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Software AG Annual Shareholders’ Meeting 2004

Software AG Annual Shareholders’ Meeting 2004. 30th April 2004 Commerzbank, Frankfurt. Software AG Annual Shareholders’ Meeting 2004. Karl-Heinz Streibich CEO, Software AG. Review of 2003. 2003 – Year of Restructuring. A difficult year for the IT industry

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Software AG Annual Shareholders’ Meeting 2004

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

  2. Software AG Annual Shareholders’ Meeting 2004 Karl-Heinz Streibich CEO, Software AG

  3. Review of 2003

  4. 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 Annual Shareholders' Meeting 2004

  5. Software AG 2003Mainstay of Sales 56 % ADA/ NAT 29% PS 10% XML Annual Shareholders' Meeting 2004

  6. 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 Annual Shareholders' Meeting 2004

  7. Plan for Profitable Growth • Internationalization: Global networked company • Focus:Expansion of two international business lines • Restructuring:Rightsizing of the company Annual Shareholders' Meeting 2004

  8. Global Network 32% 28% 23% 17% • Americas: 22 countries • Central and Eastern Europe: 9 countries • Northern Europe, Asia/Pacific, South Africa and Japan: 18 countries • Southern and Western Europe: 10 countries Annual Shareholders' Meeting 2004

  9. Global R&D Network Technology UK: 15 R&D Employees Germany: 243 R&D Employees USA: 70 R&D Employees Spain: 8 R&D Employees India: 43 R&D Employees Annual Shareholders' Meeting 2004

  10. XML Business Integration Portfolio Business Process Management Service Integration (ESB) Legacy Integration Information Integration (EII) Communicator XML Mediator XML Integration Packages XML Integration Solutions XML Integration Services XML Product Families 24x7 Support Jonathan Airey XML Business Integration Supply Chain Integration Single Customer View E-GovernmentSelf-Service Project Implementation Business Process Consulting Information Strategy Infrastructure Assessments Education and Training Annual Shareholders' Meeting 2004

  11. Enterprise Transaction Systems (ETS) Portfolio Joe Gentry Enterprise Transaction Systems (ETS) Application Management Services Legacy Integration Natural Productivity Web Enablement ETSModernization Packages MANAGE OPTIMIZE EXTEND EXTEND ETS Product Families Installation Services Technical Account Manager Performance & Tuning ETS Advantage Services Migration Services DBA Services Mentoring Annual Shareholders' Meeting 2004

  12. 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 Annual Shareholders' Meeting 2004

  13. 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 Annual Shareholders' Meeting 2004

  14. Out Performance Stock Value 2003 €20,19 €9,59 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 Annual Shareholders' Meeting 2004

  15. Results Full Year 2003 Arnd Zinnhardt CFO, Software AG

  16. 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 Annual Shareholders' Meeting 2004

  17. Currency Impacts

  18. Currency Impacts on RevenueFY 2003 (in mn. euros) Actual 2002 Change Volume CurrencyEffect Actual 2003 -21 -32 TotalRevenue 475.0 422.2 -11% -4% -7% +10 -28 Product Revenue 313.9 295.5 -6% +3% -9% -4 Services Revenue -31 -22% 159.6 124.3 -19% -3% Annual Shareholders' Meeting 2004

  19. Revenue Full Year 2003

  20. Revenue 2003 (in mn. euros) Δ Δ% at constant Full Year 2003 2002 % currency -6% Product Revenue 295.5 313.9 +3% License -8% 104.3 113.0 0% Maintenance 191.2 200.9 -5% +5% Services 124.3 159.6 -22% -19% Other 2.4 1.5 +52% +70% TOTAL 422.2 475.0 -11% -4% Annual Shareholders' Meeting 2004

  21. Regional Revenue Distribution 2003 Services Revenue • Southern / Western Europe 54% • Central- / Eastern Europe 27% • Americas 13% • Northern Europe, Asia-SA 6% Product Revenue • Americas 40% • Northern Europe, Asia-SA 22% • Central- / Eastern Europe 21% • Southern / Western Europe 17% 124.3mn. euros 295.5mn. euros Annual Shareholders' Meeting 2004

  22. Research & Developmentby Product Group (in mn. euros) 2003 Total: 58.3 Other 4.4 XML Integration 27.5 ETS 26.4 2002Total: 64.3 Other 4.3 XML Integration 34.4 ETS 25.6 Annual Shareholders' Meeting 2004

  23. Result Full Year 2003

  24. 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 Annual Shareholders' Meeting 2004

  25. Operating Earnings 2003(excl. Restrukturing Expenses and Income from Investments) (in mn. euros) Δ 2003 2002 % Operating Profit before Tax 41.5 31.6 +31% Margin (% of Revenue) 10% 7% +54% Pro Forma Profit after Tax* 17.4 11.3 Margin (% of Revenue) 2% 4% Pro Forma Earnings per Share 0.64 0.41 +54% Pro Forma Earnings per Share (pre Amortization of Goodwill) 1.44 1.22 +19% * Operating profit before tax ./. tax rate and amortization of goodwill Annual Shareholders' Meeting 2004

