Annual Report 2002 - Software AG

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18 Combined Management Report of Software AG and Software AG Group as of December 31, 2002 Economic climate and market developments: Stagnation Prolonged market weakness After a difficult 2001, hopes for economic recovery in 2002 remained unfulfilled. Growth in the world's two most important economies, North America and Europe, remained weak. As a result, company earnings fell almost across the board in 2002, leading to cost-cutting measures and lower investment. Moreover, entire industries, such as aviation, financial services and telecommunications, were plagued by structural problems. The poor economic climate exacerbated the downturn in the software industry over the course of 2002. As such prolonged weakness was unprecedented in this market, many software companies were caught by surprise. A large percentage of market participants had expected an upturn in the second half of 2002. Lower license revenue and falling margins for services put many IT players under severe pressure. Only companies that succeeded in paring back their costs in response to decreasing revenues were able to conclude 2002 with a positive bottom line. Software AG was one of them. Strong decline in license sales for enterprise transaction products Software AG's offering in the enterprise transaction products segment consists of Adabas, the database management system, and Natural, a development tool. There was worldwide decline in revenues from licenses for enterprise transaction products during fiscal 2002. Many factors contributed to this drop in demand, not least the weak global economy. Additionally, many enterprises were reluctant to upgrade existing software applications and did not see an urgent need to invest in increased data management capacity. This can be attributed to the difficult business climate, the large number of major software projects in the run-up to the millennium changeover (Y2K), and exceptionally high levels of investment during the boom years of 1999 and 2000. Faster ROI drives the integration market The economic downturn also left its mark on the integration technology market. Data and application integration enables higher automation and greater
transparency in business processes, leading to reduced costs. However, many projects of this type were abandoned or delayed due to their high complexity, and the difficulties of evaluating and quantifying potential benefits. The integration market in 2002 was characterized by smaller, simpler projects, and by a focus on faster return on investment. Postponement of e-business projects The downward trend in the e-business products market, first detected two years ago, continued in fiscal 2002. Many e-business projects are not yet considered mission-critical. Therefore, postponement of further investments does not have a direct impact on the user's business processes. The value of projects continued or launched in 2002 was often only a fraction of the amount witnessed in previous years. Despite the current lack of interest from the market, the strategic importance of e-business projects has not waned. But if they are to deliver the desired results in terms of cost-savings and greater efficiency, it is necessary to integrate existing ap- MANAGEMENT REPORT plications and model entire business processes. The corresponding increase in project scope and expense, coupled with greater involvement of top executives, has led to lengthier, slower decision-making. In other words, investments have been delayed, first, as a consequence of the growing complexity of e-business projects, and, second, by cost constraints brought on by the current economic situation. Excess capacity in the IT services market The IT services market faced enormous pressures in terms of cost and margin in 2002. This was triggered by the excess capacity of most systems integrators. As a result of the weak economy, customers limited spending to those projects regarded as unavoidable, and numerous contracts were withheld. When choosing service providers, customers placed added emphasis on industry-specific expertise and on evidence of a rapid return on investment. Only specialist companies operating in niche markets succeeded in warding off cost and margin pressures. 19
Page 1 and 2: Annual Report 2002
Page 3 and 4: Table of Contents Letter to our sto
Page 5 and 6: Planning is the key to realizing yo
Page 7 and 8: Professional services and sales org
Page 9 and 10: Aug. 1 Natural Engineer WebStar mak
Page 11 and 12: today’s quoted companies. Softwar
Page 13 and 14: tions. The Swiss company leverages
Page 15 and 16: ister. The new solution is a signif
Page 17: One step ahead In today’s fast-mo
Page 21 and 22: do not simply offer software compon
Page 23 and 24: importance in the optimization of b
Page 25 and 26: Web-enabling Natural-built applicat
Page 27 and 28: Sales and marketing: Broadening the
Page 29 and 30: training for customers implementing
Page 31 and 32: euros to 149.2 million euros. This
Page 33 and 34: Breakdown of costs in million EUR 2
Page 35 and 36: and furnishings. Investment in soft
Page 37 and 38: Employees: Our most important resou
Page 39 and 40: Research and development: Keeping o
Page 41 and 42: Events subsequent to the balance-sh
Page 43 and 44: There´s more than one way to pot t
Page 45 and 46: Equity and liabilities FINANCIAL ST
Page 47 and 48: Statement of Fixed Asset Movements
Page 49 and 50: On January 1, 2002, the Company acq
Page 51 and 52: Consolidated balance sheet and cons
Page 53 and 54: B. Notes to the consolidated balanc
Page 55 and 56: Frankfurt Stock Exchange over the f
Page 57 and 58: C. Notes to the consolidated income
Page 59 and 60: Europe Western Europe Southern Euro
Page 61 and 62: Notes to the cash flow statement
Page 63 and 64: Dietrich-Kurt Frowein Place of resi
Page 65 and 66: Financial Calendar 2003 April 24, 2
Page 67 and 68: workbench) for designing, developin

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