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Profit Leap For Software AG In The Third Quarter
Published Oct 26, 2010
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Software AG (Frankfurt TecDAX: SOW) reported significant revenue growth in all business divisions in the third quarter of 2010. Total revenue rose 29 percent (22 percent at constant currency rates) year-on-year to €275.3 million (2009: €213.6 million). In particular the services business performed well reporting higher revenue than the second quarter of 2010, contrary to normal seasonal development. The successful integration of IDS Scheer AG has resulted in this new corporate division reporting revenue growth for both products and consulting services. In addition, foreign currency rates had a positive impact on both revenue and earnings, particularly in the Americas.
Group operating earnings, net income, and earnings per share again reached record highs, returning two-digit growth rates. This performance is a result of the improved utilization of consulting capacities, cost synergies achieved through the merger with IDS Scheer and the positive, third quarter exchange rate effects. Software AG expects this earnings trend to continue in the fourth quarter and has therefore raised its fiscal year 2010 outlook for profit growth from the previously announced 10 to 12 percent to between 18 and 20 percent.
The third quarter 2010 results again confirmed Software AG’s growth strategy. The new business area, known as Business Process Excellence, encompassing innovative software products for the integration of enterprise applications and processes, continued to grow (product revenue webMethods/ARIS + 27 percent compared to the previous year) and delivered an increased earnings contribution. The objectives of the August 2009 merger with IDS Scheer, namely revenue and cost synergies, had a very positive impact on earnings for the first time in the quarter under review. The earnings contribution from the Enterprise Process Innovation (IDS Scheer) division more than tripled to €14.6 million (2009: €4.5 million).
“Now that the organizational integration is complete, we are reaping the benefits of a significantly larger company,” stated Karl-Heinz Streibich, CEO of Software AG. “Our product business with ARIS is entering new dimensions. And, opportunities for more profitable consulting projects have noticeably increased.”
The upturn in demand in the Americas, apparent in the first half of 2010, continued in the third quarter. Thanks to the large U.S. and Brazilian markets, Software AG again achieved two-digit growth rates in the region. Business in Germany, Australia, and the Middle East appreciably outperformed the Group average.
Growth in all business divisions
The Enterprise Transaction Systems (Adabas, Natural) business division has demonstrated a moderate rise in revenue during the course of the current fiscal year. Third-quarter revenue was €101.4 million—five percent above the previous quarter (Q2 2010: €96.3 million) and two percent above the same quarter in 2009 (€99.2 million). In the product business, license and maintenance revenues were both around six percent higher year-on-year. License revenue totaled €36.6 million as compared to €28.0 million in the second quarter of 2010, a 31-percent increase notwithstanding the normal seasonal effects. This was on a par with the record results from 2009.
The webMethods division achieved €86.6 million in total revenue or 14-percent growth in the third quarter of 2010. This reflects the typical seasonal trend as compared to the second quarter of 2010. A number of large-scale projects with new customers confirm the Company’s strategy of positioning itself as an innovative market leader in the process automation growth market.
This strategy includes the acquisition of IDS Scheer AG, whose contribution to revenue from the Enterprise Process Innovation division totaled €87.3 million in the third quarter (2009: €38.6 million). Of that, €23.4 million (2009: €10.4 million) can be attributed to the product business and €63.9 million (2009: €28.2 million) to IDS Scheer Consulting. The increase over last year is partly a result of consolidation. The 10-percent rise over last quarter (Q2 2010), however, illustrates growth in the consulting business.
Operating earnings confirm a successful acquisition strategy
Operating earnings (EBIT) in the third quarter climbed 23 percent to €69.1 million (2009: €56.4 million) as a result of business expansion (primarily in the services unit), advantageous foreign currency rates and the realization of synergies and scale economies from the merger with IDS Scheer. Net profit rose 20 percent to total €45.6 million (2009: €38.1 million). Earnings per share went up to €1.61 (2009: €1.35).
“These are our first quarterly results for the consolidated organization since the acquisition of IDS Scheer and we have surpassed expected revenue and earnings growth rates. An improved profit margin and lower cost ratios, with respect to the services unit as well, are contributing more and more to our results,” explained Arnd Zinnhardt, CFO of Software AG. “With an EBIT margin of 25 percent, the quarter under review has already reached a level that we had envisaged further down the road.”
Net debt in the third quarter fell €42.5 million to €249.6 million. At the end of 2009, this figure was €320.1 million. Software AG’s free cash flow amounted to €42.6 million (2009: €47.0 million) in the third quarter.
First nine months of 2010 document a quantum leap in Company’s development
Software AG’s total revenue in the first nine months of 2010 generated a record-breaking €792.9 million (2009: €555.3 million), a 43-percent rise year-on-year (37 percent at constant currency rates). Revenue in foreign currencies benefited from the weak Euro. In total, exchange rate effects accounted for €30.7 million in revenue growth. Product revenue went up 19 percent to €474.8 million as compared to the first nine months of 2009 (€399.4 million). Maintenance revenue climbed 21 percent to €275.1 million (2009: €228.2 million), and license revenue grew by 17 percent from €171.2 million to €199.7 million.
The webMethods division reported 14-percent revenue growth to €257.3 million as compared to €226.0 million in the same nine-month period in 2009. The ETS division achieved €286.6 million in revenue, which was slightly below that of the previous year (€290.7 million). The new business division, Enterprise Process Innovation, representing IDS Scheer, contributed approximately one-third of revenue with €248.7 million. The previous year’s revenue figure (€38.6 million) accounted only for the period of consolidation (August 20-September 30, 2009).
Furthermore, the expanded company, including IDS Scheer, attained a new level of earnings. EBIT grew 26 percent to €174.6 (2009: €138.8 million). Net profit rose 20 percent to €111.0 million (2009: €92.7 million). Free cash flow in the nine-month period increased to €138.7 million (2009: €119.8 million), which is 16 percent higher year-on-year. As of September 30, 2010, debt was down at €351.2 million as compared to €514.5 million on the same date in 2009. The Group equity ratio was 44 percent as compared to 37 percent on the same date in 2009.
Software AG had a total of 5,708 employees (full-time equivalents) as of September 30, 2010. Of those, 2,089 were employed in Germany. The figure from 2009 (6,086/2,196) was calculated prior to the operational integration of IDS Scheer AG.
Profit forecast for fiscal 2010 raised considerably— €1 billion revenue mark will be surpassed
Software AG confirms its current revenue forecast for fiscal year 2010 which remains significantly above one billionEuros. Compared to 2009, total revenue is estimated to grow between 25 and 30 percent and product revenue between 12 and 15 percent, at constant currency rates.
As a result of improved utilization of service capacities, lower cost ratios, and cost synergies achieved through the merger with IDS Scheer, Software AG now expects (based on the results from the nine-month period) a considerably larger increase in net profit and earnings per share. The Company’s revised forecast for fiscal year 2010 foresees 18 to 20 percent (previously 10-12 percent) earnings growth compared to the last fiscal year.
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VMD - [Virtual Marketing Department]
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