Highlights – Full-year 2005
- Software revenues were Euro 2.78 billion for 2005 (2004: Euro 2.36 billion), representing an increase of 18 percent compared to the same period in 2004. This exceeded the Company’s 2005 software revenue guidance of an increase in a range of 12 percent – 14 percent. At constant currencies, software revenues increased 15 percent.
- Total revenues for 2005 were Euro 8.51 billion (2004: Euro 7.51 billion), which was an increase of 13 percent compared to 2004. At constant currencies, total revenues increased 12 percent.
- Software revenues in the U.S. increased 31 percent to Euro 820 million for 2005 (2004: Euro 625 million). At constant currencies, software revenues in the U.S. increased 28 percent.
- Software revenues in the EMEA region grew 8 percent to Euro 1.39 billion for 2005 (2004: Euro 1.29 billion). At constant currencies, software revenues in the EMEA region increased 7 percent compared to 2004. Software revenues in Germany were flat year-over-year.
- Software revenues in the APA region increased 25 percent to Euro 363 million (2004: Euro 289 million) for 2005. At constant currencies, software revenues in the APA region increased 22 percent. Software revenues in Japan increased 6 percent for 2005 to Euro 122 million. At constant currencies, software revenues in Japan were 8 percent higher.
Peer Group Share
The continued strong growth in software revenues for 2005 enabled the Company to gain significant 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 62 percent at the end of 2005. This represents a gain of two percentage points compared to the third quarter of 2005 and seven percentage points compared to the fourth 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 47 percent at the end of 2005. This represents a gain of three percentage points compared to the third quarter of 2005 and ten percentage points compared to the fourth quarter of 2004.
- Operating income for 2005 was Euro 2.33 billion (2004: Euro 2.02 billion), which was an increase of 16 percent compared to 2004. Pro forma operating income was Euro 2.41 billion (2004: Euro 2.09 billion) for 2005, representing an increase of 16 percent compared to 2004.
- The operating margin for 2005 was 27.4 percent, which was an increase of 0.50 percentage points compared to 2004. The pro forma operating margin for 2005 was 28.3 percent, which was an increase of 0.50 percentage points compared to 2004. This was the high end of the range of the Company’s 2005 pro forma operating margin guidance of an increase in a range of 0.00 – 0.50 percentage points.
- Net income for 2005 was Euro 1.50 billion (2004: Euro 1.31 billion), or Euro 4.83 per share (2004: Euro 4.22 per share), representing an increase of 14 percent compared to 2004. 2005 pro forma net income was Euro 1.55 billion (2004: Euro 1.36 billion), or pro forma Euro 5.01 earnings per share (2004: Euro 4.37 per share), representing an increase of 14 percent compared to 2004. This exceeded the Company’s 2005 pro forma earnings per share guidance of Euro 4.85 – Euro 4.95 per share.
Operating cash flow for the full year of 2005 was Euro 1.51 billion (2004: Euro 1.83 billion). Free cash flow, for the full year of 2005 was Euro 1.25 billion (2004: Euro 1.64 billion), which was 15 percent as a percentage of total revenues in 2005 (2004: 22 percent). At December 31, 2005, the Company had Euro 3.4 billion in liquid assets (December 31, 2004: Euro 3.2 billion).
Share buy-back program
In 2005, the Company bought back 3.21 million shares at an average price of Euro 129.77 (total amount: Euro 417 million). This compares to 1.14 million shares bought back in 2004. At December 31, 2005, treasury stock stood at 6.68 million shares. SAP’s current share buy-back program allows the Company to purchase up to 30 million shares. Given the Company’s strong free cash flow, generation, SAP plans to further evaluate opportunities to buy back shares in the future in order to increase the buy-back activities in 2006.
“2005 was an excellent year for SAP,” said Henning Kagermann, CEO of SAP. “We accelerated peer group share gains as well as the adoption of our Enterprise Services Architecture; we delivered the first services enabled business software suite in the industry. Most notably, we continued to demonstrate that organic growth is a very effective way to achieve success in this industry, and that it benefits our customers, partners and shareholders.”
Mr. Kagermann continued, “We expect 2006 to be a cornerstone year for SAP characterized by a series of new product launches; our product pipeline for 2006 is one of the strongest in our history. New product launches will support our Enterprise Services Architecture Roadmap, place a greater emphasis on attracting the business user and are focused more than ever on the midmarket. These products will be the foundation from which we expand from our current $30 billion addressable market to a $70 billion addressable market by 2010.”
Highlights– Fourth quarter 2005
- Software revenues increased 18 percent to Euro 1.18 billion (2004: Euro 1.00 billion) for the fourth quarter of 2005. At constant currencies, software revenues increased 12 percent.
- Fourth quarter 2005 total revenues were Euro 2.75 billion (2004: Euro 2.40 billion), which was an increase of 15 percent compared to the fourth quarter for 2004. At constant currencies, total revenues increased 9 percent.
- Operating income for the fourth quarter of 2005 Euro 980 million (2004: Euro 833 million), which was an increase of 18 percent compared to the same period last year. Pro forma operating income for the 2005 fourth quarter was Euro 1.01 billion (2004: Euro 851 million), representing an increase of 19 percent compared to fourth quarter of 2005.
- The operating margin for the 2005 fourth quarter was 35.6 percent, which was up by 0.90 percentage points compared to the same period in 2004. The pro forma operating margin was 36.8 percent for the fourth quarter of 2005, which was an increase of 1.40 percentage points compared to the same period in 2004.
