Software AG has again reported an increase in revenue and earnings for the third quarter of 2009. Group revenue grew during the quarter by 19 per cent year-on-year to â‚¬214 million. In the same period, product revenue increased by 4 per cent to â‚¬143 million and Consulting by 66 per cent to â‚¬70 million. Operating results (EBIT) grew by 16 per cent to â‚¬56 million and net income to â‚¬38 million, up 23 per cent. The EBIT margin for the third quarter at 26.4 per cent closely matched the record 27 per cent reported in Q3, 2008. Earnings per share in the quarter rose 25 per cent to â‚¬1.35 (â‚¬1.08 in 2008). The consolidation of IDS Scheer, as of August 20, 2009, had a positive net impact on revenue (â‚¬39 million) and net income (â‚¬0.4 million).
The solid growth trend has reinforced Software AG's ongoing global expansion program, particularly in key growth markets in the Middle East such as Saudi Arabia. Furthermore, building on the company's positive revenue performance throughout 2009, Software AG has revealed that a new regional office will be opened in Saudi Arabia, enhancing the delivery of products and services and improving technical support capabilities for Middle East clients.
â€œWe are proud of our performance in the face of a continuing difficult market,â€ said Software AG CEO, Karl-Heinz Streibich. â€œWe continue to increase our efficiency, protecting and improving our profitability. Recent large and strategic customer deals give grounds for cautious optimism as does the significant cross-selling opportunities presented by the acquisition of IDS Scheer.â€
Marco Gerazounis, Senior Vice President, Software AG, Middle East, added: "The establishment of a regional office in Saudi Arabia is an important step in consolidating our global presence and reaffirms our long-term commitment to the Middle East, especially the Saudi market. Software AG's positive growth performance provides the perfect backdrop to our continuing thrust of delivering premium-value solutions and satisfying the distinct requirements of our clients in Saudi Arabia and the rest of the Middle East."
Software AG continued its stable performance despite the persistently difficult economic environment. The third quarter did however show the normal business development seasonal effects and this indicates an overall improvement in market outlook.
Total revenue for Software AG rose 19 per cent to â‚¬214 million in the third quarter of 2009 over the same period in 2008 (â‚¬180 million). Total product revenue was up 4 per cent to â‚¬143 million (â‚¬138 million in 2008) and Consulting at â‚¬70 million (â‚¬42 million in 2008) up 66 per cent, reflecting a significant contribution from IDS Scheer.
Total revenue from the data management business ETS amounted to â‚¬99 million, marginally under the third quarter 2008 figure of â‚¬101 million, which included a major contract in Brazil. Product revenue was stable at â‚¬83.1 million (Q3 2008: â‚¬83.9 million) reflecting further strong growth in Brazil and continuing customer investments in their running businesses.
The webMethods business line further raised the Group EBIT margin in Q3 2009, raising its segment contribution by 7 per cent to â‚¬29.8 million (28 million in 2008) through increased sales efficiencies. Q3 product revenue, down by 8 per cent compared with the previous yearâ€™s quarter, reflects the difficult market conditions for new projects. A sequential comparison however with the previous quarter (Q2 2009), shows a normal seasonal impact on license revenue, signalling an encouraging improvement in the business environment. With a continuing level of R&D investment and the potential cross-selling opportunities offered by over 7,000 customers of IDS Scheer, the webMethods business line will significantly benefit from a future upturn in business sentiment.
Earnings and cash flow
Software AG standalone reported an 11 per cent drop in total operating costs in Q3 2009. This significantly contributed to the increase in EBIT to â‚¬56.0 million, an increase of 15 per cent (â‚¬48.6 million in 2008) and a margin of 32 per cent. This enabled the consolidated company to absorb the acquisition costs and consolidation effects for the quarter while keeping the EBIT margin at the previous yearâ€™s level.
The EBIT of the consolidated company at â‚¬56.4 million represents a 16 per cent increase over 2008 (â‚¬48.7 million), delivering a 25 per cent increase in earnings per share of â‚¬1.35 (â‚¬1.08 in 2008).
Free cash flow performed very well in the third quarter, rising 37 per cent to â‚¬47.0 million from â‚¬34.2 million in the third quarter of 2008. Free cash flow for the first nine months of 2009 reached â‚¬119.8 million â€“ a 31 per cent increase compared with the figure for the first nine months of 2008.
â€œIn the past quarter we were able to reap the benefits of the cost measures we launched in December 2008. We were able to maintain our EBIT margin at the targeted high level in the third quarter and for the first nine months, increase our EPS by 25 per cent and our Free Cash Flow by 37 per cent. Our sustainable business model has proven itself in the crisis. Building on this financial strength, we will now focus on realising the business opportunities presented by the acquisition of IDS Scheer and the growth potential of the Business Process Excellence market,â€ said Arnd Zinnhardt, CFO of Software AG.
As of September 30, 2009, Software AG had 6,086 employees (full-time equivalents) compared with 3,466 in the previous year. The number of employees in Germany was 2,196 (Q3 2008: 759), and the number of employees outside of Germany 3,140 (Q3 2008: 2,707). These numbers reflect the acquisitions of ÃDS Scheer, which resulted in significant growth in employee headcount in the third quarter. A standalone comparison of Software AG headcount would show a moderate growth of 4 per cent year-on-year.
IDS Scheer acquisition
Software AGâ€™s acquisition of IDS Scheer AG, Germanyâ€™s third-largest software company, is on track. Following approval by the relevant supervisory bodies and a six-week acceptance period for shareholders, Software AG had acquired more than 90 per cent of IDS Scheer AG shares. Karl-Heinz Streibich and Arnd Zinnhardt have also assumed positions on the IDS Scheer AG supervisory board. The planned next step is a domination and profit transfer agreement.
Revised forecast for 2009
Originally, Software AGâ€™s forecast for the full year anticipated an increase in revenue of between 4 and 8 per cent and an EBIT margin of between 24.5 and 25.5 per cent. Following the acquisition of IDS Scheer, the EBIT margin forecast has been raised to the 25 to 25.5 per cent range and the revenue forecast to between â‚¬835 and â‚¬845 million.
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