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Record Operating Earnings of 120 Million Euros

· Operating earnings up 71 percent from last year

· Operating margin hits target of 20 percent

· 41 percent total revenue growth to 588.5 million euros

· Growth spurred by US acquisition

· Product portfolio geared toward high-growth markets

· Entry into solutions market

· Licensing for new products expected to grow 30 percent in 2002

Software AG has reported fourth-quarter 2001 revenue growth of 36 percent to 159.6 (2000: 117.4) million euros. Based on consolidated preliminary (unaudited) financial data, earnings before interest, tax, depreciation and amortisation (EBITDA) totalled 37.2 million euros (2000: 22.8 m euros adjusted for extraordinary income from equity sales). This represents growth of 63 percent over the same quarter last year. The operating margin improved to 23 percent (2000: 19%).

Europe's largest system software vendor grew its full-year 2001 revenue by 41 percent to 588.5 (2000: 416.6) million euros. The company’s EBITDA before acquisition-related extraordinary charges (20.2m euros) increased 71 percent to 120.6 million euros. Last year's figure (adjusted for extraordinary income from equity sales) totalled 70.4 million euros. The operating margin rose to 20 percent (2000: 17%). “Despite unfavourable market conditions, 2001 was Software AG’s most successful fiscal year in its over 30-year history,” commented CEO Dr. Erwin Königs.

Software AG's 2001 pre tax profit – totalling 70.3 million euros – included 40.0 million euros in extraordinary items for restructuring charges and goodwill amortisation associated with its acquisition of former US distribution partner, SAGA, on February 1, 2001. Last year's pre tax profit of 112.9 m euros, in contrast, benefited from one-time earnings from equity sales totalling 49.7 million euros. As a result, net earnings for 2001 were posted at 38.7 (2000: 66.6) million euros.

Earnings per share totalled 0.60 (2000: 0.88) euros in the fourth quarter and 1.44 (2000: 2.55) euros in fiscal year 2001. Earnings per share as calculated according to DVFA / SG were 0.77 (2000: 0.60) euros in the fourth quarter and 1.33 (2000: 1.51) euros in fiscal year 2001.

Revenue Growth with Classic Products

Total fourth-quarter 2001 revenue was posted at 159.6 million euros. At 52.5 (2000: 32.9) million euros, maintenance again proved to be a very reliable business. It grew 59 percent and was the second-largest contributor to total revenue. The focus of Software AG's professional services on higher-margin businesses was intensified, and revenue from this division went up 17 percent to 50.4 (2000: 43.1) million euros.

Licensing accounted for the largest percentage of revenue, up 34 percent to 55.5 (2000: 41.3) million euros. Mainframe-based enterprise transaction technology – the company's traditional product line – generated 36.2 (2000: 23.5) million euros. Thanks to their worldwide usage by major corporations, these products have benefited strongly from the current industry trend to improve productivity of existing IT systems and to achieve higher business automation. Robust growth was reported for this product line in the USA, as the current American customer base works predominantly with Software AG's classic products.

New Process Integration Products for Growth Market

In order to offset the on-going reluctance of organisations to invest in electronic business projects, Software AG has expanded its product offering. The common platform for all its new products is XML (Extensible Markup Language), the new format standard that significantly simplifies the exchange of data for electronic business processes. Software AG is considered the pioneer of XML technology and, with Tamino (now in its third version), the market leader in XML servers. In October 2001, a widely enhanced release of the EntireX integration software was launched, which is designed to integrate business processes beyond company boundaries. This "integration server" will also support the XML standard. Gartner Group predicts that the market segment termed as TBI (Total Business Integration) will see particularly dynamic growth of some 33 percent annually over the next few years. To complete its product portfolio and continue to accelerate the pace of XML adoption, Software AG will develop and market comprehensive vertical solutions in cooperation with partners. Agreements have already been signed with Tridion, based in the Netherlands, and Stellent, a US vendor, for content management solutions.

A product campaign targeted at the emerging TBI market was launched in Fall 2001 and will only start to have an impact on revenue in the course of 2002. In the fourth quarter of 2001, revenue from the electronic business products was significantly below expectations at 13.9 (2000: 13.8) million euros, the EntireX product family generated 7.7 million euros and Tamino 6.2 million. Together, these products represented a quarter of total licensing revenue.

