SAP Announces Second Quarter and First Half 2009 Results

Company Reports Another Quarter of Strong Margin Growth

Company Raises its Non-GAAP Operating Margin Outlook for the Full-Year 2009

WALLDORF — SAP AG (NYSE: SAP) today announced its preliminary financial results for the second quarter and six months ended June 30, 2009.

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Presentation (PDF)

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FINANCIAL HIGHLIGHTS – Second Quarter 2009

SAP – Second Quarter 2009¹⁾
	U.S. GAAP			Non-GAAP²⁾
€ million, unless stated otherwise	Q2/2009	Q2/2008	% change	Q2/2009	Q2/2008	% change	% change constant currency³⁾
Software revenues	543	898	-40	543	898	-40	-40
Software and software-related service revenues	1,953	2,061	-5	1,953	2,113	-8	-10
Total revenues	2,576	2,858	-10	2,576	2,910	-11	-14
–thereofrestructuring charges	5	–	–	5	–	–	–
Operating income	647	593	9	714	711	0	-2
Operating margin (%)	25.1	20.7	4.4pp	27.7	24.4	3.3pp	3.5pp
Income from continuing operations	431	411	5	482	497	-3	–
Net income	423	408	4	473	494	-4	–
Basic EPS from cont. operations (€)	0.36	0.34	6	0.41	0.42	-2	–

1) All figures are preliminary and unaudited.

2) Revenue line items are adjusted for the Business Objects support revenue that Business Objects would have recognized had it remained a standalone entity but that SAP is not permitted to recognize as revenue under U.S. GAAP as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges. See Explanation of Non-GAAP measures at the end of the financial section of the press release for explanations of the Non-GAAP measures used in this press release and for related reconciliations to U.S. GAAP.

3) Constant currency Non-GAAP revenue and operating income figures are calculated by translating Non-GAAP revenue and Non-GAAP 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-GAAP constant currency numbers with the Non-GAAP number of the previous year’s respective period. See Explanation of Non-GAAP measures at the end of the financial section of the press release for details.

Revenues – Second Quarter 2009

U.S. GAAP software and software-related service revenues were €1.95 billion (2008: €2.06 billion), a decrease of 5%. Non-GAAP software and software-related service revenues were €1.95 billion (2008: €2.11 billion), a decrease of 8% (10% at constant currencies).
U.S. GAAP total revenues were €2.58 billion (2008: €2.86 billion), a decrease of 10%. Non-GAAP total revenues were €2.58 billion (2008: €2.91 billion), a decrease of 11% (14% at constant currencies).
U.S. GAAP software revenues were €543 million (2008: €898 million), a decrease of 40% (40% at constant currencies). The decrease is the result of the difficult operating environment worldwide due to the continued global economic downturn, and the tough comparison to the second quarter of 2008, which was prior to the economic crisis that disrupted the global markets in the third quarter of 2008.

Income – Second Quarter 2009

U.S. GAAP operating income was €647 million (2008: €593 million), an increase of 9%. Non-GAAP operating income was €714 million (2008: €711 million), flat year-over-year (a decrease of 2% at constant currencies). U.S. GAAP and Non-GAAP operating income were negatively impacted by restructuring charges of €5 million resulting from the previously announced reduction of positions, which are expected to be €200 million for 2009.
U.S. GAAP operating margin was 25.1% (2008: 20.7%), an increase of 4.4 percentage points. Non-GAAP operating margin was 27.7% (2008: 24.4%), or 27.9% at constant currencies, an increase of 3.3 percentage points (3.5 percentage points at constant currencies). The €5 million in restructuring charges resulting from the previously announced reduction of positions negatively impacted the U.S. GAAP and Non-GAAP operating margin by 0.2 percentage points.
U.S. GAAP income from continuing operations was €431 million (2008: €411 million), an increase of 5%. Non-GAAP income from continuing operations was €482 million (2008: €497 million), a decrease of 3%. U.S. GAAP and Non-GAAP income from continuing operations were negatively impacted by restructuring charges of €3 million resulting from the previously announced reduction of positions.
U.S. GAAP basic earnings per share from continuing operations were €0.36 (2008: €0.34), an increase of 6%. Non-GAAP earnings per share from continuing operations were €0.41 (2008: €0.42), a decrease of 2%. There was no material impact to U.S. GAAP and Non-GAAP earnings per share from continuing operations resulting from the restructuring charges associated with the previously announced reduction of positions.

