Software_AG_IR_Newsletter_12_18_Dec_2015_tcm16-137103

Page 1 | 9 ©2015 Software AG. All rights reserved.

Dear Investors and Analysts,

The European and German financial regulators have taken a new direction and do

no longer require full financial reporting every quarter. There are obviously many

companies with successful business models that simply do not fit quarterly

assessments. Deutsche Börse, the Frankfurt stock exchange, has also withdrawn

from the quarterly cycle as a requirement for the prime standard. We welcome this

new approach, allowing the issuer and engaged shareholders the freedom to settle

on efficient and sustainable communication.

However fourth quarter reporting will never come into question. It is relevant for both

the achievements of the current and the expectations for the next year. Our Chief

Customer Officer Eric Duffaut reminded us of the transformation of the DBP business. Although “a quarter is

not a trend” he has pointed out the improvements in the Go-to-Market approach laying the base for future

success. Other elements driving growing confidence are the award winning business solutions based on

Software AG’s Digital Business Platform. Here we can highlight WIPRO as one of our most advanced partners

with the potential to scale.

Digitization is everywhere and our CEO Karl Heinz Streibich may rightly claim thought leadership for Software

AG, for example when advising the German national IT summit on this topic as he has done for several years.

IT investments are increasingly focusing on differentiating projects for successful business development in all

industries and the middleware layer will be one, if not the, key driver. High scores from software rating

companies help users to choose and we are proud to lead in relevant ratings. We just added another one for

our portfolio analysis suite Alfabet. Please check on our website for more details.

What can we expect for 2016? Whereas the financial outlook in terms of numbers will only come when we

report at the start point of 2016 with the Q4 results (January 27, 2016), management has already given a

couple of qualitative statements, all pointing to profitable growth. The current year has already shown

improvements in our Go-to-Market model and the efficiency of the organization (not only sales), a better

market position and pipeline, growing maintenance revenue and even more stability in the A&N business.

Given the pace of longer sales cycles in our business model, these developments will most likely continue and

gain momentum in the next year.

We now go into the (very) quiet period and will enjoy a couple of seasonal holidays. Meanwhile I hope this

newsletter will help you to see through short term volatility and maybe to come back with a fresh perspective

on Software AG.

Last not least we post here our holiday greetings and best wishes for a happy and prosperous new year.

With my warmest regards

Otmar F. Winzig

IR News #12 December 2015

http://www.softwareag.com/corporate/products/bis/recognition/default.asp



TABLE OF CONTENTS

1. On Roadshow With CCO Eric Duffaut in Paris and London 3

2. Maintenance Growth 6

3. Third Share Buy-Back Program 2015 Completed 7

4. Outstanding Digital Customer Solution 8

5. German IT Summit: Software AG Presents Digital Government 9

6. Financial Calendar 2016 9

Disclaimer: This document includes forward-looking statements based on the 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, changes in 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.

This document constitutes neither an offer nor recommendation to subscribe or buy in any other way

securities of Software AG or any of the companies that are members of the Group at present or in the future,

nor does it form part of such an offer and it should not be understood as such. This presentation does not

constitute an offer of sale of securities in the United States of America. Securities may not be offered or sold

in the United States of America without registration or exemption from registration in accordance with the U.S.

Securities’ Act of 1933 in its currently valid form.

Software AG Investor Relations Uhlandstrasse 12 64297 Darmstadt Germany phone: +49 (0) 6151 / 92 1900 fax: +49 (0) 6151 / 9234 1900 e-mail: [email protected]

Follow us on Twitter: @SoftwareAG_IR

mailto:[email protected]



1. ON ROADSHOW WITH CCO ERIC DUFFAUT IN PARIS AND LONDON

Chief Customer Officer Eric Duffaut met with numerous investors in the first week of December. The main

topics were the strategic business development, the future potential of the digitization trend and the

transformation of our Go-to-Market model.

The chart illustrates the progress the company has made from being almost entirely dependent on its

mainframe-business to now generating higher revenues from DBP than from A&N even at its peak, with

further growth still to come through our new customer-centric Go-to-Market model.

Eric Duffaut identified relevance and scalability as the key success factors for any software vendor.

In terms of relevance, two key drivers:

Software AG’s portfolio – the digital business platform (DBP) – with its technology leadership and

complete set of products for enterprise users to manage the transformation to the digital age. The

DBP is made of best of breed technologies, all well integrated and easy to use to build customized

solutions. What is unique and makes Software AG stand out from competition is the growing number

of best of breed solutions which make the DBP best of suite. The customers presenting their success

solutions to the market (cf. page 8 of IR News) are best proof of the relevance the DBP has for real

differentiating IT solutions.

