DGAP-News: Softing AG

Revenue first nine month at previous year's level
Orders on hand up 16 %
Revised guidance for 2017

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

In the third quarter of 2017, Softing's performance continued the trend seen in previous quarters. The Industrial segment delivered strong growth in revenue and earnings. The Automotive segment's revenue was again weaker year-over-year, and earnings were negative.

Revenue in the first nine months amounted to EUR 58.4 million (previous year: EUR 58.9 million). EBIT declined to EUR 0.6 million (previous year: EUR 2.5 million). Capital expenditure on property, plant, and equipment was incurred for customary replacements. As of September 30, 2017, cash and cash equivalents rose slightly to EUR 11.3 million (as of December 31, 2016: EUR 10.9 million). Orders on hand rose by 16 % to EUR 12.8 million (previous year: EUR 11.0 million).

The Industrial segment showed very positive performance year-over-year. Revenue was 9 % to EUR 45.8 million (previous year: EUR 42.1 million), while earnings rose to EUR 1.8 million (previous year: EUR 0.4 million). The main driver of this development was the classic business of selling products aimed at both the process industry and the manufacturing industry. As expected, business returned to its previous strength in both US subsidiaries, which therefore contributed substantially to the improvement in earnings. Activities in southern Europe also played a major part in this trend, whereas Germany / Austria / Switzerland lagged behind this development.

The Softing IT Networks companies included in the Industrial segment's figures boosted revenue by a double-digit percentage. The main push behind this increase was widespread expansion of the proprietary product business in North America and Europe. Since the entire proprietary product value chain is housed at Softing AG, this is also reflected in earnings. For the year as a whole, our business in North America is expected to see revenue doubled year-over-year. In 2017, operations in Europe expanded sales and marketing staff considerably. However, the increase in costs was not yet offset by the effects of revenue growth. We do not expect this dynamic to flip until the fourth quarter, traditionally the strongest quarter for revenue at IT Networks.

The Automotive segment is making progress but is still depressed by negative earnings, as expected. Revenue amounted to EUR 12.6 million (previous year: EUR 16.8 million) and EBIT came in at EUR -1.2 million (previous year: EUR +2.2 million).

We delivered a new family of interfaces and the related software to a key customer, reaching a milestone in the development of this product. Moreover, Softing's technology has proven its worth in the parameterization of premium-segment vehicles in the start-up of a new production line. The manufacturer plans to retool other assembly lines to leverage this technology. At one of our key accounts, the next generation of our Diagnostic Tool Set (DTS) with new remote ("over the air") functions was launched successfully.

Currently, Automotive is negotiating orders from manufacturers valued at several million euros - all new business. In addition, our forecast for 2018 projects around EUR 2 million in cost savings over 2017.

Unfortunately, we suffered a setback regarding our forecast for the year as a whole. A major client had expressed the intention to acquire the product rights for a proprietary product that Softing AG finished developing at the beginning of the year. After making an initial high five-digit payment in the second quarter of this year, the customer was expected to acquire the remaining rights and make a final payment of approximately EUR 2 million in Q4 2017. This payment was unexpectedly delayed to 2018. Projections indicate that we cannot offset the delay of such a large EBIT contribution in the fourth quarter of 2017, especially since exchange rate movements in the euro/US Dollar pair put further pressure on our financials. For this reason, we immediately revised our guidance for 2017 as a whole (see our ad hoc announcement dated October 27, 2017).

Reducing our 2017 earnings guidance is a very painful step, particularly because all other major trends point in the right direction. In the course of the fourth quarter of 2017, we anticipate promising projects to generate a series of positive announcements. Unfortunately, these will not be reflected in our financials until the following year.

Dear Softing shareholders and friends: rest assured that the entire Softing team is putting forth every effort to make fourth quarter a successful one. We look forward to your continued support!

Sincerely Yours,
Dr. Wolfgang Trier

Interim Statement on the 3rd Quarter and First 9 Months of 2017

Report on results of operations, financial position and net assets
Global economic conditions in the markets most important to Softing are again giving positive signals despite an uneasy political environment.

The performance of the Industrial segment in the first nine months of the year was very good in the US and in Asia, while stable market performance in Europe also contributed to the segment's healthy result.

Results in the Automotive segment continued to be marked by a high level of development expenses. Delays in development have shifted the launch of new products into the fourth quarter of 2017 and early 2018.

The Softing Group recorded largely stable revenue of EUR 58.4 million in the first nine months of 2017 (previous year: EUR 58.9 million). The segments turned in a mixed performance. Whereas revenue in the Industrial segment increased by 9 % in the first nine months of 2017 to EUR 45.8 million (previous year: EUR 42.1 million), revenue in the Automotive segment fell from EUR 16.8 million to EUR 12.6 million.

Other operating income in the reporting period fell to EUR 0.4 million (previous year: EUR 1.0 million) due to positive one-off effects of insurance payments (EUR 0.6 million) in connection with the fire at Softing Messen und Testen GmbH in the previous year.

The Group's EBITDA totaled EUR 3.8 million in the first nine months (previous year: EUR 6.1 million), resulting in an EBITDA margin of 6 % (previous year: 10 %).

