Profitability significantly increased
The restructuring process, started in 2003, was completed in 2004. It provides Software AG with an efficient corporate structure, in-line with the sales volume, and at the same time, guaranteeing a strong, growth-promoting performance. In 2004, the results of our restructuring program resulted in considerable cost reductions. Compared to 2003, administration, marketing and sales, plus research and development expenses were reduced by €32.9 million.

In combination with the growth of the profitable license business, these efficiency gains provided a significant increase in income. The operating EBIT grew by 42 percent to €83.9 million. In addition, Software AG generated an extraordinary income of €24.5 million through the sale of the remaining SAP Systems Integration AG (SAP SI) shares in the second quarter.

Increasing income in the regions
In the North America / Northern Europe region, the operating earnings were increased by 3 percent to 49.0 € million. This corresponds to an EBIT margin of 29 percent. This region, which contributed 42 percent of the total revenue, accounts for 58 percent of the group's operating EBIT.

The operating EBIT of the Central/Asia region were increased by 55 percent to €19.4 million. This strong growth is mainly due to an increase in the profitable license business. This was boosted by more favorable business development in Germany, where Software AG successfully implemented a turnaround in 2004.
In the region South, operative earnings fell to €12.9 million (2003: 18.6). Besides expenses for R&D activities in Spain, this decrease is mainly due to investments in the development of the South American market.

Investments in buildings and IT equipment
Investments totaled €6.9 million (2003: 7.6), with the main part accounted for by tangible and intangible assets. About half of this amount was spent on construction, including the establishment of the new Customer Briefing Center in Darmstadt, Germany, and the branch office in Spain. Another main focus was investments in the internal IT infrastructure and technology, particularly new hardware purchases. The financial assets were reduced by €19.9 million, essentially due to the sale of the SAP SI shares.

Financial power strengthened once again
Its solid financial structure is a characteristic feature of Software AG. Total assets grew to €510.7 million (2003: 505.6); the decrease in fixed assets by €25.4 million is essentially due to the sale of the remaining SAP SI shares. With €119.1 million (2003: 74.1), cash and cash equivalents came to almost one quarter of the total assets at the end of the year. Our equity increased by €54.3 million to €323.6 million. This results in a further equity to total assets increase ratio to 63 percent (2003: 53 percent). As in 2003, the company has no bank debts.

Strong operating cash flow
The operating cash flow - before the SAP SI revenue - more than doubled to €28.9 million, in comparison to 2003. Almost one quarter of this amount flowed into investments. In the course of restructuring, we spent €23.4 million. Provisions for restructuring of €30.7 million had been made in 2003. In 2004, the organic cash flow was €54.7 million (2003: 55.1). This corresponds to 13 percent of the total revenue, or about 10 percent of the shareholder value at the end of the year, or €2.00 per share.