Walldorf, Germany — SAP AG (NYSE: SAP) today announced its preliminary financial results for the fourth quarter and year ended December 31, 2006.
HIGHLIGHTS – Fourth Quarter 2006
- Product revenues for the 2006 fourth quarter were €2.2 billion (2005: €2.0 billion), which is an increase of 8% (12% at constant currencies1) compared to the same period in 2005
- Software revenues for the fourth quarter of 2006 were €1.3 billion (2005: €1.2 billion), representing an increase of 7% (12% at constant currencies1) compared to the fourth quarter of 2005
- Total revenues were €3.0 billion for the fourth quarter of 2006 (2005: €2.8 billion), which represented an increase of 7% (12% at constant currencies1) compared to the fourth quarter of 2005
- Operating income for the fourth quarter of 2006 was €1.1 billion (2005: €980 million), which was an increase of 10% compared to the fourth quarter of 2005. Adjusted operating income1 was €1.1 billion (2005: €1.0 billion) for the 2006 fourth quarter, representing an increase of 10% compared to the same period last year
- The operating margin for the fourth quarter of 2006 was 36.6%, which was an increase of 1.0 percentage points compared to the fourth quarter of 2005. The adjusted operating margin1 for the 2006 fourth quarter was 37.7%, which was an increase of 0.9 percentage points compared to the 2005 fourth quarter
- Net income for the 2006 fourth quarter was €799 million (2005: €619 million), or €0.66 per share (2005: €0.50 per share), representing an increase of 29% compared to the fourth quarter of 2005. Fourth quarter 2006 adjusted net income1 was €822 million (2005: €642 million), or adjusted €0.67 earnings per share1 (2005: €0.52 per share), representing an increase of 28% compared to the fourth quarter of 2005. Fourth quarter 2006 net income, earnings per share, adjusted net income1 and adjusted earnings per share1 were positively impacted by approximately €55 million, or €0.045 per share, from a reduced fourth quarter effective tax rate primarily due to various settlements with fiscal authorities in different countries on different items
HIGHLIGHTS – Full-Year 2006
Software revenues and certain other full year 2006 financial data in this press release differ from the software revenues and certain other financial data originally provided in SAP’s January 11, 2007 press release titled “SAP Announces 2006 Preliminary Results.” The changes are due to the reduction of software revenue by €30 million in the third quarter of 2006 resulting from the modification of contracts from prior years to accommodate one individual customer. The modification occurred in the third quarter of 2006 (for more information, see footnote 2).
- Product revenues increased to €6.6 billion (2005: €6.0 billion) for the year-ended December 31, 2006, representing an increase of 11% (12% at constant currencies1) compared to the full-year 2005
- Software revenues increased 10% (12% at constant currencies1) to €3.1 billion (2005: €2.8 billion) for the full-year 2006 compared to the same period last year
- Total revenues were €9.4 billion (2005: €8.5 billion) for the 2006 full-year, which was an increase of 10% (11% at constant currencies1) compared to the same period last year
Core Enterprise Applications Vendor Share3
2006 represented another year of strong share gains for SAP. Based on software revenues on a rolling four quarter basis, SAP’s worldwide share of Core Enterprise Applications vendors3, which account for approximately $16.4 billion in software revenues as defined by the Company based on industry analyst research, increased to 24.0% for the year ended December 31, 2006. This represented a gain of 2.8 percentage points for the full-year, and SAP continued to maintain more than twice the share of the next largest vendor.
