SAP Reports Record Third Quarter 2011 Software Revenue

October 26, 2011 by SAP News

SAP AG (NYSE: SAP) today announced its financial results for the third quarter ended September 30, 2011.

WALLDORF

  • 7th Consecutive Quarter of Double-Digit Growth in Non-IFRS Software and Software-Related Service Revenue
  • 27% Increase in Third Quarter Non-IFRS Operating Profit at Constant Currencies Leads to 3.0 Percentage Point Increase in Non-IFRS Operating Margin at Constant Currencies
  • 36% Increase in Third Quarter Non-IFRS Earnings Per Share
  • €3 Billion in Operating Cash Flow for the First Nine Months 2011 45% Increase Year-over-Year
  • Third Quarter IFRS Operating Profit and Operating Margin Positively Impacted by Reduction of TomorrowNow Litigation Provision by €723 million
  • SAP Reiterates the High End of its Full Year 2011 Outlook

“We are very pleased with the exceptionally strong top-line growth this quarter. Continued efficiency gains combined with operational excellence led to a very strong operating margin performance,” said Werner Brandt, CFO of SAP. “Our momentum puts us on pace to achieve a record cash flow year.”

“SAP’s third quarter software revenue grew at its fastest rate in a decade because customers are shifting their investments to software that helps them grow and innovate. Our core solutions together with our industry-leading innovation in mobility, in-memory computing and cloud deliver exceptional value to our customers across all regions and industries,” said Bill McDermott, Co-CEO of SAP. “This is a growth company executing on a powerful vision.”

“Our strong performance and market share gains clearly show that our customer-focused innovation strategy is winning,” said Jim Hagemann Snabe, Co-CEO of SAP. “Delivering innovations in non-disruptive steps reduces the costs for our customers so they can invest in our breakthrough technologies to speed up decisions, strengthen customer relationships and drive growth. When our customers win, we win.”

FINANCIAL HIGHLIGHTS – Third Quarter 2011

Third Quarter 20111)
  IFRS Non-IFRS2)
€ million, unless
otherwise stated
Q3 2011 Q3 2010 % change Q3 2011 Q3 2010 % change % change const. curr.3)
Software revenue  841 656 28% 841 656 28% 32%
Support revenue 1.757 1.559 13% 1.758 1.595 10% 13%
Software and software-related service revenue 2.691 2.316 16% 2.692 2.352 14% 18%
Total revenue 3.409 3.003 14% 3.410 3.039 12% 15%
Total operating expenses -1.650 -2.287 -28% -2.279 -2.124 7% 10%
Operating profit 1.759 716 146% 1.131 915 24% 27%
Operating margin (%) 51,6 23,8 27,8pp 33,2 30,1 3,1pp 3,0pp
Profit after tax 1.251 501 150% 860 629 37%  
Basic earnings per share (€) 1,05 0,42 150% 0,72 0,53 36%  
Number of employees (FTE) 54.589 52.921 3% na na na na
1) All figures are unaudited.
2) Adjustments in the revenue line items are for the support revenue that would have been recognized had the acquired entities remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges, share-based compensation expenses, restructuring and discontinued activities.
3) Constant currency revenue and operating profit figures are calculated by translating revenue and operating income of the current period using the average exchange rates from the previous year’s respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year’s non-IFRS constant currency numbers with the non-IFRS number of the previous year’s respective period.

Revenue – Third Quarter 2011

  • IFRS software revenue was €841 million (2010: €656 million), an increase of 28% (32% at constant currencies).
  • IFRS software and software-related service revenue was €2.69 billion (2010: €2.32 billion), an increase of 16%. Non-IFRS software and software-related service revenue was €2.69 billion (2010: €2.35 billion), an increase of 14% (18% at constant currencies).
  • IFRS total revenue was €3.41 billion (2010: €3.00 billion), an increase of 14%. Non-IFRS total revenue was €3.41 billion (2010: €3.04 billion), an increase of 12% (15% at constant currencies).

Third quarter 2011 non-IFRS software and software-related service revenue and total revenue exclude a deferred support revenue write-down from acquisitions of €1 million (2010: €36 million).

Profit – Third Quarter 2011

  • IFRS operating profit was €1.76 billion (2010: €716 million), an increase of 146%. Non-IFRS operating profit was €1.13 billion (2010: €915 million), an increase of 24% (27% at constant currencies).
  • IFRS operating margin was 51.6% (2010: 23.8%), an increase of 27.8 percentage points. Non-IFRS operating margin was 33.2% (2010: 30.1%), or 33.1% at constant currencies, an increase of 3.1 percentage points (3.0 percentage points at constant currencies).
  • IFRS profit after tax was €1.25 billion (2010: €501 million), an increase of 150%. Non-IFRS profit after tax was €860 million (2010: €629 million), an increase of 37%. IFRS basic earnings per share was €1.05 (2010: €0.42), an increase 150%. Non-IFRS basic earnings per share was €0.72 (2010: €0.53), an increase of 36%.
  • The IFRS and non-IFRS effective tax rates in the third quarter of 2011 were 28.7% (2010: 27.3%) and 23.3% (2010: 28.5%), respectively.

