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Software AGHeading for Growth
This presentation contains forward-looking statements based on beliefs of Software AG management. Such statements reflect current views of Software AG with respect to future events and results and are subject to risks and uncertainties. Actual results may vary materially from those projected here, due to factors including changes in general economic and business conditions, changesin currency exchange, the introduction of competing products, lack of market acceptance of new products, services or technologies and changes in business strategy. Software AG does not intend or assume any obligation to update these forward-looking statements.
June 01, 2006 – Credit Suisse European Technology Conference, Barcelona, Spain
Karl-Heinz Streibich, CEO
June 2006 / 2 Software AG
High performance Products and Services for Enterprise level IT infrastructureDatabase management systems (DBMS)Application Development ToolsTools for Legacy ModernizationEnterprise level Integration Solutions (BPM, SOA)
Revenue: 438 mn. € (2005; +6% yoy)EBIT Margin: 22% (2005; +160 bp yoy)
Employees: > 2,700 worldwide
Customers: > 3,000 worldwide across all industriesDistribution: > 70 countries (biggest revenue contribution from the US-market)Headquarter: Darmstadt, GermanyListing: Frankfurt Stock Exchange (TecDAX, ISIN DE 0003304002 / SOW)
ADR Program (Sponsored Level 1; U.S. Security Code: 83403H 10 1 (Cusip))
MarketCap: ~ 1.1 bn. EUR (28 mn. shares, 70% Free Float)News: Launch of new product line „crossvision“ February 2006
Profile of Software AGThe No. 1 European IT System Software Provider
June 2006 / 3 Software AG
1969Company founded
1969
History of Software AG:37 Years Heritage of Technology Leadership
1971 FirstMainframeDatabasedeveloped byPeter Schnell
1971
1979FirstMainframe4GL
1979
1985First Platform IndependentLanguage
1985
1992First ServiceBroker forDistributedApplications
1992
1999IPO –Frankfurt Stock Exchange
IntroducedFirst XMLServer
1999 2000
2001FirstDatabase toutilize IBM’s 64- bit Virtual StorageArchitecture
“Global Market Leader for XML Servers” (IDC)
2001 2002
2003 SOAIntegration Packages:
Legacy Integrator
Service Integrator
Information Integrator
2003
2004Industry Integration Solutions:
2004
2005 Acquisition:
Strategic partnership with
BusinessProcess Manager
Application Composer
2005 …
2006Launch of
2006
June 2006 / 4 Software AG
Asset of Software AG:3,000 Customers Worldwide in All Industries
Media & Telecommunications
Retail & Manufacturing
Public Institutions
Travel & TransportFinance
June 2006 / 5 Software AG
Main Geographic Markets
Others32 %
USA/Canada26 %
Germany15 %
Spain18 %
Revenue by Main Markets
Growth Markets9 %
Total Revenue: € 438.0 million
Latin AmericaMexicoVenezuela
Chile and others
Eastern EuropeRussiaPoland
Turkey and others
Asia / Middle EastHong KongSouth East Asia
Israel and others
Growth Markets:
June 2006 / 6 Software AG
Project Services • Implementation of own products / system integration• Cost plus or fixed price projects• Own staff (1,100) + freelance
Licensing • Direct Sales Force (380 staff)• One-time payment for perpetual license • Additional payment for capacity upgrades and Add-on products • Price: Capacity/MIPS based (database)
User/Seats based (tools)
Maintenance• Annual contracts with automatic renewal and 3-5 year contracts• Operational support and functional upgrades of software
products• Price: around 15% of license list price
in % of total revenue 2005 (438 mn. euros)
30%
42%
28%
Business Model / Revenue Structure
June 2006 / 7 Software AG
Mature Market:Enterprise Transaction Systems (ETS)
Stable consolidated market• Growing with use of capacity• Legacy modernization
Competition • Limited competition • Loyal customers
Position of Software AG• Independent specialist for high
volume and high performance (mainframe) systems
Goal• Use leading position for revenue
growth with legacy modernization.Revenue Growth 2005: 5%
New Growth Market:Integration with Service-Oriented Architecture (SOA)
Dynamic and fragmented market• Growing with new offerings• New technology (BPM, SOA, XML)
Competition• Platform vendors (one size fits all)• Suite vendors (freedom of choice)• Component vendors (incomplete)
Position of Software AG• Independent suite vendor • Partner of platform vendors (e.g. SAP)
Goal • Reach leading position through fast
revenue growth with new productsRevenue Growth 2005: 16%
Strategy of Software AG:Focus on two Markets
June 2006 / 8 Software AG
Top Line Dynamics:Growth in Both Business Lines
Revenue by Business Line (€ millions)
crossvision(SOA integration)
+16%
91.578.9
+5%
Enterprise Transaction Systems (ETS)
