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Software AG Investor Presentation 2004

Jan 20, 2004

406_ip_2004-01-20_d5ea5d82-1321-4844-88fe-10b15828b363.pdf

Investor Presentation

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Investment Opportunity Software AG

Arnd Zinnhardt, CFO

3rd CAI CheuvreuxGerman Corporate Conference January 20, 2004

What makes an attractive investment?

Financial Strength

  • Solid balance sheet
  • Long track record of profits
  • Strong, recurrent cash flow

Business Power

  • Excellent long-term customer base
  • Global presence
  • Focused product strategy

Market Potential

  • Stable markets with high barriers for entry e.g. mission critical enterprise transaction systems
  • Markets with potential for dynamic growth because of innovation e.g. XML technology

2

Software AG is an attractive investment

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Organic free cash flow yield: 12% (9 months 2003 annualized in % of EV)

Current share price is below fair value (average price target 21 €)*

* 13 sell side analysts

** Enterprise Value (Market Cap ./. net cash balance)

Investor Presentation

3

Financial Strength

Key Figures – First 9 Months 2003

(in mn. euros)

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* currency adjusted ** incl. charges for restructuring *** incl. income from investments

Key Figures – First 9 Months 2003

(in mn. euros)

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* Net operating profit after tax = op. PbT ./. tax rate x (op. PbT + goodwill)

Balance Sheet

(in mn. euros)

Investor Presentation

7

Balance Sheet Analysis – First 9 Months 2003

(in mn. euros)

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Cash Flow Analysis – First 9 Months 2003

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9

This forecast was made on the basis of 9 months figures 2003.

  • Total revenues 2003: 410-415 mn. €
  • Operating profit before tax 10-15% higher than previous year's 32 mn. €
  • Positive operating cash flow despite cash out for severance payments due to restructuring
  • After tax-results will show a loss (due to 41 mn. € one time charges for restructuring)

After 12 months, Software AG is confident of meeting or exceeding these targets.

Business Power

Global Presence

In an increasingly complex and networked environment we want to be the global number one partner to our customers by integrating and modernizing existing platforms, applications and data to maximize our customers' ROI.

Two Business Lines

Enhancing the Value of Enterprise Database Applications…

Mainframe Modernization Suite

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Comprehensive solutions offering Sarbanes-Oxley Post-merger integration Customer multi channel integration Customer service integration e-Business solutionsBasel II…Businesssolution domainsCustomerReferencesGovernment Manu- facturing Finance Telecom. Pharma/ HealthcareSolutionplatforms Legacy BPM ETS modernizationXML integration optimize extend manage EIIESB (EAI)

17

Outlook

Outlook 2004 -Business Opportunities

Overall economic climate expected to improve IT investments likely to grow in 2004 (Europe 3%, Germany 2%)

  • Price pressure in project services will continue
  • Strong Euro will support US competitors
  • Customers will continue to modernize and integrate installed (mission-critical) IT-systems
  • Software AG can expand its sales and services to installed customer base (mainframe modernization)
  • Customers demand innovative (XML-based) use of enterprise data
  • Software AG can win new customers with superior XML-based business integration solutions

Outlook 2004 –Financial Forecast

Revenues: the decline will be stopped (net of currency effects)

  • License sales will increase in core business lines and make up for reduction of non strategic business
  • Cost: new organization and off-shore services will improve cost structure (lower and more USD based costs)
  • Operating result will increase by 25 – 35% vs. 2003e consensus
  • Strong organic free cash flow will continue
  • Change to IFRS (IAS): amortization of goodwill may no longer be required

Summary

Software AG has a focused strategy for profit and growth

  • ETS (mainframe) modernization
  • XML business integration

Software AG is financially strong

  • Solid balance sheet
  • Recurrent free cash flow
  • Growing operating results

Software AG is an attractive investment opportunity

  • Trading at PE Ratio of 11 (2004e)
  • Priced at 1x sales (2004e)
  • Offering an organic free cash yield of 12% EV (2003)

22

Stock Information

  • Market Potential
  • Customer References

Shareholder Structure

(Number of Shares: 27.3 mn.; Free Float: 68.4%)

Shareholder Structure

as of June 30, 2003

Investor Presentation 24 20-Jan-04Major Funds (Source: Thomson Financial): Classic Global Equity Fund, Switzerland Dekafonds, Germany Fidelity Investment Funds, UK Julius Bär Multistock – German Stock Fund, Switzerland Investors European Growth Fund, Ireland

Free Float by Region

as of June 30, 2003

Share Price

12 months rolling

  • Software AG
  • MDAX
  • TecDAX

SAG share price: 12/31/02: 9.01 € 12/31/03: 16.30 €

Market Potential

Renewed Interest in Enterprise Systems and the Mainframe

"Today, mainframes deliver tremendous value for the money. Organizations are well advised to preserve their investment in this critical technology which has been the lynchpin for many enterprises."

Carl Olofson, IDC Research

"Enterprises can increase their flexibility and reduce their risk by restructuring established mission-critical systems."

Dale Vecchio, Gartner Group

"IT Managers are recoginizing that maintaining and updating legacy systems is vital to corporate success."

Michael Bucken, Editor AD Trends

27

Market potential

Total Modernization Market

2004 = \$500M 2005 = \$560M 2006 = \$620M

(Dollars in Millions) 350300250200

2004 Legacy Integration = \$210M

2004 Screen Scraper = \$105M 2004 Code Re-engineering = \$185M

Why focus on XML Integration Analyst quotes

Integration is still #1 issue for the CIO

  • Ranked in Morgan Stanley CIO survey as the #1 problem
  • According to Gartner, 90% of business applications involve integration
  • Integration market is expected to grow 9.8% CAGR

Gartner, August 2003

Imperative need to provide a single view of information

"Developing an enterprise view of the customer is one of the primary requirements of a CRM-based sales and service strategy."

TowerGroup Research, March 2003

Abundance of monolithic, mission-specific, silo systems

"More than 90% of enterprise applications in production are monolithic. Their business logic is not externally accessible in a modular form that allows easy reuse in other applications."

Gartner, The Agile Enterprise, October 2003

Inability to effectively aggregate data

"I feel like we are missing a major opportunity because our systems aren't integrated. We have to do a ton of custom coding right now, and unfortunately no one has shown us a solution that doesn't ask us to change our business model to fit the package."

Insurance Company, Forrester Research

Customer References

NYC Department of Buildings

Challenge

Improve the efficiency for accessing the 900,000 building codes, occupancy and safety information, so engineers and architects can save days and weeks on their building projects

Solution

The Building Department used EntireX to put a "wrapper" around the data and applications, allowing the mainframe data to be passed forward to web system

Benefits

"It's remarkable how easy and cheap it was."

Matti Friedman –Director, DOB NYC

Two Developers Built Site, with over 135,000 daily hits, in Less Than 6 Months

31

Supply Chain Integration

Technology

  • EntireX XML Mediator and Tamino (Required)
  • EntireX Communicator (Optional)

Domain Implementation Components

Architecture based on Mediator, Tamino and Communicator

Services

Variable service offerings for integration

Sales Pattern

  • Motor Manufacturers that need to shorten time from customerrequirement (customized vehicle) to delivery while efficiently managing stock holding
  • Ownership
  • -

Reference

Nissan

Windows 2000

IBM OS/390

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