Marco Gerazounis, Senior Vice President, Software AG Middle East
Software AG recorded a significant increase in revenues in the fourth quarter of 2010. At €326.7 million, total revenues were 12 per cent higher than the same quarter of the previous year (€292.1 million). The product business picked up sharply in the fourth quarter in particular, totaling €222.0 million and exceeding the figure for the same period of the previous year (€181.1 million) by 23 per cent. Significant revenue increases, largely owing to an increased number of big deals and initial cross-selling successes, followed the successful integration of IDS Scheer AG and its software product portfolio. Revenue and earnings also benefited from currency translation effects, especially in the Americas.
Earnings Before Interest and Tax (EBIT) climbed at the Group level by 19 per cent to €94.1 million due to a larger share of high-margin products in total sales, the accelerated implementation of cost synergies from the merger with IDS Scheer AG and continued positive currency translation effects in the fourth quarter. These factors also contributed to a net income and earnings per share increase of 36 per cent, again reaching historic peaks. The full year 2010 showed earnings growth of 25 per cent, surpassing the final forecast of 19-20 per cent, which had been raised several times over the course of 2010.
The fiscal year under review confirmed Software AG's growth strategy. The new business, which consists of innovative software products for integrating business applications and processes under the name Business Process Excellence (BPE), expanded further in the fourth quarter (product revenues for webMethods/ARIS +14 per cent over the previous year), delivering an increased contribution to income. The acquisition of IDS Scheer AG in August 2009 targeted revenue and cost synergies which showed a positive impact on earnings in the latest quarter.
“Our significantly improved market position and the positive reaction from customers have already made this a successful merger,” said Karl-Heinz Streibich, CEO of Software AG. “With the complete integration of our ARIS and webMethods product suites we will offer a unique product portfolio. I am therefore convinced that Software AG’s success story will continue.”
Marco Gerazounis, Senior Vice President, Software AG Middle East, said: "We have obtained higher results in the Middle East in the past year and this has contributed to Software AG's impressive overall business performance. We look forward to building on this momentum to continue strengthening our market position in the region."
The upswing in demand noted in the Americas in the first half of 2010 carried on in the second half of the year as well. Buoyed by the large markets of the United States and Brazil, Software AG experienced double-digit growth rates in this region in the fourth quarter. Business in Germany, Australia, and the Middle East also developed at a rate that was significantly above the Group average.
Growth in product business
The Business Process Excellence (BPE) business line, which encompasses revenue from licenses, maintenance and services for all integration and process software products (webMethods and ARIS), achieved growth of 10 per cent in Q4 2010, with total revenues of €148.2 million. BPE product revenue climbed 14 per cent to €100.2 million. A range of large-scale projects and an increase in new customers confirmed Software AG’s strategy — reinforced by the acquisition of IDS Scheer AG — of positioning itself as an innovative market leader in the IT growth market of process software.
During the course of the fiscal year, the Enterprise Transaction Systems (Adabas, Natural) business line showed a substantial increase in sales. In the product business, revenue for licenses and maintenance in the fourth quarter exceeded that of the same quarter of the previous year by 32 percent. At €66.0 million, license revenues demonstrated particularly strong growth (59 percent) over Q4 2009 (€41.5 million). Also in the fourth quarter, the business line’s total revenues amounted to €133.2 million — a jump of 26 per cent over the previous year (105.3 million). This more than counter balanced the lower revenues of the first half of the year, resulting in growth of six per cent for the full year 2010.
Operating results confirm successful acquisition strategy
The increased volume of business (particularly in licenses), the realization of synergies and economies of scale resulting from the merger with IDS Scheer AG as well as favorable development of exchange rates led to higher operating results (EBIT) in the fourth quarter; an increase of 19 per cent to €94.1 million (2009: 79.4 million). Net income grew even faster and jumped by 35 per cent. Thanks to reduced interest expenses and a lower tax rate, net income increased to €64.7 million (2009: 48.10 million). Earnings per share climbed to €2.28 (2009: €1.65).
In the fourth quarter, the company generated free cash flow of €79.1 million (2009: €68.6 million). Operating net debt was reduced in the quarter under review by €82 million to €137 million; a year ago this figure still stood at €272 million.
“The first quarterly results after the complete merger with IDS Scheer AG clearly show the revenue and earnings momentum of the new corporate structure. Economies of scale, cross-selling successes, and increased sales efficiency contribute increasingly to earnings,” said Arnd Zinnhardt, Software AG’s CFO. “The EBIT margin continued to improve over the course of the fiscal year and we are clearly progressing quickly towards our medium-term target of 30 per cent.”
2010 signifies a huge step forward in the company’s development
Software AG’s Group revenues in fiscal year 2010 hit a record high of €1.12 billion (2009: €847.4 million), exceeding the target set in 2007 and a year earlier than originally planned. The reported revenue increase of 32 per cent (26 per cent at constant currency) also benefitted from the weakness of the euro; as a whole, currency translation effects increased revenues by €51 million. Product revenues in the fiscal year under review increased year on year by 20 percent to €696.8 million (2009: €580.5 million). Licensing revenue climbed 21 percent, from €269.9 million to €327.4 million. Maintenance revenue increased by 19 percent, from €310.6 million in 2009 to €369.4 million in 2010.
The BPE business line achieved revenue growth of 34 per cent, up to €499.2 million from €372.3 million in fiscal year 2009. At €420.0 million, revenues for the ETS business line were 6 per cent higher than in the same quarter of the previous year (€396.0 million). This is the first time that the new growth area of BPE has been the main source of revenue for Software AG. The company’s further growth will be determined by the BPE products’ success on the market. BPE has become a leading technology in the rapidly growing market segment of process software. The industry expertise of the consultants acquired with IDS Scheer AG will play a major role in further market penetration.
Grouped as the IDS Scheer Consulting business line; the SAP consulting business contributed €200.3 million per year / 18 percent of total sales in the past fiscal year.
Precipitated by the company’s significant growth due to the merger with IDS Scheer AG, company earnings reached a new high: EBIT growth of 23 per cent to €268.6 (2009: 218.2 million) and net income growth of 25 per cent, up to €176.5 million (2009: €140.8 million). During the 12-month period, free cash flow rose to €217.8 million (2009: 188.4 million), an increase of 16 per cent over the same period in the previous year. The Group's equity rose from €647.2 million to €769.3 million and reached a ratio of 48 per cent on the reporting date, 31.12.2010, down from 39 per cent in 2009.
As of December 31, 2010, the Group had a total of 5,644 employees (converted to full-time equivalents), with 2,051 of them in Germany. The values for the previous year (6,013/2,149) were collected prior to the operational integration of IDS Scheer AG.
Revenue and earnings growth expected in 2011
In fiscal year 2011, Software AG is expecting continued high interest in its new products that integrate different IT systems and business processes. Accordingly, revenue growth of 10 to 15 percent is expected for the BPE business line. The full integration of ARIS and webMethods presented at CeBIT 2011, enables unprecedented efficiency in the development and implementation of process solutions. This innovation should contribute to sales momentum over the course of the year. Product revenue at the previous year’s level is expected for the traditional business (ETS) and moderate growth is forecast for IDS Scheer Consulting business line. Overall, Software AG expects total revenue growth of 5 to 7 per cent, at constant currency. Because of our consultants’ improved utilization, declining cost ratios, and the implementation of revenue synergies through the merger with IDS Scheer AG, Software AG expects a considerable increase of 10 to 15 per cent over the previous year in net income.