Company Reports 16% Growth in Second Quarter Software Revenues Total Revenues Exceeded €2 Billion Company Gains Additional Peer Group Share Second Quarter Operating Income Increased 18%
WALLDORF — SAP AG (NYSE: SAP) today announced its preliminary financial results for the second quarter and six months ended June 30, 2005. Highlights of the results are as follows.
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2005 Second Quarter Interim Report (PDF, 286 KB)
HIGHLIGHTS – Second Quarter 2005
Revenues
- Software revenues were €576 million for the second quarter of 2005 (2004: €497 million), representing an increase of 16% compared to the same period in 2004. At constant currencies1, software revenues increased 16% year-over-year.
- Total revenues for second quarter of 2005 were €2.02 billion (2004: €1.8 billion), which was an increase of 13% compared to the second quarter of 2004. At constant currencies1, total revenues increased 14% year-over-year.
- Software revenues in the U.S. increased 24% to €174 million for the second quarter of 2005 (2004: €140 million). At constant currencies1, software revenues in the U.S. increased 27% year-over-year.
- Software revenues in the EMEA region grew 9% to €289 million for the second quarter of 2005 (2004: €266 million). At constant currencies1, software revenues in EMEA increased 8% compared to the second quarter of 2004.
- Software revenues in the APA region increased 23% to €85 million (2004: €69 million) for the second quarter of 2005. At constant currencies1, software revenues in the APA region increased 20% compared to the same period last year.
Peer Group Share
- The strong software revenue results ($696 million globally and $210 million in the U.S. on a quarter-end U.S. dollar exchange rate basis) enabled the Company to continue to gain 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 group2 based on software revenues was 58% at the end of the second quarter of 2005 compared to 57% at the end of the first quarter of 2005 and 54% at the end of the second quarter of 2004. In the U.S., on a rolling four quarter basis, the Company’s share against its peer group3 based on software revenues was 41% at the end of the second quarter of 2005 compared to 40% at the end of the first quarter of 2005 and 36% at the end of the second quarter of 2004.
Income
- Operating income for the second quarter of 2005 was €460 million (2004: €391), which was an increase of 18% compared to the second quarter of 2004. Pro forma operating income4 was €496 million (2004: €428 million) for the quarter, representing an increase of 16% compared to the same period in 2004.
- The operating margin for the second quarter of 2005 was 22.8%, which was up by 0.80 percentage points compared to the same quarter in 2004. The pro forma operating margin4 for the second quarter of 2005 was 24.6%, which represented an increase of 0.60 percentage points compared to the same period in 2004.
- Net income for the second quarter of 2005 was €289 million (2004: €249 million), or €0.93 per share (2004: €0.80 per share), representing an increase of 16% compared to the second quarter of 2004. Second quarter 2005 pro forma net income4 was €314 million (2004: €273 million), or pro forma €1.01 earnings per share4 (2004: €0.87 per share), representing an increase of 15% compared to the second quarter of 2004.
HIGHLIGHTS – Six Months 2005
Revenues
- Software revenues increased 16% to €1.0 billion (2004: €867 million) for the 2005 six month period. At constant currencies1, software revenues increased 17% for the first half.
- Six month 2005 total revenues were €3.7 billion (2004: €3.3 billion), which was an increase of 12% compared to the same 2004 six month period. At constant currencies1, total revenues for the first six months of 2005 increased 13%.
Income
- Operating income for the 2005 six month period was €834 million (2004: €724 million), which was an increase of 15% compared to the same period last year. Pro forma operating income4 for the first six months of 2005 was €877 million (2004: €760 million), representing an increase of 15% compared to the first six months of 2004.
- The operating margin for the 2005 six month period was 22.3%, which was up 0.60 percentage points compared to the same period in 2004. The pro forma operating margin4 was 23.4% for the first half of 2005, which increased by 0.60 percentage points compared to the same period in 2004.
- Net income for the first half of 2005 was €543 million (2004: €478 million), or €1.75 per share (2004: €1.54 per share), representing an increase of 14% compared to the first half of 2004. Pro forma net income4 for the 2005 six month period was €573 million (2004: €502 million), or pro forma €1.85 per share4 (2004: €1.61 per share), representing an increase of 14% compared to the 2004 six month period.
Cash Flow
- Operating cash flow for the first half of 2005 was €777 million (2004: €1.2 billion). Free cash flow4,6, which was €665 million for the first six months of 2005 (2004: €1,087), as a percentage of total revenues was 18% in 2005 (2004: 33%). At June 30, 2005, the Company had €3.4 billion in liquid assets (December 31, 2004: €3.2 billion).
