Software AG Annual Shareholders Meeting 2004 30th April 2004 Commerzbank, Frankfurt.

Software AG Annual Shareholders’ Meeting 2004

30th April 2004Commerzbank, Frankfurt

Software AG Annual Shareholders’ Meeting 2004

Karl-Heinz StreibichCEO, Software AG

Review of 2003

Annual Shareholders' Meeting 2004 30 -Apr-20044

2003 – Year of Restructuring

A difficult year for the IT industry Stagnant IT investment by companies Lengthy decision-making processes

But: By end of the year, first signs of an economic recovery

Software AG has exceeded financial forecasts: Sales by €7 million Operating result by €5 million


Software AG 2003Mainstay of Sales

ADA/NAT

PS

XML

56 %

29%

10%


Software AG 2003Product Situation

Adabas / Natural:

Mainframe relatively stable at high level

Tamino / EntireX:

Global potential for growth exists

Key competence XML integration

Further extend market leadership in Europe


Plan for Profitable Growth

Internationalization: Global networked company

Focus:Expansion of two international business lines

Restructuring:Rightsizing of the company


Global Network

Americas: 22 countries

Southern and Western Europe:

10 countries

Central and Eastern Europe:

9 countries

Northern Europe, Asia/Pacific, South Africa and Japan:18 countries

32%

28%

23%17%


India: 43 R&D Employees

USA: 70 R&D Employees

UK: 15 R&D Employees

Spain: 8 R&D Employees

Germany: 243 R&D Employees

Global R&D Network

Technology


XML Business Integration Portfolio

XML Business IntegrationXML Business Integration

Communicator XML Mediator

XML Product Families

XML Integration Solutions

E-GovernmentSelf-ServiceE-GovernmentSelf-Service

SingleCustomer View

SingleCustomer View

Supply ChainIntegration

Supply ChainIntegration

InformationIntegration(EII)

XML IntegrationPackages Service

Integration(ESB)

Legacy Integration

BusinessProcessManagement

XML Integration Services

Business ProcessConsulting

InformationStrategy

InfrastructureAssessments

ProjectImplementation

24x7 Support Educationand Training

Jonathan Airey


Enterprise Transaction Systems (ETS) Portfolio

Enterprise Transaction Systems (ETS)Enterprise Transaction Systems (ETS)

ETS Product Families

ETS Advantage Services

Natural Productivity

LegacyIntegration

Web Enablement

ApplicationManagement

Services

Performance &Tuning

Migration Services

Installation Services

Technical Account Manager

MentoringDBA Services

OPTIMIZE EXTEND EXTEND MANAGE

ETS Modernization Packages

Joe Gentry


Important Customer Projects

Americas New York City Department of Buildings Providence Washington Insurance State of Alaska

Southern and Western Europe Vodafone Amsterdam Airport Schiphol Universidad de León


Important Customer Projects

Central and Eastern Europe Apollo Optik Sony Music Entertainment DLR (Deutsches Zentrum für

Luft- und Raumfahrttechnik)

Northern Europe, Asia/Pacific, South Africa and Japan

Welland Partnership Shepway District Council Nissan Australia


Out Performance Stock Value 2003

€9,59

€20,19

02.01.03 16.02.03 02.04.03 17.05.03 01.07.03 15.08.03 29.09.03 13.11.03 28.12.03

Arnd ZinnhardtCFO, Software AG

Results Full Year 2003


Agenda

2003 Currency Impacts Revenue Results Balance Sheet and Cash Flow Employees

2004 International Financial Rules and Standards Revenue and Results 1st Quarter Financial Forecast

Currency Impacts


Currency Impacts on RevenueFY 2003

TotalRevenue

ChangeVolume

Actual 2003

CurrencyEffect

ProductRevenue

ServicesRevenue

Actual 2002

475.0

-4%

313.9

159.6

295.5

124.3

-11%

-6%

-22%

+3%

-19%

-7%

-9%

-3%

-21 -32

+10

-28

-31 -4

422.2

(in mn. euros)

Revenue Full Year 2003


Revenue 2003(in mn. euros)

