Darmstadt, Germany, 05 May 2014
Software AG (Frankfurt TecDAX: SOW) reported a continued positive performance in the first quarter of 2014 for its largest business line Business Process Excellence (BPE) with a growth of 11% (at constant currency). The company set its dynamic growth course through the targeted expansion of sales and placing new products in key future markets in 2013. Software AG expects further dynamic growth in BPE over the course of fiscal 2014 and has confirmed its outlook for the year.
Karl-Heinz Streibich, CEO of Software AG, states: "The two-digit BPE growth confirms the direction of our transformation strategy. More and more customers are investing in innovative software to fuel the digitization of their businesses with new process management and integration solutions."
Arnd Zinnhardt, CFO of Software AG, adds: "As a pure software product vendor, we can now focus on our own portfolio and achieve a higher margin than with third-party product consulting services. The sale of our SAP service activities was therefore a logical step."
Business line development
The Business Process Excellence (BPE) line achieved revenue growth of 11% at constant currency to total EUR95.3 million (2013: EUR90.3 million). Of that, licence sales rose 10% to EUR43.7 million (2013: EUR41.9 million). Maintenance revenue grew by 11% to EUR51.6 million (2013: EUR48.4 million). In total, BPE revenue accounted for almost two-thirds (2013: 58 percent) of Group product revenue, which reflects a further improvement to Software AG's revenue mix in favor of this high-growth future-oriented business line. This development verifies the impact of the strategic growth measures which were taken last year - including the expansion of the sales force and the establishment of Software AG Government Solutions, a US subsidiary, which focuses on public sector customers. Based on its current sales pipeline, Software AG is optimistic about the upcoming quarters and expects BPE licence revenue to continue to rise over the course of the year.
In line with expectations, the traditional Enterprise Transaction Systems (ETS) database business generated EUR51.1 million (2013: EUR64.5 million) in revenue in the first quarter of 2014. Of that, ETS licence sales were down to EUR13.3 million (2013: EUR21.1 million). As more ETS software licenses were sold already in the fourth quarter of 2013 than originally expected, fewer deals were closed in the first quarter of 2014. Software AG was, however, able to maintain the segment contribution's margin through effective cost management.
The Consulting business line posted first-quarter revenue of EUR62.5 million (2013: EUR70.1 million). The decline is primarily due to the consolidation of SAP-related consulting operations. As part of that, operations in North America and Eastern Europe were disposed in 2013. This was followed by the sale of SAP consulting in Germany, Austria and Switzerland (approx. 500 employees and EUR64 million in annual revenue) to the Scheer Group of Saarbrucken, Germany, in March 2014. The transaction successfully concluded the refocus of Software AG's consulting activities.
Software AG's global total revenue was EUR208.9 million (2013: EUR224.9 million). The negative effects of exchange rates totalled EUR9.7 million; and consolidation of the SAP consulting business decreased Consulting revenue by EUR7.6 million to EUR62.5 million (2013: EUR70.1 million). First-quarter product revenue (licences and maintenance) for the core BPE and ETS business lines was EUR146.2 million and therefore at last year's level at constant currency. BPE growth fully offset the anticipated decline in ETS.
Earnings performance
First-quarter operating earnings (non-IFRS) were EUR43.0 million (2013: EUR48.9 million); accordingly the operating profit margin (non-IFRS) was 21% (2013: 22 percent). EBIT totaled EUR30.5 million (2013: EUR41.6 million) as a result of investments. Net income after taxes totalled EUR18.6 million (2013: EUR27.2 million).
Software AG's equity ratio as of March 31, 2014 was still high at 47.4% of total assets, despite the successfully concluded share buyback programme. The company acquired 4.1 million treasury shares for a total price of EUR110.0 million during the period from November 2013 to February 2014. Software AG currently holds 8.1 million treasury shares, which represents 9.3% of the company's share capital.
Outlook 2014
Software AG anticipates further positive performance and confirms its outlook. Accordingly, the company expects an increase in BPE revenue of between 12 and 18% (at constant currency) for fiscal year 2014. Revenue in the traditional ETS database business is likely to fall by 16 to 9% (at constant currency). Software AG expects an improved Group operating profit margin for fiscal 2014 as well as operating earnings (non-IFRS 2013: EUR260.7 million) growth between 2 and 7%.
[Note: All percentages contained herein are rounded and at constant currency]
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