Third quarter 2011 non-IFRS operating profit excludes a deferred support revenue write-down from acquisitions of €1 million, acquisition-related charges of €110 million, profit from discontinued activities of €723 million, share-based compensation expenses of -€17 million and restructuring expenses of €1 million (2010: €36 million, €89 million, expenses of €45 million, €31 million and -€2 million). Third quarter 2011 non-IFRS profit after tax and non-IFRS basic earnings per share exclude a deferred support revenue write-down from acquisitions of €1 million, acquisition-related charges of €74 million, profit from discontinued activities of €454 million, share-based compensation expenses of -€13 million and restructuring expenses of €1 million (2010: €24 million, €64 million, expenses of €20 million, €22 million and -€1 million) net of tax.

FINANCIAL HIGHLIGHTS – Nine Months 2011

Nine Months 20111)
  IFRS Non-IFRS2)
€ million, unless
otherwise stated
9M 2011 9M 2010 % change 9M 2011 9M 2010 % change % change const. curr.3)
Software revenue  2.226 1.757 27% 2.226 1.757 27% 31%
Support revenue 5.093 4.479 14% 5.119 4.515 13% 15%
Software and software-related service revenue 7.597 6.521 17% 7.623 6.557 16% 18%
Total revenue 9.733 8.406 16% 9.759 8.442 16% 18%
Total operating expenses -6.520 -6.359 3% -6.830 -6.057 13% 15%
Operating profit 3.213 2.047 57% 2.929 2.386 23% 25%
Operating margin (%) 33,0 24,4 8,6pp 30,0 28,3 1,7pp 1,7pp
Profit after tax 2.242 1.379 63% 2.091 1.629 28%  
Basic earnings per share (€) 1,88 1,16 62% 1,76 1,37 28%  
Number of employees (FTE) 54.589 52.921 3% na na na na
1) All figures are unaudited.
2) Adjustments in the revenue line items are for the support revenue that would have been recognized had the acquired entities remained stand-alone entities but that SAP is not permitted to recognize as revenue under IFRS as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges, share-based compensation expenses, restructuring and discontinued activities.
3) Constant currency revenue and operating profit figures are calculated by translating revenue and operating income of the current period using the average exchange rates from the previous year’s respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year’s non-IFRS constant currency numbers with the non-IFRS number of the previous year’s respective period.

Revenue – Nine Months 2011

  • IFRS software revenue was €2.23 billion (2010: €1.76 billion), an increase of 27% (31% at constant currencies).
  • IFRS software and software-related service revenue was €7.60 billion (2010: €6.52 billion), an increase of 17%. Non-IFRS software and software-related service revenue was €7.62 billion (2010: €6.56 billion), an increase of 16% (18% at constant currencies).
  • IFRS total revenue was €9.73 billion (2010: €8.41 billion), an increase of 16%. Non-IFRS total revenue was €9.76 billion (2010: €8.44 billion), an increase of 16% (18% at constant currencies).

Nine months 2011 Non-IFRS software and software-related service revenue as well as total revenue exclude a deferred support revenue write-down from acquisitions of €26 million (2010: €36 million).

Profit – Nine Months 2011

  • IFRS operating profit was €3.21 billion (2010: €2.05 billion), an increase of 57%. Non-IFRS operating profit was €2.93 billion (2010: €2.39 billion), an increase of 23% (25% at constant currencies).
  • IFRS operating margin was 33.0% (2010: 24.4%), an increase of 8.6 percentage points. Non-IFRS operating margin was 30.0% (2010: 28.3%), or 30.0% at constant currencies, an increase of 1.7 percentage points (1.7 percentage points at constant currencies).
  • IFRS profit after tax was €2.24 billion (2010: €1.38 billion), an increase of 63%. Non-IFRS profit after tax was €2.09 billion (2010: €1.63 billion), an increase of 28%. IFRS basic earnings per share was €1.88 (2010: €1.16), an increase of 62%. Non-IFRS basic earnings per share was €1.76 (2010: €1.37), an increase of 28%.
  • The IFRS and non-IFRS effective tax rates in the first nine months 2011 were 28.7% (2010: 26.9%) and 26.7% (2010: 27.1%), respectively.

Nine months 2011 non-IFRS operating profit excludes a deferred support revenue write-down from acquisitions of €26 million, acquisition-related charges of €333 million, profit from discontinued activities of €711 million, share-based compensation expenses of €66 million and restructuring expenses of €2 million (2010: €36 million, €209 million, expenses of €46 million, €49 million and -€1 million). Nine months 2011 non-IFRS profit after tax and non-IFRS basic earnings per share exclude a deferred support revenue write-down from acquisitions of €17 million, acquisition-related charges of €224 million, profit from discontinued activities of €442 million, share-based compensation expenses of €48 million and restructuring expenses of €2 million (2010: €24 million, €152 million, expenses of €38 million, €36 million and €0 million) net of tax.

