Softing AG — Interim / Quarterly Report 2014

Aug 14, 2014

Quarterly Financial Report

• Revenue up by 32 % to over EUR 33 million
• Incoming orders rise to nearly EUR 30 million
• Foundation for igniting further growth laid

All gures in EUR million	Quarterly report II/2014	Quarterly report II/2013	Six-month report 2014	Six-month report 2013
Incoming orders	12.9	11.7	29.3	27.5
Revenue	17.5	13.3	33.6	25.5
Earnings (EBIT)	1.0	1.7	2.0	3.1
Net pro t for the year	0.6	1.1	1.3	2.2
Earnings per share in EUR	0.09	0.30	0.21	0.48

Dear Shareholders, Employees, Partners and Friends of Softing AG,

Softing successfully completed another two acquisitions in the second quarter of 2014. This has added a pioneering new chapter to our company's history. With the takeover of Online Development Inc. (OLDI) in Knoxville, Tennessee, Softing has acquired a company that ideally complements our product portfolio in our core eld of Industrial Automation. For over 20 years, OLDI has been a technical leader in the development and manufacture of products for factory automation. It focuses on high-quality products for control and communication tasks in connection with controllers from Rockwell Automation, the leading North American manufacturer of industrial controls. In a single leap, Softing has managed to acquire a high-level presence in the US market. This is both a great opportunity and a great honor for us.

E ective May 1, Softing acquired the entire Industrial Communication division of Trebing & Himstedt GmbH. Although this company is a good deal smaller than OLDI, it perfectly complements Softing in the area of eldbus diagnostics. The Softing team worked with the previous employees of Trebing & Himstedt who moved to Softing to smoothly and harmoniously integrate this business, a process which has largely been completed.

Together with our organic growth, this will enable us to achieve new record values in our incoming orders and revenue. Expressed in gures, this means that Softing increased its revenue to EUR 33.6 million in the rst six months, generating a pro t from operations of EUR 2 million and a net pro t of EUR 1.3 million. The table above compares the most important key gures for 2014 and 2013.

After repeatedly expressing my concerns and incomprehension in the face of major political mismanagement during nearly a year of policies hostile to business in Germany, Softing has now taken a signi cant step towards distancing itself from local risks. As of next year, a good 40 % of our revenue should be generated outside of Europe. This is more important than ever since miserable socialist client politics has now been joined by an acute military threat.

Following the rocket launch that killed nearly 300 airline passengers, an act for which Russia indisputably bears responsibility, around 20,000 heavily armed Russian soldiers have once again amassed at the Ukraine border. Neither the West nor NATO is there to face Putin, just a country that has been bled dry and done nothing more than declare its a nity with Europe through long, hard protests. Anyone who cannot see how acutely our freedom is threatened by this is beyond help. Russia's naked military force must be kept in check. The entire West must immediately drain the Russian aggressors of their fuel through swift and, above all, tough economic sanctions. Even if sanctions come at the expense of growth and earnings in the short term, the preservation of our freedom should never be up for sale. If we lost our freedom, all earnings would ultimately go into the pockets of Putin and his corrupt entourage. Now more than ever, it is important not to blur the lines between aggressor and friend, even when our friend – the USA – makes silly mistakes by spying on its allies. We are threatened by Putin's imperialist aggression, not by the NSA, even though the NSA has undoubtedly gone o the rails. Europe's response must be to strengthen its network in the Atlantic region and free itself of dependence on Russian gas as quickly as possible.

The shift to a truly internationally oriented company will fundamentally and permanently change the character of Softing. To be internationally oriented means more than just supplying international markets from Europe, it means having our own expertise, top-class management and local market access outside of Europe. So far, we are the only company in our eld to have managed this. This is the only way we can achieve growth which will enable us to permanently surpass the EUR 100 million mark in revenue.

Even though these steps have now been completed and fully nanced, they have taken their toll. This can be seen in the results of the rst two quarters. The auditing and legal fees for the three acquisitions in 2014, including indirect costs and the cost of establishing a new sales organization in the USA, are leaving deep marks in the earnings of the Industrial Automation segment. However, we are laying the foundations for further growth and earnings here. It would be irresponsible to refrain from doing this just to avoid short-term expenses over the course of half a year. We expect these costs to gradually disappear in the third and fourth quarters and our earnings to rise signi cantly to their usual level.

