.4 million is attributable to product revenues, including €6.1 million for licensing and €4.2 million for maintenance. The services business brought in €28.0 million in revenues. Production costs amounted to €26.1 million, and sales costs to €6.7 million. This resulted in a segment contribution from IDS Scheer of €5.8 million, which had a net impact of €0.4 million on quarterly results.

EBIT exceeds expectations
In the third quarter of 2009, EBITA increased disproportionately to revenue growth by 22 percent to €63.8 million (2008: €52.3 million). EBIT improved by 16 percent to €56.4 million; in the same quarter of the previous year, it amounted to €48.7 million. The EBIT margin in the third quarter of 2009 (26.4 percent) almost reached the record 27 percent achieved in the third quarter of 2008. The standalone EBIT margin would have amounted to more than 30 percent for the first time in the Company’s history. By significantly lowering (standalone) operating costs by a total of 11 percent, we succeeded in absorbing the acquisition costs and consolidation effects for the third quarter of 2009 and maintaining the EBIT margin at the previous year’s level.

Software AG laid the foundation for this extraordinarily good margin development in October 2008. A “crisis response program” was devel-oped at an early stage, with the goal of avoiding layoffs and cutting costs during the recession. Proceeding proactively and retaining employees will enable us to come out strongly after the recession. We achieved savings in all areas of the Company. Stricter requirements for new hires and resource procurement, as well as tightened travel guidelines, are having an effect. In addition, some large-scale events were skipped. Global meetings were replaced by videoconferences, and employee training was often conducted via more efficient e-learning programs. This not only cut costs, but it also further reduced our Group’s carbon footprint.

Expenditures for research and development were not reduced. R&D spending totaled €19.6 million in the quarter under review, which equals the previous year’s level (€19.4 million). We do not wish to relinquish our technological lead just for short-term and disproportion-ate profits when the economy starts up. The remaining cost ratios, on the other hand, were lowered considerably. Thus, marketing and sales costs grew by only 2 percent to €45.2 million (2008: €44.1 million), while revenues climbed by 19 percent. General administrative costs, at €16.2 million, amounted to only 7.6 percent of revenues, after 8.7 percent in the same quarter of the previous year.

Further increase in net income and earnings
In the quarter under review, Software AG achieved after-tax profits of €38.1 million – an increase of 23 percent over the €31.0 million in 2008. Strong operating results and an improved tax rate contributed to this. In the reporting period, earnings per share climbed 25 percent from €1.08 to €1.35. As of the end of the quarter, there were 28.7 million shares in circulation (undiluted), an increase of almost 76,000 shares year on year.

Nine-month figures confirm robust business model
Software AG reported strong growth rates in the first nine months of 2009, in which the consolidation of IDS Scheer played only a small part. Revenues amounted to €555.3 million, 9 percent more than in 2008 (€508.2 million). Product revenues totaled €399.4 million, a 6 percent uptick over the previous year’s figure of €375.9 million. Maintenance revenues included in product revenues climbed by 19 percent to €228.2 million (2008: €191.4 million). Licensing revenues, in con-trast, decreased from €184.5 million to €171.2 million, by 7 percent. In comparison to the rest of the industry, this is a good figure, as many software manufacturers had two-digit decreases in licensing revenues due to the economic crisis. The services business grew strongly due to acquisitions; it was up by 18 percent to €153.5 million (2008: €130.5 million).

EBIT grew by 11 percent in the first nine months of 2009 to €138.8 million (2008: €125.6 million). The EBIT margin improved slightly from 24.7 percent to 25.0 percent. Operating cash flow during the first nine months of the year amounted to €126.9 million, which is 32 percent higher than at the end of the third quarter of 2008 (€96.3 million).