Full Year

2003

2002 Δ

% Δ%

at constantcurrency

Product Revenue License

Maintenance

295.5 104.3 191.2

313.9 113.0 200.9

-6%

-8% -5%

+3% 0%

+5%

Services

124.3 159.6 -22% -19%

Other

2.4 1.5 +52% +70%

TOTAL 422.2 475.0 -11% -4%


Regional Revenue Distribution 2003

Services Revenue

Southern / Western Europe 54%

Central- / Eastern Europe 27%

Americas 13%

Northern Europe, Asia-SA 6%

124.3mn. euros

295.5mn. euros

Product Revenue

Americas 40%

Northern Europe, Asia-SA 22%

Central- / Eastern Europe 21%

Southern / Western Europe 17%


ETS 26.4

Other 4.4

XML Integration 27.5

2003 Total: 58.3

2002Total: 64.3

(in mn. euros)

Research & Developmentby Product Group

ETS 25.6

Other 4.3

XML Integration 34.4

Result Full Year 2003


Result 2003 (stated) (in mn. euros)

Δ 2003 2002 % Operating EBITDA 67.4 63.7 +6%

Goodwill Amortization -22.0 -21.9 +0%

Depreciation -7.4 -13.4 +45%

Financial Result +3.5 +3.2 +9%

Operating Profit before Tax 41.5 31.6 +31%

Income from Investments - +36.7

Restructuring Expenses -40.8 -17.6

Profit before Tax 0.7 50.7

Taxes -4.0 -17.2

Net Income -3.4 33.5


Operating Earnings 2003(excl. Restrukturing Expenses and Income from Investments)

* Operating profit before tax ./. tax rate and amortization of goodwill

2003 2002 Δ %

Operating Profit before Tax Margin (% of Revenue)

Pro Forma Profit after Tax*

Pro Forma Earnings per Share

Pro Forma Earnings per Share (pre Amortization of Goodwill)

(in mn. euros)

Margin (% of Revenue)

41.5 10%

31.6 7%

+31%

17.4

11.3

+54%

0.64

0.41

+54%

1.44 1.22 +19%

4% 2%

Balance Sheet and Cash Flow


Balance Sheet

AssetsDec. 31,

2002

Liabilities

Dec. 31,

2002

Prepaid Expenses

Total

Dec. 31, 2003

Fixed Assets

Inventories, Trade Receivables and other Assets

Cash and CashEquivalents

Provisions

Other Liabilities

Total

Dec. 31, 2003

214.5Shareholders’

Equity

81.7Deferred Income

440.8

108.7

35.9

(in mn. euros)

228.4

57.7

445.4

117.6

41.7

199.9

445.4

7.0

33.8

130.5

74.2

Deferred Taxes

440.8

221.1

6.9 0.2

137.2

7.4


Cash Flow Analysis FY 2003

(in Mio. Euro)

FY 2003 FY 2002 Δ %

Operating Cash Flow

./. CapEx

Free Cash Flow

+ Reversal of Factoring

+ Cash-out for Restructuring

+ Tax Payment for Previous Periods

Organic Cash Flow % of Revenue

* 27.3 mn. shares

Organic Cash Flow per Share*

40.7-13.8

26.9

28.9

12.1

0.0

67.914.3%

2.49

15.5-10.2

5.3

24.6

18.6

6.0

54.512.9%

2.00

-61.9%-26.1%

-80.0%

-14.9%

+53.7%

n/a

-19.7%

-19.7%

Employees


Number of Employees by Region

2003

2002

Δ %

Total

2,577

2,920

- 12%

Central/Eastern Europe (thereof Germany)

Southern/Western Europe- Americas Northern Europe, Asia/Pacific Other incl. HQ

382 (279)

816

493

174

712

475 (367)

861

532

204

848

- 20% (- 24%) - 5% - 7% -1 5% - 16%

FTEs

Arnd ZinnhardtCFO, Software AG

Results 1st Quarter 2004 (IFRS)


International Financial Rules and Standards (IFRS)

In general, no major variations in result-relevant figures

Key differences between IFRS and HGB (German GAP): Profit and loss statement

No amortization of goodwill Services revenue Structuring of costs (cost of sales method)

Balance sheet Fixed assets Shareholders’ equity


Revenue Q1 2004(in mn. euro)

Q1 2004

Q1 2003

Δ %

Δ* %

Product License Maintenance

67.4 23.3 44,1

69.2 21.9 47.3

-3 % +6 % -7 %

+3 % +11 %

0 %

Service

28.0

33.6

-17 %

-15 %

Other

0.3

0.3

Total

95.7

103.1

-7 %

-2 %

* at constant currency


Operating Result Q1 2004 (in mn. euros)