Softing's strategic goals have been clearly de ned: "We want to grow to achieve revenue of over EUR 100 million annually while balancing out the risks in terms of regions and business segments in a way that ensures the greatest possible continuity in revenue and pro tability." While this statement comprises only a few words, it is enough to require the full e orts of management for a sustained period of time. Based on its very strong positioning in its target markets and noti cations of orders from customers, Softing expects to generate revenue growth to around EUR 65 million and EBIT in a range of EUR 5 million to just under EUR 7 million in 2014.

We have never been in a better position to reach our goals. These are all good reasons to accompany us on our journey and pro t from the fruits of our development.

Sincerely,

Dr. Wolfgang Trier (Chief Executive O cer)

STOCK PRICE – DIRECTORS' HOLDINGS – FINANCIAL CALENDAR

XETRA

DIRECTORS' HOLDINGS AS OF JUNE 30, 2014

Boards		Shares	Options
	June 30, 2014 Number	March 31, 2014 Number	June 30, 2014 Number	March 31, 2014 Number
Supervisory Board
Dr. Horst Schiessl (chairman), Attorney at Law, Munich	–	–	–	–
Dr. Klaus Fuchs (member of the Supervisory Board), graduate computer scientist / graduate engineer, Helfand	273,886	273,886	–	–
Andreas Kratzer, CPA, Switzerland (member of the Supervisory Board)	9,976	9,976	–	–
Executive Board
Dr.-Ing. Dr. rer. oec. Wolfgang Trier, Munich	84,085	84,085	–	–
Maximilian zu Hohenlohe, Pfa enhofen	–	–	–	–

FINANCIAL CALENDAR

November 14, 2014	Quarterly Report 3/2014
November 28, 2014	Equity Forum in Frankfurt/Main
March 31, 2015	2014 Annual Report
May 15, 2015	Quarterly Report 1/2015
August 14, 2015	Quarterly Report 2/2015
November 13, 2015	Quarterly Report 3/2015

GROUP MANAGEMENT REPORT FOR THE 2/2014 QUARTERLY FINANCIAL REPORT

Economic Environment

Experts continue to expect growth of around 1.7 % for the German economy in 2014, with signs indicating an increasingly predatory competition in Europe. Higher growth rates are expected in North America. Industry and the auto motive sector are set to record higher growth. Softing therefore anticipates a further year-on-year increase in incoming orders and revenue both in Automotive Electronics and Industrial Automation for the full 2014 nancial year.

Results of Operations

Revenue in the Automotive Electronics segment in the rst six months of 2014 rose by 23 % to EUR 15.6 million (previous year: EUR 12.7 million). The Industrial Automation segment recorded a revenue increase of 40 % to EUR 18.0 million (previous year: EUR 12.8 million). The increase in revenue in Automotive Electronics is fully attributable to organic growth, whereas Industrial Automation grew both organically and by making acquisitions. At EUR 33.6 million, the revenue of the Softing Group in the rst half of 2014 thus was up EUR 8 million year on year (previous year: EUR 25.5 million). EBIT in the reporting period came in at EUR 2.0 million (previous year: EUR 3.1 million).

First-half earnings in the Industrial Automation segment were impacted by the acquisitions of Psiber Data GmbH headquartered in Krailling near Munich as of January 1, 2014 and of Online Development Inc. (OLDI) in Knoxville, Tennessee, United States, in May, as well as by the establishment of a brand new sales o ce in the United States, which generated substantial non-recurring expenses. These expenses will gradually disappear in the last two quarters of the year. Earnings are also expected to increase considerably based on growing revenue generated by the new sales o ce in the United States and release orders for products with a particularly high margin. As of June 30, 2014, orders on hand in the Group totaled EUR 9.2 million (March 31, 2014: EUR 9.7 million). The acquired companies contribute little to orders on hand because they nearly always deliver their products shortly after an order is placed.