- Operating income for 2006 was €2.6 billion4 (2005: €2.3 billion), which was an increase of 10% compared to the same period last year. Adjusted operating income1 for 2006 was €2.7 billion (2005: €2.4 billion), representing an increase of 12% compared to 2005
- The operating margin for 2006 was 27.3%, which was down 0.1 percentage points compared to 2005. The adjusted operating margin1 was 28.8% for 2006, which was an increase of 0.5 percentage points compared to 2005
- Net income for 2006 was €1.9 billion (2005: €1.5 billion), or €1.52 per share (2005: €1.21 per share), representing an increase of 25% compared to 2005. Adjusted net income1 for 2006 was €2.0 billion (2005: €1.6 billion), or adjusted €1.60 per share1 (2005: €1.25 per share), representing an increase of 27% compared to 2005. Full-Year 2006 net income, earnings per share, adjusted net income1 and adjusted earnings per share1 were positively impacted by approximately €85 million, or €0.07 per share, from reduced second and fourth quarter effective tax rates primarily due to various settlements with fiscal authorities in different countries on different items
“While we did not achieve all of our targets in 2006, we ended with solid growth at constant currencies for and at the same time we improved our profitability,” said Henning Kagermann, CEO of SAP. Both product revenues and software revenues – the fourth quarter alone marked our 12th consecutive quarter of double digit growth in software revenues at constant currencies – “Regional performance for the year was also strong – we reported double digit software revenue growth at constant currencies in each region, the first time we have accomplished such a strong, well-balanced, regional performance since the year 2000. On top of this, we continued to gain significant worldwide share among Core Enterprise Applications vendors. Our share increased by 2.8 percentage points to 24.0% for 2006.”
- Operating cash flow for 2006 was €1.8 billion (2005: €1.6 billion). Free cash flow1for 2006 was €1.5 billion (2005: €1.3 billion), which was 16% of total revenues for the year (2005: 16%). At December 31, 2006, the Company had €3.3 billion in cash and cash equivalents and short-term investments (December 31, 2005: €3.8 billion). The year-over-year decrease is primarily the result of an increase in share buybacks in 2006, expenditures on acquisitions and increased dividend payments
Share Buy-Back Program
- For 2006, the Company bought back 27.9 million shares at an average price of €40.97 (total amount: €1.1 billion). This compares to 12.9 million shares bought back in 2005. At December 31, 2006, treasury stock stood at 49.25 million shares at an average price of €35.37. SAP’s current share buy-back program allows the Company to purchase up to 120 million shares. All share related numbers above have been adjusted to account for the capital share increase that took effect in December 2006 that effectively increased the number of shares outstanding four-fold. Given the Company’s strong free cash flow1 generation, SAP plans to further evaluate opportunities to buy back shares in the future
“2006 was a cornerstone year for SAP, a year of significant innovation that led to the launch of many new products during the year, including CRM on-Demand, Duet, Analytics, and the first services enabled ERP solution in the industry,” said Mr. Kagermann. “We have already seen rapid adoption of mySAP ERP, with over 4,000 productive customers at year-end 2006. Initial customer feedback has been very positive on our new products.”
Mr. Kagermann continued, “2007 will be the year in which we successfully complete our roadmap by delivering services-enabled versions of the mySAP Business Suite and our established mid-market solution SAP All-in-One. Also in 2007, we will begin delivering on what we believe is the most innovative solution in the industry designed specifically for new segments in the midmarket – a consumption ready solution that provides our customers with fast time-to-value, quick and easy user adoption, high flexibility, low TCO, and is built by design on a fully-enabled enterprise services oriented architecture.”
Beginning in the first quarter of 2007, and also provided for the full-year 2006 for comparative purposes, the Company will realign its income statement to provide additional transparency for reporting potential new product revenue streams. Although currently not material, the Company added a new revenue line item called “subscription and other software related services revenue” as the basis of the realignment, in addition to changing the name of the line item “product revenues” to “software and software related services revenue.” Therefore, “software and software related services revenue” equals the total of “software revenue” plus “support revenue” (formerly called “maintenance revenue”) plus “subscription and other software related services revenue.” Total software and software related services revenue in 2006 were €6,605 million. SAP’s 2007 outlook is based on this realignment. In addition, the operating margin outlook for 2007 is based on U.S. GAAP numbers. In previous years, SAP provided its outlook for operating margin on an adjusted basis.
The Company provided the following outlook for the full-year 2007.
- The Company expects full-year 2007 software and software related services revenue to increase in a range of 12% – 14% at constant currencies1 compared to 2006 growth of 12% at constant currencies1
- In order to address additional growth opportunities in new, untapped segments in the midmarket, the Company will invest an additional €300 million – €400 million over eight quarters to build up a new business.
Depending on the exact timing of these accelerated investments, this is equivalent to the Company reinvesting approximately one to two percentage points of margin in 2007 into additional future growth opportunities.
Therefore, the Company expects the full-year 2007 operating margin to be in the range of 26.0% to 27.0% compared to the 2006 operating margin of 27.3%.
- The Company is projecting an effective tax rate of 32.5% – 33.0% for 2007
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