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Karl-Heinz Streibich   Karl-Heinz Streibich, Chief Executive Officer
Engineer. Chief Executive Officer since 2003
Darmstadt, Germany

Dear Ladies and Gentlemen,

Software AG has made a successful start to the new year. This is primarily attributable to three factors: portfolio expansion in the two business areas of Enterprise Transaction Systems (ETS) and crossvision (formerly “XML Business Integration”), geographic expansion and gearing our global organization to growth. Both business areas – ETS and crossvision – contributed with significant growth rates to the almost 14 percent increase in revenue in the first quarter. We are proceeding on our growth track according to plan, in particular with the expansion of the high-margin licensing business. This also applies to our geographic expansion, with the result that in the first three months of the fiscal year, more than one-third of our revenue increase originated in the growth markets of Latin America, Asia and the Near East. In addition to higher total sales, earnings also showed a good performance, with operating profit up by almost 20 percent in the first quarter.

Priority on process innovation
Our business success is the result of activities which systematically focus on our customers. All of Software AG’s product developments are targeted at fulfilling specific customer requirements. As market analyses by Gartner Research show, the IT departments of large companies increasingly prefer a process-oriented approach for solving problems critical to their business. I have been able to confirm this through numerous personal visits to customers within and outside of Germany. As a consequence, Software AG has been working for some time with its partners to make process innovation a top priority. Seamlessly integrated processes and IT systems protect previous capital investments, save costs and increase competitiveness. They are therefore increasingly important for companies and organizations.

Making existing IT more productive
With Business Process Management (BPM), we support our customers in optimizing processes and increasing productivity. Our BPM products and our expertise from successfully implemented integration solutions create strategic competitive advantages. For companies, this results in a robust structure that makes it possible to implement good business ideas faster.

In order to be able to reliably modernize, integrate and automate enterprise-wide business processes, our products support service-oriented architectures (SOA). SOAs increase the productivity of existing IT systems, widen their usage and create more efficiency.

Optimized workflows through SOA and crossvision™
By the end of May 2006, the complete spectrum of our crossvision suite will be available for the planning and implementation of service-oriented architectures. Software AG supports companies in implementing their SOA strategies using the components of its new product suite for integration solutions. crossvision links the existing IT infrastructure with the business strategy and creates the basis for optimized processes. Companies benefit from greater transparency and improved monitoring for a rapid implementation of their business objectives.

A core component of crossvision is CentraSite, for the management of integrated processes within service-oriented architectures. The software product is a result of our strategic partnership with Fujitsu and it ensures both system openness and the support of standards. The cooperation on CentraSite is exemplary of cooperative ventures between Software AG and its strategic partners. The aim of these partnerships is to further strengthen the leading integration competence in Europe on the process, information and data level.

Prospects of higher dividends
The initial quarterly results point to strong growth and create a good foundation for achieving our goals for 2006 as a whole: a 10 percent increase in revenue and an EBIT ratio of 21 to 23 percent.

The prospects for our shareholders are also encouraging. In the Annual Shareholders’ Meeting to be held on May 12, the Executive and Supervisory Boards will recommend that the dividend for fiscal year 2005 be increased once again to €0.80 per share.

Karl-Heinz Streibich
Chief Executive Officer

  Interim Report Q1/06 (PDF)
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