Software AG — Investor Presentation 2003

Nov 27, 2003

German Equity Forum November 27, 2003

Arnd Zinnhardt, CFO

Software AG's Assets

Financial Strength

• Long track record of profitability
• Strong, steady cash flow
• Solid balance sheet

Business Potential

• Customer base
• International presence
• Technology and innovation

Market Potential

• Stable market for enterprise transaction systems
• Dynamic growth potential for XML technology

Financial Stability through Steady Cash Flow

Source of Revenue / Business Lines

Business Potential:First Class Customer Base

	bliPcudiiiAttmnsraon	liflifiEPSCtttopeanaamenaeoaonaurrr,,fCiikihNYMBtesoeoncemenwrur;,,lbliiiddf()AVDCMEtyesuryaenseroeeensa.,
	iilFnanca	dliJPMDKtBorganresnerenorensonw,,iibkhkfkCCSFBUBSTBNYtaneanoewor,,,,ChiCbkSRasesseommeanwrz,,
	diM&ealTeecom	lfililTZDFBUteeoncaeesmannnesarvr,,,iihlk&SMATTDTttscprnesceeeomuu,,,,kdfBSBRTLVyoaone,,
	h&PamarhilCemcas	fikilSCPMTADAFererccmarmazu,,,hilRBASFNRtoceovarsepso,,,
	iiLtogscs	fhhiiidLNALFEtttansaomecanogscseurrx,,,lilihDADPHKttteanesesceosongongru,,ihiiSAtPtAttrpororuoryngapore,
	fiMtanuacurng	éhiliilhllilCPDNtNtpsamerryseresaona,,,kl,ii,GHNSPypsumenessanonyeps,,,Siji,biFNemensascou,
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Business Potential:Global Business

Business Potential:Technology and Innovation

SAG Product and Services Portfolio

Industry Specific Customized Solutions •Design & Implementation Services

Integration Platform

• Infrastructure Software: XML Enablement & Content, Web Enablement & Content, Enterprise Information, Mobile Systems

Products

• •Enterprise Transaction: Adabas, Natural
• • New (XML-based) products: EntireX, Tamino XML Server

Lowest TCOMaximum ROI

Low cost standards based integration

Pioneer technology High performance Platform independent

The IT challenge

Challenges to customers' IT departments

Solution

Technology and innovation leverage existing IT investments

XML solutions increase productivity

liIttmpemenaonexpenses)1fllitorsampesouons	SQL	XML
dkldbItnusrynowegeasehKMPjiSAGttoecrwhltenoogcy	30	5
&ShMtisuppornparmaicompanes	30	01
fKMliM&Atsouonsortsuppor	18	6
dLttawanconracs	15	6
Pdtttaenanassetmanagemen	9	4

Source: Arthur D. Little1) Working months based on average expenses

Financial Data3rd Quarter 2003 9 months 2003

Revenue

(in mn. €)

Result

	Q32003	Q32002	YTDStep2003	YTDStep2002
iOEBITDAtpeangr	160	151	422	366
iiDteprecaon	17-	26-	60-	110-
iOEBITAtpeangr	143	125	362	256
dillGoow	55-	55-	164-	164-
iiliFnancancome	08+	09+	27+	24+
ilOttpeangesrru	96	79	225	116
fiIttncomeromnesmensv	-	-	-	316+
iRttescngepensesruurx	-	-	238-	131-
fibfPttoeoearrx	96	79	13-	301
Taxes	57-	23-	22-	217-
iNtencome	39	56	35-	174
ih(i)Eaeaeeornngsprsrnur	014	021	031-	064

(in mn. €)

Atesss	S30t.ep,2003	3D1ec,2002	ibiliiLteas	S30t.ep,2003	3D1ec,2002
idFtxeasses	2027	2211	hhld'Sareoersitequy	2238	2145
iItnenoesvr	34	64	iiPosonsrv	0115	0817
diblTraerecevaesdhttanoeassesr	8114	1326	ibiliibkLttaesoans	00	00
Chdhasancasiltequvaens	874	754	Ohlibiliitteaers	297	395
idPrepaepensesx	308	71	fdiDeerrencome	742	817
lTtoa	2474	0844	lTtoa	2474	0844

Cash flow

(in mn. €)

	Q32003	Q32002	YTDSt.ep2003	YTDSt.ep2002
hdi/iddbNtecassenpoeurvyiiiitttoperangacesv	04	54	69	319
Nhdi/iddbtecasusenproveyiiiiitttnvesngacves	11-	53-	44-	234
hdi/iddbNtecassenpoeurvyfiiiiittnancngacesv	00	00	29-	397-
Chihfdfhangencasunsromexcangehitteoeeeoramvmns,cangsngrupfhfdttsceocasnsruurru	04	05	02-	15
hihdhNtecangencasancasiltequvaens	03-	06	06-	117
hdhilfCtasancaseqaensasouvfidttsaropero	751	667	754	502
fChdhiltasancasequvaensasodfidenopero	748	673	748	673
ihflhOtpeangcasopesaerwrr	002	020	025	117

