Johannesburg, 24 Oct 2013
Software AG (Frankfurt TecDAX: SOW) today released its financial results (IFRS, preliminary) for the third quarter of 2013. The company's performance confirms its strategic transformation is producing sustainable results. With increases in licence revenue of about 31% (at constant currency) and in maintenance revenue of about 20% (at constant currency), the Business Process Excellence (BPE) division set a new record significantly above the EUR100 million mark.
More than EUR10 million of that revenue was generated from sales of big data products, which achieved more than 100% growth in the quarter. Several large BPE deals were also signed during the period under review.
"Software AG's third-quarter results confirm our successful transformation. The early development and expansion of our BPE business, with the necessary investments, is already showing a positive impact. With this strategy, we were able to win significant market share and therefore paved the way to long-term growth for Software AG," stated Karl-Heinz Streibich, Software AG's CEO.
"The overwhelmingly positive feedback from our international customer event in the US and the large new BPE deals in the third quarter reflect the enormous market potential for our products in order to realise the four IT mega-trends of mobile, cloud, social and big data management."
Business line development
The Business Process Excellence (BPE) business line set a new record, with EUR114.3 million (2012: EUR96.7 million) in the third quarter. Within BPE product revenue, the key area of licence sales performed especially well, totalling EUR61.8 million (2012: EUR50 million) - despite the increasingly difficult market environment. This represents a growth rate of about 31% (at constant currency), which confirms the impact of strategic measures - increased investments in sales and marketing in particular - initiated in specific markets.
North America and EMEA specifically played a positive role in this development. In addition to the previously announced large BPE order worth $17 million in the United States, a further BPE deal was signed in Europe, with a total volume of more than EUR10 million in the third quarter. Based on a full project pipeline, Software AG is confident that BPE licence revenue will continue to achieve robust growth for the rest of the year.
The traditional Enterprise Transaction Systems (ETS) database business generated EUR58.9 million (2012: EUR77.6 million) in revenue for the third quarter. This performance is in line with the company's full-year guidance. Following an extraordinarily strong second quarter with above-average ETS licence revenue due to early closings of deals, third-quarter revenue showed an expected decrease.
The Consulting business line, which has been comprised of BPE, ETS, and IDS Scheer Consulting services since the beginning of 2013, recorded EUR65.2 million (2012: EUR83 million) in revenue in Q3. This quarter is typically characterised by a high number of leave days due to the vacation season. The successful realignment of the consulting business and the associated withdrawal from unprofitable markets led to a decline in reported revenue year-on-year.
Software AG sold its North American SAP service activities at the beginning of the year. Disposals followed in Hungary, the Czech Republic and Slovakiain the third quarter. These steps were consistent with the company's strategy to focus the SAP services on process optimisation in the German-speaking region. Consulting made a positive segment contribution in the third quarter - continuing its operational turnaround.
Total revenue, earnings performance
Due to a targeted reduction in consulting revenue, Software AG's Group revenue was EUR238.5 million (2012: EUR257.4 million) in the third quarter, which is a 2% decrease at constant currency. Total licence revenue for the group was EUR79.9 million (2012: EUR80.5 million), which is a 5% rise at constant currency. At EUR175.1 million (2012: EUR178.3 million), product revenue - consisting of licenses and maintenance - was up 4% year-on-year at constant currency.
This represents 73.4% (2012: 69.3%) of total revenue, further improving Software AG's revenue mix towards growth-driving, high-margin licence and maintenance revenues. EBIT was EUR49.1 million (2012: EUR61.1 million), despite a total of EUR72.5 million (2012: EUR60.4 million) in sales expenses, which reflect a planned increase for addressing new high-potential BPE markets. Adjusted for acquisition-related expenses, operating EBIT (non-IFRS) was EUR66.2 million; this represents an operational 28% return on sales.
"Software AG successfully claimed its stake in an intensely competitive environment with negative currency effects in the third quarter. Thanks to financial discipline and dynamic revenue performance, we were able to significantly increase the margin in our BPE business," elaborated CFO Arnd Zinnhardt. "Our financial base provides the ideal conditions for continued growth."
