Operating ratio reaches a record high of 23 percent

The gross profit of Software AG rose even more than sales, increasing by 13 percent to €333.5 million. The gross margin also increased, rising by 69 percent in 2006 after a rate of 67 percent in 2005. This steady improvement is the result of our strategic focus on our own products as well as the disproportionate rise in the profitable licensing business. This has enabled us to achieve a sales structure with higher margins.

Software AG has continued to improve its cost structure by means of active cost management and optimization of internal company processes this past fiscal year. The Company made additional investments in distribution activities, penetrated new markets, and raised EBIT by 15 percent to €111.2 million. This led to an increase in the EBIT ratio from 22 to 23 percent.

Positive trend in Northern Europe/North America

High licensing revenues prompted an improvement in EBIT for this region to €72.7 million (prior year: €52.8 million).

Investment spending on market presence depresses results in Southern and Western Europe and in Latin America

EBIT for the Southern and Western Europe region (including Latin America) amounted to €7.3 million (prior year: €13.1 million). The high share of Professional Services in the sales mix of this region led to below-average earnings growth. Additional pressures on earnings arose from investments made to expand our market presence in Latin America and the Middle East as well as from non-recurring writeoffs of receivables in the amount of €5.4 million.

Licensing and maintenance business expanded in Central and Eastern Europe/Asia

EBIT increased to €20.0 million in the region (prior year: €17.0 million).

Operating EBIT by region
In € thousands	2006	2005
Northern Europe/North America	72,684	52,814
Southern/Western Europe	– 7,273	13,129
Central and Eastern Europe/Asia	20,021	16,991
Total	85,432	82,934