SAP Announces Preliminary 2007 Second Quarter and Six Months Results

Feature Article | July 19, 2007 by admin

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Highlights – Second Quarter 2007

Revenues

  • Software and software related service revenues for the second quarter of 2007 were Euro 1.71 billion (2006: Euro 1.48 billion), which is an increase of 16 percent (19 percent at constant currencies) compared to the second quarter of 2006.
  • Software revenues for the second quarter of 2007 were Euro 715 million (2006: Euro 604 million), representing an increase of 18 percent (21 percent at constant currencies) compared to the second quarter of 2006.
  • Total revenues were Euro 2.42 billion for the 2007 second quarter (2006: Euro 2.20 billion), which represented an increase of 10 percent (14 percent at constant currencies) compared to the same period of 2006.

Income

  • Operating income for the second quarter of 2007 was Euro 577 million (2006: Euro 524 million), which was an increase of 10 percent compared to the second quarter of 2006.
  • The operating margin for the 2007 second quarter was 23.8 percent, which was down slightly from the 23.9 percent operating margin reported for the second quarter of 2006 due to investments of approximately Euro 30 million to address new untapped segments in the midmarket.
  • Net income for the 2007 second quarter was Euro 449 million (2006: Euro 415 million), or Euro 0.37 per share (2006: Euro 0.34 per share), representing an increase of 8 percent compared to the second quarter of 2006. Second quarter 2007 net income and earnings per share were positively impacted by an effective tax rate of 25.8 percent. As in the second quarter of 2006, the effective tax rate was partly influenced by non-recurring tax effects.

Core Enterprise Applications Vendor Share

SAP continued to gain share in the second quarter of 2007, marking the sixth consecutive quarter of share gains. Based on software and software related service revenues on a rolling four quarter basis, SAP’s worldwide share of Core Enterprise Applications vendors, which account for approximately Dollar 35.3 billion in software and software related service revenues as defined by the Company based on industry analyst research, increased to 26.0 percent for the four quarter period ended June 30, 2007 compared to 25.1 percent for the four quarter period ended March 31, 2007 and 23.0 percent for the four quarter period ended June 30, 2006, representing a the year-over-year share gain of 3 percentage points.
Also, the Company reported that its midmarket business increased to 32 percent of order entry for the rolling four quarter period ended June 30, 2007.
“The second quarter was an excellent quarter for SAP with double digit growth in all regions, and we continued to gain share against core enterprise application vendors,” said Henning Kagermann, CEO of SAP AG. “Our performance demonstrates our global strength. For the remainder of the year we plan to build upon our first half success by further expanding the adoption of our Enterprise Services Oriented Architecture (ESOA) and growing our already leading presence in the midmarket.”

Highlights – Six Months 2007

Revenues

  • Software and software related service revenues for the first six months of 2007 were Euro 3.23 billion (2006: Euro 2.87 billion), which is an increase of 13 percent (17 percent at constant currencies) compared to the first six months of 2006.
  • Software revenues for the 2007 first half were Euro 1.28 billion (2006: Euro 1.12 billion), representing an increase of 14 percent (19 percent at constant currencies) compared to the 2006 first half.
  • Total revenues were Euro 4.59 billion for the first half of 2007 (2006: Euro 4.24 billion), which represented an increase of 8 percent (12 percent at constant currencies) compared to the same period of 2006.

Income

  • Operating income for the 2007 first half was Euro 1.01 billion (2006: Euro 933 million), which was an increase of 8 percent compared to the 2006 first half.
  • The operating margin for the 2007 six month period was 22 percent, which was flat compared to the same period last year due to investments of approximately Euro 50 million to address new untapped segments in the midmarket.
  • Net income for the 2007 first half was Euro 759 million (2006: Euro 697 million), or Euro 0.63 per share (2006: Euro 0.57 per share), representing an increase of 9 percent compared to the same period of 2006. First half 2007 net income and earnings per share were positively impacted by a second quarter effective tax rate of 25.8 percent. As in the second quarter of 2006, the effective tax rate was partly influenced by non-recurring tax effects.

Cash flow

Operating cash flow for the first six months of 2007 was Euro 1.02 billion (2006: Euro 977 million). Free cash flow for the 2007 six month period was Euro 822 million (2006: Euro 846 million), which was 18 percent of total revenues (2006: 20 percent). At June 30, 2007, the Company had Euro 2.8 billion in cash and cash equivalents and short term investments (December 31, 2006: Euro 3.3 billion).

Share buy-back

In the second quarter of 2007, the Company bought back 4.6 million shares at an average price of Euro 36.62 (total amount: Euro 167 million). This compares to 12.5 million shares (total amount: Euro 515 million) bought back in the second quarter of 2006. Of the total shares purchased in the second quarter of 2007, approximately 0.8 million shares were used to serve exercises under SAP’s share based compensation programs. The number of shares bought back in the second quarter of 2007 represented 0.36 percent of the total shares outstanding. As of June 30, 2007, the Company held Treasury stock in the amount of 62 million shares (approximately 4.9 percent of total shares outstanding) at an average price of Euro 35.43. In the first half of 2007 the company invested Euro 505 million buying back approximately 14.2 million shares at an average price of Euro 35.63. Given the Company’s strong free cash flow generation, SAP plans to spend a similar amount for share buy-backs in 2007 as it did in 2006 under its current share buy-back authorization. All prior year share related numbers above have been adjusted to account for the capital share increase that took effect in December 2006 that effectively increased the number of shares outstanding four-fold.

Business outlook

The Company continues to provide the following outlook for the full-year 2007 as described in its January 24th, 2007 fourth quarter results press release.

  • The Company expects full-year 2007 software and software related service revenues to increase in a range of 12 percent − 14 percent at constant currencies compared to 2006 growth of 12 percent at constant currencies.
  • In order to address additional growth opportunities in new, untapped segments in the midmarket, the Company will invest an additional Euro 300 million – Euro 400 million over eight quarters to build up a new business, of which approximately Euro 50 million was already invested over the first two quarters of 2007. Depending on the exact timing of these accelerated investments, this is equivalent to the Company reinvesting approximately one to two percentage points of margin in 2007 into additional future growth opportunities. Therefore, the Company expects the full-year 2007 operating margin to be in the range of 26.0 percent to 27.0 percent compared to the 2006 operating margin of 27.3 percent.
  • The Company is projecting an effective tax rate of 32.5 percent − 33.0 percent for 2007.

Source: SAP AG

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