Company Reports Strong Growth in Revenues from Software and Software Related Services
Walldorf, Germany — SAP AG (NYSE: SAP) today announced its preliminary financial results for the second quarter and six months ended June 30, 2007.
HIGHLIGHTS – Second Quarter 2007<
- Software and software related service revenues for the second quarter of 2007 were €1.71 billion (2006: €1.48 billion), which is an increase of 16% (19% at constant currencies1) compared to the second quarter of 2006.
- Software revenues for the second quarter of 2007 were €715 million (2006: €604 million), representing an increase of 18% (21% at constant currencies1) compared to the second quarter of 2006.
- Total revenues were €2.42 billion for the 2007 second quarter (2006: €2.20 billion), which represented an increase of 10% (14% at constant currencies1) compared to the same period of 2006.
- Operating income for the second quarter of 2007 was €577 million (2006: €524 million), which was an increase of 10% compared to the second quarter of 2006.
- The operating margin for the 2007 second quarter was 23.8%, which was down slightly from the 23.9% operating margin reported for the second quarter of 2006 due to investments of approximately €30 million to address new untapped segments in the midmarket.
- Net income for the 2007 second quarter was €449 million (2006: €415 million), or €0.37 per share (2006: €0.34 per share), representing an increase of 8% compared to the second quarter of 2006. Second quarter 2007 net income and earnings per share were positively impacted by an effective tax rate of 25.8%. As in the second quarter of 2006, the effective tax rate was partly influenced by non-recurring tax effects.
Core Enterprise Applications Vendor Share
SAP continued to gain share in the second quarter of 2007, marking the sixth consecutive quarter of share gains. Based on software and software related service revenues on a rolling four quarter basis, SAP’s worldwide share of Core Enterprise Applications vendors2, which account for approximately $35.3 billion in software and software related service revenues as defined by the Company based on industry analyst research, increased to 26.0% for the four quarter period ended June 30, 2007 compared to 25.1% for the four quarter period ended March 31, 2007 and 23.0% for the four quarter period ended June 30, 2006, representing a the year-over-year share gain of 3 percentage points.
Also, the Company reported that its midmarket business increased to 32% of order entry for the rolling four quarter period ended June 30, 2007.
“The second quarter was an excellent quarter for SAP with double digit growth in all regions, and we continued to gain share against core enterprise application vendors,” said Henning Kagermann, CEO of SAP AG. “Our performance demonstrates our global strength. For the remainder of the year we plan to build upon our first half success by further expanding the adoption of our Enterprise Services Oriented Architecture (ESOA) and growing our already leading presence in the midmarket.”
HIGHLIGHTS – Six Months 2007
- Software and software related service revenues for the first six months of 2007 were €3.23 billion4 (2006: €2.87 billion), which is an increase of 13% (17% at constant currencies1) compared to the first six months of 2006.
- Software revenues for the 2007 first half were €1.28 billion4 (2006: €1.12 billion), representing an increase of 14% (19% at constant currencies1) compared to the 2006 first half.
- Total revenues were €4.59 billion for the first half of 2007 (2006: €4.24 billion), which represented an increase of 8% (12% at constant currencies1) compared to the same period of 2006.
- Operating income for the 2007 first half was €1.01 billion (2006: €933 million), which was an increase of 8% compared to the 2006 first half.
- The operating margin for the 2007 six month period was 22.0%, which was flat compared to the same period last year due to investments of approximately €50 million to address new untapped segments in the midmarket.
- Net income for the 2007 first half was €759 million (2006: €697 million), or €0.63 per share (2006: €0.57 per share), representing an increase of 9% compared to the same period of 2006. First half 2007 net income and earnings per share were positively impacted by a second quarter effective tax rate of 25.8%. As in the second quarter of 2006, the effective tax rate was partly influenced by non-recurring tax effects.
Operating cash flow for the first six months of 2007 was €1.02 billion (2006: €977 million). Free cash flow1 for the 2007 six month period was €822 million (2006: €846 million), which was 18% of total revenues (2006: 20%). At June 30, 2007, the Company had €2.8 billion in cash and cash equivalents and short term investments (December 31, 2006: €3.3 billion).
In the second quarter of 2007, the Company bought back 4.6 million shares at an average price of €36.62 (total amount: €167 million). This compares to 12.5 million shares (total amount: €515 million) bought back in the second quarter of 2006. Of the total shares purchased in the first quarter of 2007, approximately 0.8 million shares were used to serve exercises under SAP’s share based compensation programs. The number of shares bought back in the second quarter of 2007 represented 0.36% of the total shares outstanding. As of June 30, 2007, the Company held Treasury stock in the amount of 62.0 million shares (approximately 4.9% of total shares outstanding) at an average price of €35.43. In the first half of 2007 the company invested €505 million buying back approximately 14.2 million shares at an average price of €35.63. Given the Company’s strong free cash flow generation, SAP plans to spend a similar amount for share buy-backs in 2007 as it did in 2006 under its current share buy-back authorization. All prior year 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.
The Company continues to provide the following outlook for the full-year 2007 as described in its January 24th, 2007 fourth quarter results press release.
- The Company expects full-year 2007 software and software related service revenues to increase in a range of 12% – 14% at constant currencies1 compared to 2006 growth of 12% at constant currencies.
- 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, of which approximately €50 million was already invested over the first two quarters of 2007.
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.
