Financial Performance

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EBIT continues to rise

EBITA increased by 38 percent to €35.3 million (Q3 2006: €25.6 million) in the third quarter of 2007, while EBIT grew by 27 percent to €32.4 million. The increase results from the implementation of planned cost synergies and optimized business processes. For 2007 as a whole, cost savings of USD 15 million are projected in relation to the acquisition of webMethods. The EBIT margin thus amounted to 20.5 percent compared to 22.5 percent in the third quarter of 2006.

At €18.4 million, research and development expenses in the third quarter were 67 percent higher than the 2006 figure of €11.0 million. This is related to the merger of the R&D divisions which was not initiated until the quarter under review. Expenses for marketing and sales also saw an acquisition-related increase of 38 percent to €42.5 million (Q3 2006: €30.9 million).

Segment earnings contributions

Our webMethods business division made an earnings contribution of €13.4 million in the third quarter of 2007 (Q3 2006: loss of €2.0 million). Therefore the first quarter of the full consolidation of webMethods shows a significantly positive upsurge in the business division‘s earnings contribution of more than €15 million. The rise in revenue caused the cost of sales to increase by 71 percent to €27.7 million (Q3 2006: €16.2 million). The acquisition also caused selling costs to increase by 87 percent to €28.8 million from €15.4 million in Q3 2006.

Our ETS business division again made a high contribution to segment earnings, improving once again to €54.3 million in the third quarter of 2007, up 8 percent from €50.3 million a year earlier. The cost of sales increased by 8 percent to €20.0 million (Q3 2006: €18.4 million) following an increase in revenues; nevertheless selling costs fell to €13.7 million in Q3 2007, down 13 percent from €15.5 million in Q3 2006.

KEY EARNINGS INDICATORS

€ millions Jan. 1 - Sept. 30, 2007 Jan. 1 - Sept. 30, 2007 Change in %
EBIT 94 76.8 22
EBITA 98.3 76.8 28
Net interest result 2.5 6.4 -61
Earnings before taxes 96.5 83.2 16
Net income 61.5 50.9 21
Earnings per share (in euros) 2.16 1.81 19

KEY EARNINGS INDICATORS

€ millions Q3 2007 Q3 2006 Change in %
EBIT 32.4 25.6 27
EBITA 35.3 25.6 38
Net interest result -1.9 2.2  
Earnings before taxes 30.4 27.8 9
Net income 19.2 17.1 12
Earnings per share (in euros) 0.67 0.61 10

Corresponding increase in net income and earnings

Earnings after taxes increased in the reporting period to €19.2 million, up from €17.1 million a year earlier. Earnings per share climbed to €0.67, up 10 percent from €0.61 a year earlier. At an average of 28.5 million shares, the number of shares in circulation grew by 384,270 in the third quarter of 2007 as compared to the same quarter of 2006.

Nine month figures for 2007 support forecast for the entire year

In the first nine months of 2007, Group revenues totaled €434.7 million, up 25 percent over the 2006 figure of €348.6 million. Total operating revenue (excluding first-time consolidation) increased by 27 percent to €441.9 million in the nine month period.

Earnings before interest and taxes (EBIT) rose to €94.0 million in the first nine months of 2007, up 22 percent from €76.8 million in the first nine months of 2006. As in the prior-year period, the EBIT margin was approximately 22 percent. Operating cash flow reached €46.6 million, 23 percent more than on September 30, 2006.

Revenues by region

Software AG increased its revenues in all regions. The EMEA region continued to have the largest share in Group revenues. It increased its operating revenues in the first nine months of 2007 to €256.6 million, up 14 percent from 224.8 million for the first nine months of 2006. The Americas region saw an acquisition-related increase of 43 percent to €148.3 million, up from €103.6 million. The APJ (Asia, Pacific, Japan) region grew by 56 percent to €40.1 million (prior-year period: €25.7 million).

Based on the requirements of IAS 14.69a, the segment report in the notes to the consolidated financial statements includes a breakdown by geographical segment (EMEA, APJ, and the Americas regions) in addition to the primary segment reporting by business segment (ETS and webMethods). This breakdown by region does not reflect the areas of responsibility of our internal management and is entirely based on the IFRS requirements. For these reasons, we do not perform an analysis and commentary on revenues by region. As soon as the new IFRS 8 is approved by the European Union, we will no longer publish a breakdown of revenue by geographical segment.


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