Exact Software Reports 16% Revenue Growth and 30% EBIT Increase

Exact Holding N.V. (Exact) announces its results for H1 2006.

Key financial figures
Financial Results
Strategic Groups
Product and Technology

Financial Highlights

    --  Total revenue increased 16% to EUR 118.3 million (H1 2005: EUR

    --  EBIT increased 30% to EUR 21.4 million (H1 2005: EUR 16.5
        million), representing an EBIT margin of 18.1%

    --  Net income increased 18.8% to EUR 15.8 million (H1 2005: EUR
        13.3 million)

    --  Earnings per share increased 16% to EUR 0.65 (EUR 0.56 in H1

Strategic and Operational Highlights

    --  Execution of strategy yields growth in value business (higher
        end of the mid-market) while restoring strong position in
        volume business (lower end of the mid-market)

    --  Growth of revenue and EBIT margin by all Strategic Groups

    --  Exact e-Synergy main driver of organic revenue growth (1)

    --  Restructuring led to improved cost control, efficiency
        improvements and increased margins

(1) Organic revenue growth is defined as revenue development excluding
    current and previous year's contributions of acquisition 


    --  Reiteration of outlook for 2006 of a revenue growth of 7-9%
        and an EBIT margin within the range of 18-20%

    --  Reiteration of our guidance for 2007 to achieve EUR 300
        million revenue and an EBIT margin of at least 20%

Key financial figures

         (in EUR thousands)       H1 2006    H1 2005         Change
License revenue                   32,365     28,117             15%
Maintenance revenue               61,859     57,411              8%
Service revenue                   24,074     16,084             50%
Total revenue                    118,298    101,612             16%
EBITDA                            24,858     18,944             31%
EBITDA margin (in %)                21.0%      18.6%    2.4% points
EBIT                              21,386     16,458             30%
EBIT margin (in %)                  18.1%      16.2%    1.9% points
Diluted EPS(a) (in EUR)             0.65       0.56             16%
Diluted Cash EPS(a) (in EUR)        0.96       0.86             12%

(a) Based on average diluted number of shares outstanding, (H1 2005: 23.70 million; H1 2006: 24.03 million)

Rajesh Patel, CEO Exact Holding N.V.: "Since last September we have established a sound and structured plan. In the first six months of 2006 we have been in full execution mode, and I am delighted to see the fruits of this execution in the H1 2006 results. I am confident that we will remain humble and continue to execute diligently ensuring healthy long term revenue and profit growth."

Financial Results

In the first half of 2006, Exact continued to execute its strategy to provide fully integrated business solutions to small and medium-sized companies, giving all employees and stakeholders real-time access to relevant information.

Revenue growth in the higher end of the mid-market confirms investments made in the value-driven approach and is reflected in a strong increase of service revenue. A clear refocus on the volume-driven approach, providing business software with simple functionality to small companies, restored Exact's strong position in the lower end of Exact's home market, the Netherlands.

Growth in revenue and EBIT margin throughout all Strategic Groups clearly demonstrated management's focus and decisive approach.


Total revenue increased from EUR 101.6 million in the first half of 2005 to EUR 118.3 this year, an increase of 16.4%. Foreign exchange rates had a positive effect on revenue of EUR 2.0 million. Acquisitions added EUR 11.1 million to revenue. Exact e-Synergy was the main driver for achieving an organic revenue growth of 5.5%. Total Exact e-Synergy-related revenue increased 34% to EUR 11.2 million.

License revenue amounted to EUR 32.4 million compared to EUR 28.1 million in the first half of 2005, an increase of 15%. Exact e-Synergy represented 20% of license revenue, while the traditional ERP product lines still represented the majority of license revenue.

Exact Online is showing encouraging growth in the number of customers in line with Exact's expectations. As no initial investments are required from the customer the contribution to revenue which is recognized as service revenue is still relatively small.

Service revenue increased 50% to EUR 24.1 million (H1 2005: EUR 16.1 million). Service revenue increased in all Strategic Groups as a result of the increased activities of Exact in the value business at the higher end of the mid-market. In this segment the solutions Exact offers are more consultancy-intensive than the traditional volume business at the lower end of the mid-market.

Maintenance revenue increased to EUR 61.9 million compared to EUR 57.4 million in the first half of 2005, an increase of 8%. The retention rate was further improved as a result of the increased customer focus.


In the first half of 2006, EBIT increased by 30% to EUR 21.4 million, compared to EUR 16.5 million in the same period last year. This represents an EBIT margin of 18.1% compared to 16.2% in the prior year. The impact of foreign exchange rates fluctuations on EBIT was immaterial. Restructuring measures, further efficiency improvements and active cost management, in combination with strong revenue leverage, have resulted in this improved margin.

