Software AG has released its financial results (IFRS, preliminary) for the fourth quarter and 2014 fiscal year.
The software company’s upward trend noted in the third quarter continued through the end of the year. Key performance indicators further improved substantially from October to December—typically a strong period of the year: License revenue from the Business Process Excellence (BPE) and Enterprise Transaction Systems (ETS) business lines grew over the previous quarter; profitability of the Consulting business rose to 13%; and the Q4
Group operating margin (non-IFRS) reached 36% – a five year record high. The ETS database business line reaped the benefits of customer loyalty in the quarter under review. As a result, Software AG further stabilised ETS maintenance revenue during the course of the year. Additionally, ETS licenses in the fourth quarter grew 7% year-on-year to total €38,4-million. With this result, ETS product revenue reached the upper end of the target range for 2014.
BPE license revenue demonstrated growth at 43% quarter-on-quarter, but was nonetheless down year-on-year at €60,2-million. BPE maintenance revenue improved 7% quarter-on-quarter during the period from October to December to reach €57,9 million. Sales efficiency continued to improve from the third quarter of 2014. And despite lower revenues, BPE earnings and its segment margin were up compared to both the previous quarter and the same quarter in 2013. The Consulting business line achieved a 13% segment margin in the fourth quarter, which is 520 basis points better than the previous year. This strong performance is a result of the targeted realignment of the consulting business to focus on Software AG products. In light of the improved business in the second half of the year, Software AG considers itself to be very well equipped for future profitable growth. The excellence of the company’s
product portfolio was confirmed by the positive feedback from its clients. In the fourth quarter of 2014, Software AG launched the first Digital Business Platform at its international customer event Innovation World in the USA. With the platform, customers can develop their own applications to accelerate their transformation to a digital enterprise as they have to rapidly adapt to ever changing business environments. Karl-Heins Streibich, CEO of Software AG, stated, “Customer-driven development of the product portfolio, a focus on the core business in our Consulting unit and optimised sales effectiveness were our strategic priorities in 2014. All of the measures we implemented showed initial
successes in the second half of fiscal 2014.” He continues, “So we are starting 2015 in an excellent position to further increase Software AG’s value.” CFO Arnd Zinnhardt adds, “With a fourth-quarter operating margin of about 36%, we are among the top performers of our industry. Increasing profitability remains our goal for 2015. And that will serve as the foundation for innovation and expansion—in other words, for Software AG’s successful development.”
Business line development
The Business Process Excellence (BPE) business line, which includes integration and process management software as well as big data solutions, posted total revenue of €394,5-million (2013:€422,9-million) in fiscal year 2014. Maintenance revenue for fiscal 2014 was up 6% reaching €215,7-million (2013: €202,8-million). Growing maintenance revenue indicates that Software AG’s strategic measures are making a sustainable impact. BPE licenses in the fiscal year under review were down at €178,9-million (2013: €220,1-million). The extremely high result reported in 2013 was due to two deals, among the largest in the company’s history. BPE license sales charted a promising trajectory during the course of the fiscal year. Quarter-on-quarter, BPE license revenue went up 43% in the fourth quarter to €60,2-million (Q3 2014: €42,2 million) and a sizable 84% compared to the second quarter (Q2 2014: €32,7-million). The improved financial performance in the second half of the year reflects the company’s first successes resulting from optimised sales effectiveness, laying an excellent foundation for fiscal 2015.
The Enterprise Transaction Systems (ETS) database business line generated €245,3-million (2013: €274,5-million) in the fiscal year under review. This is a 9% drop at constant currency, which is at the upper end of the forecast target range. This development is in line with the company’s projection that the traditional database software market in general is in decline due to its maturity and saturation. Maintenance revenue was €153,7-million (2013: €166,3
million) in 2014, while licenses generated €91-million (2013: €107,4-million). The company managed to continually increase ETS product revenue during the year. With €77-million in product revenue, the fourth quarter demonstrated a significant 26% increase over the previous quarter (Q3 2014: €61,2-million). The Consulting business line generated €218-million (2013: €275,3-million) in revenue in the 2014 fiscal year. The reason for the decrease was the sale of non-strategic business units in the second quarter of the 2014. Taking this portfolio overhaul into account, fiscal-year revenue at €195,8-million was nearly on par with the previous year (2013: €199,6-million). The segment result of the business line was up substantially at €16,9-million (2013: €9,3-million) with an 8- percent (2013: 3%) margin. The most notable earnings growth was in the fourth quarter of 2014—with a 13% margin following a margin of 11% in the third quarter.
Total revenue and earnings performance in 2014
Software AG’s total revenue for fiscal 2014 was €857,8-million (2013: €972,7-million; adjusted for divestments: €897,1-million). At €371,3-million, total maintenance revenue for fiscal 2014 approximated last year’s level
(2013: €375,6-million). As a percentage of total sales, maintenance thus went up to 43,2% (2013: 38,6%), confirming Software AG’s focus on sustainable revenues. The company’s license revenue was €270,1-million (2013: €330,1-million) due to a weaker first half-year in 2014.
Fiscal 2014 EBIT was €176-million (2013: €205,5-million). This represents a return on sales of 21% (2013: 21%). As a result of the company’s focus on profitable growth in the second half of 2014, its EBIT margin leaped to 24% in the third quarter and to 29% in the fourth. The operating income (non-IFRS) showed a similar development: Down from the year before in the first half of 2014, increased sales efficiency and proactive cost management subsequently led to a significant rise in profitability in the second half of the year. Software AG’s operating income (non-IFRS) was therefore €151,2-million in the second half of 2014, which was slightly up year-on-year (H2 2013: €150,1-million). Accordingly, operating return on sales (non-IFRS) for the period increased by 400 basis points to 33%. Net income after taxes in fiscal 2014 totalled €110,6-million (2013: €134-million). Earnings per share were €1,39 (2013: €1,60).
Employees
As of December 31, 2014, Software AG had 4,421 (2013: 5,238) employees, of which 1,821 (2013:2,347) were in Consulting, 993 (2013: 1,180) worked in Sales and Marketing and 968 (2013: 998) in Research and Development.
