Software AG's Q3 net income doubles, licence revenue up 10%

Software AG has announced its financial results for the third quarter ending 30 September 2004.

Licence revenue and profit again showed significant increases over Q3, 2003. Licence revenue rose by 10% to EUR 25.1 million. Total revenues were EUR 96.6 million, stable net of currency effects. The company reported EBIT of EUR 21 million, an increase of 34%. Income before tax rose to EUR 21.9 million compared to EUR 16.4 million in Q3, 2003. Net income after tax rose 95% to EUR 12.7 million.

Software AG's third-quarter product revenues remained stable at EUR 71.1 million (EUR 71.2 million in Q3, 2003), a rise of 3% at constant currency rates. Licence revenue showed an increase of 10% to EUR 25.1 million (EUR 22.9 million in 2003). Maintenance dropped by 1% net of currency effects contributing EUR 46.0 million (EUR 48.3 million in 2003).

Project services revenue of EUR 25.2 million was posted in the third quarter (EUR 27.1 million in 2003) reflecting continuing weakness in the German market and seasonal factors in Southern Europe.

Both business lines reported licence revenue growth, Enterprise Transaction Systems by 10% to EUR 17.5 and XML Business Integration by 2% to EUR 5.2 million.

Licence revenues showed large gains in the regions Southwest Europe and Central and East Europe, 56% and 61% respectively. The Northern Europe/Asia Pacific region posted a 14% decrease in licence revenue and the Americas region an 11.8% decrease net of currency effects.

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The company posted operating results (EBIT) of EUR 21 million, a 34% increase on Q3, 2003. There was neither extraordinary income nor expenses. The company reported profit before tax of EUR 21.9 million (compared to EUR 16.4 million in Q3, 2003). Net income was EUR 12.7 million, (against EUR 6.5 million in Q3, 2003), which represents earnings per share for the third quarter of EUR 0.47, (EUR 0.24 in Q3, 2003).

Software AG has cash reserves of EUR 110.2 million, which is 21% of total assets, and continues to have no bank debts.

The highlights in the third quarter include:

* Expansion of Software AG's partner network
* The favourable customer response to the Enterprise Transaction Systems productivity packages and Adabas SQL Gateway
* Successful direct entry into the Chilean market

Software AG continued to develop its strategic alliance network with the announcement of the partnership with Novell Inc promoting XML-based products on Suse Linux.

Major Q3 customer successes include the implementation of the community portal by Dorset County Council (UK) on Suse Linux in partnership with Sun Microsystems. The same partnership is helping Tewkesbury Borough Council comply with the UK government's electronic service legislation.

The partnership with Shanghai 5A Technology Development Co Ltd resulted in its first XML Business Integration sale to the Shanghai Government in the People's Republic of China.

The Enterprise Transaction System productivity and performance packages and the Adabas SQL Gateway generated over EUR 1 million in revenue in their first full quarter.

The direct entry into the Chile market resulted in immediate successes in both the government and healthcare markets including the Chilean Post Office and a deal including five hospitals and seven medical emergency centres.

Foreign Direct Investments include the establishment of Software AG Chile and the expansion of Software AG South Africa. The investments in South America and the Research & Development investments in productising local Spanish solutions were significant factors in the drop in EBITA for region South and West Europe.

Total revenue remained stable at EUR 298.6 million for the first nine months of 2004, (-2% including currency effects and an increase of 1% net of currency effects). Total product revenue (licence and maintenance) grew by 1% to EUR 214.6 million, (4% net of currency effects), with licence revenue up 13% to EUR 77.7 million.

Compared to the same period in 2003, administration costs were down by 18%, marketing and sales costs by 12% and research and development costs by 22%. Software AG posted EBIT of EUR 84.9 million (EUR 9.4 million in first nine months of 2003). This includes extraordinary income of EUR 24.5 in the second quarter from the sale of Software AG's stake in SAP Systems Integration AG (SAP SI).

Organic cash flow rose to EUR 42.4 million (EUR 40.9 million for the first nine-months of 2003), that is 14.2% of total revenue. This increase is despite nearly doubling cash-out for restructuring and does not include EUR 26 million cash received from the sale of financial assets. The free cash flow doubled to EUR 11.4 million in the first nine months (EUR 5.7 million in the corresponding period in 2003).

Liquid assets increased to EUR 110.2 million (EUR 74.8 million in 2003). Fixed assets of EUR 228.8 million were posted (EUR 247.8 million in 2003). The drop in fixed assets was due to the sale of Software AG's interest in SAP SI in Q2, 2004.

Total assets increased to EUR 515.3 million (EUR 494.2 million in 2003), and the shareholder's equity to EUR 312.7 million (EUR 262.2 million in 2003). The equity-to-total-assets ratio rose to 61%, the highest since the initial public offering.

The effective headcount dropped between 30 September 2003 and 30 September 2004 from 2 743 to 2 445.

Software AG expects moderate customer investment in the short-term leading to single digit revenue growth in 2005 with double-digit growth in the mid-term. The company expects growth to be achieved maintaining current margins. Free cash flow of approximately EUR 2 per share is expected.

The forecast for 2004 remains unchanged. Earnings per share will be in the range of EUR 2.75 to EUR 2.85 (including EUR 0.88 for the sales of the company interest in SAP SI).

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.