Underlying economic trend

Anticipated economic developments

Economic sentiment remains positive. According to ifo economic forecasts, attractive investment conditions and the favorable international climate will ensure that the forces driving the German economy remain strong. In the USA, experts are predicting a robust rise in consumption on the whole despite contradictory economic indicators. Growth in the gross domestic product is expected to continue accelerating over the course of the year.

In the euro zone, the gross domestic product is expected to rise considerably. Improved conditions on employment markets should continue to contribute to increased consumption. Capital expenditure is projected to expand noticeably as well.

Growth forecast for the ICT sector

The information and communications technology market is also projected to continue to grow. The BITKOM industry association has forecast sales growth of 2.0 percent to €149.1 billion in Germany, while the European Information Technology Observatory (EITO) initiative anticipates solid growth of 2.9 percent to a total of €668 billion for Europe as a whole. Software suppliers are particularly optimistic: 82 percent expect rising revenues in 2007, with a focus on service-oriented architecture for IT integration.

Moreover, the 12-point program adopted by the German government will improve Germany's position as an ICT location on an international scale. Over the next three years, investments of €1.2 billion are planned in research and development in Germany.

High growth rates for IT market

Global IT growth is continuing in 2007 In the U.S. market, growth is expected to surpass the global average, with EITO forecasting a potential rise of 4.7 percent. Higher growth rates are also projected for the European IT market, with growth of 4.4 percent expected for the European Union. The situation continues also to improve on the German market, where growth of 3.4 percent is anticipated.

Sustained boom on the software market

In fiscal 2007, attention will continue to focus on the topics of IT security solutions and IT integration. More and more companies are discovering the advantages of modern IT systems and networking solutions. According to IDC, key customer interests focus on the fields of business process outsourcing, open source, and SOA. A Gemini survey has found that 82 percent of European and U.S. firms plan to utilize SOA. The introduction of new standards is opening the way to strong growth trends in the market for SOA integration products. Experts forecast an average growth of 75 percent per year between 2004 and 2009.

Outlook for 2007

Success story of Software AG continues

Software AG has confirmed its previous forecasts for 2007. The Company plans to increase currency-adjusted Group sales by approximately 14 percent in fiscal 2007, taking into account the contribution from SPL Israel. We also expect our EBIT margin to improve by approximately 1 percentage point to 24 percent. This forecast underlines Software AG's profitable growth course.

For 2007, Software AG expects the ETS business line to achieve currency-adjusted growth of 8 to 10 percent and the Crossvision business line to generate growth of 20 to 30 percent.

We are projecting net income to increase more than sales and are therefore anticipating earnings per share of €3.00 to €3.20 for 2007 as a whole.

Licensing business driven growth

In 2007, we anticipate currency-adjusted growth between 22 and 27 percent in our licensing business. For the maintenance business, we expect revenues to increase slightly by 5 to 7 percent. From today's perspective we expect revenues to increase 12 to 15 percent in Professional Services.

Medium-term planning

Software AG is aiming to increase revenues to €1 billion by 2011, with the growth of 14 percent in 2007 rising to an average of 15 percent annually between 2008 and 2011. We also intend to improve the EBIT margin to 25 to 30 percent in the medium term. Higher revenue per employee, faster growth in the high-margin licensing business, and strict cost management are expected to contribute to the improvement in operating earnings.

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