SAP reports double-digit growth in software and software-related service revenue for 2008.

January 30, 2009 by SAP News 0

WalldorfSAP AG (NYSE: SAP) today announced its preliminary financial results for the fourth quarter and full-year ended 31 December 2008.

Revenue:

* Full-year 2008 US GAAP software and software-related service revenue was €8.46 billion (2007: €7.43 billion), representing an increase of 14% compared to 2007. Non-GAAP software and software-related service revenue, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €166 million, for the full-year 2008 were €8.62 billion (2007: €7.43 billion). This represents an increase of 16% (20% at constant currencies) compared to 2007.

* Excluding the contribution from Business Objects, SAP’s business contributed six percentage points to the constant currency growth of the Non-GAAP software and software-related service revenue for the 2008 full-year period.

* US GAAP total revenue for the 2008 full-year period was €11.57 billion (2007: €10.24 billion), which was a year-over-year increase of 13%. Non-GAAP total revenue, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €166 million, for the full-year 2008, was €11.73 billion (2007: €10.24 billion), which was an increase of 15% (19% at constant currencies) compared to 2007.

* Full-year 2008 US GAAP software revenue was €3.61 billion (2007: €3.41 billion), representing an increase of 6% (10% at constant currencies) compared to 2007.

Income:

* US GAAP operating income for the 2008 full-year period was €2.84 billion (2007: €2.73 billion), which was an increase of 4% compared to 2007. The full-year Non-GAAP operating income, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totalling €463 million, was €3.31 billion (2007: €2.79 billion), which was an increase of 18% (24% at constant currencies) compared to 2007.

* The US GAAP operating margin for the 2008 full-year period was 24.6% (2007: 26.7%). The full-year Non-GAAP operating margin was 28.2% (2007: 27.3%), or 28.4% at constant currencies, representing an increase of 1.1 percentage points at constant currencies. Both the US GAAP and the Non-GAAP operating margins were impacted by 1) €32 million of expenses resulting from the settlement of litigations (2007: €2 million) and 2) expenses associated with the integration of Business Objects (which are not acquisition-related charges) of approximately €35 million.

* US GAAP income from continuing operations for the full-year period of 2008 was €1.93 billion (2007: €1.93 billion), which was flat compared to 2007. Non-GAAP income from continuing operations, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totalling €341 million, was €2.27 billion (2007: €1.98 billion), representing an increase of 15% compared to 2007.

* US GAAP earnings per share from continuing operations for the full-year 2008 was €1.62 (2007: €1.60), which was an increase of 1% compared to 2007. Non-GAAP earnings per share from continuing operations for the 2008 full-year period was €1.90 (2007: €1.64), which was an increase of 16% compared to 2007.

Core enterprise applications vendor share

Based on US GAAP fourth quarter 2008 software and software-related service revenue on a rolling four-quarter basis, SAP’s worldwide share of core enterprise applications vendors, which account for approximately $38.6 billion in software and software-related service revenue as defined by the company based on industry analyst research, was 32.8% for the four-quarter period ended 31 December 2008. This represents a 4.4 percentage point increase compared to the four-quarter period ended 31 December 2007, of which approximately 0.9 percentage points came from organic growth and 3.5 percentage points from the acquisition of Business Objects.

“2008 can be described as a year having two completely opposite halves, where a strong first half performance was greatly disrupted late in the third quarter by the beginning of the worst economic and financial crisis the world has witnessed in decades.

“Nevertheless, in total we had a good year amid a very tough economic climate, posting full-year, double-digit growth in software and software-related service revenue and gaining additional share against core applications vendors,” said Henning Kagermann, co-CEO of SAP. Kagermann continued: “When the crisis hit, we acted very quickly by taking the necessary steps to reduce costs. As a result, we were successful in exceeding our profitability targets.”

Cash flow

Operating cash flow from continuing operations for the full-year 2008 was €2.18 billion (2007: €1.95 billion). Free cash flow for the full-year 2008 was €1.84 billion (2007: €1.55 billion), which was 16% of total revenue (2007: 15%).

