Another Good Year for SAP’s Established Business Company Achieves Double Digit Revenue Growth at Constant Currencies in All Regions
WALLDORF — SAP AG (NYSE: SAP) today announced its preliminary financial results for the fourth quarter and full year ended December 31, 2007.1
View the Detailed Results (PDF)
View the Detailed Spreadsheet (XLS)
HIGHLIGHTS – Full-Year 2007
Revenues
- Software and software related service revenues for 2007 were €7.43 billion (2006: €6.60 billion), which is an increase of 13% (17% at constant currencies2) compared to 2006.
- Software revenues for 2007 were €3.41 billion (2006: €3.00 billion), representing an increase of 13% (18% at constant currencies2) compared to 2006.
- Total revenues were €10.25 billion for 2007 (2006: €9.39 billion), which represented an increase of 9% (13% at constant currencies2) compared to 2006.
Income
- Operating income for 2007 was €2.74 billion (2006: €2.58 billion), which was an increase of 6% compared to 2006.
- The operating margin for 2007 was 26.7% compared to 27.4% for 2006. The 2007 operating margin was impacted by investments of approximately €125 million to build a business around the new SAP® Business ByDesign™ solution to address new untapped segments in the midmarket as announced by the Company at the beginning of 2007.
- Income from continuing operations for 2007 was €1.94 billion (2006: €1.88 billion), representing an increase of 3% compared to 2006.
- Earnings per share from continuing operations for 2007 was €1.60 (2006: €1.53), which was an increase of 5% compared to 2006. Income and earnings per share from continuing operations for 2006 was positively impacted by a non-recurring extraordinary tax benefit of approximately €85 million, which reduced the 2006 tax rate by 3.2 percentage points. The 2007 effective tax rate from continuing operations was 32.2% (2006: 29.9%).
Core Enterprise Applications Vendor Share3
SAP reported its eighth consecutive quarter of share gains. Based on 2007 software and software related service revenues on a rolling four-quarter basis, SAP’s worldwide share of Core Enterprise Applications vendors3, which account for approximately $36.7 billion in software and software related service revenues as defined by the Company based on industry analyst research, was 28.4% for the four quarter period ended December 31, 2007 compared to 26.9% for the four quarter period ended September 30, 2007, and 24.4% for the four quarter period ended December 31, 2006, representing a year-over-year share gain of 4.0 percentage points.
“2007 represented another good year for SAP with strong growth in software and software related services,” said Henning Kagermann, CEO of SAP. “The outstanding performance reflects the continued success we are seeing in SAP’s established business, which will continue to be the foundation for growth heading into 2008 and beyond. We expect new innovations like SAP Business ByDesign to help us capture tremendous opportunities in untapped segments in the midmarket, to augment growth going forward. In addition, the recent acquisition of Business Objects makes us the clear leader in business performance optimization products. This will help us further penetrate the fast-growing business user segment and will be another driver of growth as we move ahead.”
HIGHLIGHTS – Fourth Quarter 2007
Revenues
- Software and software related service revenues for the 2007 fourth quarter were €2.47 billion (2006: €2.19 billion), which is an increase of 13% (17% at constant currencies2) compared to the same period of 2006.
- Software revenues for the fourth quarter of 2007 were €1.42 billion (2006: €1.24 billion), representing an increase of 14% (18% at constant currencies2) compared to the fourth quarter of 2006.
- Total revenues were €3.24 billion for the 2007 fourth quarter (2006: €2.95 billion), which represented an increase of 10% (14% at constant currencies2) compared to the same period of 2006.
Income
- Operating income for the 2007 fourth quarter was €1.11 billion (2006: €1.09 billion), which was an increase of 2% compared to the fourth quarter of 2006.
- The operating margin for the fourth quarter of 2007 was 34.3% compared to 36.9% for the same period last year. The 2007 fourth quarter operating margin was impacted by investments of approximately €40 million to build a business around the new SAP Business ByDesign solution to address new untapped segments in the midmarket as announced by the Company at the beginning of 2007.
- Income from continuing operations for the 2007 fourth quarter was €758 million (2006: €808 million), representing a decrease of 6% compared to the same period of 2006.
- Earnings per share from continuing operations for the fourth quarter of 2007 was €0.63 (2006: €0.66).
