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Financial performance

2.1 Group revenue growth in a challenging environment

In the first quarter of 2009, Software AG increased its Group revenue by 4 percent to €165.3 million (previous year: €159.4 million). In so doing, we again relied on strong product revenues – the sign of a robust business model and a broad global presence.

The strong currency translation effects (in particular of the U.S. dollar) on revenues have been further diminished by our global expansion in recent years. The U.S. dollar’s revenue share in the quarter under review amounted to only 28 percent. Another 37 percent of revenue came from other currencies outside the euro zone. The overall currency translation effect on revenues amounted to less than 2 percent and could weaken even further over the course of the year.

2.2 Sales by revenue type

Product business still strong

All in all, products contributed three-quarters and services one-quarter of total revenues. Product revenues were driven by sustained strong growth in the maintenance business, which improved by 23 percent to €73.2 million, from €59.4 million. In addition, our successful business expansion continued in Brazil.

The product business' percentage of licensing revenue, in contrast, was below that of the previous year. Software AG ’s posted licensing revenues lacked two deals from the ETS division that were deferred at short notice and could not be closed before quarter’s end. Thus, licensing revenues fell by 11 percent to €49.3 million (Q1 2008: €55.4 million). In the meantime, the deals have been signed and can be credited to the second quarter. For that reason as well, stronger licensing revenues than in the first quarter can be expected.

Service business remains steady

Revenues from the Professional Services unit – at €42.3 million – remained steady compared to the same quarter of the previous year (€43.9 million). The focus here will continue to lie on increased efficiency and profitability. A revival of the economy during the course of the year should result in additional potential for Professional Services.

2.3 Revenues by division

webMethods a powerful growth driver

The webMethods business division grew by 9 percent in the quarter under review to €74.6 million (Q1 2008: €68.7 million). In doing so, webMethods (Software AG's strongest growth area) showed positive development in a difficult market environment, also in comparison to the competition. webMethods licensing revenues grew by 2 percent, from €22.2 million to €22.7 million. Maintenance revenues climbed by 28 percent to €26.9 million (Q1 2008: €21.0 million). Services remained stable at €24.8 million (Q1 2008: €25.0 million).

The webMethods division's contribution to earnings was €24.2 million (Q1 2008: €19.9 million), which is an increase of 22 percent. Production costs rose by 8 percent to €29.2 million (Q1 2008: €27.1 million). Sales costs fell slightly (by 2 percent) from €21.7 million to €21.2 million.

ETS demonstrates stability

The ETS division – Software AG ’s traditional business division – generated €90.7 million in revenues in the first quarter, similar to the previous year’s level. As expected, maintenance revenue exhibited solid growth, contributing more than half of the division’s revenues, which amounted to €46.4 million. This represents an improvement of 21 percent (Q1 2008: €38.3 million). In contrast, licensing revenue fell by 20 percent to €26.5 million (Q1 2008: €33.2 million). It turned out lower because two deals that were among the first quarter’s sales successes could not be credited until after the quarter ended. The ETS division’s services business declined by 8 percent, from €18.9 million to €17.5 million.

The ETS division made a segment earnings contribution of €52.0 million, approximating last year's level (€51.7 million). Production costs remained constant, at €20.7 million (Q1 2008: €20.7 million). Sales costs were reduced slightly (by 2 percent) to €18.0 million (Q1 2008: €18.3 million).

Gratifying EBIT development

In the quarter under review, EBITA grew by 5 percent to €42.1 million (Q1 2008: €40.1 million). EBIT improved by 6 percent over the same quarter of the previous year to €38.1 million from €36.0 million. The EBIT margin increased by 50 points to 23.1 percent (Q1 2008: 22.6 percent). This is the foundation for our target EBIT margin between 24.5 and 25.5 percent for the 2009 full year.

There have been no noteworthy changes to cost ratios in comparison to the same quarter of the previous year. In the quarter under review, expenditures for research and development amounted to €20.2 million, 7 percent higher than in the first quarter of 2008 (€18.9 million). This is primarily a result of our purchase of shares in itCampus. Administration costs remained steady. Marketing and sales costs fell slightly, by 2 percent, to €39.2 million (Q1 2008: €40.1 million).

Disproportionate increase in net income and earnings

Software AG's profit after tax rose by 14 percent to €25.6 million (Q1 2008: €22.5 million), thanks in part to improved financial results and further reduced taxes. Our tax rate decreased to 33.5 percent, in comparison to 35.0 percent in the fourth quarter of 2008. Earnings per share in the first quarter of 2009 amounted to €0.90, corresponding to an increase of 14 percent over €0.79 in the first quarter of 2008. As of March 31, 2009, there were 28.7 million shares in circulation (undiluted), an increase of almost 77,000 shares year on year.

REVENUES BY DIVISION
IFRS, unaudited

in € million

Q1|2009

Q1|2008

Change
in %

webMethods


Licenses

22.722.22

Maintenance

26.921.028

Professional Service

24.825.0- 1

Other

0.20.5- 60
Total74.668.79
ETS


Licenses

26.533.2- 20

Maintenance

46.438.321

Professional Service

17.518.9- 7

Other

0.30.30
Total90.790.70

KEY EARNINGS INDICATORS

in € million

Q1|2009

Q1|2008

Change
in %

EBIT

38.136.06

EBITA

42.140.15

Financial income / expense, net

0.4-1.47

Net income

25.622.514

Earnings per share in € (basic)

0.900.7914