Decline of sales volumes stopped
In this overall economic and industry environment, Software AG achieved consolidated sales of €411.4 million in 2004 (2003: 420.0). We generated a significant portion of our revenue outside of the Euro region, mainly in the US dollar zone. Accordingly, the strong Euro clearly affected the reported revenue, even though at constant currency rates, the sales volume rose slightly above that of 2003.

Increase of the promising license business
More than one quarter of our total revenue was generated in the strategically important software license business. The licensing revenue, which offers attractive margins, increased by 10 percent to €114.2 million. Besides expansion and replacement investments by our established customers, new customer projects in particular contributed to this growth.

The business area of Enterprise Transaction Systems (ETS) accounted for most of the license sales. With the products Adabas and Natural, it is geared towards the upgrading of databases. Demand was reinforced through the extension of our product line by enhanced IT system productivity and performance packages. Another boost in the Enterprise Transaction Systems area came from our intensive global customer contact program. Both effects enabled 12 percent growth of license revenues to €85.9 million.

The performance of existing applications of the German Federal Securities Administration, the Belgian Railway, and the state of California and others were boosted during 2004. Adabas is still one of the world's fastest and most reliable databases. New Adabas customers included the Bank of Tirol & Vorarlberg, the Russian Gorki Automotive Plant, and the Central Government Organization in Italy.

Integration ever more in demand
In the XML Business Integration segment, the business year was somewhat subdued at first. In the course of the year, however, XML revenues were increased, which more than compensated for the slow beginning. The extended range of XML Business Integration products and services offered also contributed to the flourishing business in this sector. With integration packages and integration solutions, our portfolio was significantly enhanced in the second quarter. The first positive effects of the introduction of these packages was to strengthen revenue, which amounted to €26.1 million Euro (2003: 26.2). Net of currency effects, this value lay slightly above that of 2003. Our integration customer base was expanded to include, amongst others, the state of Florida, the Spanish financial institutions Mapfre Vida and Mapfre Caja Salud, and the French association Prism, which operates in the health sector.

Higher products revenue
Maintenance revenue fell by 1 percent, at constant currency rates, to €182.6 million. We were able to more than compensate for this slight decrease through the sale of software licenses, a very positive development. Therefore, the combined revenue from both product license and maintenance sales increased to €296.8 million. Before currency effects, this corresponded to an increase of 4 percent.

Restraint regarding professional services
Businesses now only order professional services when these also result in a reduction of their costs. Accordingly, in 2004 we once again operated in a professional service environment characterized by excess capacities and pricing pressure. We only accepted service projects that met our fixed profitability criteria. Our withdrawal from unprofitable segments is reflected in reported revenue, which fell by 8 percent to € 112.8 million.

Regional revenues profit from the license business
In the North America / Northern Europe region, Software AG generated revenue of €171.4 million (2003: 186.2). At least two thirds of the revenue in this region is determined by the American market. Correspondingly, the exchange rates changes compared to 2003 had a strong impact on the regional result. Before currency effects, the revenue reported was €180.4 million, that is 3 percent below the 2003 figure.

The revenue in region South increased by 6 percent to €129.7 million. A quarter of all sales were generated from new software licenses. With 44 percent growth, the licensing revenue increased significantly to €32.3 million.

In the Central/Asia region, we achieved revenue of €111.4 million. Half of the nominal 2.7 million decline is due to currency effects. Declining volumes in the professional services area were countered by growing maintenance and license sales. In the license business, the region achieved a revenue increase of 16 percent, to €32.6 million.

Strong international market position
Software AG is the second-largest software house in Germany, one of the largest software vendors in Europe, and a world leader in XML technology. We operate in two segments:

• The high-performance database market and
• integration.

In the high-performance database market we are amongst the leading enterprises, world-wide. This strong position provides the basis for our expansion into the growing integration market. The integration market is fragmented with a large number of small suppliers. In this context, our target group still mainly consists of major enterprises. Through the size of the corporation, Software AG is in an optimal position to implement the large projects which are relevant to this group of customers. This holds for both the complexity of projects, and also the international aspects of project design.

Software AG's position in the up-and-coming e-government segment has been significantly reinforced. In 2004 we acquired a double-digit number of new customers.