Quarterly Report • Apr 21, 2017
Quarterly Report
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153.5
MILLION EURO PRODUCT REVENUE
DBP
PRODUCT REVENUE >€100-MN -BENCHMARK
Expansion of the Management Board: In January 2017, Software AG announced that Dr. Stefan Sigg as new Chief Research & Development Officer would join the Management Board of Software AG as another member as of April 1, 2017. With this reinforcement, the Group is focusing on the further development of technological innovation in the rapidly growing market for digital solutions - driven by the megatrends of Industrie 4.0 and the Internet of Things (IoT).
Growing Importance of new Industrial Internet and Cloud markets: Software AG's core IoT software services enable companies to integrate, analyze and process huge amounts of data generated by smart business, smart products or smart factories. In recent months, Software AG has announced new strategic IoT and Industry 4.0 partnerships with industry leaders such as Bosch, Dell, Octo Telematics and Huawei. At the end of January 2017 Software AG also announced a collaboration with Google.
Cancellation of treasury shares, share buyback and increase in the dividend: On March 6, 2017, Software AG announced the cancellation of 2,600,000 treasury shares and a decision to buy back shares to a volume of up to €100 million (without ancillary costs). The Management Board and the Supervisory Board of Software AG will propose to the Annual General Meeting on May 17, 2017 an increase in the dividend to the record level of 0.60 (0.55) Euro per share for the 2016 financial year. As a result, Software AG continues its shareholder-friendly policies with record dividends and share buybacks.
Development and integration of the Zementis software for Predictive Analytics: In December 2016 Software AG acquired the US-based Artificial Intelligence company Zementis. With software for Artificial Intelligence (AI) and Machine Learning, Software AG further expanded its IoT technology leadership. In March 2017, the company announced that it would integrate the highly-efficient Zementis software for Predictive Analytics with mainframe environments and Adabas & Natural enterprise applications. In batch and real-time transactions, Zementis Predictive Analytics dramatically reduces the complexity, cost, and time required to run models based on AI and Machine Learning.
"Made in Digital Germany": The CeBIT presence of Software AG from March 20 to 24, 2017 was under the motto of the Industry 4.0 initiative "Made in Digital Germany". The company therefore appealed to the broad industrial base in Europe to strengthen its own innovative power through cooperation with the European software industry, thereby driving digital global economy adoption. Only co-innovation and close cooperation between industry and IT can ensure the future of Germany and Europe as successful manufacturing locations.
Acquisition of Industrial Internet Specialist Cumulocity: At the end of March 2017, Software AG announced the acquisition of Cumulocity GmbH, headquartered in Düsseldorf. The company develops innovative IoT solutions and offers customers through its IoT cloud platform the easy connection of networked devices and sensors. Cumulocity's IoT integration into Software AG's leading product portfolio allows companies to integrate their IT applications easier, faster, and more effectively with operational IoT devices. For Software AG, the acquisition of Cumulocity is a further step towards the expansion of its technology leadership in the IoT sector.
An increasing number of large companies are relying on Software AG's leading technology to drive their digital transformations. Additionally, the IoT and Industry 4.0 adoption boosted the performance of the company's largest business line – the Digital Business Platform (DBP). With a DBP license revenue jump of 18 percent (15 percent at constant currency) and increased product revenues of 12 percent (9 percent at constant currency), Software AG strongly demonstrated its increasing relevance and digital leadership. Driven by a strong performance in North America, the global early adopter market, and propelled by new Industry 4.0 projects in Germany, DBP product revenue exceeded the €100 million benchmark for the first time in a first quarter. Reflecting the company's growing success in the IoT market and extending its technology leadership, Software AG acquired the Industrial Internet specialist Cumulocity at the end of Q1. Cumulocity's cloud-based platform integrates IT applications with physical devices (Operational Technology). Moreover, Software AG's database business Adabas & Natural (A&N) grew by 8 percent (2 percent at constant currency) in maintenance revenue demonstrating stability and a high degree of customer loyalty as seen in 2016. The Consulting business division also developed very positively and recorded revenue growth of 9 percent (7 percent at constant currency) and a double digit segment margin. This development underlines the successful transformation of the company into a strategic partner for major enterprises
delivering high value digital consulting services. With an overall stable revenue performance, the Group continued to maintain its profitability at a very high level: the operating profit margin (EBITA, non-IFRS) was 27.3 percent, exceeding expectations. Based on these positive business developments in Q1 and the depth of the project pipeline for the rest of the year, Software AG fully confirms its outlook for the year 2017.
