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Software AG Outperforms the Market with New Products in Q3, 2012
Published Nov 1, 2012
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Software AG has announced its financial results (IFRS, preliminary) for the third quarter of 2012. The company had pre-announced its key figures on October 12, 2012, which exceeded market expectations for revenue from new product sales in the Business Process Excellence (BPE) business line. Software AG posted BPE product revenue growth (licenses and maintenance) of around 15 per cent at €96.7 million (Q3 2011: €84.2 million). The company’s BPE license revenue increased around 20 per cent to €50.0 million (Q3 2011: €41.7 million). The high-margin Enterprise Transaction Systems (ETS) business line, the company’s traditional database business, demonstrated stability in the quarter under review, remaining about on par with Q3 2012 at €93.8 million (Q3 2011: €95.1 million). Due to the realignment of the company's consulting business, reported total revenue dropped to €257.4 million (Q3 2011: €274.6 million). Targeted increased investments in new products and markets had an impact on operating income (EBIT in accordance with IFRS). At €61.1 million, EBIT was down from last year (Q3 2011: €72.0 million) — which had been positively influenced by non-recurring items — but up from a strong second quarter (Q2 2012: €57.1 million). The EBIT margin was 23.7 percent (Q3 2011: 26.2 percent), which reflects an increase over the course of the year (Q1 2012: 21.5 percent and Q2 2012: 22.1 percent). An equity ratio of 59 per cent and net cash of €10.5 million was reported as of September 30, 2012.
Dynamic License Revenue Trend
License revenue is the critical growth factor for a successful software company. Here Software AG reported €80.5 million revenue (Q3 2011: €74.7 million) in the quarter under review, which is about an 8 per cent increase year-on-year. The BPE business drove this performance with license revenue growth of 20 per cent to total €50.0 million (Q3 2011: €41.7 million). All regions contributed to this positive development with double-digit growth. The sales initiative in North America that was kicked off at the beginning of the year led to substantial growth for the second consecutive quarter. The positive trend was also sustained in Europe. The Terracotta Big Data products continued their dynamic growth as well with a revenue increase of more than 100 per cent. Software AG expects this figure to triple or quadruple in fiscal 2012.
Software AG CEO, Karl-Heinz Streibich, commented on the results: "The trend in the public and private sector to increase efficiency and competitive advantage through digitization is constant. Our good performance in license revenue confirms the vitality of this market. Our investments in new products, and in marketing and sales, are paving the road to sustained growth."
“Software AG has again posted strong quarterly results given the company’s consistent performance across all regional markets. Software AG Middle East, in particular, has achieved a tremendous boost to its business performance in light of the growing awareness among Arab enterprises about the impact of leading-edge applications in enhancing operational efficiency and optimizing business productivity,” said Marco Gerazounis, Senior VP Middle East North Africa & Turkey, Software AG.
The traditional ETS business line reported stable revenue of €30.2 million (Q3 2011: €31.7 million) in license revenue, nearly the same as the previous year.
Solid Growth in Maintenance Business
Software AG's maintenance revenue climbed about 4 per cent in the third quarter of 2012 to €97.8 million (Q3 2011: €94.2) million. The BPE business line contributed €46.7 million (Q3 2011: €42.5 million). This is about 10 per cent higher year-on-year. ETS contributed a consistent €47.4 million (Q3 2011: €47.5 million) to maintenance revenue.
Services Down Due to Ongoing Consolidation Measures
Service revenue in the third quarter was €78.2 million (Q3 2011: €105.2 million). €25.2 million (Q3 2011: €42.6 million) of that is attributable to SAP consulting. Here Software AG's focus is on process consulting in defined core markets. BPE and ETS contributed a total of €53.0 million (Q3 2011: €62.6 million) to service revenue in the quarter under review. This reflects the new software products' increasing user-friendliness in that installations require fewer services. As a result, the profitable license business is growing faster than service revenue.
Total Revenue and Earnings for Q3 2012
At €257.4 million, Software AG's total revenue was on par with the strong second quarter of 2012 (Q2 2012: €258.6 million) and below last year's figure (Q3 2011: €274.6 million). This is a result of the decrease in revenue from SAP consulting due to the realignment of that business line.
Operating income (EBIT in accordance with IFRS) was €61.1 million, which is up from the previous quarter (Q2 2012: €57.1 million). Due to the currently higher expenses from the expansion of sales (particularly in North America), to increased costs for research and development and to this year's costs from consolidation of the SAP consulting business, operating income was down from the same quarter last year (Q3 2011: €72.0 million) which had also been positively influenced by non-recurring items. The EBIT margin for the third quarter of 2012 was 23.7 per cent (Q3 2011: 26.2 per cent), which reflects an increase over the course of the year (Q1 2012: 21.5 per cent and Q2 2012: 22.1 per cent). Net income was €40.7 million (Q3 2011: €46.6 million).
Software AG's total assets as of September 30, 2012 were €1.7 billion, and the equity ratio was about 59 per cent. With a surplus (cash less financial liabilities) of €10.5 million, the company’s balance sheet showed net cash.
Arnd Zinnhardt, Chief Financial Officer of Software AG, added: “We are investing in the dynamic growth of Software AG. These investments are already showing success in the short term, and will continually increase the enterprise value.”
Nine-Month Performance
The BPE business line demonstrated dynamic license performance and reported revenue for the first nine months of the current fiscal year to the amount of €131.3 million (Q3 2011: €112.1 million). This represents about a 17 per cent increase. ETS license revenue in the same period was slightly above last year at €89.1 million (Q3 2011: €87.2 million). Total product revenue (licenses and maintenance) for the group rose some 6 per cent to €515.3 million (Q3 2011: €484.7 million). Due to the consolidation of the SAP consulting business, service revenue was down year-on-year at €253.7 million (Q3 2011: €316.4 million). Accordingly, group revenue for the nine months ending September 30, 2012 was €770.6 million (Q3 2011: €804.3 million). Operating income totaled €172.9 million (Q3 2011: €191.2 million).
Employees
As of September 30, 2012 Software AG had 5,436 (Q3 2011: 5,498) employees, of which 1,084 (Q3 2011: 1,031) worked in Sales and Marketing and 892 (Q3 2011: 855) in Research and Development (R&D). The total number of employees in Germany was 1,783 (Q3 2011: 1,920).
Outlook Adjusted to Reflect Growth Drivers
Software AG's dynamic growth in licenses — driven by its innovative products (BPE & Terracotta) and strengthened by a stable ETS performance — characterized the first nine months of fiscal 2012 and is expected to continue in the fourth quarter of 2012. Software AG considers this to be a confirmation of its strategy and further specifies its forecast as follows:
Group product revenue for fiscal 2011 was approximately €674 million. For fiscal 2012, the company is targeting an increase between 3 and 6 per cent (at constant currency) to reach a total of €715 to €735 million.
For the growth-driving BPE business division an increase of between 10 and 13 per cent (at constant currency) in product revenue is expected for the current fiscal year. Due to low service revenue, which is a result of the improved user-friendliness of the new software products, total BPE revenue growth is anticipated to grow (0 to 3 per cent at constant currency rates) to between €540 and €560 million at the end of the year (2011: €528 million).
The ETS business line reported some €381 million in revenue in fiscal 2011. For the current year, Software AG anticipates a smaller decline than originally expected for ETS revenue of between 2 and 4 per cent (at constant currency) thanks to the stable performance of the traditional database business.
Due to ongoing higher sales investments, the company forecasts an EBIT margin for the year between 23.0 and 24.0 percent.
Posted by
VMD - [Virtual Marketing Department]
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