  26. Balance Sheet and Cash Flow

  27. Dec. 31, 2002 Balance Sheet (in mn. euros) Assets Liabilities Dec. 31, Dec. 31, Dec. 31, 2003 2002 2003 Other Liabilities 35.9 41.7 Cash and CashEquivalents 7.4 74.2 Provisions 108.7 117.6 Inventories, Trade Receivables and other Assets 137.2 130.5 81.7 57.7 Deferred Income 0.2 Deferred Taxes 33.8 6.9 Prepaid Expenses 7.0 Shareholders’Equity 199.9 Fixed Assets 221.1 214.5 228.4 445.4 Total 440.8 Total 440.8 445.4 Annual Shareholders' Meeting 2004

  28. Cash Flow Analysis FY 2003 (in Mio. Euro) Δ % FY 2002 FY 2003 Operating Cash Flow -61.9% 15.5 40.7 ./. CapEx -26.1% -10.2 -13.8 Free Cash Flow -80.0% 5.3 26.9 + Reversal of Factoring -14.9% 24.6 28.9 + Cash-out for Restructuring +53.7% 18.6 12.1 + Tax Payment for Previous Periods n/a 6.0 0.0 Organic Cash Flow 54.5 67.9 -19.7% % of Revenue 12.9% 14.3% -19.7% Organic Cash Flow per Share* 2.00 2.49 * 27.3 mn. shares Annual Shareholders' Meeting 2004

  29. Employees

  30. Number of Employees by Region FTEs 2003 2002 Δ % Total 2,577 2,920 - 12% Central/Eastern Europe 382 475 - 20% (thereof Germany) (279) (367) ( - 24%) Southern/Western Europe - 816 861 - 5% Americas 493 532 - 7% Northern Europe, 174 204 - 1 5% Asia/Pacific 712 848 - 16% Other incl. HQ Annual Shareholders' Meeting 2004

  31. Results 1st Quarter 2004 (IFRS) Arnd Zinnhardt CFO, Software AG

  32. 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 Annual Shareholders' Meeting 2004

  33. Revenue Q1 2004 (in mn. euro) Q 1 Q1 Δ Δ * 2004 2003 % % Product 67 . 4 69 . 2 - 3 % + 3 % License 23. 3 21. 9 + 6 % +11 % 44, 1 47. 3 - 7 % 0 % Maintenance Service 28. 0 3 3. 6 - 1 7 % - 15 % Other 0. 3 0. 3 95. 7 103. 1 - 7 % - 2 % Total * at constant currency Annual Shareholders' Meeting 2004

  34. Operating Result Q1 2004 (in mn. euros) Q1 Q1 Δ 2004 2003 % Total Revenue 95.7 103.1 - 7% Cost of Sales - 33.3 - 39.4 - 15% Gross Profit 62.4 63.7 - 2% - 15.0 - 16.2 - 7% R&D 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 Annual Shareholders' Meeting 2004

  35. Net Result 2004 (in mn. euros) Q1 Q1 2004 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 - * pre restructuring expenses Annual Shareholders' Meeting 2004

  36. Outlook 2004

  37. 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

  38. Annual Shareholders’ Meeting 2004 Karl-Heinz Streibich CEO, Software AG

  39. Outlook for 2004

  40. Customer Requirements Customers Business-process integration Enterprise system modernization Real-time information Single view of information Self-service Simplification of value-added chain Automation of compliance etc. Mission-critical applications DMS package E-mail, etc. ERP package CRM package ... • Optimize, Extend, Manage Annual Shareholders' Meeting 2004

  41. Market Requirements Customers Modernization of existing IT systems Integration of existing applications and processes Migration of platforms Annual Shareholders' Meeting 2004

  42. Customer Orientation Customers Marketing Enterprise Moderni-zation Research and Develop-ment Software AG system resellers (subsi-diaries) ETS Technical Architects Customers XML Technical Architects Marketing XMLi Annual Shareholders' Meeting 2004

  43. Global Networked Company Customers Employees Technology Development of Company Value Portfolio Marketing Sales Annual Shareholders' Meeting 2004

  44. Global Knowledge Management System Customers As an internal business management system: Global accessto information about: • Customer projects • Customer profiles • Projects and solutions • Customer-visit reports • Market studies • Competitor studies • Press information Annual Shareholders' Meeting 2004

  45. Sales Sales Access Board Sale of enterprise integration solutions Area managers Sale of technology products and technology solutions CIO Engineers Time Implementation Products Operation Consulting Annual Shareholders' Meeting 2004

  46. Sales - Implementation Sales • “Customer First” culture • Target group: decision makers • Sales via consulting services • Partners with industry-specific expertise Annual Shareholders' Meeting 2004

  47. Portfolio Marketing Portfolio Marketing Joe Gentry Jonathan Airey Annual Shareholders' Meeting 2004

  48. Global R&D Network Technology UK: 15 R&D Employees Germany: 243 R&D Employees USA: 70 R&D Employees Spain: 8 R&D Employees India: 43 R&D Employees Annual Shareholders' Meeting 2004

  49. Technology - Aims Technology • Focusing of R&D resources on 2 business lines • Global R&D network • Concentration on products with the potential for market leadership • 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 Annual Shareholders' Meeting 2004

  50. Employees Employees • Culture of “Customer First" • Global, cross-departmental teamwork – best practice focus • Culture of innovation • Culture of high performance Atmosphere of innovation, creativity and success Annual Shareholders' Meeting 2004

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