Software AG posts a significant increase in profit and license revenue

Software AG announced its financial results* for the first quarter ending March 31st , 2004.

Software AG announced operating results (EBIT) of euros15.1 million, an increase of 89%, compared to Q1 2003. Profit before tax of euros15.8 million was posted compared to a loss of euros23.1 million in Q1 2003 which included restructuring charges. Net income after tax was euros9.8 million compared to a loss of euros14.8 million in Q1, 2003.

License revenues rose by 6% to euros23.3 million. Total revenues in the first quarter of 2004 were euros95.7 million, compared to euros103.1 million in Q1, 2003. This represents a reduction of 7%, largely caused by the strong Euro and a decline in revenues from project services.

At today's press conference in Frankfurt, Karl-Heinz Streibich, Software AG's CEO, summarized first-quarter developments: "These results are an excellent start to reaching our 2004 objectives."

Both enterprise transaction license revenue and operating results (EBIT) came in above market expectations. This renewed vote of confidence by customers in Software AG's Enterprise Transaction System products and the improved company cost structure are a direct result of the rightsizing activities of 2003.

Software AG's first-quarter product revenues remained strong. Reported revenues were euros67.4 million (compared to euros69.2 million in Q1, 2003). This represented a 3% rise at constant currency rates.

License revenue showed an increase of 6% to euros23.3 million (euros21.9 million in 2003). Maintenance remained stable net of currency affects contributing euros44.1 million (euros47.3 million in 2003).

The license revenue changes shown by the two business lines differed. License revenue for Enterprise Transaction Systems grew by 31% to euros17.8 million (euros13.6 million in 2003). This represents further major customer investment in the company's classic product lines Adabas and Natural, demonstrating the stability of the customer base and the success of the 'Customer First' program initiated in 2003.

While customers are making significant investments in existing systems there is still some reluctance to invest in new technology. License revenue for the XML Integration business line was euros3.8 million in Q1 (euros6.1 million in 2003). With the launch of XML Integration packages in Q2, an improvement in license revenue is expected during the course of the year.

Integration sales should also drive project services revenue posted at euros28 million in the first quarter of 2004 (euros33.6 million in 2003). Excess market capacity has put severe pressure on prices, resulting in an adjustment to Software AG's services capacity during 2003.

Regional revenues affected by exchange rates

License revenues increased in three of Software AG's business regions, Northern Europe/Asia posted a 33% increase, Central and Eastern Europe a 21% increase and Southern and Western Europe an 19% increase.

The effects of foreign exchange rates were most pronounced in the Americas region with revenues of euros27.4 million in Q1 (euros33.4 million in 2003).

The restructuring program implemented in fiscal 2003 has led to lower expenditure. Cost of sales was reduced by euros6.1 million and operating expenses were euros10.6 million lower than in Q1 2003. As a result, Software AG posted operating EBIT up by 89% to euros15.1 million (compared with an operating EBIT of euros8.0 million in Q1 2003).

The results will be further positively affected in the second half of 2004. The consolidation of R&D will then further reduce operating expenses by euros10 million.

Software AG has no bank debts and reported financial income of euros0.7 million.

Profit before tax was euros15.8 (compared to a loss of euros23.1 million in Q1, 2003 which included a restructuring charge euros31.8 million). There were no extraordinary income or expenses in Q1, 2004.

Net income was euros9.8, (against -euros14.8 in Q1, 2003), which represents earnings per share of euros0.36.

Liquid assets increased to euros83.1 million (euros74.2 million in 2003). Furthermore, liquid assets will be bolstered in Q2 by the sale of SAP SI shares for euros26 million which will also result in an extraordinary profit of euros24 million.

Fixed assets of euros256.6 million were posted (euros250.9 million in 2003) including goodwill of euros176.5 million. Total assets increased to euros523.5 million (euros509.1 million in 2003), and the shareholder's equity to euros286.8 million (euros269.2 million in 2003). The equity-to-total-assets ratio rose from 52.8% to 54.8%, the highest since the initial public offering.

The free cash flow was euros9.4 million (euros9.7 million in 2003) despite a euros6.4 million increase in cash-out for restructuring.

The effective headcount dropped between the 31st of March 2003 and the 31st of March 2004 by 373 or 13%.

The focus for 2004 is on stabilizing revenue and improving the company cost structure. Based on Q1 operating results and license revenues the Executive Board believes that the company is well on track to achieving both goals.

The concentration on two business lines will continue to result in core business license revenue balancing out the revenue consolidation from non-strategic fields. Allied with the further reduction in operating expenses, the company therefore anticipates a significant increase in operating income by approximately 25%.

Operating margins should also improve. A lower cost base, sustainable strong cash flow, and the sale of SAP SI shares will further strengthen the corporate financial structure. Earnings per share are expected to be in the region of euros2.50-euros2.60.

These financial results are being presented under IFRS. Previously, Software AG has presented financial information under the German accounting regulations HGB.

All 2003 figures have been restated to comply with IFRS and may differ from previously stated or published financial accounts.

Full details of all changes will be published in the notes to the quarterly financial statements.

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