Software AG continues on growth course

Software AG's positive business development continued in the third quarter with increasing revenue and higher earnings.

Group revenue rose by 10% (12% on a constant currency basis) to EUR113.8 million in line with the projections for full-year 2006.

The licensing business was again the strongest growth driver, increasing by 27% to EUR37 million. Licensing revenue as a percentage of total revenue has continued to increase, to 33% from 28% a year earlier.

Significantly, licence revenue for the new crossvision SOA suite grew by 76%. Net income increased by 13% to EUR17.1 million. Operating income (EBIT) rose 11% over the year-ago period to EUR25.6 million (EUR23.1 million in 2005).

Both business lines contributed to the increase in licensing revenue of EUR7.8 million over the year-ago period (+27%). Of the total licensing revenue, EUR27 million was attributable to Enterprise Transaction Systems, (EUR19.7 million in 2005), and EUR9.7 million to crossvision (EUR5.5 million in 2005). This corresponds to growth rates of 37% for ETS and 76% for crossvision. For the first time, crossvision contributed more than one-quarter of Software AG's licensing revenue, 26% as compared to 19% in 2005.

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Professional Services revenue declined slightly to EUR28.2 million in the third quarter of 2006 (EUR28.5 million in Q3, 2005). As already announced in the second quarter of 2006, Software AG is focusing on the implementation of its own products and has scaled back other, less profitable projects.

Maintenance revenue improved by 5% over the third quarter of 2005, from EUR45.8 million to EUR48 million, due to the continuous increase in licensing revenue in recent years.

"This sustained positive business development is evidence of Software AG's growth potential," stated CEO Karl-Heinz Streibich. "This clearly demonstrates the success of the company strategy: To focus on the enormous opportunities provided by a service-oriented architecture as well as realising the potential in mainframe applications and systems."

Operating income (EBIT) grew 11% in the third quarter to EUR25.6 million. This corresponds to an EBIT margin of 22.5% (22.3% in Q3, 2005). Net income increased from EUR15.2 to EUR17.1 million in the period under review. With an average of 28.1 million shares in circulation (Q3 2005: 27.6 million shares), earnings per share amounted to EUR0.61, up from EUR0.55 in the year-ago period.

Shareholder's equity increased 9% to EUR404.6 million as of 30 September 2006 (EUR370.5 million in 2005). The equity-to-assets ratio rose to 66% from 65% in the year-ago period. Cash and cash equivalents increased by EUR12.3 million to EUR165.6 million. Operating cash flow amounted to EUR38 million (EUR48.2 million in 2005).

This solid equity base will give Software AG more room to manoeuvre in implementing its growth strategy by providing flexibility, both for possible acquisitions and expanding the company's market position.

In the first nine months of the current fiscal year, Software AG group revenue increased by EUR34.1 million to a total of EUR348.6 million. This corresponds to growth of 11%.

Licensing growth accelerated in both business lines in 2006. Enterprise Transaction Systems registered an increase of 32%, largely due to the introduction of a new generation of the key Adabas 2006 and Natural 2006 product lines. The crossvision business line generated growth of 57% in the first nine months, primarily as a result of the successful launch of the crossvision SOA suite earlier this year.

Operating income (EBIT) for the first nine months grew from EUR67.5 million in 2005 to EUR76.8 million in 2006. This increase of 14% reflects the above-average revenue growth in the high-margin licensing business, additional optimisation of corporate processes as well as strengthened cost discipline. The resulting EBIT margin amounts to 22%, up from 21% a year earlier. Net income grew more than EBIT, reaching EUR50.9 million after EUR43.0 million a year earlier.

As of 30 September 2006, Software AG had 2 666 employees worldwide (783 in Germany). The number of employees is thus nearly unchanged from the reporting date for the year-ago period (2 664 employees of which 770 were in Germany).

The performance in the first nine months has confirmed Software AG's forecast for full-year 2006. The company continues to project an increase in group revenue for the year of 10% on a constant currency basis. For the EBIT margin, a figure of between 22% and 23% of total revenue is still anticipated.

Increased licensing revenue of between 25% and 27% is expected to strongly contribute to this growth. Professional Services is expected to record a 2% to 4% increase in revenue while a 4% to 5% increase in maintenance revenue is expected.

Software AG is anticipating total crossvision business line revenue to increase between 20% and 25% and Enterprise Transaction Systems total revenue to increase between 8% to 10% range.

"Software AG made significant advances in the first nine months of the year," according to Karl-Heinz Streibich. "The progress we have made confirms that we can reach our ambitious 2006 targets. This again shows the effectiveness of our strategy, ensures sustained growth and a leading international position for Software AG."

For fiscal 2007, the executive board is looking for revenue growth of 10%, with the revenue share of software products increasing even more rapidly. The EBIT margin is also expected to make headway of one percentage point in reaching the medium-term target of 25%.

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