Software AG

3. Quarterly Report 2008

1. Significant events during the reporting period

Software AG has maintained its financial success despite the difficult market conditions. In the third quarter of 2008, we expanded our technology, our customer base, our market presence and increased our financial strength. A highlight on the product side was our new version of CentraSite SOA Active. This product is the heart of the webMethods division – its integration software. With regard to our customer base, an outstanding example of the progress made was the continuation of our successful direct market presence in Brazil. In addition, we reinforced our market presence in our new webMethods division by holding events for customers, media, and trade specialists in New York, Boston, London, Stockholm, and Darmstadt. Our successful, stable business model forms the basis for all of our activities. Even in the current atmosphere of overall economic decline, this model helped us increase our revenue, profit, and margins in the third quarter.

Product portfolio expanded

We take a “total customer orientation” approach in developing and upgrading our software solutions. Our goal of becoming the world market leader in service-oriented architecture (SOA) and business process management (BPM) leads right to the customer. To this end, we conducted a survey of US customers on the topic of SOA application practice. One major finding of the study, published in July, was that companies regard SOA governance as a crucial component of sustainable SOA implementation: More than 90 percent of companies surveyed have at least started SOA planning. More than half have already succeeded in implementing projects on an SOA basis and/or corporate-wide SOA. The most significant expectations related to the introduction of SOA were an increase in flexibility for the company, simplification of integration, and support for BPM projects. The survey also found that more than half of those interviewed believe that SOA governance should be introduced before the first service is provided.

As previously announced, at the end of September 2008 Software AG presented CentraSite ActiveSOA – our new SOA control center and likely our most important new development of the year. CentraSite Active SOA combines SOA governance and lifecycle management, supplying our customers with a variety of new functions and a new user interface. Customers benefit from process automation, life cycle management for IT systems, simplified cooperation with different user groups, and a new user interface. The new product is another major success in our integration of webMethods Inc.: Software AG launched CentraSite Active SOA – the Company’s first webMethods-based, integrated software solution – on the market within a year of integrating webMethods. The former CentraSite Enterprise Edition (previously CentraSite) was combined with the CentraSite Governance Edition (previously webMethods Infravio) to create a mature, all-in-one solution for SOA governance and lifecycle management. CentraSite ActiveSOA is expected to be delivered in the second quarter of 2009.

Early in the third quarter, we presented webMethods Insight, an addition to our webMethods Suite. Development of the product was based on a new strategic OEM (original equipment manufacturer) partnership with IT service provider Progress Actional, a US-based software firm. webMethods Insight helps companies to monitor runtime services and to implement policies. The new product has been available for sale since October 1, 2008.

New customers acquired

We won additional new projects in the third quarter, for instance with energy company Watt Deutschland GmbH. Watt is a very interesting customer in the energy sector with a business model similar to that of a telecommunications service provider. The company does not have its own network; instead, it uses processes to offer its customers improved service. This new type of IT infrastructure allows Watt Deutschland to alter processes as needed, implement new regulations as they take effect, offer more effective support to customers, and respond proactively when putting new products on the market. Process innovation is the key factor here. Process-based business models require flexible IT systems – i.e. SOA and BPM – and an independent provider. With our support, Watt Deutschland GmbH plans to completely revamp all of its business processes. Software AG’s webMethods product portfolio will be used to optimize and automate all business processes from A to Z. According to company estimates, the planned procedures, which will build on a fully new IT infrastructure, will bring an increase in efficiency of some 30 percent.

We also posted successes with our ETS customers in the third quarter. In Brazil, for instance, we demonstrated once again that our entry into this market is not merely about transferring the Software AG business volumes of previous distributors to our books. Rather, our aim is to take advantage of previously untapped potential.

This is possible because we focus our full attention on helping our customers to benefit from the Software AG portfolio; we also take advantage of our expertise and our products to provide better customer support, and we modernize infrastructures to assist our customers in generating maximum value from their existing equipment. The benefits to our customers of Software AG’s on-site presence in all relevant markets include investment protection, contributions to innovation, and a more flexible IT.

Our team in Brazil is extremely successful, having won more than 30 customers and over 40 new contracts within a very short period of time. This is yet another example of Software AG’s international competency and, most definitely, an additional contribution to the stability of our business model.

In addition, on September 2, 2008 we announced the biggest order in the history of Software AG from a customer in Brazil.

Market presence remains at a high level

We met with our customers at major events during the third quarter. On September 2, for instance, Software AG’s first German Business Innovation Forum opened its doors to the public in Darmstadt, where solutions and projects in the field of business innovation were presented to more than 400 participants. A number of our customers were involved in the program and described their practical experience with SOA and BPM. These included companies such as T-Systems, the European Central Bank, Austrian financial services provider UNIQA, logistics firm DHL, and Bundesrepublik Deutschland Finanzagentur GmbH (German Finance Agency).

17 of Software AG’s partner companies, including Atos Origin, held presentations and manned exhibition stands. One of the highlights of the German Business Innovation Forum was the podium discussion entitled “Using SOA to Implement an e-Government Strategy” with Federal Minister of Justice Brigitte Zypries, MdB, who is regarded as an expert in IT issues related to government agencies.

The SOA Governance Summit, held on September 23, 2008 in Stockholm, was also a resounding success: Software AG, along with customers such as Tele2, SAS, and HSBC, presented SOA governance technologies, projects, and solutions to nearly 300 participants. The event was topped off by market presentations from leading companies and analyst firms.