Cash Flow
Operating cash flow from continuing operations for 2007 was €1.99 billion (2006: €1.86 billion). Free cash flow2 for 2007 was €1.58 billion (2006: €1.49 billion), which was 15% of total revenues (2006: 16%). At December 31, 2007, the Company had €2.8 billion in cash and cash equivalents, including restricted cash, and short term investments (December 31, 2006: €3.3 billion).
Share Buyback
In the fourth quarter of 2007, the Company bought back 6.9 million shares at an average price of €36.25 (total amount: €249 million). As of December 31, 2007, the Company held treasury stock in the amount of 48.1 million shares (approximately 3.9% of total shares outstanding) at an average price of €36.07. For the full year 2007, the company invested €1 billion buying back approximately 27.3 million shares (2.19% of the total shares outstanding) at an average price of €36.85. For 2008, the Company expects to invest approximately €500 million buying back shares.
BUSINESS OUTLOOK
The Company provided the following outlook for the full-year 2008:
- The Company expects full-year 2008 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 approximately €180 million, to increase in a range of 24% – 27% at constant currencies2 (2007: €7.428 billion). SAP’s business, excluding the contribution from Business Objects, is expected to contribute 12 – 14 percentage points to this growth.
- The Company expects the full-year 2008 Non-GAAP operating margin at constant currencies2, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition related charges, to be in the range of 27.5% – 28.0% (2007 Non-GAAP operating margin: 27.3%).
The 2008 Non-GAAP operating margin outlook includes accelerated investments of €175 to €225 million (2007: €125 million) in order to build a business around the new SAP Business ByDesign solution to address new, untapped segments in the midmarket. - The Company is projecting an effective tax rate of 31.0% to 31.5% (based on U.S. GAAP income from continuing operations) for 2008.
KEY EVENTS – Fourth Quarter 2007
- In the fourth quarter of 2007, SAP announced major contracts in several key regions: Biomerieux SA, Intersport France, MGI METRO Group Information Technology GmbH, Münchener Hypothekenbank eG, Nationwide Building Society, Saudi Arabian Airlines, and Telekomunikacja Polska S.A. in the EMEA; Foundation Coal, GCC Cemento , S.A. de C.V., GT Solar, Magnesita S.A., Sara Lee Corporation, Tyco Electronics and U. S. Navy in the Americas; China Tobacco Guangdong Industrial, HCL Technologies Ltd, MediaCorp Pte Ltd., Ministry of Finance, New Zealand, Sharp Corporation, Sysmex Corporation, United India Insurance Company Ltd, and Woolworths Limited in Asia Pacific Japan.
- In the fourth quarter of 2007, three Global Enterprise Agreements (GEAs) were signed, including Lockheed Martin and Nestlé, all of them operating at the most strategic levels with SAP. For Lockheed Martin, SAP has been a strategic software partner since 1997. Lockheed Martin has deployed significant portions of SAP® ERP and is now engaged in several implementations to further leverage and optimize SAP software across the corporation. By signing a GEA, Nestlé, the world’s largest food and beverage company, and SAP have decided to extend their successful collaboration. The GEA with Nestlé, which replaces an earlier subscription agreement between Nestlé and SAP, enables Nestlé to make use of SAP’s current and future solutions to accompany its business strategy and will continue to leverage the SAP® NetWeaver technology platform to support their core business areas.
- On December 4, 2007, SAP introduced the next evolution of SAP® Customer Relationship Management (SAP CRM), an important application in SAP® Business Suite. With an eye toward empowering the growing business user market, this breakthrough new product was co-innovated with leading customers and partners, and is designed to be simple and powerful to solve real business problems.
- Continuing its focus on providing banks the flexibility they need to integrate, migrate and update application functionality based on an integrated platform, SAP announced on November 14, 2007, an alliance with Computer Sciences Corporation (CSC). The alliance will address the growing need for banks to differentiate themselves through strategically optimized product pricing.
- SAP announced on October 17, 2007, the intent to acquire YASU Technologies, a privately held vendor of business rules management systems. SAP will embed YASU Technologies solutions into its market-leading technology platform, SAP NetWeaver®, to provide the business rules infrastructure that allows companies to move their strategies forward and better maintain compliance while saving time, resources and money.
- On October 7, 2007, SAP and Business Objects S.A. announced that the companies have reached an agreement for SAP to acquire Business Objects in a friendly takeover.
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 purposes as well. Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.
