Dear Shareholders,

2005 was a very good year for Software AG. With a revenue increase of 6.5 percent we put the sales decline of recent years behind us and returned to growth. Our new strategy, which initially resulted in a strong increase in profitability, is now also paying off in an expansion of business volume. Once again, we increased our earning power in parallel with sales, achieving an EBIT margin of 22 percent, the upper range of our target corridor.

Geared towards continuing growth
We also made significant operational advances in 2005, creating the basis for our ongoing development. We intend to accelerate our profitable growth in 2006.

Software AG’s positive performance rests on three strategic pillars:

Software AG has two major complementary product areas. On the one hand, Adabas and Natural are a result of our more than 36 years of experience in data base applications and in the management of critical company data. On the other hand, our innovative integration products are used for automating and modernizing processes – an IT concept today known as service-oriented architecture (SOA).

Product portfolio meets core customer demands
There has been a positive market response to the new Software AG, and our customers have confirmed that our new strategy and product portfolio has put us on the right track.

Globally, companies must adapt quickly to market changes to remain competitive. It is crucial that their IT infrastructures do not prevent or delay the process of change. IT infrastructures should act as an agent of change, actively enabling and promoting any necessary adaptation. Our focus on core competencies make Software AG a strong partner in assisting companies in effectively bringing their IT systems and databases in line with key business processes, allowing them to quickly take advantage of business opportunities whenever they arise.

Dividend policy to continue
Software AG’s success in 2005 is the result of its globally networked team. On behalf of the entire Executive Board, I wish to thank all of our employees for their commitment. As in the previous year, we plan to pay out a substantial portion of our profit to our shareholders. The Executive and Supervisory Boards are recommending to the Annual Shareholders’ Meeting that a dividend of € 0.80 per share be paid for fiscal 2005.

Integration business continues to drive growth
We are aiming for growth of approximately 10 percent for 2006. While our achievements in 2005 have laid the groundwork for a promising future, this does not guarantee success. We are therefore currently increasing our efforts in all divisions to ensure a broader basis for Software AG’s growth. We will continue to focus on organic growth in 2006. We made three acquisitions in 2005 to widen our product portfolio and gain direct access to growth markets. Our strong operating cash flow will allow us to make further acquisitions, offering us the opportunity to actively benefit from the market consolidation expected during the next few years.

The integration business continues to be our main growth driver. We plan to strengthen this area through technology partnerships that will make our product portfolio even more competitive. We want our strong earning power to remain a characteristic feature of Software AG in the future. Accordingly, we have targeted an EBIT ratio of 21 to 23 percent of sales for 2006.

Software AG achieved a lot in 2005. Our promising growth potential, favorable market position and high efficiency rates give us all we need to look to the future with optimism. We are convinced that our company is only at the beginning of its success story and would be pleased to have you accompany us along the way.

Karl-Heinz Streibich
Chief Executive Officer