"The outstanding success of the Digital Business Platform in Q1 validates our strategic focus on profitable growth. We entered the year as we finished the previous one: with strong momentum. This positive trend is also evidence that enterprises recognize how important it is to invest in leading Internet of Things and Industry 4.0 technologies", said Karl-Heinz Streibich, CEO of Software AG. "Digital transformation has become the maxim of all industries and, internationally, we are taking a pioneering role in driving digitalization through strategic co-innovation partnerships with world market leaders such as Bosch, Dürr, Dell, Huawei and others" continued Streibich.
"In the first quarter of 2017, we further expanded revenue in our growth segment while maintaining our operating profit margin at a consistently high level. Revenue growth and thus increase in profitability remain or declared priorities. We also successfully advanced the development of our leading portfolio through the strategic innovation-driven acquisition of Cumulocity in the first quarter. Therefore, we have established an excellent and strong starting position for the rest of the year and beyond," commented CFO Arnd Zinnhardt.
In the Digital Business Platform (DBP) segment, license revenues of €38.4 million (Q1 2016: €32.7 million) were generated in the first quarter, an increase of 18 percent (15 percent at constant currency) compared to the previous year. Maintenance revenue rose to €67.2 million (Q1 2016: €61.9 million) in the same period, 9 percent (6 percent at constant currency) higher than in the previous year. Accordingly, the DBP product revenue (licenses + maintenance) amounted to a total of €105.6 million (Q1 2016: €94.5 million) in the first quarter—an increase of 12 percent (9 percent at constant currency).
The Adabas & Natural (A&N) division improved its maintenance revenues to €40.1 million (Q1 2016: €37.0 million), an increase of 8 percent (2 percent at constant currency) compared to the previous year. The positive development of maintenance revenues underscores the stability of the business and high level of loyalty of the A&N customer base. A further stabilizing factor was the company's "Adabas & Natural 2050+" innovation program which provides support and digital innovations for customers beyond the year 2050. With this program, Software AG is contributing, in the long term, to protecting its customers' investments and actively modernizing their IT landscapes. Measured against the extraordinarily strong 2016 first quarter, A&N product sales declined to €47.9 million (Q1 2016: €63.4 million). The main reason was the license sales development which as expected was lower, reaching €7.8 million (Q1 2016: €26.4 million). While Q1 2016 performance was driven by extraordinarily early capacity expansions and contract renewals, Q1 2017 reflects a normal seasonal license revenue development. Therefore, the company remains confident in delivering its A&N total year revenue guidance.
Sales in the Consulting division rose to €52.3 million (Q1 2016: €48.0 milion) in the first quarter, an improvement of 9 percent (7 percent at constant currency). The segment contribution margin increased to 10 percent (Q1 2016: 4 percent).
In the quarter under review, Software AG recorded stable total turnover of €205.9 million (Q1 2016: €206.2 million). The Group's maintenance revenue developed very positively reaching €107.2 million (Q1 2016: €98.9 million), an increase of 8 percent (5 percent at constant currency). As a result of the expected weaker development in the A&N license business, the Group's license revenue of €46.3 million (Q1 2016: €59.1 million) was below the previous year's figure in the quarter under review. Accordingly, the company's product sales (licenses + maintenance) totaled €153.5 million (Q1 2016: €158.0 million) in the first quarter.
Due to €5.1 million higher investments of €92.2 milion (Q1 2016: €87.1 million) in research and development as well as sales and marketing, the company's earnings before interest and taxes EBIT amounted to €41.5 million (Q1 2016: €45.3 million) in the first quarter. This corresponds to an EBIT margin of 20.2 percent (Q1 2016: 22.0 percent). The operating EBITA (non-IFRS) reached €56.3 (Q1 2016: €59.1 million). The operating profit margin (non-IFRS) of 27.3 percent (Q1 2016: 28.7 percent) continued to be on a very high level. The net result reached €27.3 million (Q1 2016: €29.5 million), while earnings per share (non-IFRS) amounted to €0.49 (Q1 2016: €0.51).