About SAP
SAP is the world’s leading provider of business software*. More than 46,100 customers in more than 120 countries run SAP® applications—from distinct solutions addressing the needs of small and midsize enterprises to suite offerings for global organizations. Powered by the SAP NetWeaver® platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol “SAP.” (Additional information at <http://www.sap.com>)
(*) SAP defines business software as comprising enterprise resource planning and related applications such as supply chain management, customer relationship management, product life-cycle management and supplier relationship management.
Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “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 U.S. 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.
Copyright © 2008 SAP AG. All rights reserved.
SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serve informational purposes only. National product specifications may vary.
For more information, press only:
Herbert Heitmann, +49 (6227) 7-61137, herbert.heitmann@sap.com, CET
Christoph Liedtke, +49 6227 7-50383, christoph.liedtke@sap.com, CET
Frank Hartmann, +49 (6227) 7-42548, f.hartmann@sap.com, CET
Andy Kendzie +1 (202) 312-3919, andy.kendzie@sap.com, EST
For more information, financial community only:
Stefan Gruber, +49 (6227) 7-44872, investor@sap.com, CET
Martin Cohen, +1 (212) 653-9619, investor@sap.com, EST
FOOTNOTES
1) All numbers in this document are based on U.S. GAAP (except for numbers identified as Non GAAP measures in footnote number 2 of Non GAAP measure footnote number 2). As required under U.S. GAAP discontinued operations are reported separately in the income statement for all periods presented. Consequently, all revenue numbers and all income numbers, unless labeled “from discontinued operations”, only reflect revenue and income from continuous operations.
2) Non-GAAP Financial Measures
This document discloses certain financial measures, such as Non-GAAP revenues, Non GAAP-operating income, Non-GAAP operating margin, free cash flow, and constant currency period-over-period changes in revenue and operating income, that are not prepared in accordance with U.S. GAAP and are therefore 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 substitutes for or superior to, revenue, operating income, cash flows, or other measures of financial performance prepared in accordance with U.S. GAAP. This footnote explains and reconciles our non-GAAP financial measures to the nearest U.S. GAAP measure.
NON-GAAP REVENUES, NON-GAAP OPERATING INCOME AND NON-GAAP OPERATING MARGIN
We believe that it is of interest to investors to receive certain supplemental historical and prospective financial information used by our management in running our business – in addition to financial data prepared in accordance with U.S. GAAP. Beginning in 2008 we intend to use both Non GAAP revenues and Non GAAP operating income and margin as defined below consistently in our planning, forecasting, reporting, compensation and external communication:
Non-GAAP revenue: Revenues in this document identified as “Non-GAAP revenue” have been adjusted from the respective U.S. GAAP numbers by including the full amount of Business Objects support revenues that would have been reflected by Business Objects had it remained a stand-alone entity but are not permitted to be reflected as revenues under U.S. GAAP as a result of fair value accounting for Business Objects support contracts in effect at the time of the Business Objects acquisition.
Under U.S. GAAP we will record at fair value the Business Objects support contracts in effect at the time of the acquisition of Business Objects. Consequently, our U.S. GAAP support revenues, our U.S. GAAP software and software related service revenues and our U.S. GAAP total revenues for periods subsequent to the Business Objects acquisition will not reflect the full amount of support revenue that Business Objects would record for these support contracts absent the acquisition by SAP. Adjusting revenue numbers for this one-time revenue impact provides additional insight into our ongoing performance because the support contracts are typically one-year contracts and renewals of these contracts are expected to result in revenues that are not impacted by the business combination-related fair value accounting.
We believe that our Non-GAAP revenue numbers have limitations, particularly as the eliminated amounts may be material to us. We therefore do not evaluate our growth and performance without considering both Non-GAAP revenues and U.S. GAAP revenues. We caution the readers of this document to follow a similar approach by considering our Non-GAAP revenues only in addition to, and not as a substitute for or superior to, revenues or other measures of our financial performance prepared in accordance with U.S. GAAP.
Non-GAAP operating income / Non GAAP operating margin: Operating income and operating margin in this document identified as “Non-GAAP operating income” or “Non-GAAP operating margin” have been adjusted from the respective operating income and operating margin numbers as recorded under U.S. GAAP by including the full amount of Business Objects support revenues to be included in Non-GAAP revenue, and by excluding acquisition-related charges. Acquisition related charges in this context comprise:
- Amortization expense of intangibles acquired in business combination and standalone acquisitions of intellectual property
- Expense from purchased in-process research and development
- Restructuring expenses as far as incurred in connection with a business combinations and accounted for under SFAS 146 in SAP’s U.S. GAAP financial statements
Although acquisition-related charges include recurring items from past acquisitions, such as amortization of acquired intangible assets, they also include an unknown component, relating to current-year acquisitions. We cannot accurately assess or plan for that unknown component until we have finalized our purchase price allocation. Furthermore acquisition-related charges may include one-time charges that are not reflective of our ongoing operating performance.