Software AG’s new Go-to-Market (GTM): The GTM transformation started in spring 2015 with a

strong focus on account management and sales efficiency – we are striving for more revenue per

account and account manager. We are focusing an increasingly industry specialized sales force on

fewer key accounts to better manage relationships and true partnerships, driving further adoption of



our DBP and increasing share of wallet with our existing customers. The positioning of use cases and

a value base selling approach, instead of pure features and functions, in a product led GTM,

contributes to Software AG relevance at the C level. This focus is a condition for providing business

value and winning larger strategic deals. The signs of success are already visible, like the increased

number of large deals (> €1m). DBP sales productivity increased every single quarter in 2015 - and

was up 14% year-to-date. Furthermore the DBP license pipeline shows a double-digit increase vs.

2014.

The transformation process will take some time, given the need to re-skill both direct sales and partners and

an average sales cycle of 12 to 15 months for true large game changing opportunities.

In terms of scalability the new GTM strategy is preparing the ground for accelerated growth.

Expanding Partner Ecosystem for scale

The partner ecosystem is expanding with encouraging results.

Building incremental service capacity via capable services partners is key to ensuring customers across the

world and across all industries can find Software AG trained consultants to realize value with their Software

AG Digital Business Platform. More than 500 consultants at partners have been trained on Software AG’s

products.

Driving fully fledged solutions on top of Software AG digital business platform will contribute to faster market

adoption. Since the beginning of the year, more than 30 solutions have been built by partners such as Cap

Gemini, WIPRO, Sony and many more, and are featured on our Digital Market Place.

Finally, by co-selling or reselling in markets not covered by Software AG’s own sales force, partners maximize

customer touch points and expand our market coverage.



Cloud – opening new markets

Our cloud-enabled solution portfolio opens new addressable markets. Our cloud revenue is now accelerating

showing triple digit growth. Customer specific applications and solutions – when cloud enabled – can be

hosted in private clouds which allow high security and ease of use at the same time.

Outlook

Eric Duffaut showed strong confidence that the transformation will show further improvement towards

profitable growth in the coming periods. Growth visible in maintenance revenue will continue and license

growth is expected to show this trend too, despite ongoing, possible volatility in single quarters.



2. MAINTENANCE GROWTH

Growing maintenance revenue, even if license revenue is stable, seemed to surprise market participants

repeatedly in 2015. Yet it is the enjoyable effect of the perpetual license scheme (different from SaaS model)

which applies to Software AG’s business model.

Initially the maintenance payment is a percentage of the license bought. Whereas the license payment is a

one-time payment (for perpetual use of the software), the maintenance is a repeated annual payment.

Customers normally buy maintenance for as long as they use the software to get technical support and the

new releases on a regular basis.

When applied in a financial model the maintenance revenue is recurring at a high rate (renewal rates are

around 95%). Therefore the new license sales of a given year would provide new maintenance revenue to be

added to the existing stream going forward.

This phenomenon is illustrated below for two different scenarios:

1) DBP license revenue development flat

2) DBP license revenue development with 10% CAGR

The result for DBP maintenance is shown on the left hand side.

The graphic to the right shows the result for group maintenance revenue including A&N.

Model assumptions:

DBP license / maintenance ratio: 18% net (i.e. €1m of licenses provides €180k of maintenance p.a.)

DBP maintenance renewal rate 93-95 % (improving with maturity of installations)

A&N maintenance: straight decline of 4% p.a.



3. THIRD SHARE BUY-BACK PROGRAM 2015 COMPLETED

Software AG’s third share buy-back program, which was announced in September, reached the targeted

purchase volume of € 70 million. This equals 2.71 million shares and corresponds to an average purchase

price of EUR 25.81 per share on December 04, 2015. The program has exclusively been executed through

the Xetra platform. As of December 04, 2015 Software AG holds altogether 2.77 million own shares (3.5 % of

the share capital). Consequently, the free float of Software AG share capital decreased from 68 percent to 65

percent.