KEY EVENTS – Second Quarter 2007
- In the second quarter of 2007, SAP announced major contracts in all key regions: Banco Columbia, City of San Diego, Colgate-Palmolive, Enbridge, Gerdau Acos Longos, Maxim Integrated Products, Mexichem, Sandisk in the Americas; DSG international, Edeka, Federalnaya, Gas Natural Informatica, HSH Nordbank, QinetiQ, Surgutneftegaz in EMEA; Australian Post, China Petroleum & Chemical, Konica Minolta, Kracie, Tokuyama, Tokyo Electron in Asia Pacific Japan.
- A major milestone in the second quarter was the signature of a Global Enterprise Agreement with Colgate-Palmolive, a leading global consumer products company. SAP has been Colgate’s trusted advisor and strategic software partner since 1994. Colgate has deployed almost the entire SAP suite so that at present the vast majority of Colgate’s business is being supported by SAP software. With this agreement SAP and Colgate document their mutual interest to continue their highly successful journey to an enterprise service enabled destination architecture at Colgate.
- On June 20, SAP and IDS Scheer announced the expansion of their global reseller agreement for IDS Scheer’s ARIS Platform. In response to growing customer demand, SAP will now globally resell additional IDS Scheer ARIS software packets for managing business processes that are marketed under the name “SAP Enterprise Modeling Applications by IDS Scheer”.
- On June 13, SAP and Visiprise announced a joint worldwide offering to help discrete manufacturers manage the complex manufacturing processes that define their business. Available today, SAP will resell and market the Visiprise Manufacturing product under the name “SAP® Manufacturing Execution by Visiprise.”
- Building upon the success of its North American partnership, SAP announced on June 11 a worldwide expansion of its current reseller agreement with Vistex Inc., a leading provider of embedded solutions that extend the core value of SAP application functionality. In response to increasing global market demand, SAP has agreed to resell Vistex solutions worldwide, marketed under the names “SAP® Paybacks and Chargebacks by Vistex” and “SAP® Incentive Administration by Vistex”.
- On June 8, SAP announced the opening of the “SAP Co-Innovation Lab” at SAP Labs U.S. in Palo Alto, California. The SAP Co-Innovation Lab will offer a hands-on environment for SAP, independent software vendors (ISVs), system integrators (SIs) and technology partners to work together with customers around current and future technologies. Founding sponsors of the SAP Co-Innovation Lab include Cisco, HP, Intel and NetApp.
- On June 4, SAP announced it had joined “3C – Combat Climate Change,” a business leaders’ initiative seeking to deeply ingrain climate issues into the world of markets and trade. SAP is the first enterprise software company to join the roster of more than 40 signatory companies from 11 of the G8 +5 countries.
- Continuing to deliver on its commitment to fuel innovation in the utilities industry, SAP announced on May 21 the formation of the industry value network (IVN) for utilities. The network will bring together customers and partners – including leading utilities companies, independent software vendors (ISVs), systems integrators (SIs) and technology vendors – with SAP to address key business challenges and solutions for the utilities industry.
- At SAPPHIRE ’07 in Vienna in May, SAP announced the acquisition of Wicom Communications and MaxWare.
- At SAPPHIRE ’07 in Vienna, SAP additionally announced strategic partnerships with Sungard for Enterprise SOA, with Novell for Linux support and with Microsoft for MS SQL Server. Furthermore, SAP introduced SAP® GRC Risk Management, a market-leading portfolio of solutions for governance, risk and compliance. More than 8,000 partners and customers attended SAPPHIRE ’07 Vienna.
- At SAP AG’s annual general meeting of shareholders, held in Mannheim on May 10, 2007, shareholders approved a dividend for 2006 of €0.46 per ordinary share. This is a 27% increase over the previous year’s dividend. SAP paid out a total of about €556 million (previous year: €447 million), which equates to a dividend payout ratio of approximately 30% of SAP’s net income.
- On May 8, SAP announced the acquisition of OutlookSoft Corporation. With the strategic acquisition, SAP extends its leadership in delivering comprehensive solutions to CFOs spanning Enterprise Resource Planning (ERP), Governance, Risk and Compliance (GRC) and Corporate Performance Management (CPM).
- At SAPPHIRE ’07 in Atlanta in April, the Company’s executives detailed new tools and strategies such as a road map for a next wave of SAP NetWeaver innovations, a new on-demand application for electronic billing, a new appliance for Duet software together with its partners HP and Microsoft as well as an extended road map for Duet. Approximately, 15,000 customers and partners participated in SAPPHIRE ’07 Atlanta.
- At SAPPHIRE ’07 in Atlanta, SAP also announced its collaboration on a new enterprise learning product with partner Adobe. SAP Enterprise Learning creates a unique learning environment through the combination of SAP Learning Solution with “Adobe Acrobat Connect Professional”.
- On April 18, SAP announced that members of the industry value network (IVN) for banks – which brings together SAP, banks and non-banks to collaboratively develop solutions for the banking industry – have formed an expanded definition group to co-innovate and create global standards for enterprise service-oriented architecture (enterprise SOA).
- On April 18, SAP announced that it would further extend its unparalleled expertise and market leadership in industry solutions, with 11 new industry forums being added to the rapidly growing Business Process Expert Community. In addition to the existing consumer products industry forum, SAP has added forums for the public sector, chemicals, higher education and research, defense, healthcare, life sciences, oil and gas, mining and metal, industrial machinery and components, utilities, and retail industries.
- On April 10, SAP announced further measures in the merger of its European field operations into a single region for Europe, the Middle East and Africa (EMEA), addressing the increasingly transnational nature of business processes among its large-enterprise and midmarket customers in Europe. Erwin Gunst, Corporate Officer and member of SAP’s Executive Council, now leads the entire EMEA region.
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