“We are pleased to report another quarter of solid revenue, operating income and earnings per share growth,” said Henning Kagermann, CEO of SAP. “Due to strong software revenue results in each region, we continued to gain share against our peer group and extend our lead in the U.S. market.”
Mr. Kagermann continued, “We believe that the increased investments in our technology and products have provided SAP with a sizeable competitive lead in delivering the next generation software solutions based on our Enterprise Services Architecture (ESA). SAP NetWeaver and mySAP ERP, the first Service Oriented Architecture (SOA) based solution, are both receiving strong acceptance in the market. Following our ESA roadmap we will deliver the entire mySAP Business Suite on SAP NetWeaver in the next few months. This puts SAP in the clear lead as being the first company to provide a full suite of SOA based software solutions to the market. The next step is to bring the complete Business Process Platform to the market. We expect these investments to carry us well into the next decade and to help drive future growth.”
BUSINESS OUTLOOK
The Company has not changed its outlook provided in April and continues to provide the following guidance for the full year 2005.
- The Company expects full-year 2005 software revenues to increase in a range of 10% – 12% compared to 2004.
- The Company expects the full-year 2005 pro forma operating margin, which excludes stock-based compensation and acquisition-related charges, to increase in a range of 0.0 – 0.5 percentage points compared to 2004.
- The Company expects full-year 2005 pro forma earnings per share, which excludes stock-based compensation, acquisition-related charges and impairment-related charges, to be in the range of €4.70 to €4.80 per share.
- The outlook is based on an assumed average U.S. Dollar to Euro exchange rate of $1.30 per €1.00.
Share Buy-Back Program
- SAP’s current share buy-back program allows the Company to purchase shares in the amount of up to 10% of the total shares outstanding, or approximately 30 million shares. In the first half of 2005, the Company bought back 2.2 million shares at an average price of €123.33 (total amount: €276 million). This compares to 0.4 million shares bought back in the first half of 2004. At June 30, 2005, treasury stock stood at 6.6 million shares compared to 5.4 million shares at December 31, 2004. Given the Company’s strong free cash flow generation, SAP plans to continue to evaluate opportunities to buy back shares in the future.
BUSINESS REVIEW – Second Quarter and Six Months 2005
Second Quarter 2005 key figures (in € millions, except headcount – unaudited)
SAP Group
| 2Q 2005 | 2Q 2004 | Change | % Change | |
| Revenues | 2,016 | 1,781 | +235 | +13% |
| Software revenues | 576 | 497 | +79 | +16% |
| Income before taxes | 440 | 391 | +49 | +13% |
| Net income | 289 | 249 | +40 | +16% |
| Headcount, in full-time equivalents (Jun. 30) | 34,095 | 30,945 | 3,150 | +10% |
Second Quarter 2005 Software Revenue by Region (in € millions, unaudited)
SAP Group
| Software Revenue 2Q 2005 | Software Revenue 2Q 2004 | Change | % Change | |
| Total | 576 | 497 | +79 | +16% |
| – at constant currency rates | +16% | |||
| EMEA | 289 | 266 | +23 | +9% |
| – at constant currency rates | +8% | |||
| Asia Pacific | 85 | 69 | +16 | +23% |
| – at constant currency rates | +20% | |||
| Americas | 202 | 162 | +40 | +25% |
| – at constant currency rates | +26% |
Software revenues in the APA region increased 20% at constant currencies for the second quarter of 2005 with particularly good execution from countries such as Australia and Singapore. The APA region is also experiencing strong momentum in its small and midsized business segment. Software revenues in Japan decreased 11% at constant currencies for the second quarter of 2005 due to volatility that the Company continues to experience in a challenging environment where in-house software development dominates the market for IT. Excluding Japan, software revenues increased 45% in the APA region for the second quarter of 2005.