Software AG’s cash allocation strategy primarily focuses on dividend continuity, financing acquisitions and on

share buy-back as a third pillar. The base for cash out is the average from net profit and free cash flow. About

one quarter to one third of this amount is used for dividends which continuously grew and doubled in value,

per share, over the last decade. The remaining free cash is either used for financing acquisitions (including

the pay-back of M&A related debt) or available for share buy-back. As the AGM 2015 gave authorization to

buy up to 10% of the share capital by May 12, 2020, there is leeway for further programs to follow at any time

the environment looks attractive for the Management Board.

Additional information on the program and its closing can be found on the IR Website.

http://www.softwareag.com/corporate/inv_rel/stockinfo/sharecapital/share_buy/default.asp



4. OUTSTANDING DIGITAL CUSTOMER SOLUTION

At this year’s Innovation World in Las Vegas, the first customers were presenting their experiences with our

new Digital Business Platform, showing its impact in different industrial sectors. Take a look at this year’s

winners of the SAG’s Innovation Award Johnson & Johnson, Lexmark, WIPRO Technologies, Logrand Group

and KIABI as well as the partners Cognizant and Fiserv. All these companies are standing out in the digital

market.

In the following we highlight a partner solution with WIPRO on Predictive Maintenance:

The global information technology, consulting and outsourcing company WIPRO and

Software AG announced joint development of Internet of Things solutions at the beginning

of this year. Meanwhile WIPRO has developed and deployed Looking Glass - an Internet

of Things solution for smart and connected products.

Using Software AG’s Digital Business Platform with products webMethods, Apama and Terracotta, WIPRO

Technologies can integrate, capture, analyze and respond to data captured by embedded sensors in remote

device at customer sites as the following picture shows:

Source: wipro.com

Industrial Internet platform: WIPRO Looking Glass combines integration, big data streaming

analytics and in-memory data management and provides an industrial internet platform for IoT.

Cloud enabled: it can be run both on-premise as well as hosted in a single cloud or multiple clouds

simultaneously.

Scalability: it can handle high data volume and velocity

Security: it enables complex authorization schemes while managing security

Operational intelligence: Enabled by real-time streaming analytics and complex data asset modeling

Business value of predictive maintenance:

1) The enterprise understands and can act immediately to real-time maintenance data to proactively increase

service levels, drive down costs, and maximize asset uptime, utilization and placement.

2) Predictive maintenance allows the transformation from hardware seller to a service provider.

http://www.softwareag.com/corporate/customers/innovation/2015_overview/default.asp



5. GERMAN IT SUMMIT: SOFTWARE AG PRESENTS DIGITAL GOVERNMENT

Software AG accompanies the transition to a digital society in a globalized

world, which does not only focus on enterprises. The vision of digital

government is also a focus; Software AG supports the definition of

frameworks and conditions in order to become real. As evangelizing for

digitization is a vital part of Software AG’s Go-to-Market strategy, it is quite

natural for Software AG to regularly take an active and leading position in

the German national IT summit, the country’s top IT event. The ninth National IT Summit 2015 took place

under the patronage of Chancellor Angela Merkel and Minister of Economic Affairs Sigmar Gabriel in Berlin on

November 19, 2015.

Being co-chairman of the “Digital Administration and Public Sector IT” platform, Software AG’s CEO Karl-

Heinz Streibich provides thought leadership and plays an active digital government shaping role: The

platform’s objective is to analyze the potential of digitizing Germany’s public administration for citizens and

businesses and to draft specific guidelines. The results and recommendations of this think tank were

presented to an audience including Angela Merkel. The summary of the results are also published in the IT

Summit paper “Government 4.0 – Digital, Sovereign, Innovative”, which can be found here.

6. FINANCIAL CALENDAR 2016

On February 10, 2016 Software AG invites investors, potential investors and financial analysts to attend the

Capital Market Day 2016 at its Headquarters in Darmstadt. Please save the date for this event, where you

have the opportunity to meet the Software AG management to get updates on strategy and financials.

Customer use cases will broaden the understanding how we empower customers to innovate, differentiate

and win in the digital world.

January 27 Financial results Q4 2015 and FY 2015 Analyst / Investor Conference Call

February 10 Capital Market Day Software AG Headquarters Darmstadt, Germany

April 26 Financial results Q1 2016 Analyst / Investor Conference Call

May 31 Annual Shareholders Meeting Darmstadt, Germany

July 20 Financial results Q2 2016 Analyst / Investor Conference Call

October 25 Financial results Q3 2016 Analyst / Investor Conference Call

http://intranetplatform.eur.ad.sag/INSIDE/Express/files/IT_Summit_Paper_Digital_Administration_and_Public_Sector_IT_Platform-EN.pdf

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