We believe that our Non-GAAP financial measures described above have limitations, particularly as the eliminated amounts may be material to us. We therefore do not evaluate our growth and performance without considering both Non-GAAP operating income and margin numbers and U.S. GAAP operating income and margin numbers. We caution the readers of this document to follow a similar approach by considering our Non-GAAP operating income and margin numbers only in addition to, and not as a substitute for or superior to, revenues or other measures of our financial performance prepared in accordance with U.S. GAAP.
The Non-GAAP revenues and Non GAAP operating income and margin data reported in this document reconcile to the nearest U.S. GAAP measure as follows:
| GAAP measure | Business Objects support revenues not recorded under US-GAAP | Acquisition related charges | Non-GAAP measures | |
| Software and software related service revenue | 7,428 | – | – | 7,428 |
| Total revenue | 10,245 | – | – | 10,245 |
| Total operating expenses | -7,510 | – | 61 | -7,449 |
| Operating income | 2,735 | – | 61 | 2,796 |
| Operating margin | 26.7 % | 27.3% |
FREE CASH FLOW:
We believe that free cash flow is a widely accepted supplemental measure of liquidity. Free cash flow measures a company’s cash flow remaining after all expenditures required to maintain or expand the business have been paid off. We calculate free cash flow as operating cash flow from continuing operations minus additions to long-lived assets excluding additions from acquisitions. Free cash flow should be considered in addition to, and not as a substitute for or superior to, cash flow or other measures of liquidity and financial performance prepared in accordance with U.S. GAAP.
Free cash flow reconciles to the nearest U.S. GAAP measure as follows:
| Reconciliation for twelve months ended December 31 | ||
| In € millions | ||
| 2007 | 2006 | |
| Net cash provided by operating activities from continuing operations | 1,985 | 1,855 |
| Additions to long-lived assets excluding additions from acquisitions | -404 | -365 |
| Free cash flow | 1,581 | 1,490 |
Constant Currency Period-Over-Period Changes
We believe it is important for investors to have information that provides insight into our sales growth. Revenue measures determined under U.S. GAAP provide information that is useful in this regard. However, both growth in sales volume and currency effects impact period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide relevant information on sales volume growth by providing data on the growth in product and service units sold. To provide additional information that may be useful to investors in breaking down and evaluating sales volume growth, we present information about our revenue growth and various values and components relating to operating income that are adjusted for foreign currency effects. We calculate constant currency year-over-year changes in revenue and operating income by translating foreign currencies using the average exchange rates from the previous (comparator) year instead of the report year.
We believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated constitute a significant element of our revenues and expenses and may severely impact our performance. We therefore limit our use of constant currency period-over-period changes to the analysis of changes in volume as one element of the full change in a financial measure. We do not evaluate our growth and performance without considering both constant currency period-over-period changes on the one hand and changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP on the other. We caution the readers of this document to follow a similar approach by considering data on constant currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP.
