Software AG achieves record results in 2006

In the 2006 fiscal year, Software AG increased its revenues by 10% to EUR483 million. At constant currency rates, this represents an 11% rise and exceeds the company's target.

In the same period, EBIT increased by 15% to EUR111.2 million. Software AG was able to improve its operating margin to an all-time high of 23% - an increase of 100 basis points from the previous year. At EUR73.2 million, consolidated income was 18% higher than in 2005.

Software AG again achieved significant growth in revenues in fiscal 2006. Worldwide, customers purchased software licences and services worth EUR483 million. This was 10% higher than in the previous year (11% at constant currency rates).

The high margin software licence business exhibited the strongest growth of all revenue segments, increasing by 26% (28% at constant currency rates) to EUR165.7 million (2005: EUR131.6 million). Revenue from licences rose to more than 34% of the total (2005: 30%).

In the classic database business (ETS, enterprise transaction systems), licence revenues grew 27% (29% at constant currency rates) from EUR96 million to EUR121.7 million. The new crossvision product line, for the company-wide integration of business processes on differing systems, exhibited dynamic growth. Licence revenues from Software AG's own products increased from EUR26 million to EUR41.6 million. This represents a 60% expansion (63% at constant currency rates).

Maintenance revenues amounted to EUR187.3 million, up 3% from EUR181.4 million in the previous year (up 4% at constant currency rates). Software AG generated EUR126.2 million in service revenues, 3% higher than in the previous year.

Software AG was also able to increase its gross margin once again; after 67% in 2005 it reached 69% in 2006. This continuous improvement is the result of the strategic focusing on the company's own products and the over proportional growth of the licence business.

In the past fiscal year, Software AG continued to improve its cost structure with active cost management and the optimisation of internal processes. This permitted the company to continue to invest in marketing, enter new markets, and at the same time increase its EBIT margin from 22% to 23%. As a consequence, EBIT rose 15% to EUR111.2 million.

"Through the positive overall results for 2006 we have achieved our ambitious goals," says Karl-Heinz Streibich, CEO of Software AG.

Net income improved by 18.4% to EUR73.2 million (2005: EUR61.8 million). Earnings per share amounted to EUR2.60 in 2006, which was 16% higher than in previous year (2005: EUR2.24).

Software AG generated EUR56.2 million in free cash flow from operating activities in 2006 (2005: EUR45.6 million). This represents a free cash flow per share of EUR2, up from EUR1.66 in the previous year. Accordingly, cash and cash equivalents increased from EUR161.6 million to EUR184.8 million. Shareholders' equity rose from EUR393 million to EUR422.2 million. The equity-to-assets ratio remained unchanged at 66%.

"The cash flow margin is once again above 10%. This shows the value generation of our business, allowing further investments into growth and the payment of an attractive dividend," said Arnd Zinnhardt, Chief Financial Officer at Software AG.

As of 31 December 2006, Software AG had 2 621 employees worldwide, nearly 5% fewer than in the previous year (2 750 employees). In Germany, the total headcount was 761 (2005: 774).

Software AG generated EUR134.4 million in sales revenues in the fourth quarter, representing an increase of 9% (13% at constant currency rates). The EBIT margin was 25.6% (up from 23.4 % in 2005), and EBIT rose 19% to EUR34.4 million (2005: EUR28.9 million).

Licence revenues remained an important growth driver in the fourth quarter as well. At EUR54.1 million, they rose 25% from EUR43.4 million in the previous year (a 31% rise at constant currency rates). In the fourth quarter, EUR37.6 million in licence revenues was generated from the ETS business (2005: EUR32.5 million) and EUR15.3 million from Software AG's own products from the crossvision business line or product family (2005: EUR9.3 million). This means ETS licence revenues increased by 16% (22% at constant currency rates) and crossvision by 65% (72% at constant currency rates).

Due to the high proportion of revenues in US dollars, maintenance revenues declined somewhat to EUR45.2 million (2005: EUR46.6 million) in the fourth quarter. At constant currency rates, this revenue segment realised growth of 1.1%. Services revenue improved by 1.2% (2.3% at constant currency rates) to EUR33.1 million (2005: EUR32.7 million).

For 2007, the company once again expects to achieve a 10% rise in group revenues, at constant currency rates. Software AG anticipates that the ETS business will achieve growth in the range of 5% to 7% while crossvision will increase its revenues by 20% to 30%. As a consequence, the company projects that it will be able to improve its EBIT margin by another percentage point to 24%. Software AG plans to increase its earnings per share to between EUR2.90 and EUR3.10.

In connection with its strategic positioning as a profit-oriented growth company, Software AG has restructured its executive divisions. The classic database business line ETS will now be a separate executive division. The supervisory board appointed David Broadbent to the executive board of software AG to fulfil this role. Within the ETS business line, Broadbent is responsible for product management and product marketing as well as research and development. This step is meant to underscore the significance and the development of the growing database business. As a consequence, ETS will be the second business line alongside crossvision to be organised as a separate executive division.

As part of the reorganisation of executive responsibilities, there will be two main sales regions. The former executive board member Christian Barrios is leaving the company by mutual agreement.

The new executive board structure will offer the best conditions to quickly and effectively respond to current and future market trends with new product offerings. Software AG will also structure its financial reporting according to the ETS and crossvision business lines as of 2007. "Our sales targets remain ambitious," says Karl-Heinz Streibich. "Regarding our long-term growth strategy, we are defining our executive board structure accordingly and focusing even more strongly on the customer."