- Net income for the fourth quarter of 2005 was Euro 619 million (2004: Euro 542 million), or Euro 2.00 per share (2004: Euro 1.74 per share), representing an increase of 14 percent compared to the fourth quarter of 2004. Pro forma net income for the 2005 fourth quarter was Euro 642 million (2004: Euro 554 million), or pro forma Euro 2.07 per share (2004: Euro 1.78 per share), representing an increase of 16 percent compared to the same period in 2004.
The Company gave the following outlook for the full year 2006.
- To provide additional transparency, the Company is providing for the first time an outlook for product revenues, which is comprised of software and maintenance revenues. The Company expects full-year 2006 product revenues to increase in a range of 13 percent – 15 percent compared to 2005. This growth rate is based on the Company’s expectation for full-year 2006 software revenue growth in a range of 15 percent – 17 percent compared to 2005.
- The Company expects the full-year 2006 pro forma operating margin, which excludes stock-based compensation and acquisition-related charges, to increase in a range of 0.5 – 1.0 percentage points compared to 2005.
- The Company expects full-year 2006 pro forma earnings per share, which exclude stock-based compensation, acquisition-related charges and impairment-related charges, to be in a range of Euro 5.80 to Euro 6.00 per share.
- The outlook is based on an assumed U.S. Dollar to Euro exchange rate of $1.23 per Euro 1.00.
On January 1, 2006, SAP adopted SFAS 123R to account for its share based payments. Based on the share based compensation awards issued and outstanding as of December 31, 2005 and the SOP 2002 and STAR grantings currently expected for 2006, SAP expects approximately Euro 75 million share based compensation expense for 2006. Thereof Euro 30 million are expected in the first quarter and the rest (approximately Euro 45 million) are expected to be spread evenly over the second, third and fourth quarter. The final total share based payment expense in 2006 might deviate from the number above because of changes to the expected forfeiture rate or potential additional grants.
In April 2005, U.S. based ePlus, Inc. sued SAP in the U.S. for alleged patent infringement. ePlus seeks unspecified monetary damages, permanent injunctive relief, and up to treble damages for alleged wilful infringement. Based on information available as of December 31, 2005, and as of today management does not believe any accrual for this matter in our 2005 results is warranted. Management will be required to review the status of these legal proceedings at the time our final results are published in March and would be required to adjust the figures announced today if information becomes available at that time that would require management to reflect any accrual for this matter in our 2005 results.
Key events – Fourth quarter 2005
- In the fourth quarter, SAP demonstrated strong momentum, announcing major contracts in all key regions. These included, in the Americas, Harley Davidson, High Industries, New York Times, Whirlpool; in EMEA, PSA, Hugo Boss, Norsk Hydro, Holcim; in Asia/Pacific, China Minsheng Bank, Petro China, East Japan Railway, Toyota Tsusho.
- Expanding its portfolio of partner-developed business management applications for small and midsize enterprises (SMEs), SAP announced on December 7, 2005, twelve solutions from independent software vendors (ISVs) based on SAP Business One. The new solutions certified for integration with SAP Business One are being introduced as ISVs worldwide embrace the SAP PartnerEdge channel partner program.
- In a continuing demonstration of its leadership role in laying the groundwork for the industry’s transformation to services-oriented architecture (SOA), SAP announced on December 5, 2005 the inception of the Industry Value Network for Banks, comprising C-level IT banking executives and chief architects who will jointly with SAP define the banking-specific enterprise services required to make SOA a reality for the banking industry. Leading banks throughout the world including ABN Amro, Absa, Barclays, Banco Bilbao Vizcaya Argentaria (BBVA), Credit Suisse, Deutsche Postbank, ING and Standard Bank have agreed to collaborate with SAP in this initiative.
- China Minsheng Banking Corporation Limited (CMBC), Accenture and SAP announced on November 28, 2005, an agreement to cooperate in building a world-class core banking system for CMBC, the first private Chinese bank. The agreement was formalized at a signing ceremony in Beijing, China.
- In a move to further extend its leading position in the retail software space, SAP acquired privately held Khimetrics, Inc., a leading U.S.-based provider of enterprise software solutions for the retail sector.
- In a move to solidify its position as the premier provider to companies of all sizes, SAP unveiled on October 24, 2005 the latest version of SAP Business One, its affordable business management software solution designed to address the needs of rapidly growing small and midsize enterprises.
- In a move to strengthen its leadership position in the CRM industry, SAP announced on October 17, 2005, that it is extending its Safe Passage program of SAP applications, technology and support in a special offer for companies running Siebel software. The new offering from SAP provides “safe passage” to companies grappling with the uncertainties arising from Siebel’s pending acquisition by Oracle Corporation and the resulting challenges these customers may face. First available in the USA, the offer will be successively extended to other countries.
- On October 5, 2005, SAP and Siemens Financial Services (SFS) announced simple, affordable and all-inclusive financing for existing and prospective SAP customers of all sizes. Marketed through “SAP Financing” and offered through SFS, the new financial services are tailored to meet the specific cash-flow requirements of the customer and conveniently cover the costs of software, hardware, internal and external implementation services and maintenance during project installation for SAP solutions.
- SAP announced on October 28, 2005 that it plans to propose to its shareholders a change to its share capital in 2006. The transaction would be structured for German company law purposes as an increase in subscribed capital by conversion of additional paid-in capital and retained earnings pursuant to which each shareholder will receive three additional shares (“bonus shares” / “dividend stock”) for each existing SAP share held. The transaction will have the effect of a stock split to the extent that SAP’s share price will be divided by four. If approved by SAP shareholders and after giving effect to the transaction, each SAP ADR will represent one SAP Ordinary Share rather than 1/4 of one Ordinary Share today.
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 and will be available for replay purposes as well. Supplementary financial information pertaining to the quarterly results can be found here.