Second Quarter 2005 Total Revenue by Region (in € millions, unaudited)
SAP Group
| Revenue 2Q 2005 | Revenue 2Q 2004 | Change | % Change | |
| Total | 2,016 | 1,781 | +235 | +13% |
| – at constant currency rates | +14% | |||
| EMEA | 1,086 | 994 | +92 | +9% |
| – at constant currency rates | +9% | |||
| Asia Pacific | 238 | 209 | +29 | +14% |
| – at constant currency rates | +13% | |||
| Americas | 692 | 578 | +114 | +20% |
| – at constant currency rates | +22% |
Second Quarter 2005 Software Revenue by Solution (in € millions, unaudited)5
SAP Group
| Q2 2005 | Q2 2004 | Change | % Change | |
| ERP | 243 | 205 | +38 | +19% |
| SCM | 119 | 107 | +12 | +11% |
| CRM | 107 | 110 | -3 | -3% |
| SRM | 37 | 27 | +10 | +37% |
| PLM | 34 | 29 | +5 | +17% |
| SAP NetWeaver and other related products | 36 | 19 | +17 | +89% |
| Total Software Revenue | 576 | 497 | +79 | +16% |
With the exception of CRM, the Company reported strong growth in all solutions for the second quarter of 2005. Although coming from a small revenue base, revenues from SAP NetWeaver and related products were up sharply for the second consecutive quarter, increasing by 89%. Software revenues related to ERP increased 19% to €243 million and represented 42% of total software revenues. CRM related second quarter 2005 software revenues totaled approximately €107 million, which was a decrease of 3%, and represented 19% of total software revenues. The Company continued to gain share in CRM against its peer group in the second quarter. SCM related second quarter 2005 software revenues totaled approximately €119 million, representing an increase of 11%. SCM related software revenues represented 21% of total software revenues. These figures include revenues from designated solution contracts, as well as figures from integrated solution contracts, which are allocated based on usage surveys.
Six Month 2005 key figures at a glance (in €millions, except headcount – unaudited)
SAP Group
| 6 Mos 2005 | 6 Mos 2004 | Change | % Change | |
| Revenues | 3,745 | 3,337 | +408 | +12% |
| Software revenues | 1,010 | 867 | +143 | +16% |
| Income before taxes | 837 | 755 | +82 | +11% |
| Net income | 543 | 478 | +65 | +14% |
| Headcount, in full-time equivalents (Jun. 30) | 34,095 | 30,945 | +3,150 | +10% |
Second Quarter 2005 Software Revenue by Region (in € millions, unaudited)
SAP Group
| Software Revenue 6 Mos 2005 | Software Revenue 6 Mos 2004 | Change | % Change | |
| Total | 1,010 | 867 | +143 | +16% |
| – at constant currency rates | +17% | |||
| EMEA | 504 | 463 | +41 | +9% |
| – at constant currency rates | +8% | |||
| Asia Pacific | 150 | 115 | +35 | +30% |
| – at constant currency rates | +30% | |||
| Americas | 356 | 289 | +67 | +23% |
| – at constant currency rates | +27% |
Six Month 2005 Total Revenue by Region (in €millions, unaudited)
SAP Group
| Revenue 6 Mos 2005 | Revenue 6 Mos 2004 | Change | % Change | |
| Total | 3,745 | 3,337 | +408 | +12% |
| – at constant currency rates | +13% | |||
| EMEA | 2,012 | 1,865 | +147 | +8% |
| – at constant currency rates | +8% | |||
| Asia Pacific | 456 | 394 | +62 | +16% |
| – at constant currency rates | +17% | |||
| Americas | 1,277 | 1,078 | +199 | +18% |
| – at constant currency rates | +22% |
SFAS 123
- On January 1, 2006, SAP will adopt SFAS 123R to account for its share based payments. Based on the share based compensation awards issued and outstanding as of June 30, 2005, SAP expects approximately € 55 million compensation expense for 2006. If the current accounting method (APB 25) would be kept, compensation expense for these share based compensation awards would be approximately € 10 million based on the presumption that SAP’s stock price, the Goldman Sachs Software Index and the U.S. dollar to Euro exchange rate remained unchanged in 2006 from the respective values at June 30, 2005. Consequently the implementation of SFAS 123R will in 2006 result in an incremental expense of € 45 million for the share based payment awards granted until today. The total share based payment expense in 2006 depends on the share based payment awards to be granted until the end of 2006.
KEY EVENTS IN THE SECOND QUARTER OF 2005
- Major contracts in the second quarter of 2005 include Amgen, Banco Rural, Centex, Clark County, Procter & Gamble in the Americas; Altana, Burberry, Caixa d’Estalvis de Catalunya, Rabobank in EMEA; Aozara Bank, Bank International Indonesia, China Petroleum & Chemical, Fuji Photo Film, United Laboratories in Asia/Pacific.
- More than ten thousand customers, prospects and partners participated in the SAPPHIRE conferences in Europe (Copenhagen, April 26-28, 2005) and North America (Boston, May 17-19, 2005). The conferences served as forums in which SAP presented new products and developments. The further development of SAP’s NetWeaver platform was the focal point of this year’s SAPPHIRE conferences.
