Software AG (Frankfurt TecDAX: SOW) today released its financial results (IFRS, preliminary) for the fourth quarter and for the full 2013 fiscal year.
The company reached a record level of licence sales in the final quarter. Up 23%, Business Process Excellence (BPE) - the company's largest business line - significantly outperformed the market and Software AG increased market share considerably. As the Enterprise Transaction Systems (ETS) business line also grew more than 20% in the fourth quarter, Group licence revenue climbed 22%. Fuelled by strong business in the second half of 2013, Group licence revenue for the full fiscal year likewise rose to a record high, reaching a total of EUR330 million (2012: EUR319 million), a 9% rise. This positive performance is a result of Software AG's growth strategy of investing in the expansion of its BPE sales and marketing activities in 2013. In addition, the company made five acquisitions in the past year, worth more than EUR110 million, enhancing its BPE product portfolio with additional innovative technologies.
Karl-Heinz Streibich, CEO of Software AG, states: "2013 wasn't just the strongest year in the history of our company with respect to licences; it is also proof that we are right on track with our transformation strategy. We will build on our technology leadership and further increase our market share in 2014."
Arnd Zinnhardt, CFO of Software AG, adds: "We strengthened our future-oriented business line by investing in organic growth and five technology acquisitions. At the same time, we maintained our operating profit margin, at a very respectable level, through disciplined cost management. Thanks to sufficient cash reserves, we are ideally positioned for further growth."
Business line development
The BPE business line - consisting of integration and process software and big data solutions - achieved EUR127 million (2012: EUR114 million) in revenue, 18% growth, in the fourth, and seasonally strongest, quarter of 2013. Revenue for the full fiscal year was up 15% year-on-year at EUR423 million (2012: EUR385 million). Within the BPE line, the big data products posted an increase to EUR37 million, nearly doubling revenue from the year before.
The successful expansion of sales had a particularly positive impact on BPE licence revenue, which was up 23% for the fourth quarter and 18% for the fiscal year. Licence sales in the software sector are considered a key performance indicator for future growth because they produce long-term maintenance revenue. Revenue from maintenance agreements was EUR53 million (2012: EUR50 million) in Q4 and EUR203 million (2012: EUR190 million) in the fiscal year, reflecting growth of 11% year-on-year.
BPE's strong performance confirms that Software AG's strategic initiatives, such as the expansion of sales and marketing teams and five acquisitions, already had an effect during the year. The Americas and Asia-Pacific were the greatest growth-driving regions. Software AG Government Solutions, a US subsidiary, also made a positive contribution to BPE success, thanks to a number of high-volume deals.
BPE accounted for about 60% (2012: 54%) of Group product revenue (licences + maintenance) and therefore continued to strengthen its role as Software AG's largest business line. The company aims to further increase this share to 80% by 2018.
Software AG's traditional ETS database business reported growth of 3% in Q4 due to exceptionally high licence revenue. Total fiscal year revenue in this business line was EUR274 million (2012: EUR311 million), a decrease of 7% year-on-year. This development is in line with the company's forecast that the traditional database software market in general is in decline because of its maturity and saturation.
The Consulting business line recorded EUR70 million (2012: EUR85 million) in revenue in Q4 and total revenue of EUR275 million (2012: EUR352 million) in fiscal 2013. The decline is due to Software AG's realignment of its Consulting business, which included the sale of SAP service operations in Canada and the USA in Q1 2013. Disposals followed in Hungary, the Czech Republic and Slovakia in Q3. Through these measures, the company successfully focused its SAP service operations on process consulting in the German-speaking region. Consulting made a positive segment contribution again in fiscal 2013 - the most notable earnings improvement coming in the final quarter. Software AG, therefore, achieved its operational turnaround of the Consulting business in the concluded fiscal year.
Total revenue and earnings performance
Fuelled by strong BPE business, fourth-quarter Group licence revenue was up 22% to EUR111 million (2012: EUR97 million). Maintenance revenue remained level year-on-year and at constant currency. Product revenue (licences + maintenance) was up 10% year-on-year at EUR204 million (2012: EUR197 million) in the fourth quarter. All in all, total revenue climbed 3% to EUR271 million.
For the full fiscal year, Software AG Group licence revenue improved 9% to EUR330 million (2012: EUR319 million) propelled by a dynamic acceleration of business in the second half of the year. This sets a record in the history of Software AG and confirms the success of its transformation measures. At EUR376 million, maintenance revenue in fiscal 2013 was level with the previous year at constant currency. At EUR706 million, product revenue was up 4% over the previous year. Its share of total revenue rose to 73% (2012: 68%). Software AG's revenue mix, therefore, further improved towards growth-driving, high-margin licence and maintenance revenues.
Software AG's total revenue for 2013 was EUR973 million as a result of lower revenue in the Consulting business after the sale of SAP service operations in North America and Eastern Europe. BPE growth more than offset the expected loss in ETS revenue. Exchange rates had an exceptionally negative effect (totalling EUR38 million) on Group revenue, which, given stable currencies, would have exceeded EUR1 billion.
Software AG's EBIT in fiscal 2013 was EUR206 million. It was affected by the planned additional expenditures of EUR53 million for the expansion of sales and marketing, and EUR7 million for research and development activities. Adjusted for acquisition-related expenses, operating EBIT (non-IFRS) was EUR261 million; this represents an operating return on sales of about 27%. Net income after taxes was EUR134 million (non-IFRS: EUR173 million). Reported earnings per share were EUR1.60 (non-IFRS: EUR2.07) [Please note: For a comparison to the guidance - earnings adjusted for net effects of additional M&A-related expenses and the share buyback 2013 - earnings per share were EUR1.70.]
Employees
As of 31 December 2013, Software AG had 5 238 (2012: 5 419) employees, of which 1 180 (2012: 1 131) worked in Sales and Marketing and 998 (2012: 887) in Research and Development. The total number of employees in Germany as of that date was 1 711 (2012: 1 768).
Outlook 2014
Software AG anticipates an increase in BPE revenue to between 12% and 18% for fiscal year 2014. ETS revenue is expected to drop by between 9% and 16%. Operating result (non-IFRS) for 2014 is estimated to grow between 4% and 10%.
Please click here to view Key figures for Q4 2013.
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