Softing AG — Interim / Quarterly Report 2005

Nov 15, 2005

Quarterly Report 3/2005

Softing confirms earnings forecast in excess of one million euros

Softing confirms earnings forecast in excess of one million euros for 2005

Ladies and gentlemen, dear friends of Softing AG,

"You can make more promises in a few minutes than you can keep in a whole year," says a skeptical German proverb, questioning the validity of such declarations. Well, Softing started the current fiscal year with a promise – to boost sales by 10 percent to more than EUR 22 million and to achieve earnings in excess of EUR 1 million. Just before year's end, we can tell you: You can trust us because we will keep our promise.

Let us now look at the current figures: In the third quarter, Softing has followed up on the positive figures reported for the first six months of 2005. Please see the table below for a quick and clear overview of the most important key figures.

All figures in EUR million	Quarterly report III/2005	Quarterly report III/2004	9-month report 2005	9-month report 2004
Incoming orders	5.2	5.3	16.3	15.2
Sales	5.8	5.1	15.8	14.7
Earnings (EBIT)	0.3	0.3	0.5	0.3
Net income	0.3	0.2	0.4	0.2

As you can see, the four key figures incoming orders, sales, earnings and net income have improved considerably year-on-year during the first nine months of 2005. An isolated look at the third quarter reveals that its performance is actually on par with that of the strong third quarter of 2004.

As expected, Reutlingen-based hard & soft Salwetter-Rottenberger GmbH, which was acquired in July, did not yet make a significant contribution to sales and earnings because of the necessary technical and operational integration activities. The reduction in cash and cash equivalents to EUR 4.8 million as compared to the previous quarter (EUR 6.8 million) is essentially due to the takeover.

I am particularly pleased to announce that we were able to massively expand our product range in mobile and stationary fieldbus systems diagnostics. The takeover of rights and know-how from a leading manufacturer of diagnostics components in October enables us to accelerate the introduction of new products considerably. This expansion strengthens Softing's position in one of the key segments of the industrial automation market: Softing's goal is to become the market leader in fieldbus diagnostics.

The use of fieldbus systems in production processes will continue to increase in the next years. As a result, supplying diagnostics tools to industry in order to improve equipment availability will remain a profitable growth market. Softing expects the takeover to deliver a significant increase in diagnostics tools sales from mid-2006. This segment will make more than a seven-digit contribution to sales and position Softing even more prominently as a leading provider of fieldbus products and technology as well as control systems.

We are very ambitious as regards the final quarter of the year, which traditionally is a strong quarter in terms of sales and earnings. In October, our Industrial Automation division was represented at the ISA Show in Illinois (USA) and was able to win several contracts during the show. In November, we will unveil our products and services at SPS/IPC/DRIVES at Nuremberg, which for us is the most important automation exhibition. In Automotive Electronics, too, several events and trade fairs are on the calendar in the fourth quarter.

In late October, the price of Softing stock declined slightly. We are convinced, however, that this was only a short-term development. Intensive discussions with investors and analysts support this view. This is why we will once again present the potential and the future prospects of Softing to numerous analysts and institutional investors at the German Equity Forum of Deutsche Börse AG in late November.

We hope that you, dear friends of Softing, will be able to enjoy a rising stock price in the next months and continue to accompany the company on its future path.

Sincerely,

Final quotation, Xetra

Directors' Holdings as of 09/30/2005

	Number of shares		Number of options
	As of 09/30/2005	As of 06/30/2005	As of 09/30/2005	As of 06/30/2005
Dr. Trier	44,753	44,753	37,200	37,200
Mr. Häußler	12,000	2,000	–	–
Dr. Schiessl	–	–	–	–
Mr. Butscher	–	–	–	–
Dr. Patz	405,750	405,750	–	–

Company Schedule

German Equity Forum	11/21/2005
Financial Statements 2005	03/31/2006
Annual Shareholders' Meeting in Munich	05/26/2006
Quarterly Report 1/2006	05/12/2006
Quarterly Report 2/2006	08/11/2006
Quarterly Report 3/2006	11/14/2006

Contact: Softing AG

Investor Relations Phone: +49 (89) 4 56 56-0 Fax: +49 (89) 4 56 56-492 InvestorRelations@softing.com www.softing.com