Total operational costs increased 13.7% to EUR 96.9 million (H1 2005: EUR 85.2 million). Research and development (R&D) costs for the corporate product lines amounted to EUR 4.9 million (H1 2005: EUR 3.8 million) in line with the headcount increase in 2005. The marketing and sales costs decreased 15% to EUR 6.6 million due to a more efficient sales and marketing model. Personnel expenses increased from EUR 50.5 million in the first half of 2005 to EUR 61.6 million in the first half of this year, primarily due to the acquisitions made in 2005. Excluding acquisitions personnel expenses increased 5%. The average number of employees (FTE) including acquisitions increased from 2,458 to 2,682.

Interest and Tax

The total financial income in the first half of 2006 amounted to EUR 0.9 million, a decrease of EUR 2.2 million compared to the same period last year. This is the result of a more prudent liquid assets investments and an increase of the interest expenses resulting from interest on earn-out obligations and interest on a bank loan related to the acquisitions of Vanguard and Inspired Solutions. The tax expense in the first half year 2006 was EUR 6.4 million, compared to EUR 6.2 million in the same period last year. This resulted in a tax rate of 29.1% (H1 2005: 31.8%).

Net Income

Net income in the first half of 2006 increased by 18.8% to EUR 15.8 million (H1 2005: EUR 13.3 million). Earnings per share were EUR 0.65, compared to EUR 0.56 in the first half 2005. This represents an increase of 16%.

Balance Sheet

The company continues to have a strong net cash position of EUR 113.6 million, which Exact intends to use for its growth strategy (year-end 2005: EUR 117.6 million). The payment in the first half year of EUR 23.9 million in dividends was almost completely offset by the operating cash flow.

As a result of normal seasonal patterns, trade receivables decreased from EUR 47.5 million at year-end 2005 to EUR 41.4 at the end of the first half year 2006.

Strategic Groups

Revenue (in EUR million)                  H1 2006   H1 2005  Change
Netherlands                                 51.4      44.2     16 %
North America                               30.1      24.5     23 %
International Markets                       36.8      32.9     12 %
EBIT (a) (in EUR million)                   H1 2006   H1 2005  Change
Netherlands                                 20.1      15.9     27 %
North America                                4.3       2.7     59 %
International Markets                        5.5       3.7     48 %

(a) The R&D costs for the corporate product lines and the holding costs have not been included in the EBIT of the Strategic Groups.


Total revenue in the Netherlands amounted to EUR 51.4 million in the first half of 2006 compared to EUR 44.2 million in the same period last year representing an increase of 16%. Acquisitions contributed EUR 6.7 million.

Several large contracts have been won in the higher end of the mid-market, such as Innovam, Freia and PCM Uitgevers (PCM Publishers). Simultaneously Exact has been able to restore its strong position in the volume business due to the renewed customer focus and the strengthened relation with resellers. This resulted in a modest organic license revenue growth in the first half of 2006. Customer satisfaction improved, which has had a positive effect on the already high retention rate.

EBIT increased from EUR 15.9 million in the first six months of 2005 to EUR 20.1 million in the first half of 2006, resulting in an EBIT margin of 39.1% (H1 2005: 35.9%). The restructuring of the Strategic Group Netherlands operations led to improved effectiveness of operations and active cost management. The EBIT margin excluding acquisitions significantly increased to 41.2% (H1 2005: 36.2%). This represents an increase of EUR 2.2 million (14.1%).

Jan Jaap Kolleman was appointed as per March 1, 2006 as Group Director Exact Netherlands. Mr. Kolleman took over from Raj Patel, who was acting as Director of Exact's largest Strategic Group.

North America

Total revenue for North America amounted to EUR 30.1 million, an increase of 23% compared to the first half of 2005 (H1 2005: EUR 24.5 million). Service revenue grew strongly. Exchange rates had a positive effect on revenue of EUR 1.2 million. Total organic revenue grew 7%.

In the first half 2006, North America incorporated the operations of Vanguard Solutions Group, acquired in October 2005. Vanguard has expanded the integration between core Exact products and its business intelligence and analytics solutions. The integration with Exact MAX and Exact e-Synergy product lines in addition to Exact Macola ERP solutions enable further cross selling opportunities.

The acquisition of Inspired Solutions based in Atlanta (US) in December 2005 has strengthened the direct distribution network in North America, enabling further expansion into the higher end of the mid-market. Growth in this value-driven segment and the additional consulting capacity from Inspired Solution largely contributed to the service revenue increase in North America.

The EBIT margin was further improved from 11.1% in H1 2005 to 14.4%. The margins in the first half of 2005 and 2006 were negatively impacted by one-off charges. Excluding these charges margins would have been 14.6% in the first half of 2005 and 16.0% in 2006.

