Software AG is still expanding: We achieved double-digit growth rates in both revenue and earnings in the third quarter. The licensing business was also encouraging, with above-average growth rates making a substantial profit contribution.

Group sales rose in the third quarter significantly over the prior-year period to a total of €113.8 million. This increase of 10 percent (currency-adjusted: 12 percent) is in line with the trend for full-year 2006: In the first nine months, we increased total sales by €34.1 million to €348.6 million. This represents growth of 11 percent (currency-adjusted: 10 percent).

We continued to successfully implement our strategy of growing via geographical expansion, increasing sales in Latin America, Eastern Europe and the Middle East by more than one quarter. These promising future markets already make up 12 percent of Group revenue.

Significant increases in vital licensing revenue
Licensing revenue was once again the driving force behind growth. We increased revenue in the third quarter of this strategically important area by 27 percent to €37.0 million. The share of licensing revenue of total Group revenue increased to 33 percent, up from 28 percent in the prior-year period.

Software AG has been focusing on sales of its own products since 2005. We have been gradually reducing sales of licenses for third-party products in favor of concentrating our distribution capacities on the more profitable marketing of our own software. Consequently, licensing revenue in the reporting period were generated almost completely with our own portfolio. Products from other providers only contributed €0.2 million (prior year 0.5) to licensing revenue in the third quarter.

Sales growth accelerates for both product lines
The licensing business is made up of two product groups, Enterprise Transaction Systems (ETS) and crossvision, both of which made considerable gains in revenue. ETS product revenue increased by 37 percent to €27.0 million in the third quarter, up from €19.7 in the prior-year period. crossvision revenue increased even more, climbing 76 percent to €9.7 million delivering more than one quarter of total licensing revenue for the first time. Still a young product suite, crossvision is expanding and is viewed as the business of the future for Software AG.

Growth of licensing revenue continued to pick up over the course of 2006. Revenue for Enterprise Transaction Systems increased by nearly one-third to €84.1 million in the first nine months of the current fiscal year (prior year: €63.6 million), and revenue for crossvision rose 57 percent to €26.3 million (prior year: €16.8 million). Total licensing revenue reached €111.7 million in the first nine months (prior year: €88.3 million).

ETS products benefit from a good investment climate
Enterprise Transaction Systems software products are focused on mainframe modernization. Licensing revenue in this business line have benefited primarily from a positive market response to the new generation of our core products. We offer Adabas 2006, a data management platform, and Natural 2006, a development and implementation environment, along with their add-on products, to meet the high demand for software to optimize legacy systems.

Growth was spurred not only by the attractive features these products offer, but also the increasing significance of mainframe computers. With new market requirements for IT in terms of security and efficiency, the interest in high-performance, reliable mainframe systems is growing.

SOA product placed successfully on the market
In the crossvision business line, which specializes in the integration and networking of varying software systems, our licensing revenue increased primarily due to the market launch of our new crossvision product suite. This product supports the configuration, administration and monitoring of service-oriented architectures (SOA). SOA uses Internet technology to link existing applications, often varying greatly, to create a uniform corporate-wide IT system. This enables companies to react to new market requirements more quickly and with greater cost effectiveness. SOA also makes it possible to use processes and data established over the years as separate IT systems on a corporate-wide basis. Software AG is one of the most promising competitors in the attractive SOA market, above all due to the Company’s clear strategy.

Maintenance revenue on the rise
Licensing revenue forms the basis for future maintenance revenue. For this reason, growth in the licensing business, which has been steady for more than three years, also drives an increase in maintenance revenue. In the third quarter, maintenance income increased by 5 percent to €48.0 million. This segment thus generated an increase in quarterly revenue (in comparison with the prior-year period) for the fourth time in a row.

Maintenance revenue for the first nine months totaled €142.1 million (prior year: €134.8 million). Of this amount, €121.8 million was attributable to Enterprise Transaction Systems (prior year: €115.8 million) and €19.2 million to crossvision (prior year: €17.1 million).

Professional services focus on Software AG products
Professional services revenue declined slightly from €28.5 million to €28.2 million in the period under review. This is the effect of a strategic decision to concentrate on the implementation of our own products and to scale back other, less profitable projects. The revenue contribution of professional services for external software decreased accordingly. Moreover, since crossvision is a suite involving pre-integrated products, it requires less service expenditure than implementing separate, independent products or components.