At 31 December 2008, the company had total group liquidity of €1.7 billion (31 December 2007: €2.8 billion), which includes cash and cash equivalents, restricted cash and short-term investments.

Share buyback

For the full-year 2008, the company bought back 14.6 million shares at an average price of €33.34 million (€486.8 million). Of the total shares purchased for the year, 3.2 million shares were subsequently acquired from the company, by employees who exercised stock options under SAP’s share-based compensation programmes.

The number of shares bought back for 2008 represented 1.2% of the total shares outstanding. At 31 December 2008, the company held treasury stock in the amount of 38.5 million shares (approximately 3.1% of total shares outstanding) at an average price of €35.43. In the fourth quarter of 2008, the company did not buy back any shares.

Revenue

* Fourth quarter 2008 US GAAP software and software-related service revenue was €2.67 billion (2007: €2.47 billion), representing an increase of 8% compared to the fourth quarter of 2007. Non-GAAP software and software-related service revenue, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €26 million, for the fourth quarter of 2008 was €2.69 billion (2007: €2.47 billion). This represents an increase of 9% (8% at constant currencies) compared to the fourth quarter of 2007.

* Excluding the contribution from Business Objects, SAP’s business contributed negative 6 percentage points to the constant currency growth of the Non-GAAP software and software-related service revenues for the fourth quarter of 2008.

* US GAAP total revenues for the 2008 fourth quarter were €3.49 billion (2007: €3.24 billion), which was a year-over-year increase of 8%. Non-GAAP total revenue, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €26 million, for the fourth quarter of 2008 was €3.51 billion (2007: €3.24 billion), which was an increase of 8% (8% at constant currencies) compared to the fourth quarter of 2007.

* Fourth quarter 2008 US GAAP software revenues were €1.32 billion (2007: €1.42 billion), representing a decrease of 7% (decrease of 6% at constant currencies) compared to the fourth quarter of 2007.

Income

* US GAAP operating income for the fourth quarter was €1.28 billion (2007: €1.11 billion), which was an increase of 15% compared to the fourth quarter of 2007. Fourth quarter Non-GAAP operating income, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totalling €98 million, was €1.37 billion (2007: €1.13 billion), which was an increase of 22% (22% at constant currencies) compared to the fourth quarter of 2007.

* The US GAAP operating margin for the fourth quarter of 2008 was 36.6% (2007: 34.2%). The fourth quarter Non-GAAP operating margin was 39.1% (2007: 34.8%), or 39.4% at constant currencies, representing an increase of 4.6 percentage points at constant currencies. Both the US GAAP and the Non-GAAP operating margins were impacted by expenses associated with the integration of Business Objects (which are not acquisition-related charges) of approximately €10 million.

* US GAAP income from continuing operations for the fourth quarter of 2008 was €858 million (2007: €755 million), representing an increase of 14% compared to the fourth quarter of 2007. Non-GAAP income from continuing operations, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totalling €70 million, was €928 million (2007: €770 million), representing an increase of 21% compared to the fourth quarter of 2007.

* US GAAP basic earnings per share from continuing operations for the fourth quarter of 2008 was €0.72 (2007: €0.62), which was an increase of 16% compared to the same period in 2007. Non-GAAP earnings per share from continuing operations for the fourth quarter of 2008 was €0.78 (2007: €0.64), which was an increase of 22% compared to the same period in 2007.

Business environment, cost containment measures

The company expects the 2009 operating environment to remain challenging. In addition, 2009 will no longer include the positive effects from the acquisition of Business Objects, and the 2009 first-half results will be a difficult comparison to the strong results reported in the first half of 2008, which was prior to the economic crisis that disrupted the global markets in the third quarter of 2008.

