Software AG announced a successful financial turnaround in 2004. Revenue was EUR 411.4 million, a slight increase over 2003, at constant currency rates. Licence revenue increased by 9.5%, net of currency effects 11%.
Total product revenue was up 4% to EUR 296.8 million, net of currency effects. Operating EBIT increased by 42% to EUR 83.9 million with a 20.4% revenue margin. Software AG increased profit before tax to EUR 111.7 million. This included extraordinary income of EUR 24.5 million from the sale of SAP SI shares.
Net income increased significantly to EUR 77.2 million compared to EUR 7.1 million in 2003. Earnings per share were EUR 2.83, compared to EUR 0.26 in 2003, including EUR 0.88 from the SAP SI shares. The company will recommend a dividend payment of EUR 0.75 at the annual shareholders' meeting. This is a dividend yield of 3.25% based on the average 2004 share price.
Fourth quarter revenue and earnings figures were in line with the annual figures. They showed stable revenue, at constant currency rates, of EUR 112.8 million, an operating EBIT of EUR 23.6 million and net income of EUR 15.3 million, compared to EUR 4.2 million in Q4, 2003.
Stable revenue: The company posted revenue of EUR 411.4 million, for the full year, compared to EUR 420.0 million in 2003 including a total currency effect of EUR 10.6 million. Sales volume in local currency increased by EUR 2 million, a 0.5% increase. Product revenue was increased by 4%, net of currency effects, to EUR 296.8 million, driven by a 11% increase in licence revenue. Both business lines increased license revenue Enterprise Transactions Systems by 14% and XML Business Integration by 2%, both net of currency effects. Professional services returned revenues of EUR 112.8 million (8% down on 2003).
Operating EBIT up 42%: The company reduced operating expenses (cost of sales plus R&D, administration and sales/marketing expenses), by 13% to EUR 320.8 million (EUR 368 million in 2003). This allowed Software AG to return a 42% increase in operating profit (operating EBIT) of EUR 83.9 million. The operating EBIT margin was 20.4%. There was amortisation write down of EUR 1.9 million, the remaining goodwill from the acquisition of the IC Group in Holland in 2001.
Profit before tax was EUR 111.7 million (EUR 13 million in 2003), including EUR 24.5 million from the sale of SAP SI shares. The company posted net income of EUR 77.2 million as compared to EUR 7.1 million in 2003.
Earnings per share were EUR 1.95 based on operating results plus EUR 0.88 through the sale of SAP SI shares giving a total of EUR 2.83 per share.
Solid balance sheet: Cash and cash equivalents rose to EUR 119.1 million (74.1 million in 2003). Software AG continues to have no bank liabilities and has unused credit lines at its disposal. Total assets rose to EUR 510.7 million, EUR 505.6 million in 2003. Trade receivables remained at EUR 124 million. The equity-to-total-assets ratio rose to 63%, the highest since the initial public offering in 1999.
Healthy cash flow: The operating cash flow more than doubled to EUR 28.9 million (EUR 13.5 million in 2003) with free cash flow more than trebling to EUR 22 million (EUR 5.9 million in 2003). Allowing for the reversal of factoring and the cash-out of restructuring charges, Software AG returned an organic cash flow of EUR 54.7 million (EUR 55.1 million in 2003).
The recommended dividend payment is EUR 0.75 per share, a yield of 3.25% based on the average 2004 share price.
The effective headcount dropped between 31 December 2003 and 31 December 2004 from 2 577 to 2 438.
Successful strategy implementation
The implementation of the strategy, initiated by CEO, Karl-Heinz Streibich, in December 2003, was started in the first quarter 2004. The concentration on Software AG's core competencies "High-performance databases with user-friendly programming languages (Adabas and Natural)" and "Integration of an enterprise's existing applications using Software AG's XML expertise" resulted in the foundation of the business lines, Enterprise Transaction Systems Modernisation and XML Business Integration. This also considerably expanded Software AG's added value.
Development and sales of non-strategic products and solutions was stopped. Concentrating on two core areas led to the dissolution of some units within the company. At the same time, Software AG strengthened the personnel structure in customer-oriented areas.
The country subsidiaries were focused on both business lines as was research and development.
Software AG instituted an executive customer visit programme. This programme has opened the doors to customers' decision-makers. In addition, this programme raised the overall awareness of Software AG within the customer base.
Modernising the product portfolio
Software AG's research and development concentrated on the products and solutions that best meet customers' expectations. In addition, the company internationalised locally developed vertical industry solutions.
Geographical consolidation
Software AG restructured its originally four regions into three, based on language and cultural similarities.
The Anglo-American zones and Northern Europe make up one region.
Southern Europe and Latin America are in another region. First successes with this organisation resulted in contracts with the government of Chile three months after the restructuring.
Based on market demands of Eastern emerging markets rather than language, Software AG grouped the Central and Eastern European states, APEC member states, and Russia.
These changes allowed a successful financial turnaround and positioned Software AG for growth in 2005.
2005: Outlook
Software AG expects revenue growth in the range of 4% to 6%, net of currency effects. The ETS business line is expected to return stable revenue with growing revenue from the XML Business Integration solutions, primarily in the second half of 2005.
The operating EBIT margin is expected to be between 20% to 22% in 2005.
Free cash flow of around 2 Euros per share is also expected.
Further strategic developments are planned to expand the product portfolio including acquisitions and partnering.
The acquisition of Sabratec was completed in February adding a strategic technology offering to the legacy modernisation and integration portfolio.
For further information, visit www.softwareag.com.
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