325.2308.5+20-30%
+5-7%
2004 2005 2006e 2004 2005 2006e
June 2006 / 9 Software AG
(in mn. €)
* EBIT before income from investment** Net cash operating ./. CapEx
License Revenue EBIT* Free Cash Flow**
+9%
+14%
+42%+15%
+273%
+106%
2003 2004 2005 2003 2004 2005 2003 2004 20050
20
40
60
80
100
120
140
Financial Strength:Growth in Key Financials
June 2006 / 10 Software AG
Outlook 2006Growth in Revenue and Profit
Revenue
- License
- Maintenance
- Services
438.0
131.6
181.4
122.7
Operating EBIT Margin
2005
22.0%
Revenue BL ETSRevenue BL crossvision
325.291.5
FY 2006 Forecast*
+6%
+14%
Stable
+9%
Growth 2005*
+160 bp
+5%+16%
* At constant currency
Q1 2006a*
Growth: 10%
Growth: 18 to 20%
Stable
Growth: 12 to 15%
21 to 23%
Growth: 5 to 7%Growth: 20 to 30%
+10%
+19%
+ 4%
+ 9%
+10%
+15%
+100 bp
June 2006 / 11 Software AG
Growth Drivers
Enter markets with high growth potential:Latin America, Eastern Europe, Middle East and Asia (revenue growth 2005: 71%)
Portfolio Enhancements
Geographic Expansion
Increased sales force and service capacityIncreased sales and service efficiencyNew sales partners / system integrators
Organizational Readiness
A
B
C
Launch of Adabas 2006 and Natural 2006:Modernization and extension of mainframe systemsActive account management
New crossvision product suite:Integration with service oriented architecture
June 2006 / 12 Software AG
Sales Efficiency (increase sales per sales representative)
Professional Services Efficiency (increase service margin)
Average Deal Size (component sale vs. suite sale; follow-up projects vs. seeding projects)
Partner Sales Channel (System Integrators and Reselling Partners)
Drivers of Mid-term Profitability Improvements
2003: 63.9%2004: 66.6%2005: 67.2%
Gross profit margin:
Economies of Scale (G+A, R+D, Marketing)
Process Excellence Program (internal organization)
2004: 20.4%2005: 22.0%Mid-term: 25%
EBITA margin (op.):
June 2006 / 13 Software AG
The Next Step Towards Market Leadership: 10 % Growth
2003
2004
2005
Financial Turnaround
Back to Growth ETS & Integration Focus
6% Revenue Growth22% EBIT Margin
10% Revenue Growth
Our goal: Global market leadership in specific segments
2006
Achieved
Achieved
Achieved
June 2006 / 14 Software AG
1st Wave
Data Centers
Our Strategy: Service Oriented Architecture (SOA)
4th Wave
Internet
SOA is the 5th big paradigm change in the IT industry
SOA
5th Wave2nd Wave
PCs / Servers
3rd Wave
Business Applications
1970s 1980s 2000 - 20051990s 2006 - 2010
June 2006 / 15 Software AG
Launching crossvision – February 28, 2006
New brand for SOA suite, products andbusiness line New comprehensive offeringNew flexible suite pricing General availability end of May 2006
Software AG’s Offering for SOA
June 2006 / 16 Software AG
crossvision Suite: the New Comprehensive Offering
CentraSitemanage and govern the lifecycle of your enterprise wide service landscapeis the leading SOA registry/repository in the market
crossvision application composerrapidly compose new business applications out of existing systems is a leading edge approach to composite applications
Two new products, four upgrades:
CentraSite
crossvision application composer
crossvisionbusiness process manager
crossvisioninformation integrator
crossvisionservice orchestrator
crossvisionlegacy integrator
New:
Upgrades:
June 2006 / 17 Software AG
Tier 1> €1 bn. revenue
Tier 2< €1 bn.revenue
Tier 3< €10 mn.revenue
Current Position of Software AG: ETS and Integration / SOA Market
June 2006 / 18 Software AG
Market Size 2004:547.2 mn. USD
Market Share Software AG: 3%
Worldwide SOA-Driven Software Revenue by Software Category, 2004-2009 (CAGR 75%)
June 2006 / 19 Software AG
Growth of Business Line crossvision will accelerate in H2 2006Full availability of productsFully trained sales force Growing pipeline for crossvisionSuite sales will increase average deal size
Partner FocusSuccess with technology partners
- Fujitsu, IDS Scheer, i-Log- Eclipse community
Start CentraSite community / OEMBuild sales partner channel (dedicated team at Headquarter) with focus onsystem integrators and ISVs
Outlook 2006 (I)
June 2006 / 20 Software AG
Improved Market Awareness & ImageNew branding and imageNew positioning with industry analysts
Acquisition PolicySustain organic growthEPS accretive
Outlook 2006 (II)
Geographic ExpansionRamp up in Latin America continues (Potential for 20% of group revenue within 5 years)Progress in Eastern Europe and Middle EastEnter Japan / Change agreement with distributor for larger revenue generation
June 2006 / 21 Software AG
Please contact:Investor Relations
Uhlandstraße 12, 64297 Darmstadt, Germanyphone: +49 (0) 61 51 / 92- 1899
fax: +49 (0) 61 51 / 92- 1933e-mail: [email protected]