Quarterly Report • May 15, 2014
Quarterly Report
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Interim Report 1 | 2014
Transforming Excellence into Future
| Q1 2014 | Q1 2013 | Change in % |
|
|---|---|---|---|
| Revenue | 208.9 | 224.9 | −7% |
| By type: | |||
| • Products | 147.4 | 157.1 | −6% |
| • Licenses | 57.1 | 63.6 | −10% |
| • Maintenance | 90.3 | 93.5 | −3% |
| • Services | 61.3 | 67.5 | −9% |
| • Other | 0.2 | 0.3 | −33% |
| By business line: | |||
| • Business Process Excellence | 95.3 | 90.3 | 6% |
| • Enterprise Transaction Systems | 51.1 | 64.5 | −21% |
| • Consulting | 62.5 | 70.1 | −11% |
| EBIT * | 30.5 | 41.6 | −27% |
| • as % of revenue | 14.6% | 18.5% | |
| Net income | 18.6 | 27.2 | −32% |
| • as % of revenue | 8.9% | 12.1% | |
| Earnings per share (€, basic) | 0.23 | 0.32 | −28% |
| Earnings per share (€, diluted) | 0.23 | 0.32 | −28% |
| Free cash flow | 47.8 | 62.7 | −24% |
| Employees (full-time equivalents) | 5,108 | 5,300 | |
| • of which in Germany | 1,663 | 1,727 | |
| • of which in R&D | 995 | 901 | |
| Balance sheet | March 31, 2014 | Dec. 31, 2013 | |
| Total assets | 1,935.9 | 1,996.9 | |
| Cash and cash equivalents | 421.4 | 450.0 | |
| Net debt | 191.5 | 163.4 | |
| Shareholders' equity | 916.6 | 965.6 | |
| • as % of total assets | 47% | 48% |
* EBIT: net income + income taxes + other taxes + financial result
Software AG is one of the world's leading providers of process and integration software, equipping customers for their transformation to a Digital Enterprise.
We help companies design IT infrastructures that are so flexible that they can be adapted quickly and easily to ever changing business needs. This flexibility and agility are essential for staying competitive in the business world. Companies have to stake their claim in their respective market and continually adjust to short innovation cycles and the advancing digitization of our society.
In doing this, organizations build on existing IT landscapes that have evolved gradually over time. These complex IT landscapes can no longer keep up with state-of-the-art technology. They drive maintenance costs up and stop meeting their actual purpose—namely to provide efficient and automated support for business processes.
Transformation is the only option. IT systems must be replaced, harmonized or modernized. This situation usually does not affect just the IT architecture. But rather it requires an extensive overhaul of all processes in the organization. This creates a cycle.
New technologies enable business processes to be modeled, measured and to function more efficiently. Thanks to its product portfolio, Software AG considers itself to be an engine of this transformation cycle, driving the digitization of enterprises.
Software AG embraces the opportunities of the digital age with expertise and foresight.
29 _ Financial Calendar, Publication Credits
Preliminary Remarks
This quarterly report contains forward-looking statements. They are based on plans, estimates and projections that are currently available to Software AG's Management Board. Forward-looking statements therefore apply only to the date on which they were made. Software AG accepts no obligation to develop forward-looking statements based on new information or future events. Forward-looking statements by nature contain factors of risk and uncertainty. A number of important factors can contribute to actual results deviating considerably from forward-looking statements. All of the information in this report that does not represent forward-looking statements relates to the situation on March 31, 2014, or the first quarter of the current fiscal year ended on that date, unless otherwise stated. Software AG's segment reporting is prepared in accordance with IFRS 8 (segment reporting). Segmentation is by business line and corresponds to the Group's internal controlling and reporting lines. Accordingly, Software AG reports on the following business lines: Business Process Excellence (BPE—comprising the webMethods, ARIS, Alfabet, Apama and Terracotta product families), Enterprise Transaction Systems (ETS—comprising the Adabas and Natural product families) and Consulting (all consulting services associated with Software AG products, as of Q2 2014).
Events After the Balance Sheet Date Risks and Opportunities
Financial Performance Financial Position Assets
Outlook
Significant Events During the Reporting Period
The Scheer Group GmbH and Software AG entered an agreement on March 31, 2014 concerning the sale of IDS Scheer Consulting GmbH. The transaction includes all SAP services in Germany, Austria and Switzerland (DACH). As part of its efforts to focus on the high-margin product business, Software AG downscaled its SAP consulting operations in three stages: In January 2013 the company divested its SAP operations in Canada and the USA. That was followed by the sale of its SAP consulting unit in Eastern Europe a few months later. And, finally, the sale of SAP operations in the DACH region concluded the consolidation of Software AG's SAP service activities. The transaction is expected to close in the second quarter of 2014.
Software AG successfully concluded its 100-percent takeover of Berlin-based metaquark GmbH in the first quarter of 2014. With this step, Software AG will integrate metaquark's mobile app technology with its own Intelligent Business Operations platform and Business Process Management product line. Integrating the metaquark technology will enable Software AG to offer an end-to-end solution to any organization seeking a platform for mobile enterprise applications.
Software AG took advantage of CeBIT in Hanover/Germany in March 2014 to present numerous technological innovations for the Digital Enterprise. There was even a visit from German chancellor Angela Merkel and British Prime Minister David Cameron to Software AG's CeBIT stand during their traditional tour of the IT show.