• Demand for IT is stabilizing gradually
• Product revenues at same level as in 2002 (adjusted for differences in currency)
• Maintenance business secures about 45% of revenues
• Total revenues 2003: 410-415 mn. €
• Operating results 10-15% higher than previous year's 32 mn. €
• Positive operating cash flow despite cash out for severance payments due to restructuring
• Positive after-tax results

• More optimistic IT business climate
• Price pressure in project services will continue
• No further decline in revenues (adjusted for differences in currency)
• Maintenance business will remain largest revenue segment
• Reduced cost level after restructuring will improve earnings by at least 10 mn. €
• Change to IFRS (IAS) may no longer require amortization of goodwill and will subsequently bolster income by approx. 20 mn. €

Summary

• Despite the difficult and challenging market environment, Software AG
  • is financially strong with a solid balance sheet
  • has growing operating results
  • has a positive operating cash flow

Strategic agenda for profitable growth within the core areas

• Enterprise-wide transaction systems
• XML-based data management and integration

Appendix

• -Stock Information
• -Customer Projects
• • Additional Information for BusinessDevelopment

Shareholder Structure

(Number of Shares: 27,3 mn.)

Shareholder Structure

as of June 30, 2003

Free Float by Region

as of June 30, 2003

Major Funds (current Free Float: 68.4%): Threadneedle Asset Management Ltd., UK Classic Fund Aktiengesellschaft, Liechtenstein Capital Group Companies, Inc., USA Fidelity International Ltd., USA

Share Price as of October 31, 2002 – October 31, 2003

Key Figures per Share

(in euros)

	2002	2001	2000	1999
iEanngsr	231	144	255	147
ihflOtperangcasow	149	305	071-	270
iiddDevn	000	034	038	028
iihPHcegr	0441	8007	60017	6355
iPLrceow	841	3590	5700	2250
i/iiPtceeanngsaorrrfildtascayearen-	7	30	32	41

Customer Projects

based on Software AG technology, solutions & services

DaimlerChrysler

"Diogenes" / xDWS

Problem

Reduce the effort and expense to maintain and adapt automation and test systems in the areas of development, production and service.

Solution

Seamless development of automotive electronic control units with function prototyping, production code generation and hardware-in-the-loop test based on common XML based DTD's(xDWS / Tamino).

Benefits

Tight integration of all supply-chain-members. Cost-reduction. Better Quality. FASTER development!

Project: "dieterPRO"

• Generation of high-quality labels and tags (graphics and text) for products from the plant protection division
• Transition from a legacy application to digital label generation – to be used at BASF worldwide
• Web-based system (remote publishing) with an XML architecture (Tamino) and an integrated design tool
• Workflow-driven control of decentralized label editing

Arthur D. Little

Knowledge Management

Project:

Development of a knowledge management system for Arthur D. Little business consultants all over the world

Results:

• •Development and introduction in only five months
• •Minimal operating and hardware costs
• •Thanks to XML, little additional programming required
• •High degree of acceptance by users

"Using an SQL database would have taken 30 months to complete the project. With XML and Tamino, it took a mere five."

North American Van Lines

nALMobile project

Description:

Mobile field service application integrated with Software AG and non-Software AG backend systems

Repeatable Solution

• Partnering with Extended Systems, Inc. for mobile solution called One Bridge
• Our Extended System partner brought valuable expertise in mobile and was key to securing this phase of nAL's business
• Integrated the One Bridge Toolset with EntireX and Tamino

Project 1:

Electronic Bills Presentation:

A system that enables its clients and its internal users to see their invoices and the billing information through Internet, using XML technology (Tamino XML Server).

Project 2:

Archiving System:

Prepare a corporate platform to archive different types of documents coming from other applications (SAP, Lotus Notes, MS Exchange,…) using Ixos products.

Commerzbank, Germany Automated OTC Trading

• Rules-based transfer of trading transactions to a standard XML-based format
• Aggregation of OTC (over the counter) trading transactions from 18 different delivery systems
• Database for all departments involved in the trading process (including Risk Management, Back Office and Administration)

• Identification of the Credit Exposure under consideration of netting (credit risk) and market price risk
• Utilize resources in a better way - save costs and time
  • Saving of several million Euro p.a.
  • Amortization within 1 – 1.5 years
  • Improved utilization of regulatory liable equity
  • Straightforward maintenance

Additional Information for Business Development January – September 2003

Revenue by Region

(in mn. €)

Operating EBITA by Region

(in mn. €)

Product Groups

• -Extremely fast and reliable database
• -Available on all major platforms
• -For large and mission-critical applications
• -Development platform
• -For large-scale (e-)business applications
• -Integration server
• -Leverages legacy systems for use in new (e-)business solutions
• -Native XML server
• -Storage, management, publishing and exchange of XML documents

Research & Development Expenses by Product Group (in mn. €)

• Germany's second largest software vendor
• 400+ mn. € revenue, ~2,800 staff
• In the high-end, mission-critical IT business since 1969
• More than 5,000 licensing customers, many blue chip companies and public sector organizations
• Leader in XML technology (DBMS and integration)
• System integrator for own products and solutions
• Listed at Frankfurt stock exchange (TecDAX)
• Market Cap 500+ mn. € / Free Float: 68.4%