Softing AG — Interim / Quarterly Report 2005

Aug 12, 2005

Quarterly Report 2/2005

Softing achieves improvements in all key areas

Softing achieves improvements in all key areas

Dear shareholders, employees, partners and friends of Softing AG,

The weather forecast for the months of April, May and June was mostly cold and rainy. Much of the good weather that was predicted failed to materialize. We were hoping for bluer skies and warmer temperatures too, of course, but that was something we had no control over. Our busi-

ness is a different story, however – and this developed very positively in the second quarter. Dr. Wolfgang Trier

Softing achieved significant improvements in all key financials. Incoming orders, an important figure in our sector, increased by some 29 % year-on-year in the second quarter of 2005. Sales were up by about 18 %. Earnings also improved by EUR 0.5 million - in what continued to be a difficult overall economic environment in Germany and in Europe.

Please see the table below for an easy comparison of this year's key financials with those from 2004:

All figures in EUR million	Quarterly report II/2005	Quarterly report II/2004	Six-month report 2005	Six-month report 2004
Incoming orders	5.8	4.5	11.1	10.0
Sales	5.6	4.8	10.0	9.6
Earnings (EBIT)	0.4	– 0.1	0.2	0.0
Net income/loss	0.2	0.0	0.1	0.0

The order situation of our Softing North America subsidiary also developed very positively. We expect sales to reach about USD 2 million by year's end. The subsidiary is also expected to make its first ever clearly positive profit contribution. SoftingROM, our Romanian development and project services subsidiary, which was established in February, will employ approximately 10- 12 developers by the end of the year. SoftingROM is a valuable member of the Softing Group, both in terms of costs and sophisticated development work.

I am especially pleased to announce the full integration of hard & soft Salwetter-Rottenberger GmbH, Reutlingen, into the Softing Group as of this July. The acquisition expands and strengthens the position of Softing's Automotive Electronics division in the market for ECU test systems in the automotive manufacturing sector. In hard & soft, Softing acquires a profitable company with annual sales of approximately EUR 3 million and about 20 employees.

The strategic strengthening of our production, the close integration of the management of hard & soft, and the company's continued existence as an independent enterprise offer great potential for the further growth of both hard & soft and Softing.

At our Annual Shareholders' Meeting on July 15, the creation of new authorized capital failed to win the necessary majority vote. However, this will not materially affect the future strategic course of the Softing Group. Based on our solid cash position, we will not only continue to push ahead with internal growth but pursue opportunities of inorganic growth as well. This will happen only within clearly defined boundaries, though. If we are to make another acquisition, the company we set our sights on must fill a strategic gap, must operate in Softing's core field of business, must demonstrate stable, proven business success, and must be of a type and size that is easy to integrate.

In the next six months, we will present our plans for the future in numerous discussions with analysts and institutional investors in order to showcase Softing as an attractive investment proposition even more clearly as before.

We hope that you, dear friends of Softing, will continue to accompany us on the path that we have chosen.

Sincerely,

Final quotation, Xetra

Directors' Holdings as of 06/30/2005

	Number of shares		Number of options
	As of 06/30/2005	As of 03/31/2005	As of 06/30/2005	As of 03/31/2005
Dr. Trier	44,753	44,753	37,200	37,200
Mr. Häußler	2,000	2,000	–	–
Dr. Schiessl	–	–	–	–
Mr. Butscher	–	–	–	–
Dr. Patz	405,750	405,750	–	–

Company Schedule

Quarterly Report 3/2005	11/15/2005
German Equity Forum	11/21/2005
Financial Statements 2005	03/31/2006
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 IRFS as of June 30, 2005, unaudited