SAP will continue with its cost saving measures initiated in October 2008 and will take further steps to reduce expenses. SAP will continue to maintain tight cost controls on all variable expenses, including third-party related costs, as well as capital expenditures. Additionally, to enable the company to adapt its size to today’s market conditions and the broader impact of the global recession, SAP intends to reduce its workforce globally to 48 500 positions by year-end 2009, taking full advantage of attrition as a factor in reaching this goal (SAP will provide further information on its website at www.sap.com). The company expects the reduction of positions to provide €300 million to €350 million in annual cost savings beginning in 2010.

“We believe the cost containment measures will allow us to adapt to the tough market conditions and ensure the long term competitiveness of the company. Moreover, we expect 2009 to be a year of limited visibility, making it increasingly difficult to project sales in this environment,” said Léo Apotheker, co-CEO of SAP. “In 2009, we will continue to deliver to customers products targeted at specific business processes to alleviate pain points caused by the challenging environment since customers need flexibility, agility and visibility into their businesses now more than ever. These products are designed for fast implementations and quick returns on investment.”

Apotheker concluded: “This is not the first time we have experienced tough economic times and we believe we are well-prepared to endure it. With competitive products, a solid business model, a high percentage of recurring revenue and flexibility in the cost base, we expect to emerge from this challenging environment a stronger and more competitive company, while maintaining a firm hold on our industry leading position.”

Business outlook

The company provided the following outlook for the full-year 2009.

Due to the continued uncertainty surrounding the economic and business environment, the company will not provide a specific outlook for software and software-related service revenue for the full-year 2009. The company expects its full-year 2009 Non-GAAP operating margin, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects of approximately €9 million and acquisition-related charges, to be in the range of 24.5% – 25.5% at constant currencies. This includes one-time restructuring charges between €200 million to €300 million expected to result from the reduction of the workforce, which negatively impacts the Non-GAAP operating margin outlook by approximately 2 – 3 percentage points. The 2009 Non-GAAP operating margin outlook is based on the assumption that 2009 Non-GAAP software and software-related service revenue, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects, will be flat to a decline of 1% at constant currencies (2008: €8.623 billion).

The company projects an effective tax rate of 29.5% – 30.5% (based on US GAAP income from continuing operations) for 2009 (2008: 30.1%).

IFRS Financial Data

The company will discontinue its US GAAP reporting and will only report financial data under IFRS from 2010 onwards. To prepare the capital markets for this change, IFRS financial data are provided in the financial section of this press release.

Key events – fourth quarter 2008

* In the fourth quarter of 2008, SAP closed major contracts in several key regions, including Alpha Bank SA, Enel SpA, Mairie de Paris, Merck, Ministry of Finance of the Czech Republic in EMEA; Carhartt, ITT Corporation, IXE Grupo Financiero, Vought Aircraft Corporation in Americas; and China Merchants Bank, Dai-Ichi Seiko Co, Mapletree Investments, North China Grid Company, Sharp Corporation in the Asia Pacific Japan region.

* On 10 December 2008, Business Objects, a division of SAP, announced the next version of BusinessObjects BI OnDemand offerings. BI OnDemand is a complete suite of business intelligence capabilities, including a data warehouse, delivered on demand.

* On 26 November 2008, SAP named Chief Operating Officer Erwin Gunst labour relations director of SAP AG, effective 1 January 2009. He succeeds SAP executive board member Claus Heinrich, who will be leaving SAP at the end of May 2009 after 21 years with the company, and 13 thereof as a member of the board. Gunst will also be responsible for human resources, information technology, and SAP Labs.

* On 18 November 2008, SAP announced its ongoing engagement in the SAP AMI Integration for Utilities software. The advanced metering infrastructure (AMI) software from SAP – a pioneer solution in this area – is envisioned to bring the utilities industry one step closer to solving one of the most important technological challenges it faces over the next decade: implementing and integrating smart meter technology to provide energy more intelligently and efficiently.

