- 4th quarter license revenue increased 13% to 35.5 million Euro
- Annual revenue was 422.2 million Euro
- 2003 operating income increased by 31% to 41.5 million Euro
- One-off restructuring charge of 40.8 million Euro
- Full year results showed a profit before tax of 0.7 million Euro
Darmstadt, February 13th, 2004. At today’s press conference in Frankfurt, Software AG presented its preliminary results for the 4th quarter, 2003 and for the full fiscal year. The results exceeded forecasts and market expectations.
4th quarter revenue increased significantly
Business in the 4th quarter showed a significant improvement in comparison to the corresponding quarter in 2002. Total revenue was stable at 117.9 million Euro (-2%, +4% at constant currency rates). Product revenue grew significantly to 83.1 million Euro (+2%, +10% at constant currency rates). The increase was largely due to the products Adabas and Natural. Particularly welcome was the increase in license revenue of 13% (20% at constant currency rates) to 35.5 million Euro. Product maintenance revenue grew by 3% to 47.6 million Euro (50.2 million Euro in 2002). Service revenue at 34.3 million Euro (38.2 million Euro in 2002) dropped by 10%. The rate of decrease in service revenue slowed in the 4th quarter compared to 2003 overall.
Revenue in 2003 Stabilized
The strong 4th quarter revenue insured that targets for 2003 were exceeded. Total revenue reached 422.2 million Euro. The expectation was 410 to 415 million Euro.
License revenue was also significantly above expectations at 104.3 million Euro. At constant currency rates, license revenue remained stable at 2002’s figure of 113 million Euro. Maintenance revenue reached 191.2 million Euro (200.9 million Euro in 2002) an increase of 5% at constant currency rates. Service revenue on the other hand decreased by 22% from 159.6 million Euro to 124.3 million Euro. Due to the pressure on service margins, Software AG focused on larger, more challenging projects, including application management services, launched in Germany.
Operating income increased significantly by 31%
The operating income increased significantly during 2003 reaching 10% of revenue (7% in 2002). The operating income before tax increased by 31% to 41.5 million Euro (31.6 million Euro in 2002). The results for both the 4th quarter and the full year were affected by restructuring costs. A profit before tax of 1.9 million Euro was posted in the 4th quarter despite a restructuring charge of 17 million Euro. The loss before tax of the first 9 months was reversed in the 4th quarter. The company therefore posted a profit before tax of 0.7 million Euro for the full year. Included are restructuring costs of 40.8 million Euro.
Tax liabilities in 2003 lowered the net income to - 3.4 million Euro. The comparative income in 2002, 33.5 million Euro, included the untaxed profits from the partial disposal of financial assets.
Balance sheet shows solid financial structure
Liquid assets remained stable at 74.2 million Euro (75.4 million Euro in 2002) despite the restructuring charges. Furthermore, the company has financial interests of 20 million Euro available and no bank debts.
Fixed assets of 199.9 million Euro were posted (221.1 million Euro in 2002). The reduction in comparison to 2002 is due to the scheduled amortization of goodwill. This can most likely be dropped in 2004 when the company changes from HGB to the IFRS international financial regulations.
Total assets increased to 445.4 million Euro (440.8 million Euro in 2002), and the shareholder’s equity to 228.4 million Euro (214.5 million Euro in 2002). The equity-to-total-assets ratio rose from 48.7% to 51.3%.
The operating cash flow dropped to 15.5 million Euro (40.7 million Euro in 2002). Allowing for the reversal of factoring and the cash-out of restructuring charges, Software AG returned an organic cash flow of 54.5 million Euro (67.9 million Euro in 2002).
Strategic focus on two business lines: ETS and XML Business Integration
In December 2003, the newly appointed CEO Karl-Heinz Streibich, (appointed in October 2003), announced the new corporate strategy and company focus on two business lines: ETS and XML Business Integration.
As part of its new focus on ETS, Software AG optimizes enterprises' legacy IT systems through tools that enhance performance; it also expands said systems by adding new functionalities, such as intelligent backup, and it manages users’ existing applications through the implementation of Web technologies or the more efficient use of platforms.
In the second focus area XML Business Integration, Software AG is combining and enhancing its EntireX and Tamino products, which support the XML data format, to create a comprehensive integration platform. Professional Services will employ the new integration platform to develop customer-specific, easy-to-manage and highly productive solutions. These solutions accelerate business processes and provide considerable added value in comparison to the earlier isolated systems.
Research and development tasks are now concentrated on further strengthening the company’s core competencies and strategic expertise. Software AG India, an affiliate of Software AG, is taking over non-strategic development activities such as integration tests for open systems platforms.
The focus on ETS and XML business lines was combined with the company’s restructuring. All activities are now oriented towards these business lines. Two companywide, interdisciplinary teams have been formed for this purpose.
The total number of employees (full-time equivalents) fell by 12% from 2,920 to 2,577. The largest reduction in staff took place in Germany, both at Corporate HQ with a 16% reduction and in the German subsidiary with a 24% reduction.
In order to respond optimally to the needs of the market and customers, regional managers have been appointed to Software AG’s Executive Board. Marketing and sales activities have also been internationalized. A close-knit international network ensures that information is exchanged rapidly and smoothly between countries, regions and headquarters.
"Customers have consistently made it clear to us that they need to modernize their enterprise IT systems rather than invest in complex and often inadequate new applications," commented Streibich. "Investment protection and integration rank highly among the concerns of today’s IT decision-makers and Software AG has demonstrated over and over again how it can successfully address these issues."
Outlook for 2004
With its new, strategic focus on core competencies, as well as the improved overall economic climate and expected growth in IT markets, Software AG has a positive outlook for 2004.
The Executive Board views that concentrating on two business lines, will lay the basis for sustainable growth in the following years. The company therefore expects 2004 to be a year of revenue stabilization. Growth in core business license revenue will balance out the revenue consolidation from non-strategic fields. The company thus anticipates a significant increase in operating income of approximately 20%.
Operating margins should also improve. A lower cost base and sustainable, stronger cash flow will further strengthen the corporate financial structure. Earnings per share are expected to be in the region of 1.50 Euro to 1.65 Euro (pre-goodwill).
For more information: www.softwareag.com
For further information please contact:
Susanne Eyrich
VP Corporate Communications & Corporate Strategy
Software AG
Uhlandstraße 12
D-64297 Darmstadt
Tel.: +49-6151-92-1201
Fax: +49-6151-92-1933
press@softwareag.com
www.softwareag.com