• In cooperation with more partners than ever before, Software AG not only demonstrated the breadth of its portfolio for digital enterprises, but the practical nature of the solutions when it comes to supporting business managers. Partners such as Accenture, Fujitsu, nterra integration and Telefónica Germany presented successful use case scenarios with Software AG solutions in day-today business.
Studies by independent industry analysts and market researchers again positioned Software AG's products and solutions as market-leading in the first quarter of the year, confirming Software AG as a high-quality vendor. A survey conducted by Forrester Research Inc. titled "The Forrester Wave: Hybrid Integration" ranked Software AG's webMethods Suite and AgileApps Live as leaders in the categories of Wide Integration, Deep Integration and Internet of Things Integration.
For the second time in a row, the well-known international publication "Waters Technology" named Apama the industry's leading high-performance complex-event processing technology. The Best Sell-Side CEP Technology award specifically recognized Apama's speed and scalability.
In addition to targeted investments and acquisitions, Software AG also employed its high level of cash and cash equivalents, amounting to €450.0 million as of December 31, 2013, to repurchase treasury stock. The share buyback program was approved at a volume of up to €110.0 million by the Management Board and Supervisory Board on October 25, 2013. The treasury share buyback ended on February 28, 2014.
After having purchased 1,463,438 shares through this program in the fourth quarter of 2013, Software AG bought an additional sum of 2,653,845 treasury shares for a total price of €70,560,638.50 based on February 28, 2014 as a value date. The company's treasury shares as of February 28, 2014 totaled 8,084,101, which represents 9.3 percent of its share capital.
The company adheres to a sustainable dividend policy, which is geared toward long-term development of Software AG. It will pursue this continuity in the interest of a dependable relationship with stockholders. The Management and Supervisory Boards will therefore propose a dividend of €0.46 (2013: €0.46) per share for the concluded 2013 fiscal year at the Annual Shareholders' Meeting on May 16, 2014. The dividend ratio based on the average free cash flow and net income would increase to 25 percent (2013: 23 percent).
Software AG generated €208.9 million (2013: €224.9 million) in total revenue in the first quarter of 2014. The company's realigned focus and consolidation within its consulting business as well as the drop in Enterprise Transaction Systems (ETS) revenue led to a decline in total business volume of approximately 7 percent. At constant currency, the decrease in total revenue was only about 3 percent. At the same time, Software AG started the new fiscal year on a trend of continued dynamic growth in its largest business line—Business Process Excellence (BPE). The BPE segment returned a 6-percent revenue increase in the first three months of the year (11 percent at constant currency) totaling €95.3 million (2013: €90.3 million).
Significant Events During the Reporting Period Financial Performance Financial Position Assets Events After the Balance Sheet Date Risks and Opportunities Outlook
Product revenue from BPE and ETS solutions (license and maintenance sales) reached €146.2 million (2013: €154.6 million), which is a 5-percent drop year on year. At constant currency, this figure is level with last year. BPE revenue accounted for almost two-thirds (2013: 58 percent) of Software AG's total product revenue. This resulted in an improved revenue mix in favor of the high-growth futureoriented BPE segment.
License revenue from BPE and ETS products was down 10 percent, or 4 percent at constant currency, to €57.0 million (2013: €63.0 million). Global maintenance revenue for these products fell to €89.2 million (2013: €91.6 million), which reflects a 3-percent decrease or, at constant currency, a 3-percent gain.
Exchange rates had a very negative effect on Software AG's revenue in the first quarter of 2014. Because the euro was high against all relevant currencies, exchange rate fluctuations reduced Group revenue by €9.7 million year on year. All three business lines were affected, though maintenance suffered the biggest squeeze with a loss of €4.9 million. The effects on license and consulting revenue were −€3.7 million and −€1.1 million respectively. The contribution of the euro zone to revenue in the quarter under review rose to 43 percent (2013: 36 percent). The U.S. dollar (USD) accounted for the largest percentage in foreign currency with 21 percent (2013: 21 percent).
In the first quarter of the current fiscal year, Software AG reduced its Group-wide cost of sales by 10 percent to €68.0 million (2013: €75.8 million). This was primarily due to consolidation measures in the Consulting segment. The reduction in consulting sales in combination with the positive revenue trend in licenses and maintenance continued to have a positive impact on the company's revenue mix: The company's gross margin grew from the previous year's high 66.3 percent to 67.4 percent in the quarter under review.
Research and development expenses rose slightly due to the consolidation of acquired companies during the previous year totaling €27.2 million (2013: €26.2 million) in the threemonth period. Software AG's general and administrative expenses went up 7 percent to €19.1 million (2013: €17.8 million). Expenses for sales and marketing totaled €69.4 million (2013: €72.8 million). Earnings before interest and taxes (EBIT) were €30.5 million (2013: €41.6 million). This reflects a 27-percent decline as compared to the same quarter last year, which did however contained a high volume of one-time revenues. Software AG's EBIT margin was 14.6 percent (2013: 18.5 percent) in the first quarter of 2014.
In order to improve the basis of comparison between Software AG and those competitors which do not use the IFRS accounting standard—especially those in the USA— Software AG is additionally reporting operating (non-IFRS) income. This figure is calculated based on EBIT (before all taxes) adjusted for:
Operating (non-IFRS) income was €43.0 million (2013: €48.9 million); accordingly the operating (non-IFRS) margin was 21 percent (2013: 22 percent).
