SAP Software Revenues Increase 16 Percent

July 21, 2005 by admin

Revenues

  • Software revenues were Euro 576 million for the second quarter of 2005 (2004: Euro 497 million), representing an increase of 16 percent compared to the same period in 2004. At constant currencies, software revenues increased 16 percent year-over-year.
  • Total revenues for second quarter of 2005 were Euro 2.02 billion (2004: Euro 1.8 billion), which was an increase of 13 percent compared to the second quarter of 2004. At constant currencies, total revenues increased 14 percent year-over-year.
  • Software revenues in the U.S. increased 24 percent to Euro 174 million for the second quarter of 2005 (2004: Euro 140 million). At constant currencies, software revenues in the U.S. increased 27 percent year-over-year.
  • Software revenues in the EMEA region grew 9 percent to Euro 289 million for the second quarter of 2005 (2004: Euro 266 million). At constant currencies, software revenues in EMEA increased 8 percent compared to the second quarter of 2004.
  • Software revenues in the APA region increased 23 percent to Euro 85 million (2004: Euro 69 million) for the second quarter of 2005. At constant currencies, software revenues in the APA region increased 20 percent compared to the same period last year.

Peer Group Share

The strong software revenue results ($696 million globally and $210 million in the U.S. on a quarter-end U.S. dollar exchange rate basis) enabled the Company to continue to gain share against its peer group worldwide and in the U.S. On a rolling four quarter basis, the Company’s worldwide share against its peer group based on software revenues was 58 percent at the end of the second quarter of 2005 compared to 57 percent at the end of the first quarter of 2005 and 54 percent at the end of the second quarter of 2004. In the U.S., on a rolling four quarter basis, the Company’s share against its peer group based on software revenues was 41 percent at the end of the second quarter of 2005 compared to 40 percent at the end of the first quarter of 2005 and 36 percent at the end of the second quarter of 2004.

Income

  • Operating income for the second quarter of 2005 was Euro 460 million (2004: Euro 391), which was an increase of 18 percent compared to the second quarter of 2004. Pro forma operating income was Euro 496 million (2004: Euro 428 million) for the quarter, representing an increase of 16 percent compared to the same period in 2004.
  • The operating margin for the second quarter of 2005 was 22.8 percent, which was up by 0.80 percentage points compared to the same quarter in 2004. The pro forma operating margin for the second quarter of 2005 was 24.6 percent, which represented an increase of 0.60 percentage points compared to the same period in 2004.
  • Net income for the second quarter of 2005 was Euro 289 million (2004: Euro 249 million), or Euro 0.93 per share (2004: Euro 0.80 per share), representing an increase of 16 percent compared to the second quarter of 2004. Second quarter 2005 pro forma net income was Euro 314 million (2004: Euro 273 million), or pro forma Euro 1.01 earnings per share (2004: Euro 0.87 per share), representing an increase of 15 percent compared to the second quarter of 2004.

HIGHLIGHTS – Six Months 2005: Revenues

  • Software revenues increased 16 percent to Euro 1.0 billion (2004: Euro 867 million) for the 2005 six month period. At constant currencies, software revenues increased 17 percent for the first half.
  • Six month 2005 total revenues were Euro 3.7 billion (2004: Euro 3.3 billion), which was an increase of 12 percent compared to the same 2004 six month period. At constant currencies, total revenues for the first six months of 2005 increased 13 percent.