Consolidated Balance Sheet

According to IFRS as of September 30, 2005 unaudited

	Quarterly report 09/30/2005	Financial statements 12/31/2004
Assets	EUR	EUR
Cash and cash equivalents	2,020,914	3,534,204
Short-term investments/marketable securities	2,803,624	2,803,624
Trade accounts receivable	4,815,768	3,514,069
Inventories	2,052,364	1,213,105
Prepaid expenses and other current assets	398,127	256,327
Total current assets	12,090,797	11,321,329
Property, plant and equipment	605,617	382,300
Intangible assets	4,293,699	4,210,229
Goodwill	2,562,716	–
Deferred taxes	3,152,360	3,005,364
Total non-current assets	10,614,392	7,597,893
Total assets	22,705,189	18,919,222
Liabilities and shareholders' equity
Trade accounts payable	880,392	363,546
Accrued expenses	1,444,085	1,778,469
Tax provisions	204,543	–
Deferred income and other current liabilities	2,287,645	1,214,844
Total current liabilities	4,816,665	3,356,859
Accounts payable, customer-specific production contracts	419,145	551,469
Deferred tax liability	2,001,071	1,792,000
Pension accrual	871,024	798,930
Other	750,000	–
Total non-current liabilities	4,041,240	3,142,399
Share capital	5,499,998	5,000,000
Additional paid-in capital	1,475,728	879,197
Retained earnings	– 10,598	18,204
Consolidated accumulated profits	6,882,156	6,522,563
Total shareholders' equity	13,847,284	12,419,964
Total liabilities and shareholders' equity	22,705,189	18,919,222

Consolidated Income Statement

According to IFRS as of September 30, 2005, unaudited

	Quarterly report III/2005 07/01/2005 - 09/30/2005	Quarterly report III/2004 07/01/2004 - 09/30/2004	9-month report 2005 01/01/2005 - 09/30/2005	9-month report 2004 01/01/2004 - 09/30/2004
	EUR	EUR	EUR	EUR
Revenues Other operating income Production of own	5,759,076 140,225	5,089,674 157,424	15,789,760 514,747	14,681,510 607,925
fixed assets capitalized Cost of purchased materials	634,817	627,917	1,739,360	1,997,425
and services	– 1,352,426	– 1,005,210	– 3,437,491	– 3,326,618
Personnel expenses	– 3,135,657	– 2,979,355	– 9,009,273	– 8,701,285
Depreciation and amortization	– 825,396	– 772,989	– 2,339,180	– 2,340,764
Other operating expenses	– 921,773	– 840,255	– 2,736,864	– 2,603,054
Operating income	298,866	277,206	521,059	315,139
Interest income and expense	2,738	– 898	5,647	2,098
Result before income taxes	301,604	276,308	526,706	317,237
Income tax	– 39,990	– 85,236	– 160,103	– 113,453
Other taxes	– 947	– 22,752	– 7,011	– 29,278
Net income	260,667	168,320	359,592	174,506
Retained earnings/loss carried forward (–)			6,522,564	– 3,389,018
Consolidated net income/ loss (–)			6,882,156	– 3,214,512
Diluted earnings per share
pursuant to IAS 33	0.05	0.03	0.07	0.03
Undiluted earnings per share pursuant to IAS 33	0.05	0.03	0.07	0.03

Consolidated Cash Flow Statement

According to IFRS as of September 30, 2005, unaudited

	01/01/2005 - 09/30/2005	01/01/2004 - 09/30/2004
	TEUR	TEUR
Cash flows from operating activities
Net profit/loss for the period	360	175
+ Depreciation and amortization of fixed assets	2,339	2,341
– Decrease in provisions and accruals	– 243	– 78
– Increase in net working capital	– 1,167	– 694
= Net cash provided by operating activities	1,289	1,744
Cash flows from investing activities
– Acquisition of subsidiaries, net of cash acquired	– 1,535	–
– Payments made for investments
in self-produced intangible assets	– 2,068	– 2,122
– Payments made for investments in other
intangible and tangible assets	– 296	– 191
= Net cash used in investing activities	– 3,899	– 2,313
Cash flows from financing activities
+ Proceeds from capital increase	1,097	–
= Cash flow provided by financing activities	1,097	–
– Decrease in cash and cash equivalents	– 1,513	– 569
+ Cash and cash equivalents at beginning of period	6,338	6,034
Cash and cash equivalents at end of period =	4,825	5,465

Changes in Shareholders' Equity

01/01 - 09/30/2005

Thsd. EUR	Share capital	Additional paid-in capital	Retained earnings	Accumulated profits	Total
Balance as of December 31, 2004 Capital increase	5,000 500	879 597	18 –	6,523 –	12,420 1,097
Valuation of financial instruments	–	–	– 30	–	– 30
Net income 2005	–	–	–	360	360
Balance as of September 30, 2005	5,500	1,476	– 12	6,883	13,847

01/01 - 09/30/2004

Thsd. EUR	Share capital	Additional paid-in capital	Retained earnings	Accumulated profits	Total
Balance as of December 31, 2003	5,000	10,326	–	– 3,389	11,937
Net income 2004	–	–	–	175	175
Balance as of September 30, 2004	5,000	10,326	–	– 3,214	12,112

Notes to the Consolidated Financial Statements for Q3/2005

This quarterly report was prepared using the same accounting and valuation methods as in fiscal year 2004.