Cash Flow – Nine Months 2011

Operating cash flow was €2.97 billion (2010: €2.05 billion), an increase of 45%. Free cash flow was €2.64 billion (2010: €1.85 billion), an increase of 42%. Free cash flow was 27% of total revenue (2010: 22%). At September 30, 2011, SAP had a total group liquidity of €4.93 billion (December 31, 2010: €3.53 billion), which includes cash and cash equivalents and short term investments. Net liquidity at September 30, 2011 was €1.00 billion compared to ‑€850 million at December 31, 2010. This is mainly due the positive development of the operating cash flow in the first nine months of 2011.

Given SAP’s strong free cash flow generation over the first nine months of 2011, the Company plans to further evaluate buying back shares in the future. On September 30, 2011, the Company held approximately 38 million treasury shares (approximately 3.1% of total shares outstanding) at an average price of €36.05. In the first nine months of 2011, the Company bought back 3.6 million shares at an average price of €43.84 (total amount: €158 million). These stock purchases were mainly in connection with SAP’s share-based compensation plans.

Business Outlook

SAP’s pipeline continues to remain very strong and companies continue to invest in IT, in particular in innovative software solutions. Due to the ongoing uncertain macroeconomic environment, the Company’s outlook for the full year 2011 remains unchanged from its previous guidance reported on July 26th, 2011 (except for the IFRS effective tax rate):

  • The Company expects full-year 2011 non-IFRS software and software-related service revenue to increase in a range of 10% – 14% at constant currencies (2010: €9.87 billion), but expects to reach the high end of the range.
  • The Company expects full-year 2011 non-IFRS operating profit to be in a range of €4.45 billion – €4.65 billion at constant currencies (2010: €4.01 billion), but expects to reach the high end of the range, resulting in 2011 non-IFRS operating margin increasing in a range of 0.5 – 1.0 percentage points at constant currencies (2010: 32.0%).
  • The Company projects a full-year 2011 IFRS effective tax rate of 28.5% – 29.5% (2010: 22.5%) and a non-IFRS effective tax rate of 27.5% – 28.5% (2010: 27.3%).

Additional Information

Third quarter and year- to-date 2011 revenue, profit and cash flow figures include the revenue, profits and cash flows from Sybase. For the prior-year periods those numbers were only included since the acquisition (July 26, 2010).

For a more detailed description of the non-IFRS adjustments and their limitations as well as our constant currency and free cash flow figures see Explanations of Non-IFRS Measures online (www.sap.com/investor).

SAP has completed a review of the appropriate re-measurement of the provision recorded for the TomorrowNow litigation following the motion granted by the judge on the original jury verdict. The judge’s decision vacated the original verdict of $1.3 billion, but gave Oracle the choice of accepting $272 million or seeking a new trial. The deadline for Oracle to make that choice will vary depending on the outcome and timing of a ruling on Oracle’s motion for an early appeal. If the early appeal is denied and Oracle rejects the reduced damages of $272 million, then there will be a new trial to determine damages.

The re-measurement of the provision additionally reflects currency exchange rate changes, changes in the estimate of related legal expenses and the fact that TomorrowNow reached an agreement in the copyright case with the United States Department of Justice in the third quarter for $20 million. As this amount was paid in the third quarter it is no longer included in the provision recorded for the litigation.

While the resulting re-measurement of the TomorrowNow litigation provision favorably impacts SAP’s IFRS operating profit and margin it does not have an effect on SAP’s non-IFRS operating profit and margin.

Major Customer Wins

In the third quarter of 2011, SAP closed the following major contracts.

EMEA
TOTAL SA, Unilever PLC, AOK, DekaBank Deutsche Girozentrale, Givaudan Suisse SA, Royal Bank of Scotland Group Plc

Americas
Automercados S.A. de C. V, Johnson Controls, Inc., American Railcar Industries, Inc, Waters Corporation, Bristol-Myers Squibb Company, Pacific Coast Building Products

Asia Pacific/Japan
Assam Power Distribution Company Ltd., Beijing Toread Outdoor Products Co., Union Steel Mfg. Co., Ltd., Maharashtra State Electricity, Transfield Services Limited, Far East Organization

SAP Business ByDesign
SOUPLETUBE, Markwins International Corp, INFORA GmbH, AbsolutData Research & Analytics, Wireless Advanced Communications, SolarBridge Technologies, Marsulex Environmental Technologies Corp, BIOBASE GmbH

Q3 2011 Interim Report

SAP’s Q3 2011 Interim Report was published today and is available at www.sap.com/investor for download. The interim report includes an update on SAP’s sustainability performance.

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Webcast
SAP senior management will host a conference call Wednesday, October 26th at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The conference call will be web cast live on the Company’s website at www.sap.com/investor and will be available for replay.

About SAP
As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device – SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 176,000 customers to operate profitably, adapt continuously, and grow sustainably. For more information, visit www.sap.com.

# # #

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Appendix – Financial Information to Follow

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