Q1 2004

Q1 2003

Δ %

Total Revenue

95.7 103.1 - 7%

Cost of Sales

-33.3 -39.4 - 15%

Gross Profit

62.4 63.7 - 2%

R&D

-15.0 -16.2 - 7%

Sales & Marketing

-20.6 -26.0 - 21%

Administration

-11.1 -15.1 - 26%

Other income/expense

-0.6 +1.6

Operating Result (EBIT)

15.1 8.0* +89%

* pre restructuring expenses


Net Result 2004(in mn. euros)

* pre restructuring expenses

Q1

2004

Q1

2003

EBIT

15.1 8.0*

Financial Income

0.7 0.7

Income from Investments

0.0 0.0

Restructuring Expenses 0.0 - 31.8

Profit before Tax

15.8 - 23.1

Taxes

- 6.0 8.3

Net Income 9.8 - 14.8

Earnigs per Share 0.36 - 0.54

Outlook 2004


Financial Forecast 2004

Focus 2004 is on stabilizing revenue (net of currency effects) License sales will increase in core business lines and make up for

reduction of non-strategic business Maintenance will show continued stability

2004 will show profit growth Operating result will increase by approx. 25% from previous year’s

59.1 million € Operating margin will increase Strong organic cash flow will continue EPS (including SAP SI sale Q2) expected in the range of 2.50 – 2.60

Euro

Annual Shareholders’ Meeting 2004

Karl-Heinz StreibichCEO, Software AG

Outlook for 2004


Customer Requirements

Enterprise system

modernization

Mission-critical applications

Business-process integration

▪Optimize, Extend, Manage

Real-time information

Single view of information

Self-service

Simplification of value-added chain

Automation of compliance

etc.

CRM package

DMS package

E-mail,etc.

...ERP package

Customers


Market Requirements

Modernization of existing IT systems

Integration of existing applications and processes

Migration of platforms

Customers


Customers

Customer Orientation

XML TechnicalArchitects

MarketingXMLi

Customers

ETS TechnicalArchitects

Marketing EnterpriseModerni-zation

Researchand Develop-ment

Software AG system resellers (subsi-diaries)


PortfolioMarketing

Global Networked Company

Development of Company

Value

Customers

Sales

TechnologyEmployees


Global Knowledge Management System

As an internal business management system:

•Customer projects•Customer profiles•Projects and solutions•Customer-visit reports•Market studies•Competitor studies•Press information

Customers

Global access to information about:


Sales

Sale of enterprise integration solutions

Consulting Implementation Products Operation

Board

CIO

Engineers

Areamanagers

Sales

Sale of technology products and technology solutions

Time

Access


Sales - Implementation

1. “Customer First” culture

2. Target group: decision makers

3. Sales via consulting services

4. Partners with industry-specific expertise

Sales


PortfolioMarketing

Portfolio Marketing

Joe Gentry Jonathan Airey


India: 43 R&D Employees

USA: 70 R&D Employees

UK: 15 R&D Employees

Spain: 8 R&D Employees

Germany: 243 R&D Employees

Global R&D Network

Technology


Technology - Aims

1. Focusing of R&D resources on 2 business lines

2. Global R&D network

3. Concentration on products with the potential for market leadership

4. Link between R&D and customer requirements through the use of technology architects

Aim: Expansion of market leadership as vendor for software products in the database and integration middleware sector

Technology


Employees

Employees

1. Culture of “Customer First"

2. Global, cross-departmental teamwork – best practice focus

3. Culture of innovation

4. Culture of high performance

Atmosphere of innovation, creativity and success


Development of Company Value

80%

XMLi:

ETS Modernization:

Expandable customer base with more than 3,000 customers worldwide

Development of Company

Value

20%

80%


Preparation for the Future

Cost adjustment

RightsizingRightsizing

StrategyStrategy

Enterprise portfolio

Enterprise portfolio

GrowthGrowth

Focus on strengths as a software product provider

Content Brand Go-to-market

model

Organic/Sales Acquisitions Partnerships

Goal:Market leader-

ship

Today:


Software AG Annual Shareholders Meeting 2004 30th April 2004 Commerzbank, Frankfurt.

Documents

europe slide

software ag slide

len slide

frankfurt slide

currency impacts slide

euros product revenue

central eastern europe

countries northern europe