As reported in the Annual Report 2005, Exact North America is involved in a legal dispute with one of its former resellers. The case progressed from the depository phase into court-mandated settlement negotiations. Exact still believes to have a strong legal case.

International Markets

International Markets (consisting of International and Other National Markets) showed a total revenue growth of 12%, from EUR 32.9 million to EUR 36.8 million. Exchange rates had a positive impact of EUR 0.6 million on revenue. Acquisitions added EUR 0.7 million. EBIT in the first six months increased to EUR 5.5 million compared to EUR 3.7 million last year.

International showed strong revenue growth of 16% in the first half of the year, the result of the diligent execution of the international strategy that focuses on providing solutions specifically designed for small to medium-sized subsidiaries of international and multinational companies. As a result of the investments made in 2005, International shows as expected strong margin improvement in the first half of 2006.

Other National Markets showed a modest revenue growth of 4.6%. In the first six months Spain integrated the resellers acquired in 2005. Both Spain and Germany are in a transition phase of focusing increasingly on the higher end of the mid-market via a value-driven approach. In May, Exact's online bookkeeping solution, Exact Online, was launched in Belgium to extend Exact's product portfolio in the lower end of the market. In South America Exact showed strong revenue growth despite the negative impact of the devaluation of the peso compared to the euro.

Product and Technology

The increased R&D resources are executing the focus areas announced in February 2006 which demonstrates the management's attention to R&D and innovation:

-- Exact's most recent product line, Exact Online, was introduced in the Netherlands late last year, and showed encouraging reactions from customers. According to the announced internationalization, Exact Online was launched in Belgium in May 2006. The contract with the Dutch Red Cross, announced earlier this year, to buy 400 Exact Online licenses also shows that the interest for this product extends beyond the low end of the mid-market.

'Personal Computer Magazine' has rewarded Exact Online as best online accounting solution in the Netherlands in its August 2006 issue.

-- A new release of Exact Globe 2003 (370) with more than 300 functional enhancements will be introduced commercially in the fourth quarter of the year.

-- The technology upgrade of Exact e-Synergy to the most recent .NET platform is well underway and is expected to be introduced in a controlled release mode in the fourth quarter of 2006. This will provide additional growth opportunities within Exact's ecosystem.

-- The set up of innovation centers, announced in February, to address future technology trends has been executed according to plan. In the first half year, Exact set up innovation centers in Delft, the Netherlands and in Silicon Valley, US.

In April, Exact's main development center Exact ADC was granted the "Leadership in ICT R&D Award" by the Malaysian government for its "Outstanding Contribution in Product Development in Enterprise Solution". Exact ADC is located in Kuala Lumpur and currently employs 400 people.


The execution of the strategy set in the second half of 2005 shows good progress. The refocus on the core volume business in the lower end of the mid-market was well received by Exact's customer base and resellers. At the same time Exact was able to increase its value business and strengthen its position in the higher end of the mid-marked. Exact is therefore confident in continuing to execute its strategy and reiterates its outlook for 2006 of a revenue growth of 7-9%(a) and an EBIT margin within the range of 18-20%. Exact also reiterates its guidance for 2007 to achieve EUR 300 million revenue and an EBIT margin of at least 20%.

(a) Including contributions of acquisitions made in 2005, excluding any possible new acquisitions.

About Exact Software

Established in 1984, Exact Software is one of the world's leading providers of business software solutions. Its integrated solutions comprise traditional Enterprise Resource Planning (ERP) as well as related software solutions such as Human Resource Management (HRM), Customer Relationship Management (CRM), Project Management and Electronic Workflow.

Exact is headquartered in Delft, the Netherlands and has offices in Europe, the Middle East, North and South America, Asia, Australia and Africa. With around 2700 employees, subsidiaries in more than 40 countries, solutions available in 40 languages, Exact currently serves customers in more than 125 countries across all five continents.

Revenues in 2005 amounted to EUR 224.5 million. Exact Holding N.V. has been listed on Eurolist by Euronext Amsterdam since June 1999.

For further information:

Editorial Contacts:

Brian Callahan Exact Software 978/474-4900 exact@pancomm.com

Christina Morris PAN Communications 978/474-1900 cmorris@pancomm.com

Investor Relations Richard Piekaar Tel: +31 (0)15 7501219 e-Mail: ir@exactsoftware.com

Exact Holding N.V. Poortweg 6 2612 PA Delft P.O. Box 5066 2600 GB Delft The Netherlands

    Financial calendar

Annual results 2006:                       February 8, 2007
Publication Annual Report 2006:            April 5, 2007
Annual General Meeting of Shareholders:    April 26, 2007

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