Second quarter 2009 Non-GAAP operating income excludes acquisition-related charges totaling €67 million (2008: €66 million), and second quarter 2009 Non-GAAP income from continuing operations and Non-GAAP earnings per share from continuing operations exclude acquisition-related charges totaling €51 million (2008: €86 million).

“Despite the challenging economic conditions, the strength of our business model combined with a strong cost discipline has proven itself once again by enabling us to report another quarter of strong operating margin growth,” said Werner Brandt, CFO of SAP. “For the remainder of the year, we expect to maintain tight cost controls in all areas of the Company.”

“While the operating environment remains difficult, we are beginning to have improved visibility into the second half of the year.” said Léo Apotheker, CEO of SAP.

Mr. Apotheker continued, “Our robust business model provides us the ability to continue to innovate, which we believe is the foundation for future growth. I am excited about the new products that we are delivering to our customers, solutions that provide them more transparency and clarity into their businesses, which are especially crucial in times like these.”

HIGHLIGHTS – Six Months 2009

SAP – First Half 2009¹⁾
	U.S. GAAP			Non-GAAP²⁾
€ million, unless stated otherwise	H1/2009	H1/2008	% change	H1/2009	H1/2008	% change	% change constant currency³⁾
Software revenues	962	1,520	-37	962	1,520	-37	-38
Software and software-related service revenues	3,695	3,797	-3	3,706	3,896	-5	-7
Total revenues	4,974	5,318	-6	4,985	5,417	-8	-10
– thereof restructuring charges	165	–	–	165	–	–	–
Operating income	979	952	3	1,124	1,200	-6	-8
Operating margin (%)	19.7	17.9	1.8pp	22.6	22.2	0.4pp	0.5pp
Income from continuing operations	640	658	-3	749	842	-11	–
Net income	627	650	-4	736	834	-12	–
Basic EPS from cont. operations (€)	0.54	0.55	-2	0.63	0.71	-11	–

1) All figures are preliminary and unaudited.

Revenues – First Half 2009

U.S. GAAP software and software-related service revenues were €3.70 billion (2008: €3.80 billion), a decrease of 3%. Non-GAAP software and software-related service revenues were €3.71 billion (2008: €3.90 billion), a decrease of 5% (7% at constant currencies).
U.S. GAAP total revenues were €4.97 billion (2008: €5.32 billion), a decrease of 6%. Non-GAAP total revenues were €4.99 billion (2008: €5.42 billion), a decrease of 8% (10% at constant currencies).
U.S. GAAP software revenues were €962 million (2008: €1.52 billion), a decrease of 37% (38% at constant currencies).

First half 2009 Non-GAAP revenue figures exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €11 million (2008:99 million).

Income – First Half 2009

U.S. GAAP operating income was €979 million (2008: €952 million), an increase of 3%. Non-GAAP operating income was €1.12 billion (2008: €1.20 billion), a decrease of 6% (8% at constant currencies). U.S. GAAP and Non-GAAP operating income were negatively impacted by restructuring charges of €165 million resulting from the previously announced reduction of positions, which are expected to be €200 million for 2009.
U.S. GAAP operating margin was 19.7% (2008: 17.9%), an increase of 1.8 percentage points. Non-GAAP operating margin was 22.6% (2008: 22.2%), or 22.7% at constant currencies, an increase of 0.4 percentage points (0.5 percentage points at constant currencies). The €165 million in restructuring charges resulting from the previously announced reduction of positions negatively impacted the U.S. GAAP and Non-GAAP operating margin by 3.3 percentage points.
U.S. GAAP income from continuing operations was €640 million (2008: €658 million), a decrease of 3%. Non-GAAP income from continuing operations was €749 million (2008: €842 million), a decrease of 11%. U.S. GAAP and Non-GAAP income from continuing operations were negatively impacted by restructuring charges of €117 million resulting from the previously announced reduction of positions.
U.S. GAAP basic earnings per share from continuing operations were €0.54 (2008: €0.55), a decrease of 2%. Non-GAAP earnings per share from continuing operations were €0.63 (2008: €0.71), a decrease of 11%. The restructuring charges resulting from the previously announced reduction of positions negatively impacted the U.S. GAAP and Non-GAAP basic earnings per share from continuing operations by €0.10.

