Software AG reports further profitable growth in Q3 2009

The EBIT margin for the third quarter at 26.4% closely matched the record 27% reported in Q3, 2008. Earnings per share in the quarter rose 25% to €1.35 (€1.08 in 2008). The consolidation of IDS Scheer, as of August 20, 2009, had a positive net impact on revenue (€39m) and net income (€0.4m).

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.

"We are proud of our performance in the face of a continuing difficult market. We 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,"

said Software AG CEO, Karl-Heinz Streibich.

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."

Revenue

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% to €214m in the third quarter of 2009 over the same period in 2008 (€180m). Total product revenue was up 4% to €143m (€138m in 2008) and Consulting at €70m (€42m in 2008) up 66%, reflecting a significant contribution from IDS Scheer.

Total revenue from the data management business ETS amounted to €99m, marginally under the third quarter 2008 figure of €101m, which included a major contract in Brazil. Product revenue was stable at €83.1m (Q3 2008: €83.9m) 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% to €29.8m (28m in 2008) through increased sales efficiencies. Q3 product revenue, down by 8% compared with the previous year'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% drop in total operating costs in Q3 2009. This significantly contributed to the increase in EBIT to €56.0m, an increase of 15% (€48.6m in 2008) and a margin of 32%. This enabled the consolidated company to absorb the acquisition costs and consolidation effects for the quarter while keeping the EBIT margin at the previous year's level.

The EBIT of the consolidated company at €56.4m represents a 16% increase over 2008 (€48.7m), delivering a 25% increase in earnings per share of €1.35 (€1.08 in 2008).

Free cash flow performed very well in the third quarter, rising 37% to €47.0m from €34.2m in the third quarter of 2008. Free cash flow for the first nine months of 2009 reached €119.8m - a 31% increase compared with the figure for the first nine months of 2008.

"In 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% and our Free Cash Flow by 37%. 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," said Arnd Zinnhardt, CFO of Software AG.

Employees

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 ÍDS 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% year-on-year.

IDS Scheer acquisition

Software AG's acquisition of IDS Scheer AG, Germany'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% 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 AG's forecast for the full year anticipated an increase in revenue of between 4 and 8% and an EBIT margin of between 24.5 and 25.5%. Following the acquisition of IDS Scheer, the EBIT margin forecast has been raised to the 25 to 25.5% range and the revenue forecast to between €835 and €845m.