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However, the profitability of the group listed on https://www.finanzen.net/index/MDAX and TecDAX was higher and, on the bottom line, won more than expected. The software company also introduced its new corporate strategy for sustainable growth. Software AG expects further growth for the current year.
Based on the provisional figures, sales fell 2% to 865.7 million euros. The company estimated the negative effects of the currency at 26.7 million euros. Adjusted for currency effects, revenues increased by 2%. Before interest and taxes (EBIT), Software AG gained 4% more, to € 231.6 million. The margin improved to 26.9%, from 25.3%. Profit after tax rose 17 percent to 165.2 million euros.
Sales and EBIT were in line with market expectations. In-profit analysts were expecting consensus with a smaller increase to 63 million euros.
New boss calls for expensive growth course of Software AG
"In the fiftieth year of our existence, we will take a new, courageous path," said the performance since August, new CEO Sanjay Brahmawar on Thursday in Darmstadt. He wants to better combine the rapidly growing machine software business, but he is still young with the largest integration software division and is also relying more on partnerships.
By restructuring structures and shifting focus to rental software, the manager wants to put the group back on the path of growth. In the medium term, the company is expected to grow on average more than 10% per year in the digital business by 2023, with the expectation that the proportion of recurring revenues will increase to 85% to 90% of sales.
"We have exceptionally strong products, financial strength and tremendous talent in business," Brahmawar told DPA-AFX. "But we have invested very little in our brand and customer approach, and we need to simplify our product offerings and focus more on a partner ecosystem."
In the case of integration software for network IT systems, the Group expects adjusted currency growth between 3% and 7% if business with the machine software and the cloud are excluded. This small area is expected to grow from 75 to 125 percent, but much faster than experts expected. In the traditional database business, Software AG expects a decline of up to 5%
EUR 50 million for conversion and acquisition
First of all, the course will also cost money. "In our strategic reorientation, we will make additional investments as well as direct R & D expenditures for future areas," said the manager. This year the company is investing about 50 million euros in conversion, of which about half are additional investments.
As a result, CFO Arnd Zinnhardt expects operating profit margins (adjusted Ebita) to decline from 28 to 30 percent in 2019 to 31.5 percent the year before. Analysts expected much more. Starting in 2020, the company's license fee model will be shifted to a subscriber system – revenues will gradually flow as rent, not as a single premium. This should cost again up to 2 percentage points in the margin.
"Even if sales numbers and profits from 2020 are negatively impacted by our move toward rental software, we see a significantly better trend in business this year," Brahmawar said. As early as 2021, this should be reflected in Erlsen and the bank again.
The growth program could be complemented by taking control. "For a boost, we could certainly spend between € 1 billion and € 1.5 billion in data analysis or in the IoT business, but our strategic reorientation is focused on organic growth," Brahmawar said.
Investor not satisfied
The negative side of the new growth course cost Software AG shares on Thursday the previous year's total price increase. Darmstädter shares fell 9.5 percent to 30.46 euros, before the negative to 5.53 percent, to 31.80 euros recently.
The focus is on the weakest signs of profitability, Goldman Sachs analyst Gautam Pillai said, because the company is setting the course again, which will initially cost money. Pillai expects market earnings expectations to be limited by a single-digit percentage.
His colleague Stacy Pollard of JPMorgan also spoke from a very mixed perspective: the operating profit margin (Adjusted Ebit) for 2019, from 28 to 30%, was well below market expectations, which were 31.6% level of the previous year. Tue.
The medium-term goal of increasing operating cash inflows by 5 to 10 percent is better, according to the JPMorgan expert. However, the exact time of this is unclear.
FRANKFURT (Dow Jones)
Image sources: Nigel Treblin / Getty Images, Software AG