US Acquisition a Major Factor in Fiscal Year 2001

Revenue for the full year 2001 showed similar characteristics to those of the fourth quarter, growing 41 percent to hit an all-time high of 588.5 (2000: 416.6) million euros mainly due to the acquisition in the USA. Licensing revenue rose 50 percent to 199.1 (2000: 132.9) million euros. Specifically, revenue from the classic products jumped 50 percent to 116.6 (2000: 77.5) million euros. The electronic business products contributed 64.0 (2000: 39.2) million euros, which represents a 63 percent growth. Their revenue barely profited from the US market, as sales only really started in the second half of the year.

Maintenance revenue grew 53 percent to reach a record high of 196.0 (2000: 127.9) million euros. Services achieved growth of 23 percent and contributed 190.3 (2000: 154.9) million euros to total revenue for 2001.

The integration of the former US partner, SAGA, based in Reston, Virginia, which was acquired by Software AG on February 1, 2001, has been concluded. The takeover was very well received by American customers, proven by the strong revenue figures for the classic products. In contrast, sales of the electronic business products - launched in North America in the second quarter of 2001 - got off to a slow start and stayed clearly below expectations. The acquisition, 327 million dollars in cash, was completely financed with Software AG's own funds.

One-Third of Revenue from USA

Due to the acquisition, the North-American market represented 35 percent of worldwide revenue, up from last year's 13 percent. This has affected the total geographical revenue split. The second largest market is now Germany with 17 percent (2000: 27%). The percentage of revenue from the other European countries declined to 39 percent, as compared to 51 percent in 2000. The rest of the world, including Asia, Australia, Africa and the Middle East, accounted for 10 percent (2000: 9%).


For the current fiscal year, at least for the first half of 2002, Software AG does not expect any major changes in global economic conditions. Customers are expected to continue to invest predominantly in the improvement of their existing IT infrastructures in order to maximise productivity, cut costs and fully automate processes with their business partners. In this context, Software AG's classic products performed very well in 2001 and give reason to expect revenue growth in 2002 as well.

The persisting trend of Total Business Integration will open up further growth potential for the new server products (Tamino; EntireX), which are increasingly being incorporated into partner solutions. As Software AG's servers are among the first in the world to use the XML standard, the corporation expects growing interest from distribution partners. All in all, Software AG expects licensing revenue from this segment to grow by around 30 percent. Demand for Web applications will see a gradual upward trend in the course of this year and will have a noticeable effect on the market in 2003.

The robust performance of maintenance business is expected to continue in fiscal year 2002. The demand for systems maintenance for mission-critical processes along with the internationally acclaimed services of Software AG ensures stable income, even during difficult economic cycles. Software AG is now focusing on higher-margin projects for its services with specific offerings for vertical business segments with attractive IT budgets. Depending on an economic upswing in the second half of the year, Software AG expects moderate growth in its services division for 2002.

Software AG is targeting a single-digit total revenue growth in 2002. The corporation expects its operating earnings to hit 20 percent of revenue again for the current fiscal year. With measures such as tight cost management and cautious personnel growth, the corporation sets its priority on increased earnings over revenue growth.

about Software AG

Software AG, Darmstadt, Germany, is Europe’s largest system software provider and a major global player offering cutting edge technology for data management and electronic business. Since 1998 the company has focused its development activities on XML products for the Internet. With about 3,500 employees and representative offices in over 70 countries, Software AG has achieved revenues of 588 million euros in 2001. Its distribution and technology partners include market leaders such as IBM, Microsoft and Hewlett-Packard as well as innovative IT solutions providers like Extensibility, Softquad and Citrix. Software AG’s products control the central IT processes of thousands of renowned companies worldwide to include Lufthansa, ZDF, Dresdner Bank AG, DaimlerChrysler, Deutsche Bahn AG (German Rail), BP and VIAG Interkom. Software AG is listed on the Frankfurt Stock Exchange (MDAX, Security identification number 724264 / SOWGn.F). Software AG's UK offices are located in Barcknell and Derby.

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For more information, please contact

Richard Bennett/Tamsin Keynton
MCC International
Tel: 01962 888100

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