The equity ratio was 61 percent (Q1 2016: 59 percent). The operating cash flow reached previous year's record high and amounted to €61.7 million (Q1 2016: €61.9 million). Due to a one-time property investment in Q1, the free cash flow of €43.3 million (Q1 2016: €60.5 million) was below last year's record level.
As of March 31, 2017, Software AG employed a total of 4,486 (Q1 2016: 4,299) employees (full-time equivalents), of which 1,891 (Q1 2016: 1,853) in consulting and service, 1,122 (Q1 2016: 1,011) in research and development, 863 (Q1 2016: 833) in Sales and Marketing as well as 610 (Q1 2016: 602) in Administration.
Software AG confirms its forecast for fiscal year 2017 and expects a currency-adjusted increase in DBP sales of between 5 and 10 percent. In the A&N segment, the company expects a currency-adjusted decline of 2 to 6 percent compared to the previous year. The Group also expects a high operating profit margin (EBITA, non-IFRS) of 30.5 to 31.5 percent.
| 2017 Outlook | ||||
|---|---|---|---|---|
| FY 2016 | FY 2017 Outlook | Q1 2017 | ||
| (in € millions) | (as of January 26, 2017) | (as of March 31, 2017) | ||
| Product Revenue | 441.4 | +5% to +10%* | +9%* | |
| Digital Business Platform | ||||
| Product Revenue | 233.9 | -2% to -6%* | -29%* | |
| Adabas & Natural | ||||
| Operating profit margin | 31.2% | 30.5% to 31.5% | 27.3% | |
| (EBITA, non-IFRS)** |
* At constant currency
** Before adjusting for non-operating factors (see non-IFRS results)
(IFRS, unaudited)
| in € millions (unless otherwise stated) |
Q1 2017 | Q1 2016 | ∆ as % | ∆ as % acc* |
|---|---|---|---|---|
| Revenue | 205.9 | 206.2 | 0% | -3% |
| DBP business line | 105.6 | 94.5 | 12% | 9% |
| A&N business line | 48.0 | 63.5 | -24% | -29% |
| Licenses | 46.3 | 59.1 | -22% | -24% |
| Maintenance | 107.2 | 98.9 | 8% | 4% |
| Operating EBITA (non-IFRS) | 56.3 | 59.1 | -5% | |
| as % of revenue | 27.3% | 28.7% | ||
| DBP segment earnings | 30.0 | 23.8 | 26% | 23% |
| Segment margin | 28.4% | 25.2% | ||
| A&N segment earnings | 31.0 | 44.8 | -31% | -36% |
| Segment margin | 64.6% | 70.6% | ||
| Net income (non-IFRS) | 37.3 | 38.7 | -4% | |
| Earnings per share (non-IFRS)** | 0.49 | 0.51 | -4% | |
| Operating Cash Flow | 61.7 | 61.9 | 0% | |
| CapEx*** | 18.4 | 1.4 | ||
| Free Cash Flow | 43.3 | 60.5 | -28% | |
| Balance sheet | Mar. 31, 2017 | Dec. 31, 2016 | ||
| Total assets | 1,961.9 | 1,957.2 | ||
| Cash and cash equivalents | 362.3 | 374.6 | ||
| Net cash / (net debt) | 75.0 | 73.1 | ||
| Employees (FTE) | 4,486 | 4,471 |
* acc = at constant currency
** Based on weighted average shares outstanding (basic) Q1 2017: 75.9m / Q1 2016: 76.2m
*** Cash flow from investing activities adjusted for acquisitions and investments in debt instruments
(IFRS, unaudited)
| in € thousands | Q1 2017 | Q1 2016 | ∆ as % |
|---|---|---|---|
| Licenses | 46,253 | 59,070 | -22% |
| Maintenance | 107,238 | 98,925 | 8% |
| Services | 52,059 | 47,886 | 9% |
| Other | 389 | 348 | 12% |
| Total revenue | 205,939 | 206,229 | 0% |
| Costs of sales | -55,035 | -56,046 | -2% |
| Gross profit | 150,904 | 150,183 | 0% |
| Research and development expenses | -29,816 | -27,511 | 8% |
| Sales, marketing and distribution expenses | -62,418 | -59,564 | 5% |
| General and administrative expenses | -18,464 | -19,210 | -4% |
| Other taxes | -1,957 | -1,335 | 47% |
| Operating earnings | 38,249 | 42,563 | -10% |
