Software AG shows strong growth in fiscal 2009

Software AG (Frankfurt TecDAX: SOW) reported a significant increase in revenue and net income for fiscal year 2009.

In doing so, Germany's second largest software company beat market expectations. Group revenue amounted to EUR847.4 million, up 18% in 2009 (2008: EUR720.6 million). EBIT increased by 21% to EUR218.2 million for the same period, delivering an EBIT margin of 25.8%.

Licence revenue was at EUR269.9 million, reflecting the difficult market conditions in 2009 (2008: EUR272 million). Maintenance was up by 16% to EUR310.6 million (2008: EUR267.1 million).

The acquisition of IDS Scheer drove Services and Consulting revenue up by 48% to EUR262.5 million (EUR177.8 million). Net income rose by 22% to EUR140.8 million from EUR115.9 million in 2008. Earnings per share rose 21% to EUR4.92 (EUR4.05 in 2008). For 2010, Software AG forecasts revenue growth of 25% to 30% at constant currency rates and net income up 8% to 12%.

Most importantly for a software company, total product revenue (licence and maintenance) rose by 8% to EUR580.5 million (EUR539.1 million in 2008). Services and consulting revenue rose by 48% to EUR262.5 million (EUR177.8 million in 2008).

Against a backdrop of continuing economic recession, the webMethods business line (integration software) product revenue was up 5% to EUR219.9 million compared to 2008 (EUR208 million) and total revenue by 3% to EUR324.9 million (EUR315.7 million in 2008). Through an improved sales mix and increased sales efficiency, the webMethods business line increased its contribution to earnings by 15% to EUR70.1 million (2008 EUR60.8 million). webMethods contributed more in 2009 than ever before to group results.

Product revenue from the data management business ETS amounted to EUR327.7 million, marginally under the 2008 figure of EUR330.6 million. An 8% increase in maintenance to EUR187.9 million (2008: EUR173.8 million) compensated for a decrease in licence revenue to EUR139.8 million (2008: EUR156.8 million) attributable to difficult ETS trading conditions in Japan.

The consolidation of IDS Scheer, as of 20 August 2009, as a third Software AG business line had added revenue of EUR126.5 million.

“We reported record numbers again in 2009. The acquisition of IDS Scheer will help us build a leadership position for business process excellence software,” said Software AG CEO Karl-Heinz Streibich. “In the fourth quarter we closed an increased number of large deals. We are seeing the first signs of an economic recovery. Software AG is an excellent position to benefit from this development.”

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The fourth quarter 2009 returned total revenue of EUR292.1 million, 38% up on EUR212.4 million in 2008. Product revenue was up 11% to EUR181.1 million (2008: 163.2 million) and Services and Consulting up 130% to EUR109 million (2008: EUR47.3 million). The significant rise in Services and Consulting revenue is due to the contribution of IDS Scheer, which results are being consolidated for a full quarter for the first time.

ETS product revenue at EUR87.7 was up 6% in the fourth quarter compared to the third quarter showing normal seasonal development. It was, however, under the comparable quarter in 2008 (EUR101.2 million). This was due to delayed business in Japan. In consequence, total business line revenue of EUR105.4 million was 13% down on EUR121 million revenue in 2008.

Comparing fourth quarter business development to the third quarter, the IDS Sheer business line showed revenue gains in all areas. Total operating revenue was up 14% and contributed EUR87.9 million to Software AG Group revenue. Services and Consulting revenue was up 9% and ARIS licence revenue up 83% to EUR11.5 million. This strong growth in licence revenue mirrored the development in the webMethods business line and is another indicator of customer investment in new technologies.

Software AG achieved a revenue increase of 18% with only a moderate increase in costs. This demonstrates a further increase in efficiency. This led to an increase of 21% in EBIT to EUR218.2 million (2008 EUR180.5 million) and an EBIT margin of 25.8% (2008: 25.1%).

A reduced tax rate of 32.7% of the consolidated company contributed to a growth in net income of 22% to EUR140.8 million (2008: EUR115.9 million). Earnings per share rose to EUR4.92 (2008: EUR4.05).

Free cash flow performed extremely well rising 41% to EUR188.4 million from EUR133.4 million in 2008. In the fourth quarter 2009, free cash flow was up 63% to EUR68.6 million.

"We have benefited over the full year from cost-cutting measures, which we began in 2008. We were able to return an EBIT above our target, increase our EPS by 21% and our free cash flow by 41%. In the course of integrating IDS Scheer, we will use the efficient processes of Software AG in order to sustainably increase the profit of the group," said Arnd Zinnhardt, Chief Financial Officer of Software AG.

Software AG is forecasting for fiscal year 2010, at constant currency rates, total revenue growth of 25% to 30% with product revenue growth of 12% to 15%. The company also forecasts growth in net income of 8% to 12%.

Software AG now holds 91% of IDS Scheer shares. A domination agreement was approved at an extraordinary general meeting of IDS Scheer on 8 January 2010. Software AG therefore expects to realise cost synergies of EUR25 million to EUR30 million. To accelerate the organisational integration a merger of the two companies is planned. The minority shareholders of IDS Scheer would then become shareholders of Software AG. The company plans to buy the required shares on the open market within the next few months.