HIGHLIGHTS – Six Months 2005: Income

  • Operating income for the 2005 six month period was Euro 834 million (2004: Euro 724 million), which was an increase of 15 percent compared to the same period last year. Pro forma operating income for the first six months of 2005 was Euro 877 million (2004: Euro 760 million), representing an increase of 15 percent compared to the first six months of 2004.
  • The operating margin for the 2005 six month period was 22.3 percent, which was up 0.60 percentage points compared to the same period in 2004. The pro forma operating margin was 23.4 percent for the first half of 2005, which increased by 0.60 percentage points compared to the same period in 2004.
  • Net income for the first half of 2005 was Euro 543 million (2004: Euro 478 million), or Euro 1.75 per share (2004: Euro 1.54 per share), representing an increase of 14 percent compared to the first half of 2004. Pro forma net income for the 2005 six month period was Euro 573 million (2004: Euro 502 million), or pro forma Euro 1.85 per share4 (2004: Euro 1.61 per share), representing an increase of 14 percent compared to the 2004 six month period.

Cash Flow

Operating cash flow for the first half of 2005 was Euro 777 million (2004: Euro 1.2 billion). Free cash flow, which was Euro 665 million for the first six months of 2005 (2004: Euro 1,087), as a percentage of total revenues was 18 percent in 2005 (2004: 33 percent). At June 30, 2005, the Company had Euro 3.4 billion in liquid assets (December 31, 2004: Euro 3.2 billion).
“We are pleased to report another quarter of solid revenue, operating income and earnings per share growth,” said Henning Kagermann, CEO of SAP. “Due to strong software revenue results in each region, we continued to gain share against our peer group and extend our lead in the U.S. market.”
Mr. Kagermann continued, “We believe that the increased investments in our technology and products have provided SAP with a sizeable competitive lead in delivering the next generation software solutions based on our Enterprise Services Architecture (ESA). SAP NetWeaver and mySAP ERP, the first Service Oriented Architecture (SOA) based solution, are both receiving strong acceptance in the market. Following our ESA roadmap we will deliver the entire mySAP Business Suite on SAP NetWeaver in the next few months. This puts SAP in the clear lead as being the first company to provide a full suite of SOA based software solutions to the market. The next step is to bring the complete Business Process Platform to the market. We expect these investments to carry us well into the next decade and to help drive future growth.”

Business outlook

The Company has not changed its outlook provided in April and continues to provide the following guidance for the full year 2005.

  • The Company expects full-year 2005 software revenues to increase in a range of 10 percent – 12 percent compared to 2004.
  • The Company expects the full-year 2005 pro forma operating margin, which excludes stock-based compensation and acquisition-related charges, to increase in a range of 0.0 – 0.5 percentage points compared to 2004.
  • The Company expects full-year 2005 pro forma earnings per share, which excludes stock-based compensation, acquisition-related charges and impairment-related charges, to be in the range of Euro 4.70 to Euro 4.80 per share.
  • The outlook is based on an assumed average U.S. Dollar to Euro exchange rate of $1.30 per Euro 1.00.

Share Buy-Back Program

§SAP’s current share buy-back program allows the Company to purchase shares in the amount of up to 10 percent of the total shares outstanding, or approximately 30 million shares. In the first half of 2005, the Company bought back 2.2 million shares at an average price of Euro123.33 (total amount: Euro 276 million). This compares to 0.4 million shares bought back in the first half of 2004. At June 30, 2005, treasury stock stood at 6.6 million shares compared to 5.4 million shares at December 31, 2004. Given the Company’s strong free cash flow generation, SAP plans to continue to evaluate opportunities to buy back shares in the future.

SFAS 123

§On January 1, 2006, SAP will adopt SFAS 123R to account for its share based payments. Based on the share based compensation awards issued and outstanding as of June 30, 2005, SAP expects approximately Euro 55 million compensation expense for 2006. If the current accounting method (APB 25) would be kept, compensation expense for these share based compensation awards would be approximately Euro 10 million based on the presumption that SAP’s stock price, the Goldman Sachs Software Index and the U.S. dollar to Euro exchange rate remained unchanged in 2006 from the respective values at June 30, 2005. Consequently the implementation of SFAS 123R will in 2006 result in an incremental expense of Euro 45 million for the share based payment awards granted until today. The total share based payment expense in 2006 depends on the share based payment awards to be granted until the end of 2006.