Software AG's tax rate was stable at 32.6 percent (2013: 32.5 percent). Net income decreased to €18.6 million (2013: €27.2 million). Earnings per share were therefore €0.23 (2013: €0.32) in the quarter under review.
Software AG's total revenue in the first quarter of 2014 was €208.9 million and can be broken down by business line as follows:
This changed revenue mix illustrates the positive trend toward a profitable product business in the high-growth BPE line. This development also confirms the success of Software AG's strategic focus on the future-oriented integration and process software markets as well as big data solutions.
Software AG was able to continue the strong performance in its largest business line, BPE, in the first quarter of 2014 with growth of 11 percent (at constant currency) and revenue of €95.3 million (2013: €90.3 million). This result indicates that the company again clearly outperformed its competitors in the quarter under review. The dynamic development verifies the impact of strategic growth measures—including the consistent expansion of sales and new products in key future markets—which were introduced last year. The double-digit BPE growth is a result of the company's transformation strategy. Customers are increasingly investing in innovative software to fuel the digitization of their businesses with new process management and integration solutions.
Within BPE product revenue, licenses were up to €43.7 million (2013: €41.9 million), which is 10-percent growth (at constant currency). Maintenance revenue increased 11 percent (at constant currency) to €51.6 million (2013: €48.4 million) in Q1 2014. The positive results illustrate the impact of the strategic BPE measures initiated in specific markets and the amplified investments in sales and marketing.
Sales and marketing expenses rose to €49.1 million (2013: €46.0 million) due to Software AG's strategic growth initiatives. Research and development expenses were raised by 6 percent to €20.9 million. The cost of sales was about equal to last year at €5.7 million. The segment earnings for the high-growth BPE business line increased 6 percent from €18.8 million to €19.6 million.
The traditional ETS database business includes revenue from licenses, maintenance and services for the Adabas and Natural product families. On target with expectations, the business line generated €51.1 million (2013: €64.5 million) in revenue in the quarter under review. Fewer ETS deals were closed in the first quarter of 2014 because more ETS software licenses than expected had been sold in the fourth quarter of 2013. As a result, license sales were down to Significant Events During the Reporting Period Financial Performance Financial Position Assets Events After the Balance Sheet Date Risks and Opportunities Outlook
€13.3 million (2013: €21.1 million), as was expected. Maintenance revenue for the same period fell from €43.2 million to €37.6 million.
The cost of sales in the ETS segment dropped moderately to €3.3 million (2013: €3.8 million). Central sales and marketing expenses were down 31 percent to €9.1 million. Moreover, research and development expenses decreased to €6.2 million (2013: €6.5 million). Segment earnings were down 11 percent (at constant currency) from last year at €32.5 million (2013: €40.4 million). The segment margin maintained last year's high level.
The Consulting business line posted first-quarter revenue of €62.5 million (2013: €70.1 million). This decline is primarily due to the targeted consolidation of SAP consulting activities. Operations in North American and Eastern Europe were sold last year in that context. An agreement on the sale of SAP consulting in Germany, Austria and Switzerland to the Scheer Group in Saarbrücken/Germany followed in March 2014.
The transaction marked the successful conclusion of the realignment of Software AG's consulting activities. As a provider of software products only, Software AG will be able to focus on its own product portfolio and achieve higher margins than was possible with third-party consulting services. The Consulting segment contribution rose to €3.3 million (2013: €0.3 million), further confirmation of the successful operational turnaround.
Net cash provided by operating activities was down from €65.4 million in the first quarter of 2013 to €50.1 million in the first quarter of the current fiscal year. Cash flow therefore developed in line with net income, nevertheless exceeding it significantly. The repeat increase in cash flow is due primarily to active working capital management.
Cash outflows from investing activities in the quarter under review were €6.1 million (2013 inflow: €3.6 million) because of the high expenditure for acquisitions. Net payments for acquisitions in the first quarter of 2013 were just €0.1 million, whereas this figure rose to €1.0 million in the first quarter of the current fiscal year. Furthermore, investments in securities increased to €2.8 million (2013: 0). Capital expenditure for property, plant and equipment and intangible assets in the first quarter of 2014 held steady with the same quarter last year at €3.3 million and primarily comprised operating and office equipment in the sales branches and the administrative headquarters in Darmstadt and Saarbrücken.
Cash inflows from financing activities in the first quarter of 2014 were down from €32.6 million in 2013 to −€72.5 million. This change is a direct result of the share buyback which began in November 2013. Unlike in the same period last year, Software AG incurred no new financial liabilities. Free cash flow was down 24 percent to €47.8 million or €0.60 per share in the first quarter of the year. This is considerably higher than the Group's net income.
Software AG's total assets decreased from €1,996.9 million on December 31, 2013 to €1,935.9 million on March 31, 2014. Trade receivables were down by €41.3 million. Fixed assets decreased in part due to the €31.0 million in planned amortization of acquisition-related goodwill.
Net debt was €132.2 million as of March 31, 2014. Including the value of treasury shares results in a net cash amount.
Shareholders' equity fell to €916.6 million (2013: €965.6 million). This was due to the repurchased treasury shares, which are offset against shareholders' equity in the balance sheet. Nevertheless, Software AG's equity ratio was high at 47.4 percent of total assets as of March 31, 2014.
Please refer to the section on the consolidation of SAP consulting operations through the sale of IDS Scheer Consulting in Significant Events During the Reporting Period.