	Quarterly report 06/30/2005	Financial statements 12/31/2004
Assets	EUR	EUR
Cash and cash equivalents	3,961,921	3,534,204
Short-term investments/marketable securities	2,803,624	2,803,624
Trade accounts receivable	4,377,392	3,514,069
Inventories	1,055,612	1,213,105
Prepaid expenses and other current assets	180,427	256,327
Total current assets	12,378,976	11,321,329
Property, plant and equipment	426,079	382,300
Intangible assets	4,122,654	4,210,229
Deferred taxes	2,987,354	3,005,364
Total non-current assets	7,536,087	7,597,893
Total assets	19,915,063	18,919,222
Liabilities and shareholders' equity
Trade accounts payable	307,986	363,546
Accrued expenses	1,663,219	1,778,469
Deferred income and other current liabilities	1,152,139	1,214,844
Total current liabilities	3,123,344	3,356,859
Accounts payable, customer-specific production contracts	482,101	551,469
Deferred tax liability	1,881,000	1,792,000
Pension accrual	846,993	798,930
Total non-current liabilities	3,210,094	3,142,399
Share capital	5,499,998	5,000,000
Additional paid-in capital	1,480,678	879,197
Retained earnings	– 20,540	18,204
Consolidated accumulated profits	6,621,489	6,522,563
Total shareholders' equity	13,581,625	12,419,964
Total liabilities and shareholders' equity	19,915,063	18,919,222

Consolidated Income Statement

According to IFRS as of June 30, 2005, unaudited

	Quarterly report II/2005 04/01/2005 - 06/30/2005	Quarterly report II/2004 04/01/2004 - 06/30/2004	Six-month report 2005 01/01/2005 - 06/30/2005	Six-month report 2004 01/01/2004- 06/30/2004
	EUR	EUR	EUR	EUR
Revenues	5,634,389	4,778,016	10,030,684	9,591,836
Other operating income	138,912	317,159	374,522	450,501
Production of own
fixed assets capitalized	592,502	672,732	1,104,543	1,369,508
Cost of purchased materials
and services	– 1,132,376	– 1,144,689	– 2,085,065	– 2,321,408
Personnel expenses	– 3,037,544	– 2,858,038	– 5,873,616	– 5,721,930
Depreciation and amortization	– 772,635	– 781,551	– 1,513,784	– 1,567,775
Other operating expenses	– 979,249	– 1,036,083	– 1,815,091	– 1,762,799
Operating income/loss	443,999	– 52,454	222,193	37,933
Interest income and expense	– 4,759	2,079	2,909	2,996
Result before income taxes	439,240	– 50,375	225,102	40,929
Income tax	– 189,677	27,783	– 120,113	– 28,217
Other taxes	– 1,324	– 1,028	– 6,064	– 6,526
Net income/loss (-)	248,239	– 23,620	98,925	6,186
Retained earnings, brought forward			6,522,564	– 3,389,018
Consolidated net income/ loss (-)			6,621,489	– 3,382,832
Diluted earnings per share
pursuant to IAS 33	0.04	0.00	0.02	0.00
Undiluted earnings per share
pursuant to IAS 33	0.05	0.00	0.02	0.00

Consolidated Cash Flow Statement

According to IFRS as of June 30, 2005, unaudited

	01/01/2005 - 06/30/2005	01/01/2004 - 06/30/2004
	TEUR	TEUR
Cash flows from operating activities
Net profit/loss for the period	99	6
+ Depreciation and amortization of fixed assets	1,514	1,568
+/– Increase/decrease in provisions and accruals	22	– 312
– Increase in net working capital	– 839	– 598
Net cash provided by operating activities =	796	664
Cash flows from investing activities – Payments made for investments in self-produced intangible assets – Payments made for investments in other intangible and tangible assets Net cash used in investing activities =	– 1,300 – 170 – 1,470	– 1,437 – 140 – 1,577
Cash flows from financing activities
+ Proceeds from capital increase	1,102	–
= Cash flow provided by financing activities	1,102	–
+/– Increase/decrease in cash and cash equivalents	428	– 913
+ Cash and cash equivalents at beginning of period	6,338	6,034
Cash and cash equivalents at end of period =	6,766	5,121

Changes in Shareholders' Equity

01/01 - 06/30/2005

Thsd. EUR	Share capital	Additional paid-in capital	Retained earnings	Accumulated profits	Total
Balance as of December 31, 2004 Capital increase	5,000 500	879 602	18 –	6,523 –	12,420 1,102
Valuation of financial instruments	–	–	– 39	–	– 39
Net income/loss 2005	–	–	–	99	99
Balance as of June 30, 2005	5,500	1,481	– 21	6,622	13,582