| Other income / expenses, net | 1,323 | 1,448 | -9% |
| Financing expenses, net | -193 | -476 | -59% |
| Earnings before income taxes | 39,379 | 43,535 | -10% |
| Income taxes | -12,061 | -14,069 | -14% |
| Net income | 27,318 | 29,466 | -7% |
| Thereof attributable to shareholders of Software AG | 27,255 | 29,429 | -7% |
| Thereof attributable to non-controlling interests | 63 | 37 | |
| Earnings per share (€, basic) | 0.36 | 0.39 | -8% |
| Earnings per share (€, diluted) | 0.36 | 0.38 | -6% |
| Weighted average number of shares outstanding (basic) | 75,894,196 | 76,231,631 | - |
| Weighted average number of shares outstanding (diluted) | 75,919,581 | 76,589,691 | - |
(IFRS, unaudited)
| Assets (in € thousands) | Mar. 31, 2017 | Dec. 31, 2016 |
|---|---|---|
| Current assets | 618,913 | 641,989 |
| Cash and cash equivalents | 362,288 | 374,611 |
| Other financial assets | 19,244 | 13,488 |
| Trade receivables and other receivables | 202,380 | 220,966 |
| Other non-financial assets | 22,503 | 20,286 |
| Income tax receivables | 12,498 | 12,638 |
| Non-current assets | 1,342,987 | 1,315,228 |
| Intangible assets | 165,483 | 149,420 |
| Goodwill | 966,174 | 936,606 |
| Property, plant and equipment | 75,420 | 75,559 |
| Other financial assets | 37,051 | 45,957 |
| Trade receivables and other receivables | 71,106 | 84,905 |
| Other non-financial assets | 262 | 291 |
| Income tax receivables | 7,660 | 6,988 |
| Deferred tax receivables | 19,831 | 15,502 |
| Total Assets | 1,961,900 | 1,957,217 |
| Equity and Liabilities (in € thousands) | Mar. 31, 2017 | Dec. 31, 2016 |
|---|---|---|
| Current liabilities | 562,907 | 467,626 |
| Financial liabilities | 187,079 | 101,467 |
| Trade payables and other liabilities | 36,571 | 39,695 |
| Other non-financial liabilities | 92,569 | 121,817 |
| Other provisions | 54,950 | 50,959 |
| Income tax liabilities | 22,473 | 28,224 |
| Deferred income | 169,265 | 125,464 |
| Non-current liabilities | 195,621 | 292,796 |
| Financial liabilities | 100,198 | 200,049 |
| Trade payables and other liabilities | 4,136 | 4,195 |
| Other non-financial liabilities | 416 | 381 |
| Other provisions | 12,863 | 24,793 |
| Provisions for pensions and similar obligations | 41,734 | 42,215 |
| Deferred tax liabilities | 26,962 | 13,498 |
| Deferred income | 9,312 | 7,665 |
| Equity | 1,203,372 | 1,196,795 |
| Share capital | 76,400 | 79,000 |
| Capital reserves | 23,682 | 23,682 |
| Retained earnings | 1,107,987 | 1,145,374 |
| Other reserves | 23,573 | 19,789 |
| Treasury shares | -28,879 | -71,596 |
| Attributable to shareholders of Software AG | 1,202,763 | 1,196,249 |
| Non-controlling interests | 609 | 546 |
| Total Equity and Liabilities | 1,961,900 | 1,957,217 |
(IFRS, unaudited)
| in € thousands | Q1 2017 | Q1 2016 |
|---|---|---|
| Net income | 27,318 | 29,466 |
| Income taxes | 12,061 | 14,069 |
| Net financial income/expense | 193 | 476 |
| Amortization/depreciation of non-current assets | 10,661 | 10,037 |
| Other non-cash income/expense | 591 | -4,794 |
| Changes in receivables and other assets | 24,279 | 15,896 |
| Changes in payables and other liabilities | 3,137 | 11,533 |
| Income taxes paid/received | -16,455 | -14,649 |
| Interest paid | -2,323 | -2,130 |
| Interest received | 2,280 | 1,969 |
| Net cash provided by operating activities | 61,742 | 61,873 |
| Proceeds from the sale of property, plant and equipment/intangible assets |