As of March 31, 2014 Software AG had 5,108 (full-time) employees compared to 5,238 as of December 31, 2013 and 5,300 as of March 31, 2013. The number of employees in Sales and Marketing decreased to 1,131 (December 31, 2013: 1,180) as a result of adjustments in the Consulting and ETS segments as well as in Marketing departments throughout the Group. There were 995 (December 31, 2013: 998) people working in Research and Development as of March 31, 2014. In Germany, the number of staff members fell to 1,663 (December 31, 2013: 1,711).
Software AG's management is of the opinion that the new fiscal year began with solid financial performance. The Group was able to continue the positive trend in its largest and key future-oriented, high-growth BPE business line in the first quarter of 2014. We consider the double-digit BPE growth to be confirmation of our current transformation strategy. We charted our course for dynamic growth early on through the targeted expansion of sales and our product portfolio in key future markets. We expect continued dynamic growth in BPE over the course of fiscal 2014 and confirm our outlook for the year.
There were no significant events after the balance sheet date.
Significant Events During the Reporting Period Financial Performance Financial Position Assets Events After the Balance Sheet Date Risks and Opportunities Outlook
Our 2013 Annual Report contains a comprehensive Risk and Opportunity Report (see pp. 99–109). It discusses specific risks that could have a negative impact on our business performance, financial performance, our assets and financial position. It also describes key opportunities for Software AG. There were no changes to the risk and opportunity situation of the Software AG Group in the first quarter of 2014 as compared to the risks and opportunities identified in the 2013 Annual Report.
Software AG continues to expect positive business development and confirms its outlook, which was released on March 31, 2014 with the announcement of its sale of IDS Scheer Consulting GmbH. Accordingly, the company expects an increase in BPE revenue between 12 and 18 percent at constant currency for fiscal year 2014. Revenue in the traditional ETS database business is likely to fall by 9 to 16 percent (at constant currency). For the 2014 fiscal year, Software AG expects an improvement in the Group operating margin and growth in operating (non-IFRS) income between 2 and 7 percent (basis 2013: €260.7 million).
for the three months ended March 31, 2014, IFRS, unaudited
| in € thousands | Q1 2014 | Q1 2013 | Change in % |
|---|---|---|---|
| Licenses | 57,104 | 63,581 | −10% |
| Maintenance | 90,304 | 93,502 | −3% |
| Services | 61,293 | 67,507 | −9% |
| Other | 185 | 320 | −42% |
| Total revenue | 208,886 | 224,910 | −7% |
| Costs of sales | −68,025 | −75,775 | −10% |
| Gross profit | 140,861 | 149,135 | −6% |
| Research and development expenses | −27,152 | −26,220 | 4% |
| Sales, marketing and distribution expenses | −69,422 | −72,811 | −5% |
| General and administrative expenses | −19,088 | −17,845 | 7% |
| Other taxes | −1,638 | −1,819 | −10% |
| Operating result | 23,561 | 30,440 | −23% |
| Other income | 11,741 | 16,144 | −27% |
| Other expenses | −6,461 | −6,775 | −5% |
| Net financial income/expense | −2,847 | −1,330 | 114% |
| Earnings before income taxes | 25,994 | 38,479 | −32% |
| Income taxes | −7,427 | −11,266 | −34% |
| Net income | 18,567 | 27,213 | −32% |
| Thereof attributable to shareholders of Software AG | 18,558 | 27,198 | −32% |
| Thereof attributable to non-controlling interests | 9 | 15 | |
| Earnings per share in € (basic) | 0.23 | 0.32 | −28% |
| Earnings per share in € (diluted) | 0.23 | 0.32 | −28% |
| Weighted average number of shares outstanding (basic) | 80,186,767 | 85,794,069 | – |
| Weighted average number of shares outstanding (diluted) | 80,377,053 | 86,196,214 | – |
Consolidated Income Statement Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity
for the three months ended March 31, 2014, IFRS, unaudited
| in € thousands | Q1 2014 | Q1 2013 |
|---|---|---|
| Net income | 18,567 | 27,213 |
| Currency translation differences | 2,506 | 20,424 |
| Net gain/loss on remeasuring financial assets | 134 | 1,536 |
| Net loss/gain arising from translating net investments in foreign operations |
8 | 1,029 |
| Items to be reclassified to the income statement if certain conditions are met |
2,648 | 22,989 |
| Net actuarial gain/loss and asset caps on defined benefit plans | 0 | 15 |
| Items not to be reclassified to the income statement | 0 | 15 |
| Other comprehensive income | 2,648 | 23,004 |
| Total comprehensive income | 21,215 | 50,217 |
| Thereof attributable to shareholders of Software AG | 21,206 | 50,202 |
| Thereof attributable to non-controlling interests | 9 | 15 |
as of March 31, 2014, IFRS, unaudited
| in € thousands | March 31, 2014 | Dec. 31, 2013 |
|---|---|---|
| Current assets | ||
| Assets held for sale | 31,330 | 0 |
| Cash and cash equivalents | 421,416 | 449,984 |
| Securities | 59,327 | 56,514 |
| Inventories | 96 | 109 |
| Trade receivables | 206,229 | 226,739 |