First half 2009 Non-GAAP operating income excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling €144 million (2008: €248 million), and First half 2009 Non-GAAP income from continuing operations and Non-GAAP earnings per share from continuing operations exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling €109 million (2008: €184 million).

Cash Flow – First Half 2009

Operating cash flow from continuing operations was €1.83 billion (2008: €1.37 billion), an increase of 34%. Free cash flow was €1.73 billion (2008: €1.20 billion), an increase of 44%. Free cash flow was 35% of total revenues (2008: 23%). At June 30, 2009, SAP had a total group liquidity of €3.44 billion (December 31, 2008: €1.66 billion), which includes cash and cash equivalents, restricted cash and short term investments.

Cost Containment Measures for 2009

Previously, SAP announced that in order to enable the Company to adapt its size to today’s market conditions and the broader impact of the global recession, it implemented a global reduction of positions to 48,500 by year-end 2009, taking full advantage of attrition as a factor in reaching this goal, and that it expected the reduction of positions to trigger one-time restructuring charges of between €200 million to €300 million for 2009. The Company now expects the total restructuring charges for 2009 to be €200 million. The restructuring charge of €165 million recorded in operating income in the first half of 2009 covers the reduction of 2,800 positions.

Business Outlook

SAP is providing the following outlook for the full-year 2009, which has changed from the outlook described in its April 29, 2009 first quarter press release.

The Company expects its full-year 2009 Non-GAAP operating margin, 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 25.5% – 27.0% at constant currencies. This includes one-time restructuring charges of €200 million expected to result from the reduction of positions, which negatively impacts the Non-GAAP operating margin outlook by approximately 2 percentage points. The updated 2009 Non-GAAP operating margin outlook is based on the assumption that 2009 Non-GAAP software and software-related service revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects, will be in a range of a decline of 4% – 6% at constant currencies (2008: €8.623 billion).

SAP continues to project an effective tax rate of 29.5% – 30.5% (based on U.S. GAAP income from continuing operations) for 2009 (2008: 30.0%).

KEY EVENTS – Second Quarter 2009

In the second quarter of 2009, SAP closed major contracts in several key regions including Federal Interior Ministry of Rheinland-Pfalz, Germany, Group Danone, Shoosmiths, and Statoil ASA in EMEA; Baker Hughes, Boston University, and Confederação SICREDI in Americas; and China Export & Credit Insurance Company, Commonwealth Bank of Australia, Ministry of Finance, Singapore, and Tata Teleservices Ltd in Asia Pacific Japan.
On June 16, SAP announced the first details of SAP’s on-demand strategy for large enterprises. Dedicated to its installed customer base, on-demand software for large enterprises from SAP is planned to consist of function-specific software applications, available by subscription, which plug directly into a customer’s on-site SAP Business Suite software.
On June 16, SAP announced that research analyst firm IDC ranked SAP, including the SAP BusinessObjects BI solutions, as the number-one vendor for business intelligence (BI) tools, with a 20.4% market share. The market analysis, titled “Worldwide Business Intelligence Tools 2008 Vendor Shares” (IDC # 218598) finds that SAP has demonstrated leading market share and highest share gain of any vendor, and reports that BI remains one of the top investment priorities for companies globally. The report also highlights that SAP’s market share is approximately twice as large as its nearest competitor. In addition, IDC reported that SAP’s overall market growth during 2008 was 17.8%, almost double that of overall market growth.
On June 12, SAP acquired Clear Standards, Inc., a privately held innovator of enterprise carbon management solutions. Clear Standards provides SAP a mature sustainability solution and expertise in carbon management delivered through an agile, Web-based, on-demand delivery model.
On May 13, SAP introduced additional customers for SAP Business ByDesign, SAP’s fully integrated, on-demand business solution that enables midsize companies from various industries to improve transparency and business operations, and support international growth, while helping to reduce IT costs. Charter clients in North America include ADC Rig Services Inc.; Intelepeer; OneVision Solutions; Praxis Energy Agents, LLC; Skullcandy; Suh’dutsing Technologies, LLC; and TAM Ceramics.
On May 12, SAP announced SAP BusinessObjects Explorer, which it believes is groundbreaking new software that brings together search and navigation capabilities from the SAP BusinessObjects portfolio with SAP NetWeaver Business Warehouse Accelerator software, enabling customers to navigate mountains of business data at the speed of thought and giving them a clear view across their organizations.
On May 12, SAP published its 2008 Sustainability Report, detailing its activities in support of its ongoing strategic commitment to deliver superior sustainability solutions to customers and improve its own sustainability performance. SAP announced that it reduced its total corporate carbon footprint by 6.7% in 2008 compared to 2007.
On May 6, SAP announced the acquisition of privately held Highdeal, the leading provider of real-time billing solutions for telecommunications. Highdeal delivers sophisticated pricing and charging solutions designed to support today’s new service economy. The combination of SAP and Highdeal is intended to provide customers a packaged consume-to-cash business process platform to support high-volume billing and enable a reduction in cost of ownership.