EBIT in the Industrial segment rose from EUR 0.4 million to EUR 1.8 million, with operating EBIT increasing from EUR 2.0 million to EUR 2.7 million. In the Automotive segment, EBIT fell from EUR 2.2 million to EUR -1.2 million while operating EBIT declined from EUR 0.7 million to EUR -2.7 million.

The Group's operating EBIT (EBIT adjusted for capitalized development services and amortization on these as well as effects from purchase price allocation) in the reporting period totaled EUR -0.1 million (previous year: EUR 2.7 million). As described above, the decline is due to the lower earnings contribution generated by the Automotive segment. Consolidated EBIT amounted to EUR 0.6 million (previous year: EUR 2.5 million).

The consolidated net profit for the year was EUR 0.3 million compared with EUR 1.6 million in the first nine months of the previous year.

Capital expenditure on property, plant, and equipment was incurred for customary replacements. As of September 30, 2017, cash and cash equivalents rose slightly to EUR 11.3 million (December 31, 2016: EUR 10.9 million).

In May, the dividend of EUR 1.4 million was distri­buted (previous year: EUR 1.0 million).

The equity ratio as of September 30, 2017 rose to 65 % (December 31, 2016: 57 %). Based on the authorization granted by the General Shareholders' Meeting on May 6, 2015, upon entry in the commercial register on June 12, 2017 the share capital of EUR 6,959,438 was increased by EUR 695,943 from the successful capital increase in return for cash contributions. This resulted in share capital of EUR 7,655,381 for Softing AG as of September 30, 2017. The cash inflow from the capital increase amounted to EUR 7.9 million.

Research and Product Development
In the first nine months of 2017, Softing capitalized a total of EUR 3.1 million (previous year: EUR 2.7 million) for the development of new products and the enhancement of existing ones. The increase is mainly due to the development of a new generation of communication interfaces (VCI) and related software components in the Automotive segment. Other significant amounts were expensed.

Employees
As of September 30, 2017, the Softing Group had 408 employees (previous year: 430). No stock options were issued to employees in the reporting period.

Opportunities for the Company's Future Development
As of the reporting date of September 30, 2017, the Company's risk structure had not deviated significantly from the description in the consolidated financial statements for the year ended December 31, 2016. Material changes are also not expected for the remaining three months of 2017. For more detailed information, we refer to our Group Management Report in the 2016 Annual Report, page 7 et seq.

Outlook
Softing AG is adjusting its previously forecast EBIT for the 2017 financial year of slightly more than EUR 5 million to a figure of between EUR 2.0 and 2.5 million. Revenue is expected to come in at the previous year's level of EUR 80 million. At segment level, we anticipate the Industrial segment to see a strong increase and the Automotive segment to see a strong decrease in revenue, EBIT and operating EBIT for the year as a whole.
 
Revenue in the current financial year developed largely as expected during the first nine months. However, a subsidiary that works for a major international automation electronics manufacturer reported that revenue recognition of just under EUR 2 million for the use of a completed Softing product development expected for this year will be delayed beyond the end of the year. This revenue is now expected to be recognized in full or in part in 2018.

Furthermore, the considerable currency translation effects seen in the balance sheet as a result of the development of the euro-US dollar exchange rate will have a negative impact on earnings for the year. This impact could add up to EUR 1 million by the end of the year.

Despite its positive performance seen and expected in the fourth quarter, Softing AG does not expect to be able to compensate for the negative factors described above in 2017.

Events after the Reporting Period
One significant event that occurred after the September 30, 2017 reporting date resulted in the adjustment of the guidance for the full 2017 financial year as explained in the Outlook above and has already been published in an ad hoc announcement dated October 27, 2017.

General Accounting Policies
The consolidated financial statements of Softing AG as of December 31, 2016 were prepared in accordance with the International Financial Reporting Standards (IFRSs) based on the guidance of the International Accounting Standards Board (IASB) applicable at the reporting date. The quarterly management statement as of September 30, 2017, which was prepared on the basis of International Accounting Standard (IAS) 34 "Interim Financial Reporting", does not contain all of the required information in accordance with the requirements for the presentation of the annual report and should be read in conjunction with the consolidated financial statements of Softing AG as of December 31, 2016. In general, the same accounting policies were applied in the quarterly management statement as of September 30, 2017 as in the consolidated financial statements for the 2016 financial year. This quarterly management statement was prepared without an auditor's review.

Change in the Basis of Consolidation
As of September 30, 2017, the following change occurred in the basis of consolidation of Softing AG compared to December 31, 2016: Merger of Samtec automotive software electronics GmbH, Kirchentellinsfurt/Germany into Automotive Communications Kirchentellinsfurt GmbH, Kirchentellinsfurt/Germany.

All figures in EUR million				9M/2017	9M/2016
Incoming orders (09/30)				58.6	59.4
Orders on hand (09/30)				12.8	11.0
Revenue				58.4	58.9
EBITDA				3.8	6.2
EBIT				0.6	2.5
EBIT (operating)				-0.1	2.7
Net profit for the period				0.3	1.6
Earnings per share in EUR (operating)				0.00	0.38