- SAP AG and Microsoft Corp. announced at the SAPPHIRE conference held in Copenhagen in April that they are jointly developing and planning to offer a new product, code-named “Mendocino,” that is planned to help companies gain a competitive advantage by revolutionizing the way information workers access, analyze and use enterprise data to make better business decisions. “Mendocino” is planned to link SAP process functionality directly to Microsoft Office applications. Users of this product, the first to be developed jointly by SAP and Microsoft, would enjoy the familiarity of Microsoft Office as they access SAP’s best-practice business processes and information.
- SAP AG and Siemens AG announced in April a global strategic alliance to deliver an integrated information technology (IT) offering to the healthcare provider market. The integrated Siemens Soarian and SAP Healthcare solution, based on the SAP NetWeaver™ platform, will first be made available in the United States, Germany and Japan. With the joint solution from Siemens and SAP, healthcare organizations would conduct collaborative business planning, in-depth financial analysis and accounting and human resources tasks.
- SAP AG announced in May 2005 that the technology market leaders Adobe, Cisco, Computer Associates, EMC, Intel, Macromedia, Mercury, Microsoft, Symantec and VERITAS are aligning around SAP’s Enterprise Services Architecture (ESA). These SAP partners plan to license ESA to provide “Enterprise Services-Ready” solutions that will deliver on the promise of Web services by providing enhanced flexibility, greater speed, lowered costs and diminished risk.
- SAP announced in June the next wave of its Safe Passage program of SAP applications and support, joining with its channel partners in a special program designed specifically to allow small and midsize enterprises (SMEs) running PeopleSoft and JD Edwards solutions to move to SAP in the context of a clear and future-proof IT strategy. Samsonite, one of the world’s largest manufacturers and distributors of luggage, took advantage of SAP’s Safe Passage program to transform its global retail and wholesale operations. Beginning in January 2006, Samsonite will transition from its existing JD Edwards solution environment for the wholesale and retail industry to mySAP Business Suite and leverage SAP’s industry-specific functionality.
- Leaders of business and government from around the world gathered in June for a global summit on RFID policy at the US Chamber of Commerce in Washington, DC. The event was sponsored by SAP, the US Department of Commerce and the US Chamber of Commerce’s National Chamber Foundation. This was the third such RFID conference to be sponsored by SAP, following similar events in Berlin and Brussels.
- In June, SAP AG announced the acquisition of Lighthammer Software Development Corporation, a privately-held, leading supplier of enterprise manufacturing intelligence and collaborative manufacturing software, based in Exton, Pennsylvania. The acquisition is expected to deliver value through improved manufacturing performance with rapid time-to-value for SAP’s installed base of more than 12,000 manufacturing customers. It also confirms SAP’s policy of making targeted acquisitions to augment its technology portfolio.
- SAP AG’s annual general meeting of shareholders, held in Mannheim on May 12, 2005, approved a dividend of €1.10 per ordinary share. Effective with the close of the annual general meeting, Dietmar Hopp, one of the co-founders of SAP, former CEO and former Chairman of the Supervisory Board, resigned as a member of the Supervisory Board.
Webcast/Supplementary Financial Information
SAP senior management will host a press conference in London today at 11:00 AM (CET) / 10:00 AM (UK) / 5:00 AM (Eastern) / 2:00 AM (Pacific), followed by an investor conference at 2:00 PM (CET) / 1:00 PM (UK) / 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 solutions*. Today, more than 28,200 customers in over 120 countries run more than 96,400 installations of SAP® software—from distinct solutions addressing the needs of small and midsize enterprises to suite solutions for global organizations. Powered by the SAP NetWeaver® platform to drive innovation and enable business change, mySAP™ Business Suite solutions are helping enterprises around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP industry solutions support the unique business processes of more than 25 industry segments, including high tech, retail, public sector and financial services. 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 solutions as consisting of Enterprise Resource Planning and related software solutions such as Supply Chain Management, Customer Relationship Management, Product Lifecycle Management, 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 © 2005 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 serves informational purposes only. National product specifications may vary.
For more information, press only:
Herbert Heitmann, +49 (6227) 7-61137, herbert.heitmann@sap.com, CET
Markus Berner, +49 (6227) 7-42548, markus.berner@sap.com, CET
Tony Roddam, +49 (6227) 7-49133, tony.roddam@sap.com, CET
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
- Constant currency data excludes the impact of currency exchange rates.