Net Assets and Financial Position

The equity ratio as of June 30, 2014 was 42 % (December 31, 2013: 65 %). Around half of the investments of EUR 22.9 million in the rst six months of the year were nanced from the Softing Group's own funds. Further nancing was provided by the Group's rst loans granted at exceedingly favorable terms. As a consequence of the high investments in new technologies as described and the acquisition of Psiber Data GmbH and Online Development Inc., cash and cash equivalents decreased by just under EUR 9 million to EUR 3.3 million from EUR 12.2 million as of December 31, 2013.

Research and Product Development

In the rst six months of 2014, Softing capitalized a total of EUR 2.0 million (previous year: EUR 2.0 million) for the development of new products and the enhancement of existing ones. Other signi cant amounts were expensed.

Employees

As of June 30, 2014, the Group had 438 employees (previous year: 332). During the report ing period, no stock options were issued to employees.

Opportunities for the Company's Future Development

As of the reporting date of June 30, 2014, the Company's risk structure had not deviated signi cantly from the description in the consolidated nancial statements for the year ended December 31, 2013. Material changes are also not expected for the remaining six months of 2014. For more information, we refer to our Group Management Report in the 2013 Annual Report, page 4 et seq.

Outlook

Based on its very strong positioning in its target markets and noti cations of orders from customers, Softing expects to generate revenue growth to around EUR 65 million and EBIT in a range of EUR 5 million to just under EUR 7 million in 2014. Comparing the two operating segments, the EBIT margin in the Automotive Electronics segment is expected to be higher on account of high-margin orders and a lack of extra ordinary expenses.

Events after the Reporting Period

Softing AG successfully placed 451,000 new shares with institutional investors in July in an accelerated bookbuilding procedure. After the completion of the capital increase, the Company's share capital amounts to EUR 6,959,438. All shares were placed without a discount at the current market price of EUR 16.80. Since this dispensed with the need to hold treasury shares as acquisition currency for the time being, Softing sold a total of 25,298 treasury shares in July at an average price of EUR 18.02 per share. On account of the procedure used (in accordance with Article 5 of Commission Regulation (EC) No. 2273/2003) and the low volume of shares, Softing AG was not required by law to issue separate announcements about this.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION as of June 30, 2014 and December 31, 2013

Assets	EUR thousand	06/30/2014	12/31/2013
Cash and cash equivalents		3,305	12,116
Trade receivables		11,449	10,029
Inventories		7,868	4,660
Current income tax assets		118	103
Current nancial assets		0	833
Other current assets		1,111	893
Current assets, total		23,851	28,634
Property, plant and equipment		1,403	1,366
Intangible assets		10,291	7,289
Goodwill		28,533	2,439
Deferred tax assets		654	510
Non-current assets, total		40,881	11,604
Total assets		64,732	40,238

Equity and liabilities	EUR thousand	06/30/2014	12/31/2013
Trade payables		3,903	2,357
Payables from customer-speci c construction contracts		314	176
Provisions and accrued liabilities		455	210
Deferred revenue		1,955	1,598
Income tax liabilities		756	586
Short-term borrowings and current portion of long-term borrowings		1,912	195
Other current liabilities		5,641	5,248
Current liabilities, total		14,936	10,370
Deferred taxes		2,373	2,182
Pensions and similar obligations		1,507	1,504
Long-term borrowings without current portion		9,794	0
Other non-current liabilities		8,906	51
Non-current liabilities, total		22,580	3,737
Subscribed capital		6,508	6,443
Capital reserve		5,208	4,396
Treasury shares		-287	-287
Net retained pro ts (incl. retained earnings)		14,709	15,606
Equity (Group share)		26,138	26,158
Minority interests		1,078	-27
Equity, total		27,216	26,131
Total equity and liabilities		64,732	40,238

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the period from January 1 to June 30, 2014 and 2013