The economy again failed to pick up momentum in the second half of 2005. This was particularly true for Germany. As a result, the general economic weakness, which already was evident in the first half of 2005, continued during the reporting period. The persistent investment restraint had an impact particularly on the Automotive Electronics division.

Investments in self-constructed intangible assets amounted to EUR 2.1 million in the first nine months of 2005 (2004: EUR 2.1 million)

As of 09/30/2005, orders on hand in the Group amounted to EUR 3.4 million (06/30/2005: EUR 3.5 million).

As of 09/30/2005, the Group had 194 employees (2004: 156). The increase is essentially due to the acquisition of hard & soft Salwetter-Rottenberger GmbH. During the reporting period, no stock options were issued to employees.

In July, the Executive Board of Softing AG acquired all shares of hard & soft Salwetter-Rottenberger GmbH, Reutlingen. This decision was approved by Softing's Supervisory Board. In the third quarter, hard & soft Salwetter-Rottenberger GmbH did not yet make a significant contribution to sales (EUR thsd. 564) and earnings (EUR thsd. – 54) because of the necessary technical and operational integration activities. The acquisition resulted in a cash outflow of EUR 1.6 million.

Group Division Before Consolidation

Thsd. EUR	Quarterly report III/2005 07/01/2005 - 09/30/2005	Quarterly report III/2004 07/01/2004 - 09/30/2004	9-month report 2005 01/01/2005 - 09/30/2005	9-month report 2004 01/01/2004 - 09/30/2004
Subsidiary (before consolidation) Softing Industrial Solutions Italia S.r.l., Bozen, Italy
Incoming orders Revenues	– –	– –	– –	– –
EBIT	– 3	4	– 16	– 5
Subsidiary (before consolidation) Softing North America, Inc., Massachusetts, USA
Incoming orders	353	234	1,312	703
Revenues EBIT	494 71	241 – 51	1,039 31	683 – 120
Subsidiary (before consolidation) SoftingRom s.r.l. Cluj-Napoca, Romania Incoming orders	–	–	–	–
Revenues	38	–	71	–
EBIT	1	–	3	–
Subsidiary (before consolidation) hard & soft Salwetter-Rottenberg GmbH Reutlingen
Incoming orders	564	–	564	–
Revenues EBIT	564 – 33	– –	564 – 33	– –
Softing AG (before consolidation) Incoming orders Revenues EBIT	4,279 4,485 188	5,101 4,999 317	14,390 14,295 522	14,459 14,413 440

Segment Reporting

September 30, 2005

Thsd. EUR	Quarterly report III/2005 07/01/2005 - 09/30/2005	Quarterly report III/2004 07/01/2004 - 09/30/2004	9-month report 2005 01/01/2005 - 09/30/2005	9-month report 2004 01/01/2004 - 09/30/2004
Automotive Electronics
Revenues	2,790	2,522	7,202	6,669
Segment result (EBIT)	– 214	104	– 558	– 210
Depreciation/amortization	534	455	1,462	1,350
Segment assets	–	–	8,627	4,520
Segment liabilities	–	–	5,288	2,079
Capital expenditure (not including
long-term investments)	462	473	1,362	1,306
Industrial Automation
Revenues	2,969	2,568	8,588	8,013
Segment result (EBIT)	513	173	1,079	525
Depreciation/amortization	291	318	877	991
Segment assets	–	–	5,627	4,251
Segment liabilities	–	–	3,364	1,891
Capital expenditure (not including
long-term investments)	399	257	908	936
Not distributed
Revenues	–	–	–	–
Segment result (EBIT)	–	–	–	–
Depreciation/amortization	–	–	–	–
Segment assets	–	–	8,451	9,266
Segment liabilities	–	–	2,206	1,916
Capital expenditure (not including
long-term investments)	31	18	92	78
Total
Revenues	5,759	5,090	15,790	14,682
Segment result (EBIT)	299	277	521	315
Depreciation/amortization	825	773	2,339	2,341
Segment assets	–	–	22,705	18,037
Segment liabilities	–	–	10,858	5,886
Capital expenditure (not including
long-term investments)	892	748	2,362	2,320

The division into business segments in accordance with IAS 14 (revised 1997) is shown in the above table