- Worldwide share of what SAP considers to be its peer group of Microsoft Corp. (business solutions segment only), Oracle Corp. (business applications only) and Siebel Systems, Inc. is based on comparable software revenues in U.S. dollars (for vendors that did not yet announce or pre-announce software revenues, analyst estimates were used). SAP’s results have been converted into U.S. dollars. For Oracle Corp. (business applications only), the software revenues of Oracle, PeopleSoft and Retek were combined based on publicly available data. SAP’s first quarter 2005 worldwide share against its peer group was adjusted downward by 1 percentage point compared to the number reported in the first quarter 2005 earnings release resulting from 1) the inclusion of Retek Inc. software revenue into Oracle’s software revenue numbers following Oracle’s acquisition of Retek and 2) the replacing of estimated data by actual data, where only estimates were available at the time the peer group share was originally calculated and actuals were published after that date. Subsequent revisions of peer group data will often occur as a result of using estimated data at the time the peer group share is originally calculated because actual data is often not yet available.
- U.S. share of what SAP considers to be its peer group of Microsoft Corp. (business solutions segment only), Oracle Corp. (business applications only), and Siebel Systems, Inc. is based on comparable U.S. software revenues in U.S. dollars (for vendors that did not yet announce or pre-announce software revenues, analyst estimates were used, and for some vendors U.S. software revenues are estimated). SAP’s results have been converted into U.S. dollars. For Oracle Corp. (business applications only), the software revenues of Oracle, PeopleSoft and Retek were combined based on publicly available data. SAP’s first quarter 2005 U.S. share against its peer group was adjusted downward by 1 percentage point compared to the number reported in the first quarter 2005 earnings release resulting from 1) the inclusion of Retek Inc. software revenue into Oracle’s software revenue numbers following Oracle’s acquisition of Retek and 2) the replacing of estimated data by actual data, where only estimates were available at the time the peer group share was originally calculated and actuals were published after that date. Subsequent revisions of peer group data will often occur as a result of using estimated data at the time the peer group share is originally calculated because actual data is often not yet available.
- Non-GAAP Measures:
This press release discloses certain financial measures such as pro forma EBIDTA, free cash flow, pro-forma operating income, pro-forma expenses, pro-forma net income, pro-forma earnings per share (EPS) and currency-adjusted year-on-year changes in revenue and operating income. These measures are not prepared in accordance with generally accepted accounting principles and are, therefore, considered non-GAAP financial measures. The non-GAAP measures should be considered in addition to, and not as a substitute for, or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with generally accepted accounting principles. The pro-forma measures used by SAP may be different from pro-forma measures used by other companies.Management believes that pro-forma operating income, pro-forma expenses, pro-forma net income and pro-forma EPS provide supplemental meaningful information to the investor to fully assess the financial performance of SAP’s core operations. The pro-forma operating measures disclosed are the same SAP uses in its internal management reporting and as criteria for variable elements of management compensation.
Eliminated expenses in pro-forma expenses, pro-forma operating income, pro-forma net income and pro-forma EPS are defined as follows:
- Stock-based compensation includes expenses for stock-based compensation as defined under U.S. GAAP (STAR, LTI and SOP) as well as expenses related to the settlement of stock-based compensation plans in the context of mergers and acquisitions. Management excludes stock-based compensation expenses because SAP has no direct influence over the actual expense of these awards once the Company enters into stock-based compensation plans.
- Acquisition-related charges include amortization of intangible assets acquired in acquisitions of businesses or intellectual property.
- Impairment-related charges include other-than-temporary impairment charges on minority equity investments.
- These figures include revenues from designated solution contracts, as well as figures from integrated solution contracts, which are allocated based on usage surveys provided by SAP’s customers. SAP’s solution reporting includes the following specific software solutions: ERP (Enterprise Resource Planning), SCM (Supply Chain Management), CRM (Customer Relationship Management), SRM (Supplier Relationship Management), PLM (Product Lifecycle Management) and SAP NetWeaver and other related products.
- Management believes that pro forma EBITDA and free cash flow are widely accepted supplemental measures of evaluating operating performance and liquidity among companies. However these measures should be considered in addition to, and not as a substitute for, or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with generally accepted accounting principles.
Please note: In the second quarter of 2005, SAP changed its definition of “acquisition related charges” which is used to determine SAP’s pro forma operating income, pro forma earnings per share and other pro forma information provided by SAP. In the past, SAP regarded amortization of intangibles only as acquisition related charges if the intangibles were acquired as part of an acquisition of an entire business. In the future, SAP expects to conduct acquisitions more frequently by acquiring from the target only the intellectual property rights and other related intangibles instead of acquiring the target’s entire business. Therefore, beginning in the second quarter of 2005, SAP will also regard as acquisition related charges the amortization of intellectual property rights, patents etc. that were acquired individually, i.e. not as part of a business combination. This change in definition has no material impact on any pro forma information provided in the past, as SAP has so far not conducted any material acquisitions of intangibles outside of business combinations.