| Other receivables and other assets | 32,125 | 25,881 |
| Income tax receivables | 9,740 | 10,291 |
| 760,263 | 769,518 | |
| Non-current assets | ||
| Intangible assets | 191,662 | 211,771 |
| Goodwill | 820,656 | 829,173 |
| Property, plant and equipment | 62,188 | 64,460 |
| Financial assets | 4,374 | 4,519 |
| Trade receivables | 75,677 | 96,418 |
| Other receivables and other assets | 1,998 | 2,030 |
| Income tax receivables | 2,872 | 2,711 |
| Deferred taxes | 16,162 | 16,253 |
| 1,175,589 | 1,227,335 | |
| Total assets | 1,935,852 | 1,996,853 |
Consolidated Income Statement Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity
| in € thousands | March 31, 2014 | Dec. 31, 2013 |
|---|---|---|
| Current liabilities | ||
| Liabilities related to assets held for sale | 13,503 | 0 |
| Financial liabilities | 203,042 | 202,888 |
| Trade payables | 30,392 | 36,140 |
| Other liabilities | 66,796 | 66,289 |
| Other provisions | 42,193 | 83,598 |
| Tax liabilities | 30,506 | 38,477 |
| Deferred income | 136,387 | 105,664 |
| 522,819 | 533,056 | |
| Non-current liabilities | ||
| Financial liabilities | 409,906 | 410,486 |
| Trade payables | 2 | 0 |
| Other liabilities | 3,141 | 4,775 |
| Provisions for pensions | 49,637 | 50,707 |
| Other provisions | 8,861 | 7,291 |
| Deferred taxes | 23,074 | 22,577 |
| Deferred income | 1,769 | 2,366 |
| 496,390 | 498,202 | |
| Equity | ||
| Share capital | 86,944 | 86,944 |
| Capital reserve | 46,559 | 46,144 |
| Retained earnings | 1,105,886 | 1,087,328 |
| Other reserves | −97,432 | −100,080 |
| Treasury shares | −226,116 | −155,534 |
| Share attributable to shareholders of Software AG | 915,841 | 964,802 |
| Non-controlling interest | 802 | 793 |
| 916,643 | 965,595 | |
| Total equity and liabilities | 1,935,852 | 1,996,853 |
for the three months ended March 31, 2014, IFRS, unaudited
| in € thousands | Q1 2014 | Q1 2013 |
|---|---|---|
| Net income | 18,567 | 27,213 |
| Income taxes | 7,427 | 11,266 |
| Net financial income/expense | 2,847 | 1,330 |
| Amortization/depreciation of non-current assets | 14,009 | 12,699 |
| Other non-cash income/expense | 799 | −4,106 |
| Operating cash flow before changes in working capital | 43,649 | 48,402 |
| Changes in inventories, receivables and other assets | 24,380 | 26,081 |
| Changes in payables and other liabilities | −2,128 | 3,792 |
| Income taxes paid/received | −14,422 | −13,646 |
| Interest paid | −3,545 | −1,354 |
| Interest received | 2,147 | 2,177 |
| Net cash provided by operating activities | 50,081 | 65,452 |
| Proceeds from the sale of property, plant and equipment/intangible assets | 966 | 62 |
| Purchase of property, plant and equipment/intangible assets | −3,314 | −3,120 |
| Proceeds from the sale of financial assets | 106 | 424 |
| Purchase of financial assets | −14 | −73 |
| Cash outflows from current financial assets | 0 | 0 |
| Purchase of securities | −2,813 | 0 |
| Proceeds from the sale of disposal groups | 0 | 6,443 |
| Payment for acquisitions, net | −1,000 | −104 |
| Net cash used in investing activities | −6,069 | 3,632 |
Consolidated Income Statement Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity
Interim Financial Statements
| Free cash flow | 47,825 | 62,745 |
|---|---|---|
| Cash and cash equivalents at the end of period | 421,416 | 422,801 |
| Cash and cash equivalents at the beginning of the period | 449,984 | 315,637 |
| Net change in cash and cash equivalents | −28,568 | 107,164 |
| Currency translation adjustment | −82 | 5,470 |
| Change in cash and cash equivalents from cash-relevant transactions | −28,486 | 101,694 |
| Net cash provided by/used in financing activities | −72,498 | 32,610 |
| Repayments of financial liabilities | −1,916 | −1,859 |
| Additions to financial liabilities | 0 | 100,000 |
| Dividends paid | 0 | 0 |
| Purchase of treasury stock (incl. option premiums paid) | −70,582 | −65,531 |
| Proceeds from issue of share capital | 0 | 0 |
| in € thousands | Q1 2014 | Q1 2013 |
for the three months ended March 31, 2014, IFRS, unaudited
| Share capital | Capital reserve | Retained earnings |
|||
|---|---|---|---|---|---|
| Common shares (No.) |
|||||
| in € thousands | |||||
| Equity as of January 1, 2013 | 86,875,068 | 86,917 | 42,124 | 991,651 | |
| Total comprehensive income | 27,198 | ||||
| Transactions with equity holders | |||||
| Dividend payment | |||||
| New shares issued | |||||
| Stock options | 1,342 | ||||
| Issue and disposal of treasury stock | |||||
| Purchase of treasury stock | −2,161,998 | ||||
| Other changes | |||||
| Transactions between shareholders | |||||
| Equity as of March 31, 2013 | 84,713,070 | 86,917 | 43,466 | 1,018,849 | |
| Equity as of January 1, 2014 | 81,513,689 | 86,944 | 46,144 | 1,087,328 | |
| Total comprehensive income | 18,558 | ||||
| Transactions with equity holders | |||||
| Dividend payment | |||||
| New shares issued | |||||
| Stock options | 415 | ||||
| Issue and disposal of treasury stock | |||||
| Purchase of treasury stock (incl. option premiums paid) | −2,653,845 | ||||
| Other changes | |||||
| Transactions between shareholders | |||||
