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Software AG Raises Outlook for Operating Profit Margin Based on Q2 2017 Financial Results
- Digital business up 8 percent in H1 and up 4 percent in Q2
- Growth in the maintenance business drives profitability
- EBIT increases by 11 percent, overproportionately to total revenue
- Operating profit margin (EBITA, non-IFRS) increases by 210 basis points to 29.5 percent
- Full-year outlook raised: operating profit margin to reach 31.0 to 32.0 percent in 2017
- 2017 revenue outlook for Digital Business Platform and Adabas & Natural confirmed
- Strong growth in the Cloud business (order entry up 100 percent in H1)
[All figures are rounded unless otherwise indicated.]
Software AG (Frankfurt TecDAX: SOW) today announced its financial figures (IFRS, preliminary) for the first half and the second quarter of fiscal 2017. Total revenue rose by 2 percent in the second quarter, while earnings before interest and taxes (EBIT) grew overproportionately by 11 percent. The result was mainly driven by high margin maintenance revenues in the digital business, which grew by 9 percent in the second quarter. The operating profit margin (EBITA, non-IFRS) improved significantly and increased by 210 basis points to 29.5 percent (previous year: 27.4 percent). Based on the increased profitability, the company raised the full-year outlook for its operating profit margin to a corridor of 31.0 to 32.0 percent (prior: 30.5 to 31.5 percent). The guidance for Software AG’s digital business line (Digital Business Platform) and for its database business (Adabas & Natural) were reconfirmed. After the first half of 2017 and a positive start into the second half of the year, Software AG remains confident in continuing its successful business development.
“Software AG’s success story is underlined by the positive development in the first half of 2017. We are extending our technological leadership in the areas of the Internet of Things and the Industrial Internet. Both our financial figures as well as new strategic partnerships with selected industry giants clearly proof that Software AG’s global relevance in the IoT market is growing rapidly,” Karl-Heinz Streibich, CEO of Software AG, stated.
“Software AG remains one of the most profitable enterprises in the technology industry. Once again we were able to expand our already high margins in all our three business lines. Regarding the second half of the financial year, we remain very confident in further expanding our profitable growth,” Arnd Zinnhardt, CFO of Software AG, commented.
Business area development in H1/2017
The Digital Business Platform (DBP) business line demonstrated a positive development in the first half of 2017. DBP maintenance revenue improved by 9 percent to €135.6 million (2016: 124.4 million) in the same period. License revenue rose by 5 percent to €74.1 million (2016: €70.6 million). Overall, the DBP business line generated €209.8 million (2016: €195.0 million) in product revenue (licenses + maintenance), an increase of 8 percent in the first six months. This growth underlines the increasing relevance of Software AG in the numerous digitalization projects of renowned globally leading customers. At constant currency, the digital business line grew by 6 percent in the first half of 2017, falling within the outlook corridor.
Software AG’s database business line Adabas & Natural (A&N) generated €100.3 million (2016: €116.0 million) in revenue in the first half of 2017. A&N maintenance revenue remained stable in the first half of the year at €78.9 million (2016: €77.6 million). This development underscores the high loyalty of the A&N customer base and illustrates the long-term importance of Software AG’s database management system for business-critical applications. License revenue reached €21.1 million (2016: €38.0 million). At constant currency, product revenue remains, as expected, below the targeted corridor. Based on the strong pipeline in the second half of the year, the solid maintenance business and the typical seasonality, Software AG remains confident of and reconfirms its A&N targets for the full year.
The Consulting business line increased its revenue to €103.2 million (2016: €98.6 million), up 5 percent. At the same time, the segment margin significantly improved to 12.1 (2016: 6.7) percent. This represents a top performance level within the industry and underscores the successful transformation of the consulting business from a project implementation focus to being a strategic customer partner.
Total revenue and earnings development in H1/2017
Software AG’s total revenue in the first half of fiscal 2017 increased to €413.3 million (2016: €409.6 million). The company’s product revenue (licenses + maintenance) reached last year’s level at €309.8 million (2016: €310.6 million). The maintenance revenue grew by 6 percent to €214.6 million (2016: €202.0 million). The group‘s license revenue totaled €95.2 million (2016: €108.6 million) in the reported period.
Driven by a significant increase in earnings in the second quarter, the Group’s earnings before interest and taxes (EBIT) reached €89.6 million (2016: €88.7 million) in the first half of 2017. Accordingly, the EBIT margin was at 21.7 (2016: 21.7) percent. The operating profit (EBITA, non-IFRS) increased to €117.6 million (2016: €115.0 million). The operating profit margin (non-IFRS) significantly climbed 30 basis points to 28.4 (2016: 28.1) percent.
Outlook for 2017
Based on the increased profitability in the second quarter, the business development in the first half of 2017 and the strong project pipeline for the second half of the year, Software AG raised its 2017 outlook. The company now expects its operating profit margin (EBITA, non-IFRS) to reach 31.0 to 32.0 percent (prior: 30.5 to 31.5 percent). The Digital Business Platform (DBP) product revenue is expected to increase between +5 and +10 percent (at constant currency). For the database business Adabas & Natural (A&N), the Group continues to expect a revenue decline between 2 and 6 percent at constant currency.
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