Software AG reports higher operating income, strong licensing revenue growth and margin expansion for full year 2005
- Total revenue increases by 6.5% to €438.0 million in 2005
- Licensing revenue rises by 15.2% to €131.6 million
- Operating income (EBIT) up 14.9% to €96.4 million
- Operating (EBIT) margin rises to 22.0% from 20.4% in previous year
Darmstadt, Germany, 2/10/2006
Software AG (Frankfurt TecDAX: SOW) reported operating income (EBIT) of €96.4 million for the year ended 31 December 2005, an increase of 14.9% from the €83.9 million for 2004. The operating margin (EBIT) for the full year rose to 22.0%, up from 20.4% for 2004. The improvement in operating income and margin was achieved with higher total revenue of €438.0 million, up 6.5% (5.8% on a constant currency basis) from the €411.4 million for 2004. Revenue growth was driven in particular by a 15.2% increase in licensing revenue for the year, supported by a strengthened sales organization and positive business developments in both of the company’s business lines. Results for the fourth quarter of 2005 confirmed developments for the year as a whole. Total revenue for the fourth quarter rose by 9.6% (5.9% on a constant currency basis) to €123.6 million, while gross margin was 23.4% in comparison with 20.9% for the year ago period.
Revenue growth driven by higher licensing revenue
Total revenue for 2005 was €438.0 million, an increase of 6.5% (5.8% on a constant currency basis) from the €411.4 million for 2004. Overall revenue growth was driven in particular by the increase in licensing revenue to €131.6 million, up 15.2% over the €114.2 million for 2004. The growth in licensing revenue reflects increasing demand for both the XML Business Integration and the Enterprise Transaction Systems (ETS) business lines, as customers seek to modernize their mainframe systems and integrate their IT infrastructure. Total licensing revenue for the XML Integration business line rose by 16.1% to €30.3 million from the €26.1 million for the previous year. More importantly, licensing revenue with the company’s own products increased by 31% (29% at constant currencies) to €26.0 million from €19.9 million in 2004, while third party sales declined in keeping with the decision to phase out this activity. For the ETS business line, licensing revenue rose to €96.0 million, up 12% (10% at constant currencies) over the €85.9 million for the year-ago period. Maintenance revenue for 2005 was €181.4 million, substantially unchanged from the year-ago period (€182.6 million). Revenue for professional services amounted to €122.7 million, up 8.8% over 2004.
“The renewed increase in licensing revenue provides further confirmation of the validity of our strategy,” said CEO Karl-Heinz Streibich. “The company’s results for 2005 show that we are indeed able to leverage the growth opportunities in XML Business Integration while capitalizing on the sustained potential of the established ETS business line.”
Continuing improvement in operating margin
The operating margin (EBIT as a percentage of total revenue) for the full year 2005 was 22.0%, up significantly from the 20.4% margin for 2004. The continued improvement in operating margin results from an enhanced product mix and effective cost management, as reflected in the total cost of sales, which rose by only 4% - less than the rate of revenue growth – to €143.5 million in comparison with €137.4 million for 2004. The company was also able to achieve the expansion in operating margin in spite of committing substantial resources to introduce new products, enter new markets, expand the partnership network, and strengthen sales and marketing activities. In this connection, the company also reinforced its technological and market position through targeted acquisitions during 2005, including Sabratec Ltd., a specialist in legacy integration technology based in Israel; APS, a distribution company in Venezuela and Central America; and Casabac Technologies GmbH, a specialist for web-enabled enterprise applications located in Germany.
The total number of employees at year end 2005 was 2,750, an increase of 12.8% from the 2,438 employees at year end 2004. Although the number of employees in Germany rose by 1.2% to 774, most of the increase in headcount occurred outside Germany as the company focused on expanding its sales and marketing presence in key growth markets.