01/01 - 06/30/2004

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	–	–	–	6	6
Balance as of June 30, 2004	5,000	10,326	–	– 3,383	11,943

Notes to the Consolidated Financial Statements for Q2/2005

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 first half of 2005. This was particularly true for Germany. As a result, the general economic weakness, which already was evident in fiscal year 2004, 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 1.3 million (2004: EUR 1.4 million) in the first six months of 2005.

As of 06/30/2005, orders on hand in the Group amounted to EUR 3.5 million (03/31/2005: EUR 3.6 million).

As of 06/30/2005, the Group had 167 employees (2004: 155). During the reporting period, no stock options were issued to employees.

In early July, the Executive Board of Softing AG decided to acquire all shares of hard & soft Salwetter-Rottenberger GmbH, Reutlingen. This decision was approved by Softing's Supervisory Board. The acquisition expands and strengthens the position of Softing's Automotive Electronics division in the market for ECU test systems in the automotive manufacturing sector. In hard & soft, Softing acquires a profitable company with annual sales of approximately EUR 3 million and about 20 employees.

Group Division Before Consolidation

Thsd. EUR	Quarterly report II/2005 04/01/2005 - 06/30/2005	Quarterly report II/2004 04/01/2004 - 06/30/2004	Six-month report 2005 01/01/2005 - 06/30/2005	Six-month report 2004 01/01/2004 - 06/30/2004
Subsidiary (before consolidation) Softing Industrial Solutions Italia S.r.l., Bozen, Italy
Incoming orders	–	–	–	–
Revenues	–	–	–	–
EBIT	– 2	23	– 13	– 9
Subsidiary (before consolidation) Softing North America, Inc., Massachusetts, USA
Incoming orders	471	292	959	469
Revenues	300	265	545	442
EBIT	– 17	– 56	– 40	– 69
Subsidiary (before consolidation) SoftingRom s.r.l. Cluj-Napoca, Romania
Incoming orders	–	–	–	–
Revenues	33	–	33	–
EBIT	2	–	2	–
Softing AG (before consolidation)
Incoming orders	5,293	4,213	10,111	9,358
Revenues	5,497	4,671	9,810	9,414
EBIT	545	– 24	334	123

Segment Reporting

As June 30, 2005

Thsd. EUR	Quarterly report II/2005 04/01/2005 - 06/30/2005	Quarterly report II/2004 04/01/2004 - 06/30/2004	Six-month report 2005 01/01/2005 - 06/30/2005	Six-month report 2004 01/01/2004 - 06/30/2004
Automotive Electronics
Revenues	2,536	2,119	4,412	4,147
Segment result (EBIT)	10	– 104	– 344	– 314
Depreciation/amortization	465	448	928	895
Segment assets	–	–	5,078	4,333
Segment liabilities	–	–	1,960	1,935
Capital expenditure (not including
long-term investments)	490	414	900	833
Industrial Automation
Revenues	3,099	2,659	5,619	5,445
Segment result (EBIT)	434	51	566	352
Depreciation/amortization	308	334	586	673
Segment assets	–	–	4,767	4,273
Segment liabilities	–	–	2,492	1,821
Capital expenditure (not including
long-term investments)	287	326	509	679
Not distributed
Revenues	–	–	–	–
Segment result (EBIT)	–	–	–	–
Depreciation/amortization	–	–	–	–
Segment assets	–	–	10,070	9,009
Segment liabilities	–	–	1,881	1,915
Capital expenditure (not including
long-term investments)	27	22	61	60
Total
Revenues	5,635	4,778	10,031	9,592
Segment result (EBIT)	444	– 53	222	38
Depreciation/amortization	773	782	1,514	1,568
Segment assets	–	–	19,915	17,615
Segment liabilities	–	–	6,333	5,671
Capital expenditure (not including
long-term investments)	804	762	1,470	1,572

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