146 | 90 |
| Purchase of property, plant and equipment/intangible assets | -18,671 | -1,585 |
| Proceeds from the sale of non-current financial assets | 98 | 133 |
| Purchase of non-current financial assets | -14 | -38 |
| Proceeds from the sale of current financial assets | 4,000 | 0 |
| Purchase of current financial assets | -464 | -15,000 |
| Payment for acquisitions, net | -49,420 | 0 |
| Net cash used in investing activities | -64,325 | -16,400 |
| Repurchase of treasury shares | -24,525 | 0 |
| Proceeds and payments from current financial liabilities | 10,838 | 3,335 |
| Proceeds from non-current financial liabilities | 0 | 40,000 |
| Repayment of non-current financial liabilities | -561 | -3,081 |
| Net cash provided by/used in financing activities | -14,248 | 40,254 |
| Change in cash and cash equivalents from cash relevant transactions |
-16,831 | 85,727 |
| Currency translation adjustment | 4,508 | -2,575 |
| Net change in cash and cash equivalents | -12,323 | 83,152 |
| Cash and cash equivalents at the beginning of the period | 374,611 | 300,567 |
| Cash and cash equivalents at the end of the period | 362,288 | 383,719 |
| Free Cash Flow | 43,301 | 60,473 |
(IFRS, unaudited)
| in € t ho ds us an |
A& | N | DB | P | Co ns |
ult ing |
Re co nc |
ilia tio n |
TO | TA L |
|---|---|---|---|---|---|---|---|---|---|---|
| Q 1 2 01 7 |
Q 1 2 01 6 |
Q 1 2 01 7 |
Q 1 2 01 6 |
Q 1 2 01 7 |
Q 1 2 01 6 |
Q 1 2 01 7 |
Q 1 2 01 6 |
Q 1 2 01 7 |
Q 1 2 01 6 |
|
| Lic en ses |
7, 82 4 |
26 41 8 , |
38 42 9 , |
32 65 2 , |
0 | 0 | 0 | 46 25 3 , |
59 07 0 , |
|
| Ma inte na nce |
40 03 3 , |
37 02 9 , |
67 20 5 , |
61 89 6 , |
0 | 0 | 0 | 107 23 8 , |
98 92 5 , |
|
| Pro du ct rev en ue |
47 85 7 , |
63 44 7 , |
10 5, 63 4 |
94 54 8 , |
0 | 0 | 0 | 15 3, 49 1 |
15 99 5 7, |
|
| Se rvic es |
0 | 0 | 0 | 0 | 52 05 9 , |
47 88 6 , |
0 | 52 05 9 , |
47 88 6 , |
|
| Ot he r |
155 | 187 | 14 | 10 | 22 0 |
15 1 |
0 | 38 9 |
34 8 |
|
| To tal re ve nu e |
48 01 2 , |
63 63 4 , |
10 5, 64 8 |
94 55 8 , |
52 27 9 , |
48 03 7 , |
0 | 20 5, 93 9 |
20 6, 22 9 |
|
| Co f s st ale o s |
-2, 84 4 |
-3, 185 |
-7, 139 |
-8, 27 6 |
-41 83 6 , |
-41 76 7 , |
-3, 21 6 |
-2, 81 8 |
-55 03 5 , |
-56 04 6 , |
| Gr rof it os s p |
45 16 8 , |
60 44 9 , |
98 50 9 , |
86 28 2 , |
10 44 3 , |
6, 27 0 |
-3, 21 6 |
-2, 81 8 |
15 0, 90 4 |
15 0, 18 3 |
| Sa les Ma rke tin & D istr ibu tio g n e xp en se s , |
-8, 05 0 |
-10 28 9 , |
-44 82 4 , |
-40 39 8 , |
-4, 98 0 |
-4, 39 9 |
-4, 56 4 |
-4, 47 8 |
-62 41 8 , |
-59 56 4 , |
| Se ibu tio nt ntr g me co n |
37 11 8 , |
50 16 0 , |
53 68 5 , |
45 88 4 , |
5, 46 3 |
1, 87 1 |
-7, 78 0 |
-7, 29 6 |
88 48 6 , |
90 61 9 , |
| Re h a nd de lop nt se arc ve me ex p en se s |
-6, 09 0 |
-5, 39 7 |
-23 72 6 , |
-22 114 , |
0 | 0 | 0 | 0 | -29 81 6 , |
-27 51 1 , |
| Se rni nt g me ea ng s |
31 02 8 , |
44 76 3 , |
29 95 9 , |
23 0 77 , |
5, 46 3 |
1, 87 1 |
78 0 -7, |
29 6 -7, |
58 67 0 , |
63 10 8 , |
| Ge ral d a dm inis tive tra ne an ex p en se s |
-18 46 4 , |
-19 21 0 , |
||||||||
| Ot he r ta xe s |
-1, 95 7 |
-1, 33 5 |
||||||||
| Op tin rni era g ea ng s |
38 24 9 , |
42 56 3 , |
||||||||
| Ot he r in / e t co me xp en se s, ne |
1, 32 3 |
1, 44 8 |
||||||||
| Ne t fi nci al inc / e na om e xp en se s |
-19 3 |
-47 6 |
||||||||
| Ea rni s b efo inc e t ng re om ax es |
39 37 9 , |
43 53 5 , |
||||||||