| Equity as of March 31, 2014 | 78,859,844 | 86,944 | 46,559 | 1,105,886 |
Consolidated Income Statement Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity
| Non-con Total trolling interests |
Attributable to share holders of Software AG |
Treasury shares | Other reserves | ||||
|---|---|---|---|---|---|---|---|
| Currency translation gains/losses from net investments in foreign operations |
Actuarial gains/losses from defined benefit plans |
Fair value measure ment of securities and deri vatives |
Currency translation differences |
||||
| 777 1,060,066 |
1,059,289 | −1,157 | 3,498 | −21,467 | −3,546 | −38,731 | |
| 15 50,217 |
50,202 | 1,029 | 15 | 1,536 | 20,424 | ||
| 0 | 0 0 |
||||||
| 0 | |||||||
| 0 | ||||||
|---|---|---|---|---|---|---|
| 1,342 | ||||||
| 0 | ||||||
| −65,531 | −65,531 | −65,531 | ||||
| 0 | 0 | |||||
| 792 1,046,094 |
1,045,302 | −66,688 | 4,527 | −21,452 | −2,010 | −18,307 |
| 793 965,595 |
964,802 | −155,534 | 2,031 | −22,945 | −2,055 | −77,111 |
| 9 21,215 |
21,206 | 8 | 0 | 134 | 2,506 | |
| 0 | ||||||
| 0 | ||||||
| 415 | ||||||
| 0 | ||||||
| −70,582 | −70,582 | −70,582 | ||||
| 0 |
Equity as of March 31, 2014 78,859,844 86,944 46,559 1,105,886 −74,605 −1,921 −22,945 2,039 −226,116 915,841 802 916,643
Software AG's condensed and unaudited consolidated financial statements (interim financial statements) as of March 31, 2014 have been prepared in accordance with International Financial Reporting Standards (IFRS) applicable on the balance sheet date, as endorsed by the EU. The IASs/IFRSs applicable as of March 31, 2014 were observed, as were the corresponding interpretations of the International Financial Reporting Interpretations Committee (IFRIC—formerly SIC).
Software AG is a registered stock corporation under German law with registered offices in Darmstadt. Software AG is the parent company of a Group that is globally active in the fields of software development, licensing and maintenance as well as IT services.
The consolidated interim financial statements of Software AG are expressed in thousands of euros unless otherwise stated.
The following changes in the consolidated Group took place in the first three months of fiscal 2014.
The disposal relates to the merger of a company in the United States.
The same accounting policies have been applied to the consolidated interim financial statements as were applicable to the consolidated financial statements as of December 31, 2013. For more detailed information on accounting policies, please see Note 3 of the consolidated financial statements for fiscal 2013. These quarterly financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting.
Software AG acquired the remaining 84 percent of shares in metaquark GmbH, Berlin/Germany, in the first quarter. The company was completely consolidated as of the first quarter of 2013 due to the existence of call options. The purchase price for the shares (remaining 84 percent) was €3 million less than the amount assumed for the final purchase price allocation. Accordingly, income in the amount of €3 million resulted from the acquisition of the remaining 84 percent and was reported under "other income."
Software AG entered an agreement on March 31, 2014 to sell its SAP consulting business in Germany, Austria and Switzerland (DACH) to the Scheer Group GmbH (Saarbrücken/ Germany). The transaction is expected to close in the second quarter of 2014. The divesture includes all SAP services in the DACH region pertaining to the IDS Scheer Consulting GmbH subsidiary, which has approximately 500 employees and €64 million in total revenue (in fiscal 2013).
General Notes to the consolidated balance sheet Other disclosures
Pursuant to IFRS 5 (non-current assets held for sale and discontinued operations), the assets and liabilities likely to be affected by this were recognized as the lower of the carrying amount and the fair value less costs to sell and presented separately in the balance sheet as assets and liabilities held for sale.
All affected assets and liabilities were assigned to the Consulting segment.
Goodwill amounted to €820,656 thousand as of March 31, 2014, a decrease of €8,517 thousand compared to December 31, 2013. Of that amount, €33 thousand resulted from negative currency translation effects. Furthermore, €8,550 thousand resulted from moving the portion of goodwill relating to SAP consulting operations, which—as described in Note 5—was reclassified along with the other affected assets and liabilities.
Software AG's share capital totaled €86,944 thousand (2013: 86,917) as of March 31, 2014, divided into 86,943,945 (2013: 86,917,445) bearer shares. Each share entitles its holder to one vote.
Based on the number of shares outstanding as of February 28, 2014, the Management Board and Supervisory Board will propose to the Annual Shareholders' Meeting to distribute the net retained profits of €136,042 thousand reported by Software AG, the controlling Group company, in 2013, as follows: to appropriate €36,276 thousand for dividends and to carry forward €99,766 thousand. This corresponds to a dividend of €0.46 per share.