	Quarter	Quarter
	II/2014	II/2013	6-month report	6-month report
EUR thousand	04/01/2014 – 06/30/2014	04/01/2013 – 06/30/2013	01/01/2014 – 06/30/2014	01/01/2013 – 06/30/2013
Revenue	17,523	13,344	33,590	25,499
Other own work capitalized	1,051	1,139	2,030	2,041
Other operating income	166	140	279	226
Operating income	18,740	14,623	35,899	27,766
Cost of materials / cost of purchased services	-6,179	-3,717	-11,948	-6,729
Sta costs	-8,076	-6,459	-15,173	-12,846
Depreciation, amortization and impairment losses	-982	-843	-2,346	-1,686
thereof impairment losses due to purchase price allocation	-78	0	-157	0
Other operating expenses	-2,482	-1,896	-4,410	-3,399
Operating expenses	-17,719	-12,914	-33,877	-24,660
Pro t/loss from operations (EBIT)	1,021	1,709	2,023	3,106
Interest income	12	72	46	101
Interest expense	-177	-74	-223	-115
Earnings before income taxes	856	1,707	1,846	3,092
Income taxes	-269	-637	-524	-927
Net pro t for the year	587	1,070	1,322	2,165
Other comprehensive income
Di erence from currency translation	2	0	15	17
Measurement of securities	3	-3	0	-24
Subtotal of items of other comprehensive income
that will be reclassi ed to pro t or loss for the period	5	-3	15	-7
Pro ts from the sale of treasury shares	0	832	0	832
Subtotal of items of other comprehensive income
that will not be reclassi ed to pro t or loss for the period Total other comprehensive income for the period	0 5	832 829	0 15	832 825
Total comprehensive income for the period	592	1,899	1,337	2,990
Net pro t for the year attributable to:
Owners of the parent	586	1,061	1,229	2,159
Minority interests	1	9	93	6
Net pro t for the year	587	1,070	1,322	2,165
Total comprehensive income for the period attributable to:
Owners of the parent	591	1,890	1,244	2,984
Minority interests	1	9	93	6
Total comprehensive income for the period	592	1,899	1,337	2,990
Earnings per share (basic)	0.09	0.30	0.21	0.48
Earnings per share (diluted)	0.09	0.30	0.21	0.48
Average number of shares outstanding (basic)	6,345,547	6,304,541	6,336,902	6,219,725
Average number of shares outstanding (diluted)	6,345,547	6,304,541	6,336,902	6,219,725

CONSOLIDATED STATEMENT OF CASH FLOWS

for the period from January 1 to June 30, 2014 and 2013

EUR thousand	Second quarter 01/01/2014 – 06/30/2014	Second quarter 01/01/2013 – 06/30/2013
Cash ows from operating activities
Pro t (before tax)	1,846	2,165
Depreciation, amortization and impairment losses on xed assets	2,346	1,686
Other non-cash transactions	56	17
Cash ows for the period	4,248	3,868
Interest income	-46	-101
Interest expense	223	115
Change in other provisions and accrued liabilities	245	204
Change in trade receivables	2,087	955
Change in other assets	-740	247
Change in trade payables	-691	-901
Change in other liabilities	-185	-367
Interest received	46	101
Income taxes paid	-538	-927
Cash ows from operating activities	4,649	3,194
Investments in xed assets	-1,038	-391
Cash paid for investments in internally generated intangible assets	-2,030	-2,041
Repayment for investments in nancial assets	833	395
Cash paid for the acquisition of subsidiaries	-21,266	0
less acquired cash and cash equivalents	601	0
Cash ows from investing activities	-22,900	-2,037
Cash paid for dividends	-1,337	-1,709
Cash received from bank borrowings	11,000	0
Cash received from the sale of treasury shares	0	1,317
Interest paid	-223	-115
Cash ows from nancing activities	9,440	-507
Net change in cash and cash equivalents	-8,811	650
E ects of exchange rate changes on cash and cash equivalents	0	0
Cash and cash equivalents at the beginning of the period	12,116	11,516
Cash and cash equivalents at the end of the period	3,305	12,166

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the period from January 1 to June 30, 2014 and 2013