* On 12 November 2008, SAP unveiled SAP enhancement package 4, the latest set of innovations for SAP’s flagship enterprise resource planning (ERP) application, SAP ERP. The enhancement package contains extended functionality for SAP ERP, which is delivered through a unique business software delivery model that offers customers the ability to adapt new functionality without the disruption of system upgrades.

* On 11 November 2008, SAP announced the release of its first sustainability report, which highlights the key measures of SAP’s corporate environmental, social and governance performance, as well as its products and services that help enable more sustainable operations of its customers.

* On 6 November 2008, SAP announced a series of initiatives focused on enhancing value in the relationship between SAP and its customers. Effective 6 November 2008, SAP has extended its maintenance offering to provide a total of nine years of support, delivering maintenance for SAP’s latest offerings through 2017.

* On 29 October 2008, SAP announced the launch of the “Best-Run Now” initiative, highlighting solution offerings that focus on optimising operations and address pressing business needs. Available in select markets with varied configurations, the offerings combine SAP software, services and special financing terms to deliver rapid time to value.

* On 21 October 2008, SAP announced that it is further expanding the scope, versatility and built-in expertise of the SAP Business ByDesign solution. New and expanded early partnerships allow for four new add-on solutions from SAP’s ecosystem, with customer-focused capabilities and expertise for payroll, payment reference data, business-to-business collaboration and tax management.

* On 14 October 2008, SAP announced the launch of SAP EcoHub, an online solution marketplace that makes it easier for customers to discover, evaluate and buy partner solutions to complement their SAP software installations.

* On 14 October 2008, SAP and Cisco announced the availability of a composite application to help organisations proactively enforce data privacy across the business network. The application is designed to help support continuous, demonstrable compliance with data privacy policies and to minimise risks.

* On 8 October 2008, Business Objects announced BusinessObjects XI 3.1, a unified business intelligence platform delivering all information to all people on one platform.

Please click here to see the financial tables in this SAP SA press release

Use of Non-GAAP financial measures

This press release contains certain financial measures such as Non-GAAP revenues, Non-GAAP operating income, Non-GAAP operating margin, free cash flow, constant currency revenue and operating income measures, as well as US dollar based Non-GAAP revenue numbers. These measures are not prepared in accordance with US GAAP and therefore are considered non-GAAP financial measures. Our non-GAAP financial measures may not correspond to non-GAAP financial measures that other companies report. The non-GAAP financial measures that we report should be considered as additional to, and not as a substitute for or superior to revenue, operating margin or our other measures of financial performance prepared in accordance with US GAAP. See the financial section of this press release for additional information regarding the Non-GAAP measures included in this press release and for the reconciliations to the corresponding US GAAP measures.

Core Enterprise Applications vendor share

The company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $38.6 billion in software and software-related service revenue as defined by the company, based on industry analyst research. For 2008, industry analysts project approximately 5% – 6% year-on-year growth for Core Enterprise Applications vendors. For its quarterly share calculation, SAP assumed that this approximate 5% – 6% growth would not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set of (approximately 40) Core Enterprise Application vendors.

Webcast/Supplementary Financial Information SAP senior management will host a press conference in Frankfurt today at 10:00 AM (CET) / 9:00 AM (GMT) / 4:00 AM (Eastern) / 1:00 AM (Pacific), followed by an investor conference at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). Both conferences will be Web cast live on the Company’s website at <http://www.sap.com/investor> and will be available for replay. Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.

SAP SAP is the world’s leading provider of business software, offering applications and services that enable companies of all sizes and in more than 25 industries to become best-run businesses. With more than 82 000 customers in over 120 countries, SAP is listed on several exchanges, including the Frankfurt stock exchange and NYSE, under the symbol “SAP”. (For more information, visit www.sap.com)

(*) SAP defines business software as comprising enterprise resource planning and related applications.

Any statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. Words such as “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “outlook”, “intend”, “may”, “plan”, “project”, “predict”, “should” and “will” and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP’s future financial results are discussed more fully in SAP’s filings with the US Securities and Exchange Commission (“SEC”), including SAP’s most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

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