Software AG instituted a program for the repurchase of treasury shares up to a total value of €110.0 million beginning November 12, 2013 and concluded on February 28, 2014. During the period from January 1, 2014 up to and including February 28, 2014 Software AG repurchased 2,653,845 additional treasury shares (based on a value date) at an average price of €26.59 per share—not including transaction fees (€26.60 including transaction fees)—for a total cost of €70,561 thousand—not including transaction fees (€70,582 thousand including transaction fees). As of March 31, 2014 Software AG held 8,084,101 treasury shares representing an interest in the share capital of €8,084,101 (9.3 percent).
Segmentation is in accordance with the internal control of the Group. Software AG therefore reports on the following three segments:
The table below shows the segment data for the first quarters of 2014 and 2013:
| Enterprise Transaction Systems | (ETS) | ||
|---|---|---|---|
| in € thousands | Q1 2014 | Q1 2013 | |
| Licenses | 13,300 | 21,069 | |
| Maintenance | 37,649 | 43,207 | |
| Product revenue | 50,949 | 64,276 | |
| Services | 0 | 0 | |
| Other | 182 | 204 | |
| Total revenue | 51,131 | 64,480 | |
| Cost of sales | −3,355 | −3,764 | |
| Gross profit | 47,776 | 60,716 | |
| Sales, marketing and distribution expenses | −9,089 | −13,804 | |
| Segment contribution | 38,687 | 46,912 | |
| Research and development expenses | −6,208 | −6,477 | |
| Segment result | 32,479 | 40,435 | |
| General and administrative expenses | |||
| Other taxes | |||
| Operating result | |||
| Other operating income/expense, net | |||
| Financial income/expense, net | |||
| Earnings before income taxes | |||
| Income Taxes | |||
| Net income |
General Notes to the consolidated balance sheet Other disclosures
| Reconciliation | Consulting | (BPE) | Business Process Excellence | |||
|---|---|---|---|---|---|---|
| Q1 2014 Q1 2013 |
Q1 2013 | Q1 2014 | Q1 2013 | Q1 2014 | Q1 2013 | Q1 2014 |
| 57,104 63,581 |
593 | 86 | 41,919 | 43,718 | ||
| 90,304 93,502 |
1,869 | 1,093 | 48,426 | 51,562 | ||
| 147,408 157,083 |
2,462 | 1,179 | 90,345 | 95,280 | ||
| 61,293 67,507 |
67,507 | 61,293 | 0 | 0 | ||
| 185 | 116 | 3 | 0 | 0 | ||
| 208,886 224,910 |
70,085 | 62,475 | 90,345 | 95,280 | ||
| −68,025 −75,775 |
−5,969 | −7,056 | −60,211 | −51,905 | −5,831 | −5,709 |
| 140,861 149,135 |
−5,969 | −7,056 | 9,874 | 10,570 | 84,514 | 89,571 |
| −69,422 −72,811 |
−3,404 | −4,012 | −9,596 | −7,254 | −46,007 | −49,067 |
| 71,439 76,324 |
−9,373 | −11,068 | 278 | 3,316 | 38,507 | 40,504 |
| −27,152 −26,220 |
0 | 0 | 0 | 0 | −19,743 | −20,944 |
| 44,287 | −9,373 | −11,068 | 278 | 3,316 | 18,764 | 19,560 |
| −19,088 −17,845 |
||||||
| −1,638 −1,819 |
||||||
| 23,561 30,440 |
||||||
| 5,280 | ||||||
| −2,847 −1,330 |
||||||
| 25,994 38,479 |
||||||
| −7,427 −11,266 |
||||||
| 18,567 27,213 |
||||||
As in 2013, there were no reportable contingent liabilities as of March 31, 2014.
The carrying amount of collateral received was €32 thousand (2013: €28 thousand).
The Group's rental agreements and operating leases relate chiefly to office space, vehicles and IT equipment. Lease payments under operating leases are recognized as an expense over the term of the lease.
| in € thousands | Up to 1 year | >1 to 5 years | >5 years | Total |
|---|---|---|---|---|
| Contractually agreed payments (gross amount) | 16,721 | 41,382 | 8,276 | 66,379 |
| Estimated income from subleases | 2,038 | 5,055 | 366 | 3,459 |
| Contractually agreed payments (net amount) | 14,683 | 36,327 | 7,910 | 58,920 |
Revenues and pre-tax earnings were distributed over fiscal year 2013 as follows:
| in € thousands | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2013 | 2013 |
|---|---|---|---|---|---|
| License revenue | 63,581 | 75,799 | 79,875 | 110,883 | 330,138 |
| as % of license revenue for the year | 19 | 23 | 24 | 34 | 100 |
| Total revenue | 224,911 | 237,748 | 238,500 | 271,533 | 972,692 |
| as % of revenue for the year | 23 | 24 | 25 | 28 | 100 |
| Earnings before taxes | 38,479 | 41,457 | 45,739 | 64,337 | 190,012 |
| as % of net earnings for the year | 20 | 22 | 24 | 34 | 100 |
General Notes to the consolidated balance sheet Other disclosures
Based on historical data, the revenue and earnings distribution from 2013 is not fully representative.
The distribution of revenue and earnings is regularly affected by large individual contracts and is thus difficult to predict. The following graph illustrates the development of license revenues in 2013 und 2012.