	Subscribed capital	Capital reserve	Retained earnings				Treasury shares	Attributable to shareholders of Softing AG	Non controlling interests	Total equity
EUR thousand			Other	Available-for sale nancial assets	Actuarial gains and losses	Currency translation	Total
As of January 1, 2014	6,443	4,396	16,497	1	-759	-134	15,605	-287	26,157	-26	26,131
Dividend payment			-2,215				-2,215		-2,215		-2,215
Addition from capital increase	65	812							877		877
Measurement of
nancial instruments			74	-1			73		73		73
Currency translation						17	17		17		17
Minority interests										1,011	1,011
Net pro t for 2014			1,229				1,229		1,229	93	1,322
As of June 30, 2014	6,508	5,208	15,585	-	-759	-117	14,709	-287	26,138	1,078	27,216

	Subscribed capital	Capital reserve		Retained earnings				Treasury shares	Attributable to shareholders of Softing AG	Non controlling interests	Total equity
EUR thousand			Other	Available-for sale nancial assets	Actuarial gains and losses	Currency translation	Total
As of January 1, 2013	6,443	4,396	13,200	-9	-950	-115	12,126	-772	22,193	-3	22,190
Sale of treasury shares			832				832	485	1,317		1,317
Dividend payment			-1,709				-1,709		-1,709		-1,709
Measurement of
nancial instruments				-24			-24		-24		-24
Currency translation						17	17		17		17
Minority interests										-6	-6
Net pro t for 2013			2,165				2,165		2,165
As of June 30, 2013	6,443	4,396	14,488	-33	-950	-98	13,407	-287	23,959	-9	21,785

CONSOLIDATED SEGMENT REPORTING

for the period from January 1 to June 30, 2014 and 2013

	Quarterly report II/2014 04/01/2014	Quarterly report II/2013 04/01/2013	Six-month report 2014 01/01/2014	Six-month report 2013 01/01/2013
EUR thousand	– 06/30/2014	– 06/30/2013	– 06/30/2014	– 06/30/2013
Automotive Electronics
Revenue	7,988	7,079	15,625	12,656
Segment result (EBIT)	1,078	957	1,834	1,729
Depreciation /amortization	291	300	729	619
Segment assets			12,256	12,621
Segment liabilities			6,965	5,814
Capital expenditure (not including long-term investments)	489	511	729	999
Industrial Automation
Revenue	9,535	6,264	17,965	12,841
Segment result (EBIT)	-56	753	189	1,377
Depreciation /amortization	629	487	1,497	956
Segment assets			49,135	12,117
Segment liabilities			14,876	4,372
Capital expenditure (not including long-term investments)	24,443	742	30,752	1,308
Not distributed
Revenue	0	0	0	0
Segment result (EBIT)	0	0	0	0
Depreciation /amortization	62	55	120	111
Segment assets			3,341	12,930
Segment liabilities			15,675	3,531
Capital expenditure (not including long-term investments)	-37	58	-3	125
Total
Revenue	17,523	13,343	33,590	25,497
Segment result (EBIT)	1,022	1,710	2,023	3,106
Depreciation /amortization	982	842	2,346	1,686
Segment assets			64,732	37,668
Segment liabilities			37,516	13,717
Capital expenditure (not including long-term investments)	24,895	1,311	31,478	2,432

SELECTED EXPLANATORY NOTES TO THE INTERIM REPORT OF SOFTING AG AS OF JUNE 30, 2014

1. General Accounting Policies

The consolidated nancial statements of Softing AG as of December 31, 2013 were prepared in accordance with the International Financial Reporting Stand ards (IFRSs) based on the guidance of the International Accounting Standards Board (IASB) applicable at the reporting date. The condensed interim consolidated nancial statements as of June 30, 2014, which were prepared on the basis of International Accounting Standard (IAS) 34 "Interim Financial Reporting", do not contain all of the required infor mation in accordance with the requirements for the presentation of the annual report and should be read in conjunction with the consolidated nancial statements of Softing AG as of December 31, 2013. In general, the same accounting policies were applied in the interim nancial statements as of June 30, 2014 as in the consolidated nancial statements for the 2013 nancial year.

2. Change in the Basis of Consolidation

E ective January 1, 2014, Softing AG acquired all interests in Psiber Data GmbH ("Psiber"), headquartered in Krailling near Munich, from the shareholders.

Psiber Data GmbH in turn holds a 55% equity interest in Psiber Data Pte Ltd Singapore.

