Software AG results buck the trend

Software AG (Frankfurt TecDAX: SOW) is off to a strong start in 2010, continuing on the growth path it began in 2003. First-quarter total revenue was posted at EUR250.3 million, a 51% increase year-on-year.

In the same period, product revenue grew 20 percent to EUR146.7 million. Free cash flow, which had been climbing progressively over the past few quarters, dynamically rose by 39% in the first quarter. This higher free cash flow expanded the company's capability to further drive growth. The slight upswing in IT demand that became apparent early in the year had a positive impact on the first quarter. The company expects an increased volume of large-scale projects in the Process Innovation division and confirms its outlook for the fiscal year.

“Our continuous growth is proof that Software AG is well positioned globally,” states Software AG CEO, Karl-Heinz Streibich. “By focusing on excellent processes, we have delivered exactly what customers need. Integration with IDS Scheer is progressing according to plan, and, together, we are breaking new ground in process innovation.”

In South Africa, the local office has closed the first quarter 2010 with licence renewals and updates, as well as new name deals, that have enabled the company to exceed revenue targets.

“After a successful FY 2009, we are delighted to see this trend and customer confidence continue into 2010,” said Emma Murray, Country Manager and Acting Senior Vice-President South Africa. “In fact there's a growing awareness that modernising and updating existing data systems is preferable and more cost-effective than then unknown of rewrites or 'rip and replace' solutions.”

Globally, the webMethods integration software division, including service-oriented architecture (SOA) and business process management (BPM), achieved 9% growth in first-quarter revenue to EUR81.4 million. Licensing revenue for this division increased 10% over the same period in the previous year.

The ETS (Adabas, Natural) data management business division posted revenue almost equaling that of last year's at EUR89.1 million (EUR90.7 million) million.

The Enterprise Process Innovation division, which represents the IDS Scheer business, contributed EUR79.8 million in total to Software AG's revenue growth. Of that, products (ARIS and third-party products) contributed EUR21.0 million and services and consulting (IDS Scheer Consulting and product implementation) EUR58.8 million.

Successful sales with the new products combined with effective cost management resulted in increased earnings in the first quarter. Cost ratios were reduced as were absolute costs, which fell below those of the fourth quarter of 2009 - the first quarter of complete consolidation with IDS Scheer AG. Software AG's operating earnings in the first quarter of 2010 were up 22% to EUR46.6 million (2009: EUR38.1 million). Net income grew almost 9% to EUR28 million although the tax rate (33%) remained about the same and interest payments (EUR4.6 million) were higher due to acquisitions. Earnings per share were up at EUR0.98 (2009: EUR0.90).

The repeated increase in free cash flow in the first quarter was particularly encouraging, up 39% year-on-year to EUR59.8 million. This positive development was a result of effective receivables management facilitated by excellent internal business processes.

“High, sustainable cash flow guarantees that we have adequate liquidity, which is necessary to sustainably ensure innovation and growth,” said Software AG CFO, Arnd Zinnhardt. “We are making headway in realising the financial goals associated with the integration of IDS Scheer AG.”

Operational integration of IDS Scheer began in February 2010 in the central administrative departments and will continue at the foreign subsidiaries. To further accelerate the process, the merger of the companies is being prepared.

To that end, IDS Scheer AG shares will be exchanged for Software AG shares. The exchange rate will be based on a value assessment of the five-year plans of both companies. A preliminary value per share was calculated at EUR138.96 for a Software AG share and EUR16.74 per an IDS Scheer share.

The operational results showed the normal seasonal effects. In light of the persistently difficult economic climate, this can be considered a very positive indication of upcoming business development. Customers at CeBIT expressed strong interest in innovative IT solutions to optimize business processes. The merger of IDS Scheer and Software AG in both the product and consulting businesses will generate cost benefits and competitive advantages. The company therefore confirms the outlook for fiscal year 2010 which was published in February, with total revenue growth between 25% and 30% and product revenue growth between 12% and 15%, at constant currency rates. Accordingly, an increase in net income and earnings per share is expected between 8% and 12%.