2. Financial performance

1/2 forward

Group revenue rises under difficult market conditions

In the third quarter of 2008, Group revenue rose 14 percent to €180.1 million (Q3 2007: €157.8 million). The Q3 results again demonstrate the strength of Software AG’s business model, with product revenues building on a large existing customer base.

Since more than 50 percent of Software AG’s revenues are generated in foreign currencies, exchange rates have an impact on Group revenue. However, exchange rates have less of an impact on earnings given that expenses are also incurred in foreign currencies by the individual sales companies. Foreign currency effects lessened in the third quarter. In the fourth quarter, neutral currency effects or even a currency translation gain are expected, depending on the exchange rate for the dollar.

Sales by revenue type

Licensing revenue an indication of robust business
The licensing business of Software AG continued to perform well. Licensing revenues grew by 18 percent to €67.8 million in Q3 2008 (Q3 2007: €57.4 million).

Long-term success for maintenance business
The maintenance business increased again in the third quarter. Revenues improved by 22 percent to €70.2 million compared to €57.7 million in Q3 2007.

Product revenues contributed 77 percent to total revenue, primarily due to our successful entry into the Brazilian market and organic growth in the webMethods division.

Professional Services remains steady
Revenues in the Professional Services business were nearly the same as last year at €41.8 million (Q3 2007: 42.3 million). As a result Professional Services contributed 23 percent to Group revenue in the third quarter of 2008. The Professional Services business has been steadily geared toward efficiency and profitability in recent quarters. Among other things, consultants have been trained to provide higher quality services in the fields of SOA and BPM.

Revenues by division

webMethods successfully integrated
The webMethods division had organic growth of 13 percent in the third quarter. Sales revenues increased from EUR 69.9 million in Q3 2007 to EUR 79.0 million. The robust growth experienced by webMethods in all regions shows that Software AG is well positioned for international competition. Licensing revenues rose 18 percent to €30.6 million, up from €25.9 million in Q3 2007. Maintenance revenues increased by 22 percent, from €19.3 million to €23.5 million. In the Professional Services business of the webMethods division, we increased revenue slightly from €24.4 million to €24.8 million.

The earnings contribution of the webMethods division soared 109 percent to €28.0 million (Q3 2007: 13.4 million). Cost of sales fell by 3 percent to €26.9 million (Q3 2007: €27.7 million). Selling expenses declined by 16 percent in response to the reorganization of Sales and Distribution in 2008 and the ensuing new allocation of sales personnel. They fell from €28.8 million to €24.1 million. These figures are impressive evidence of how successfully we have implemented the measures introduced to increase efficiency and exhaust synergy potential.

Revenues in this division are expected to expand to between €300 million and €310 million for the year as a whole.

ETS expanded geographically
The ETS division performed extremely well in the third quarter. Sales revenues grew by 15 percent, from €87.9 million to €101.1 million, driven primarily by product business. Our business in Brazil, where we took over direct distribution at the start of the year, had a particularly positive impact on revenue growth. Licensing revenues increased by 18 percent to €37.1 million (Q3 2007: €31.4 million). Maintenance revenues also posted encouraging growth, climbing 22 percent to €46.7 million compared to €38.4 million in Q3 2007. The Professional Services business maintained a steady level, with revenues declining slightly from €17.9 million in Q3 2007 to €17.0 million in Q3 2008.

The ETS division contributed €63.4 million to segment revenues, an increase of nearly 17 percent over the prior-year period (Q3 2007: €54.3 million). Cost of sales fell slightly by 2 percent to €19.6 million (Q3 2007: €19.9 million). Selling expenses increased to €18.1 million (Q3 2007: €13.7 million) as a result of our entry into the Brazilian market as well as the reorganization of Sales and Distribution in 2008 and the ensuing new allocation of sales personnel.

REVENUES BY DIVISION

IFRS, unaudited
in € million
January 1 -
Sept. 30,
2008
January 1 -
Sept. 30,
2007
Change
in %

Q3|2008

Q3|2007

Change
in %

webMethods





Licenses

79.5 64.3 24 30.6 25.9 18

Maintenance

66.9 37.2 80 23.5 19.3 22

Service

77.3 64.3 20 24.8 24.4 2
Other 0.6 2.1
0.1 0.3
Total 224.3 167.9 34 79.0 69.9 13
ETS





Licenses

105.1 97.3 8 37.1 31.4 18

Maintenance

124.3 116.3 7 46.7 38.4 22

Service

53.2 52.3 2 17 17.9 -5
Other 1.3 0.9 44 0.3 0.2 50
Total 283.9 266.8 6 101.1 87.9 15