Both entities have been controlled by the Softing Group in accordance with IFRS 10 since January 01, 2014 and are therefore consolidated in the consolidated nancial statements of Softing AG.

Furthermore, e ective May 22, 2014, Softing AG acquired all interests in Online Development Incorporated ("OLDI") headquartered in Knoxville, Tennessee, from the shareholders.

This entity has been controlled by the Softing Group in accordance with IFRS 10 since May 23, 2014 and is therefore consolidated in the consolidated nancial statements of Softing AG.

There were no other changes to the basis of consolidation since December 31, 2013.

3. Disclosures Regarding the Acquisition of Psiber Data GmbH

Softing AG acquired all equity interests in Psiber Data GmbH with e ect from January 1, 2014. Psiber is a provider of devices for the diagnosis of Ethernet cables, which are used in o ce installations and data centers as well as in industrial automation.

By acquiring Psiber, Softing will close the strategic gap in mobile devices for diagnosis of Ethernet networks in the automation industry and also enter the market for the diagnosis of copper and optical ber networks for data centers and o ce installations.

The purchase price for the equity interests has a xed and a variable component. It is expected that the entire purchase price ( xed and variable components) will be between EUR 6.0 million and EUR 9.05 million and be settled entirely from existing cash funds.

At the acquisition date, Softing recognized noncurrent assets in the amount of EUR 2.3 million and current assets totaling EUR 2.9 million. Current liabilities are EUR 2.4 million. The preliminary gure for the goodwill generated from this transaction is EUR 6.4 million; the goodwill recorded is non-tax-deductible.

The minority interest in the equity of Psiber was provisionally carried in the amount of EUR 1.0 million. As part of the purchase price allocation, the minority interests have a proportionate share of the remeasured assets and liabilities.

At the present time, the measurement of the assets and liabilities acquired by the Group has not been nalized. The nal purchase price also depends on the earnings gures for the next two years. For the purposes of the consolidation of Psiber in the current half-yearly report, the information available at present has been included so as to carry the best possible estimates for the purchase price allocation. The statement of comprehensive income for the rst six months of 2014 includes revenue of EUR 4,892 thousand as well as pro ts of EUR 361 thousand from Psiber.

4. Disclosures Regarding the Acquisition of Online Development Incorporated

Softing AG acquired all equity interests in Online Development Incorporated (OLDI) with e ect from May 22, 2014. For over 20 years, OLDI has designed and manufactured factory automation products to help industrial customers simplify control and communications tasks. The company is virtually an ideal t with Softing's product portfolio in its core business of Softing Industrial Automation. OLDI is a Rockwell Automation Global Encompass Partner, a member of the Control System Integrator Association (CSIA) and ODVA and participates in partner programs from IBM, Microsoft, and Oracle. With the acquisition of OLDI Softing will bene t from the growth in the U.S. industrial equipment market. The acquisition will enable Softing to establish a comparatively strong position in two of the world's three largest automation markets, thus reducing its economic dependence on the European market.

The purchase price for the equity interests has a xed and a variable component. It is expected that the entire purchase price ( xed and variable components) will be the equivalent of between EUR 15.3 million and EUR 21.9 million and be settled both from existing cash funds and borrowings.

At the acquisition date, Softing recognized noncurrent assets in the amount of EUR 0.1 million and current assets totaling EUR 4.0 million. Current liabilities are EUR 1.9 million. The preliminary gure for the goodwill generated from this transaction is EUR 19.7 million; the goodwill recorded is non-tax-deductible.

At the present time, the measurement of the assets and liabilities acquired by the Group has not been nalized. The nal purchase price also depends on the earnings gures for the next three years. For the purposes of the consolidation of OLDI in the current half-yearly report, the information available at present has been included so as to carry the best possible estimates for the purchase price allocation. The statement of comprehensive income for the rst six months of 2014 includes revenue of EUR 1.838 thousand as well as pro ts of EUR 361 thousand from OLDI.

Softing AG Richard-Reitzner-Allee 6 85540 Haar/Germany

Phone +49 89 4 56 56-0 Fax +49 89 4 56 56-399 investorrelations@softing.com www.softing.com