Employees
As of 30 September 2013, the Software AG Group had 5 356 (2012: 5 436) employees, of which 1 261 (2012: 1 084) worked in Sales and Marketing and 1 005 (2012: 892) in Research and Development. The total number of employees in Germany was 1 735 (2012: 1 783).
Outlook 2013
Software AG still expects an increase in BPE revenue between 16% and 22% (at constant currency) for fiscal year 2013. Revenue in the traditional ETS database business is anticipated to fall by 4% to 9% (at constant currency).
The forecast for earnings per share was set between EUR1.70 and EUR1.80 in January 2013 - without taking into account the impact of business opportunities that presented themselves throughout the year (share buyback programme, acquisitions and associated costs). Without taking these into account, earnings per share should be within the indicated range. Given the overall increasingly difficult market climate, Software AG points out that operational results could be rather at the low end of the projected ranges, despite the typically strong fourth quarter.
Key figures for Q3 2013
IFRS, unaudited
in EUR millions | Q3 2013 | Q3 2012 | Change in % (rounded) | Change in % (at constant currency) |
BPE licences | 61.8 | 50.0 | +24 | +31 |
BPE maintenance | 52.6 | 46.7 | +13 | +20 |
BPE product revenue | 114.3 | 96.7 | +18 | +25 |
as % of total revenue | 48 | 38 | ||
ETS licences | 17.8 | 30.2 | -41 | -38 |
ETS maintenance | 41.1 | 47.4 | -13 | -7 |
ETS product revenue | 58.9 | 77.6 | -24 | -19 |
as % of total revenue | 25 | 30 | ||
Consulting | 65.2 | 83.0 | -22 | -19 |
as % of total revenue | 27 | 32 | ||
Total licence revenue | 79.9 | 80.5 | -1 | +5 |
Total product revenue | 175.1 | 178.3 | -2 | +4 |
Total revenue | 238.5 | 257.4 | -7 | -2 |
Research & development expenses | -26.1 | -25.2 | EUR+0.9 mn | |
Sales & marketing expenses | -72.5 | -60.4 | EUR+12.1 mn | |
EBIT* | 49.1 | 61.1 | EUR-12.0 mn | |
as % of total revenue | 21 | 24 | ||
Operating EBIT (non-IFRS) | 66.3 | 73.8 | EUR-7.5 mn | |
as % of total revenue | 28 | 29 | ||
Net income | 31.1 | 40.7 | -24 | - |
Earnings per share in EUR | 0.37 | 0.47 | -21 | - |
Free cash flow | 33.3 | 24.6 | +35 | - |
*EBIT = consolidated net income + income tax + other tax + financial result
Key figures for the first nine months of 2013
IFRS, unaudited
in EUR millions | Q3 2013 | Q3 2012 | Change in % (rounded) | Change in % (at constant currency) |
BPE licences | 61.8 | 50.0 | +24 | +31 |
BPE maintenance | 52.6 | 46.7 | +13 | +20 |
BPE product revenue | 114.3 | 96.7 | +18 | +25 |
as % of total revenue | 48 | 38 | ||
ETS licences | 17.8 | 30.2 | -41 | -38 |
ETS maintenance | 41.1 | 47.4 | -13 | -7 |
ETS product revenue | 58.9 | 77.6 | -24 | -19 |
as % of total revenue | 25 | 30 | ||
Consulting | 65.2 | 83.0 | -22 | -19 |
as % of total revenue | 27 | 32 | ||
Total licence revenue | 79.9 | 80.5 | -1 | +5 |
Total product revenue | 175.1 | 178.3 | -2 | +4 |
Total revenue | 238.5 | 257.4 | -7 | -2 |
Research & development expenses | -26.1 | -25.2 | EUR+0.9 mn | |
Sales & marketing expenses | -72.5 | -60.4 | EUR+12.1 mn | |
EBIT* | 49.1 | 61.1 | EUR-12.0 mn | |
as % of total revenue | 21 | 24 | ||
Operating EBIT (non-IFRS) | 66.3 | 73.8 | EUR-7.5 mn | |
as % of total revenue | 28 | 29 | ||
Net income | 31.1 | 40.7 | -24 | - |
Earnings per share in EUR | 0.37 | 0.47 | -21 | - |
Free cash flow | 33.3 | 24.6 | +35 | - |
*EBIT = consolidated net income + income tax + other tax + financial result
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