- Software AG a faster, fitter, more reliable business as it enters third year of Helix transformation program
- Momentum achieved in 2020 places Software AG in a strong position to accelerate towards a sustainable, profitable growth future
Darmstadt, Germany– Software AG (Frankfurt MDAX®: SOW) hosted a Capital Markets Day event on February 23rd for financial analysts and investors.
At the event, members of the Software AG Leadership Team provided details on:
- Software AG’s transformation progress so far and its current strength
- Five strategic priorities for 2021 and their potential to accelerate Software AG’s transformation
- Clarity on Software AG’s path to its 2023 ambition – including financial modelling and an updated reporting structure
During the event, Software AG CEO, Sanjay Brahmawar, said:
“After two years of transformation, a sustainable, profitable growth future for Software AG is now within reach. In 2020, we delivered bookings growth of 24 percent and saw double-digit ARR growth. Our subscription shift is progressing ahead of our plan, our recurring revenue is within the range of our mid-term ambition and we continue to win against our competitors in the market. Looking ahead, we’ll double down on our strategy to ensure we capture the opportunity we’ve created. We are in the perfect position to address a market that will have grown to $28 billion in size by 2024, reflecting the shift our customers are already making toward becoming truly connected enterprises. All of this underscores our confidence in our ability to deliver on our 2023 ambitions and to open up even greater opportunities for growth in the years to come.”
Adding his perspective, Software AG CFO, Dr. Matthias Heiden, said:
“The past two years of solid execution and focus have given us a strong launchpad, from which we can accelerate toward our mid-term ambitions and beyond. With our 2020 strategic objectives achieved, alongside delivery on our profitability commitments, we have increased confidence in our transformation’s ability to deliver sustainable returns through 2023 and beyond. Our opportunity now is to bring forward planned investment to ensure we capitalize on the strength of our position. These investments, particularly in our subscription transformation, will power our ability to drive and grow the higher quality, more predictable revenue streams we are beginning to generate.”
Toward our mid-term ambitionsOn January 27, 2021 Software AG reconfirmed its mid-term ambitions. Under these ambitions, Software AG aims to achieve in 2023:
- €1 billion Group revenue
- 25 percent to 30 percent operating margin
- 85 percent to 90 percent recurring product revenue
- Approximately 15 percent Digital Business CAGR
Following two years of strong strategic progress, Software AG believes it is well positioned to accelerate toward these ambitions.
Momentum, consistency and conviction
Since the Helix program began two years ago, Software AG has made significant progress in transforming its organization. Today, Software AG benefits from a record product Net Promoter Score; a growing track-record of competitive customer wins; and a customer base rapidly adopting its subscription offerings. In fiscal year 2020, Software AG delivered double-digit bookings growth in its EMEA, North America and DACH focus markets. The Group’s recurring revenue reached 85 percent of its total product revenue. This momentum has been delivered by a highly engaged team, supported by an improved go-to-market organization; a growing and increasingly active partner channel; and a highly relevant, cloud-enabled product set.
Advancing toward the Truly Connected Enterprise
Software AG believes that the increasingly connected world will necessitate an entirely new breed of organization: the Truly Connected Enterprise. A Truly Connected Enterprise will make better business decisions day-to-day by embracing technology, including through the shift to the cloud, to transform operations and place data at the heart of decision making. The Truly Connected Enterprise will use technology to help break through internal silos and free up data: data that can be used safely and securely, delivering higher business efficiency and creating deeper insights on value creation. By combining agility with ingenuity, Software AG has created an unbeatable suite of products — in Integration & API Management, IoT & Analytics, and Business Transformation — that enable the Truly Connected Enterprise come alive.
Well positioned for a $28 billion market opportunity
Having made faster than expected progress in certain areas of its transformation, Software AG believes it has a unique opportunity in 2021 to accelerate its strategic progress. This conviction is underpinned by the dynamic and high-growth nature of the markets Software AG targets. As the macro-economic environment increases the need for organizations everywhere to digitally transform, Software AG is well positioned to target an overall addressable market forecast to be valued at over $28 billion by 2024 *.
Within that total, the Integration & API market is expected to grow at a compound annual growth rate (CAGR) of 10 percent to reach $13.5 billion by 2024; the IoT & Analytics market is expected to grow at a CAGR of 26 percent to reach $9.8 billion by 2024; and the Business Transformation market is expected to grow at a CAGR of 10 percent to reach $4.9 billion by 2024 *.
Five strategic levers for 2021
As it enters the third year of executing against its Helix transformation strategy, Software AG will prioritize activities in five strategic areas to accelerate its transformation progress. These five priority areas are:
- Drive product innovation
Software AG products have the potential to serve as the digital fabric of a changing, connected world. Innovation in the Integration & API and IoT & Analytics product areas, particularly in Edge, App Mesh, Multicloud and Streaming Analytics, will strengthen Software AG’s ability to realize this potential.
- Maintain shift to subscription pace
At the end of 2020, 81 percent of bookings in Software AG’s Digital Business were subscription or SaaS-based. Concentration in 2021 on customer success initiatives will enable Software AG to maintain the pace of this shift and ultimately derive greater customer lifetime value from existing and new customer relationships
- Enable productivity gains
The efficiency and effectiveness of Software AG’s operations has improved significantly over the past two years. As Software AG looks to accelerate its progress in 2021, the company will ensure that its teams have access to tools that enable them to operate even more effectively and thereby make a positive, progressive contribution to the company’s 2023 operating margin ambition.
- Accelerate culture change
Software AG’s greatest strength is its people. Today, the company’s motivated and highly engaged global team is working toward a common purpose: to connect technology and people for a smarter tomorrow. In 2021, Software AG will continue to focus on the engagement, education and development of its people and on ensuring it continues to welcome the very best technology talent to the organization.
- Unlock additional growth through M&A
For the past two years, Software AG has focused entirely on organic growth and its medium term 2023 ambitions continue to be based on organic growth assumptions. With a stronger, more consistent operational platform now established, M&A provides Software AG with a new route to delivering additional, long-term growth by strengthening its position in existing and new growth markets.
As previously communicated, to advance progress in some of these areas, Software AG will bring forward to FY 2021 certain investments originally planned for future years. These investments are expected to amount to between €30 and €40 million and will make FY 2021 the peak year for investment in Helix.
* Source: Evolved from Gartner Forecast Enterprise Infrastructure Software, Enterprise Application Software and Enterprise IoT Platforms, 2018-2024.