On May 5, SAP announced the general availability to customers worldwide of SAP Business Suite 7, the next-generation software suite enabled by service-oriented architecture (SOA). Following a successful ramp-up period, large enterprises across all industries can now achieve process excellence through the modular deployment of industry-specific end-to-end processes that cut across application boundaries; ease upgrades and reduce IT costs with SAP enhancement packages; and capture growth opportunities through insight gained from analytics tools embedded within SAP Business Suite 7.
On April 29, SAP and the SAP User Group Executive Network (SUGEN) announced an agreement on a defined list of key performance indicators that will be used to measure the success of SAP Enterprise Support services. Also announced was the rollout of a joint benchmarking program that will use key performance indicators to define and measure how SAP customers derive value from SAP Enterprise Support. A joint SAP–SUGEN task force formed in November 2008 has established the SUGEN Key Performance Indicator Index (SUGEN KPI Index), which will measure and verify the ongoing value of SAP Enterprise Support. This effort will help customers by providing a transparent mechanism to link their support investment to the value delivered. SAP has agreed to postpone the subsequent price increase schedule until the targeted improvements measured by the SUGEN KPI Index are met.
On April 3, SAP announced the successful placement of a “Schuldschein” (private placement transaction) in the amount of approximately €660 million on the Euro denominated capital markets. Lead managers were Landesbank Baden-Wuerttemberg LBBW (Technical Lead), Commerzbank AG, Deutsche Bank AG, and DZ Bank AG Deutsche Zentral-Genossenschaftsbank.

IFRS Financial Data

SAP will discontinue its U.S. GAAP reporting and will only report financial data under IFRS from fiscal 2010 onwards. To prepare the capital markets for this change, IFRS financial data are provided in the financial section of this press release.

Use of Non-GAAP Financial Measures

This press release contains certain financial measures such as Non-GAAP revenues, Non-GAAP operating income, Non-GAAP operating margin, free cash flow, constant currency revenue and operating income measures, as well as U.S. Dollar based Non-GAAP revenue numbers. These measures are not prepared in accordance with U.S. GAAP and therefore are considered non-GAAP financial measures. SAP’s non-GAAP financial measures may not correspond to non-GAAP financial measures that other companies report. The non-GAAP financial measures that SAP reports should be considered as additional to, and not as a substitute for or superior to revenue, operating margin or SAP’s other measures of financial performance prepared in accordance with U.S. GAAP. See the financial section of this press release for additional information regarding the Non-GAAP measures included in this press release and for the reconciliations to the corresponding U.S. GAAP measures.

Webcast / Supplementary Financial Information

SAP senior management will host a conference call today at 3:00 PM (CET) / 2:00 PM (GMT) / 9:00 AM (Eastern) / 6:00 AM (Pacific). The conference call will be web cast live on the Company’s website at http://www.sap.com/investor and will be available for replay.
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, offering applications and services that enable companies of all sizes and in all industries to become best-run businesses. With approximately 89,000 customers in over 120 countries, SAP is listed on several exchanges, including the Frankfurt stock exchange and NYSE, under the symbol “SAP.” (For more information, visit www.sap.com)

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,” “outlook,” “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 © 2009 SAP AG. All rights reserved.
SAP, R/3, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP Business ByDesign, 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 other countries. Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, and other Business Objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business Objects S.A. in the United States and in other countries. Business Objects is an SAP company. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary.

For more information, press only:
Christoph Liedtke, +49 (6227) 7-50383, christoph.liedtke@sap.com, CET
Guenter Gaugler +49 (6227) 7-65416, guenter.gaugler@sap.com, CET
Jim Dever +1 (610) 661-2161, james.dever@sap.com, EDT

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, EDT

Appendix – Financial Information to Follow