Constant currency year-over-year changes in revenue and operating income reconcile to the respective unadjusted year-over-year changes as follows:
| Reconciliation of constant currency period-over-period changes for three months ended December 31 | |||
| Percentage change from 2006 to 2007 as reported | Constant currency percentage change from 2006 to 2007 | Currency effect | |
| % | % | Percentage points | |
| Software revenue | 14 | 18 | -4 |
| Support revenue | 10 | 14 | -4 |
| Subscription and other software related service revenue | 47 | 53 | -6 |
| Software and software related service revenue | 13 | 17 | -4 |
| Consulting revenue | 0 | 4 | -4 |
| Training revenue | 5 | 9 | -4 |
| Other service revenue | 7 | 15 | -8 |
| Professional services and other service revenue | 1 | 5 | -4 |
| Other revenue | 56 | 69 | -13 |
| Total revenue | 10 | 14 | -4 |
| Software revenue by region*: | |||
| EMEA region | 12 | 14 | -2 |
| Americas region | 9 | 17 | -8 |
| Asia Pacific Japan region | 40 | 44 | -4 |
| Software revenue | 14 | 18 | -4 |
| Software and software related service revenue by region: | |||
| Germany | 11 | 11 | 0 |
| Rest of EMEA region | 15 | 17 | -2 |
| EMEA region | 13 | 14 | -1 |
| United States | 2 | 14 | -12 |
| Rest of Americas region | 23 | 24 | -1 |
| Americas region | 7 | 16 | -9 |
| Japan | 15 | 22 | -7 |
| Rest of Asia Pacific Japan region | 36 | 38 | -2 |
| Asia Pacific Japan region | 28 | 32 | -4 |
| Software and software related service revenue | 13 | 17 | -4 |
| Total revenues by region: | |||
| Germany | 8 | 8 | 0 |
| Rest of EMEA region | 12 | 14 | -2 |
| EMEA region | 10 | 12 | -2 |
| United States | 3 | 15 | -12 |
| Rest of Americas region | 16 | 17 | -1 |
| Americas region | 6 | 15 | -9 |
| Japan | 7 | 15 | -8 |
| Rest of Asia Pacific Japan region | 27 | 29 | -2 |
| Asia Pacific Japan region | 19 | 24 | -5 |
| Total revenue | 10 | 14 | -4 |
| Operating Income | 2 | 7 | -5 |
| *) Based on customer location | |||
| Reconciliation of constant currency period-over-period changes for twelve months ended December 31 | |||
| Percentage change from 2006 to 2007 as reported | Constant currency percentage change from 2006 to 2007 | Currency effect | |
| % | % | Percentage points | |
| Software revenue | 13 | 18 | -5 |
| Support revenue | 11 | 15 | -4 |
| Subscription and other software related service revenue | 41 | 46 | -5 |
| Software and software related service revenue | 13 | 17 | -4 |
| Consulting revenue | -1 | 3 | -4 |
| Training revenue | 7 | 11 | -4 |
| Other service revenue | 18 | 23 | -5 |
| Professional services and other service revenue | 1 | 4 | -3 |
| Other revenue | 3 | 7 | -4 |
| Total revenue | 9 | 13 | -4 |
| Software revenue by region*: | |||
| EMEA region | 14 | 15 | -1 |
| Americas region | 8 | 16 | -8 |
| Asia Pacific Japan region | 28 | 32 | -4 |
| Software revenue | 13 | 18 | -5 |
| Software and software related service revenue by region: | |||
| Germany | 7 | 7 | 0 |
| Rest of EMEA region | 17 | 19 | -2 |
| EMEA region | 13 | 14 | -1 |
| United States | 6 | 16 | -10 |
| Rest of Americas region | 18 | 22 | -4 |
| Americas region | 9 | 17 | -8 |
| Japan | 10 | 21 | -11 |
| Rest of Asia Pacific Japan region | 25 | 26 | -1 |
| Asia Pacific Japan region | 19 | 24 | -5 |
| Software and software related service revenue | 13 | 17 | -4 |
| Total revenue by region: | |||
| Germany | 5 | 5 | 0 |
| Rest of EMEA region | 13 | 15 | -2 |
| EMEA region | 10 | 11 | -1 |
| United States | 4 | 13 | -9 |
| Rest of Americas region | 12 | 15 | -3 |
| Americas region | 6 | 14 | -8 |
| Japan | 4 | 14 | -10 |
| Rest of Asia Pacific Japan region | 22 | 24 | -2 |
| Asia Pacific Japan region | 15 | 20 | -5 |
| Total revenue | 9 | 13 | -4 |
| Operating Income | 6 | 11 | -5 |
| *) Based on customer location | |||
3) Core Enterprise Applications Vendor Share
Beginning in the first quarter of 2007, the Company began using software and software related service revenues for defining Core Enterprise Application Vendor Share because the Company believes that this is the most important indicator for vendor share oriented analysis with the realignment of its income statement structure. Prior to the first quarter of 2007, the Company had been using software revenues for defining Core Enterprise Application Vendor Share.
The Company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $36.7 billion in software and software related service revenues as defined by the Company based on industry analyst research. For 2007, industry analysts project approximately 7% year-on-year growth for core Enterprise Applications vendors. For its quarterly share calculation, SAP assumes that this approximate 7% growth will not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set (approximately 25) of Core Enterprise Application vendors.