In February 2010, a software company in Virginia, USA sued Software AG together with 11 additional defendants, including IBM and SAP, for infringement of several of its software patents. The lawsuit was filed with a court in Virginia. By order of the court, the proceedings were suspended for Software AG and all other defendants except for one, which was actively pursued. The court dismissed the test case, upon which the plaintiff filed an appeal. The court of appeals rejected the appeal in January 2012. In response to further legal action brought by the plaintiff, the appellate court partially acknowledged the case and partially referred it back to the court of first instance in October 2013. The proceedings against the other defendants are still pending. Software AG assumes that the proceedings will be reopened in the first half of 2014.
In February 2012, a non-practicing entity (NPE: a company that solely pursues patent-right violations, rather than manufacturing or using the patented invention) from the U.S. state of Delaware sued Software AG in the District Court of Delaware for violating one of its software patents. This NPE has filed three similar parallel lawsuits against other defendants. The NPE withdrew its lawsuit against Software AG in January 2013. The NPE also filed a new lawsuit for the alleged violation of two of its software patents in January 2013. The proceedings are in a very early stage. Hearings are not scheduled to take place until mid-2015.
A number of legal actions have been filed with the Regional Court of Saarbrücken in connection with the control and profit transfer agreement with IDS Scheer AG. In these proceedings, the petitioners are seeking an increase in their cash settlements and annual compensatory payments. Software AG considers the objections as to valuation to be groundless. In September 2013 the court issued an order to hear evidence and requested that Warth&Klein GmbH Wirtschafsprüfungsgesellschaft provide an opinion on questions concerning valuation in the capacity of expert auditor. Warth&Klein's expert opinion is still pending.
In connection with the merger of IDS Scheer AG and Software AG, a large number of legal challenges were filed with Regional Court of Saarbrücken, in which the plaintiffs seek a legal review of the set exchange ratio and cash compensation. Software AG considers the objections as to valuation to be groundless. In its decision of March 15, 2013, the Regional Court of Saarbrücken determined that the market value ratio method be employed for valuation and that cash compensation in the amount of €7.22 for every share held by outside shareholders be paid. This could result in a maximum risk of approximately €7.6 million. Software AG appealed the decision and is currently waiting for the case to proceed. Provisions are set up based on the estimated probable actual resource outflow.
There were no other changes with respect to the legal disputes reported as of December 31, 2013, nor were there any new legal disputes that could potentially have a significant effect on the company's financial position, financial performance or cash flows.
Software AG has various stock option plans for members of the Management Board, managers and other Group employees. Our stock price-based remuneration plans as of March 31, 2014 are described in detail on pages 194–198 of our 2013 Annual Report.
The rights granted under Management Incentive Plan 2011 (MIP IV) changed as follows in the first three months of the fiscal year:
| Number of rights |
Exercise price per right |
Remaining term |
Aggregated intrinsic value |
|
|---|---|---|---|---|
| (in €) | (in years) | (in € thousand) | ||
| Balance as of Dec. 31, 2013 | 4,808,668 | 41.34 | 7.5 | 0 |
| Granted | 15,000 | 41.34 | ||
| Forfeited | −92,500 | 41.34 | ||
| Balance as of March 31, 2014 | 4,731,168 | 41.34 | 7.25 | |
| Thereof exercisable as of March 31, 2014 | 0 |
General Notes to the consolidated balance sheet Other disclosures
There were no changes to the balance of rights granted under Management Incentive Plan 2007 (MIP III) compared to the balance on December 31, 2013.
| Number of rights |
Exercise price per right |
Remaining term |
Aggregated intrinsic value |
|
|---|---|---|---|---|
| (in €) | (in years) | (in € thousand) | ||
| Balance as of Dec. 31, 2013 | 1,793,300 | 24.12 | 2.5 | 0 |
| Forfeited | −3,500 | 24.12 | ||
| Balance as of March 31, 2014 | 1,789,800 | 24.12 | 7.25 | 3,884* |
| Thereof exercisable as of March 31, 2014 | 1,789,800 | 24.12 |
*) Based on the closing price on March 31, 2014
As of March 31, 2014, the average number of employees (part-time employees are taken into account on a pro rata basis only) by area of activity was as follows:
| March 31, 2014 |
March 31, 2013 |
|
|---|---|---|
| Maintenance and Services | 2,283 | 2,456 |
| Sales and Marketing | 1,131 | 1,213 |
| Research and Development | 995 | 901 |
| Administration | 699 | 730 |
| 5,108 | 5,300 | |
In absolute terms (part-time employees are counted in full), the Group employed 5,362 people (2013: 5,495) as of March 31, 2014.
No changes occurred on either the Management Board or the Supervisory Board between January 1, 2014 and March 31, 2014.
No significant events occurred between March 31, 2014 and the release of this quarterly report.
Software AG's Management Board approved the consolidated quarterly financial statements on May 9, 2014.
Darmstadt, May 9, 2014
Software AG
K.-H. Streibich Dr. W. Jost A. Zinnhardt
| May 2 | Financial figures Q1 2014 (IFRS, unaudited) |
|---|---|
| May 16 | Annual Shareholders' Meeting, Darmstadt/Germany |
| July 24 | Financial figures Q2/H1 2014 (IFRS, unaudited) |
| October 29 | Financial figures Q3/9M 2014 (IFRS, unaudited) |
Software AG Corporate Communications Uhlandstraße 12 64297 Darmstadt Germany
Tel. +49 61 51-92-0 Fax +49 61 51-1191 [email protected] Editorial Support Akima Media, Munich www.akima.de
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