| Inc e T om axe s |
-12 06 1 , |
-14 06 9 , |
||||||||
| Ne t in co me |
27 31 8 , |
29 46 6 , |
(IFRS, unaudited)
| in € thousands | Q1 2017 | Q1 2016 |
|---|---|---|
| Net income | 27,318 | 29,466 |
| Currency translation differences from foreign operations | 4,519 | -22,270 |
| Net gain/loss on remeasuring financial assets | -148 | 2,252 |
| Currency translation gain/loss from net investments in foreign operations |
-595 | -1,796 |
| Items to be reclassified to the income statement if certain conditions are met |
3,776 | -21,814 |
| Net actuarial gain/loss on pension obligations | 8 | 10 |
| Items not to be reclassified to the income statement | 8 | 10 |
| Other comprehensive income | 3,784 | -21,804 |
| Total comprehensive income | 31,102 | 7,662 |
| Thereof attributable to shareholders of Software AG | 31,039 | 7,625 |
| Thereof attributable to non-controlling interests | 63 | 37 |
This document includes forward-looking statements based on the beliefs of Software AG management. Such statements reflect current views of Software AG with respect to future events and results and are subject to risks and uncertainties. Actual results may vary materially from those projected here, due to factors including changes in general economic and business conditions, changes in currency exchange, the introduction of competing products, lack of market acceptance of new products, services or technologies and changes in business strategy. Software AG does not intend or assume any obligation to update these forward-looking statements.
This document constitutes neither an offer nor recommendation to subscribe or buy in any other way securities of Software AG or any of the companies that are members of the Group at present or in the future, nor does it form part of such an offer and it should not be understood as such. This presentation does not constitute an offer of sale of securities in the United States of America. Securities may not be offered or sold in the United States of America without registration or exemption from registration in accordance with the U.S. Securities' Act of 1933 in its currently valid form.
Software AG Corporate Communications Uhlandstraße 12 64297 Darmstadt Germany
Tel. +49 6151-92-0 Fax +49 6151-1191 [email protected] www.softwareag.com
Software AG Investor Relations Uhlandstraße 12 64297 Darmstadt Germany
Tel. +49 6151-92-1900 Fax +49 6151-9234-1900 [email protected] www.softwareag.com
The digital transformation is changing enterprise IT landscapes from inflexible application silos to modern software platform-driven IT architectures which deliver the openness, speed and agility needed to enable the digital real-time enterprise. Software AG offers the first end-to-end Digital Business Platform, based on open standards, with integration, process management, in-memory data, adaptive application development, real-time analytics and enterprise architecture management as core building blocks. The modular platform allows users to develop the next generation of application systems to build their digital future, today. With over 45 years of customer-centric innovation, Software AG is ranked as a leader in many innovative and digital technology categories. Software AG has 4,500 employees, is active in 70 countries and had revenues of €872 million in 2016. Learn more at www.softwareag.com.
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