KEY EVENTS IN THE SECOND QUARTER OF 2005

  • Major contracts in the second quarter of 2005 include Amgen, Banco Rural, Centex, Clark County, Procter & Gamble in the Americas; Altana, Burberry, Caixa d’Estalvis de Catalunya, Rabobank in EMEA; Aozara Bank, Bank International Indonesia, China Petroleum & Chemical, Fuji Photo Film, United Laboratories in Asia/Pacific.
  • More than ten thousand customers, prospects and partners participated in the SAPPHIRE conferences in Europe (Copenhagen, April 26-28, 2005) and North America (Boston, May 17-19, 2005). The conferences served as forums in which SAP presented new products and developments. The further development of SAP’s NetWeaver platform was the focal point of this year’s SAPPHIRE conferences.
  • SAP AG and Microsoft Corp. announced at the SAPPHIRE conference held in Copenhagen in April that they are jointly developing and planning to offer a new product, code-named “Mendocino,” that is planned to help companies gain a competitive advantage by revolutionizing the way information workers access, analyze and use enterprise data to make better business decisions. “Mendocino” is planned to link SAP process functionality directly to Microsoft Office applications. Users of this product, the first to be developed jointly by SAP and Microsoft, would enjoy the familiarity of Microsoft Office as they access SAP’s best-practice business processes and information.
  • SAP AG and Siemens AG announced in April a global strategic alliance to deliver an integrated information technology (IT) offering to the healthcare provider market. The integrated Siemens Soarian and SAP Healthcare solution, based on the SAP NetWeaver platform, will first be made available in the United States, Germany and Japan. With the joint solution from Siemens and SAP, healthcare organizations would conduct collaborative business planning, in-depth financial analysis and accounting and human resources tasks.
  • SAP AG announced in May 2005 that the technology market leaders Adobe, Cisco, Computer Associates, EMC, Intel, Macromedia, Mercury, Microsoft, Symantec and VERITAS are aligning around SAP’s Enterprise Services Architecture (ESA). These SAP partners plan to license ESA to provide “Enterprise Services-Ready” solutions that will deliver on the promise of Web services by providing enhanced flexibility, greater speed, lowered costs and diminished risk.
  • SAP announced in June the next wave of its Safe Passage program of SAP applications and support, joining with its channel partners in a special program designed specifically to allow small and midsize enterprises (SMEs) running PeopleSoft and JD Edwards solutions to move to SAP in the context of a clear and future-proof IT strategy. Samsonite, one of the world’s largest manufacturers and distributors of luggage, took advantage of SAP’s Safe Passage program to transform its global retail and wholesale operations. Beginning in January 2006, Samsonite will transition from its existing JD Edwards solution environment for the wholesale and retail industry to mySAP Business Suite and leverage SAP’s industry-specific functionality.
  • Leaders of business and government from around the world gathered in June for a global summit on RFID policy at the US Chamber of Commerce in Washington, DC. The event was sponsored by SAP, the US Department of Commerce and the US Chamber of Commerce’s National Chamber Foundation. This was the third such RFID conference to be sponsored by SAP, following similar events in Berlin and Brussels.
  • In June, SAP AG announced the acquisition of Lighthammer Software Development Corporation, a privately-held, leading supplier of enterprise manufacturing intelligence and collaborative manufacturing software, based in Exton, Pennsylvania. The acquisition is expected to deliver value through improved manufacturing performance with rapid time-to-value for SAP’s installed base of more than 12,000 manufacturing customers. It also confirms SAP’s policy of making targeted acquisitions to augment its technology portfolio.
  • SAP AG’s annual general meeting of shareholders, held in Mannheim on May 12, 2005, approved a dividend of Euro1.10 per ordinary share. Effective with the close of the annual general meeting, Dietmar Hopp, one of the co-founders of SAP, former CEO and former Chairman of the Supervisory Board, resigned as a member of the Supervisory Board.

Source: SAP AG

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