Net income and earnings per share
Net income for the year rose by 16.2% to €61.8 million in comparison with €53.2 million for 2004, after adjusting for the effect of a one-time gain in the amount of €24.0 million realized by the company on the sale of its investment in SAP-Systems Integration AG (SAP-SI) in 2004. Earnings per share for 2005 (fully diluted) were €2.24, up 14.9% in comparison with €1.95 for 2004, after adjusting for the effect of the one-time gain on the disposal of the investment in SAP-SI and taking into account the increase in the number of shares outstanding in 2005.
Robust balance sheet and strong cash flow
Total shareholders’ equity at 31 December 2005 was €393.0 million, an increase of 21.4% from the €323.6 million at year end 2004. The equity to assets ratio at year end 2005 was 65.5% in comparison with 63.3% at year end 2004. The continued improvement in the balance sheet ratios and in the cash position (€161.6 million at year end 2005 in comparison with €119.1 million at 31 December 2004) reflects the company’s ability to generate sustained net operating cash flow, which rose to €55.7 million in 2005, practically a doubling from the €28.9 million for 2004.
Results for the fourth quarter 2005
Total revenue for the fourth quarter 2005 was €123.6 million, up 9.6% (5.9% on a constant currency basis) from the €112.8 million for the year ago period. As was the case for the year as a whole, higher licensing revenue drove overall revenue growth. Licensing revenue was €43.4 million, an increase of 18.6% (14% at constant currency) from the €36.6 million of the year ago period. Licensing revenue for the XML Integration Business rose by 25.0% in the quarter to €10.5 million, whereby the growth of the company’s own XML products (up 37% to €9.3 million) accelerated as the phase-out of third-party products (down 25% to €1.2 million) was largely completed. ETS licensing revenue rose by 17% (12% at constant currency) to €32.5 million, demonstrating the continued strength of this established business line. Maintenance revenue for the quarter was €46.6 million, substantially unchanged from the €45.7 million of the year ago period. Revenue for professional services rose by 9.0% (7.7 % at constant currency) to €32.7 million in the fourth quarter, in line with the year as a whole. Operating income (EBIT) for the fourth quarter was €28.9 million, up 22.5% from the €23.6 million for the year ago period. This corresponded to an EBIT margin for the fourth quarter 2005 of 23.4% in comparison with 20.9% for the year ago period. Once again, the improvement in margin was achieved at the same time as the company committed substantial resources to develop further its product portfolio and strengthen the sales and marketing organization with a view to generating future revenue growth.
Outlook for 2006
For the year 2006, the company anticipates total revenue growth of 10%, as previously announced. The company expects that this overall revenue growth will be driven primarily by enhanced licensing revenue, projected to increase in a corridor of 18% to 20% for the year. In addition, the company expects higher revenue for professional services, projected to grow in a corridor ranging from 12% to 15% for the year, while maintenance revenue is expected to remain stable. Total revenue for the XML Business Line is anticipated to show dynamic growth in a corridor of 20% to 30% for the year, while total revenue for the established ETS line of business is expected to show sustained growth in a range from 5% to 7%. “While pursuing these ambitious targets for revenue growth, we can confirm that we expect to maintain an operating EBIT margin of 21% to 23% for 2006,” said Karl-Heinz Streibich. “We will continue to focus on delivering on our long-term growth strategy in a disciplined and consistent manner.”
Software AG, headquartered in Darmstadt, Germany, provides a full range of products and services to deliver a service-oriented architecture (SOA) IT infrastructure, based on over thirty-five years experience in high-performance databases, application development tools and integration technologies. Its technology offers process driven integration through legacy modernization and SOA based integration. Software AG helps its customers to achieve a competitive advantage through flexible and adaptive business processes based on fast and easy integration of existing IT assets. It supports the mission-critical systems of over 3,000 customers globally. Software AG is represented in around 60 countries with more than 2,600 employees. It is listed on the Frankfurt Stock Exchange (TecDAX, ISIN DE 0003304002 / SOW). In 2005 Software AG posted €438 million in total revenue (unaudited).
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Contact: Software AG Paul Hughes Director Media Relations Uhlandstrasse 12 64297 Darmstadt Germany Tel: +49 6151 92-1787 Fax: +49 6151 92-1623 press@softwareag.com http://www.softwareag.com |
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