CIMdata PLM Industry Summary Online Archive

22 July 2004

Financial News

SAP Announces 2004 Second Quarter and Six Months Results

SAP AG announced its preliminary financial results for the second quarter and six months ended June 30, 2004. Highlights of the results are as follows.

HIGHLIGHTS - Second Quarter 2004

Revenues

•  Software revenues were euro 497 million (2003: euro 431 million), representing an increase of 15% compared to 2003. At constant currencies (1), software revenues increased 17% year-over-year.
•  Software revenues in the U.S. increased 63% to euro 140 million (2003: euro 86 million). At constant currencies (1), software revenues in the U.S. increased 70% year-over-year.
•  Total revenues were euro 1.8 billion (2003: euro 1.6 billion), which was an increase of 9% compared to 2003. At constant currencies (1), total revenues increased 11% year-over-year.

Income

•  Operating income was euro 391 million (2003: euro 340 million), which was an increase of 15% compared to last year. Pro forma operating income (2) was euro 428 million (2003: €388 million), representing an increase of 10% compared to 2003.
•  The operating margin was 22%, which was up 1 percentage point year- over-year. The pro forma operating margin2 was 24%, which represented the same level as 2003.
•  Net income was euro 249 million (2003: euro 219 million), or euro 0.80 per share(2003: euro 0.71 per share), representing an increase of 14% compared to 2003. Pro forma net income (2) was euro 273 million (2003: euro 253 million), or pro forma euro 0.87 per share2 (2003: euro 0.81 per share), representing an increase of 8% compared to 2003.

Peer Group Share

•  With approximately $600 million in software revenues on a quarter-end U.S. dollar exchange rate basis, SAP continued to gain worldwide share against its peer group. On a rolling four quarter basis, the Company's worldwide share against its peer group (defined as SAP and the four companies mentioned in footnote 3) based on software revenues was 55% at the end of the second quarter of 2004 compared to 51% at the end of the second quarter of 2003.
•  On a rolling four quarter basis, the Company's U.S. share against its peer group (defined as SAP and the four companies mentioned in footnote 4) based on software revenues was 37% at the end of the second quarter of 2004 compared to 29% at the end of the second quarter of 2003.

HIGHLIGHTS - Six Months 2004

Revenues

•  Six month software revenues were euro 867 million (2003: euro 783million), representing an increase of 11% compared to the same period in 2003. At constant currencies (1), software revenues increased 14% for the six month period.
•  Total revenues for the first half were euro 3.3 billion (2003: euro 3.2 billion), which was an increase of 6% compared to 2003. At constant currencies(1), total revenues increased 9% for the first half.

Income

•  Operating income for the six month period was euro 724 million (2003: euro 638 million), which was an increase of 13% compared to the same period last year. Pro forma operating income(2) was euro 760 million (2003: euro 692 million), representing an increase of 10% compared to 2003.
•  The operating margin for the first half of 2004 was 22%, which was up 2 percentage points compared to the first half of 2003. The pro forma operating margin(2) for the six month period was 23%, which represented an increase of 1 percentage point compared to the same period in 2003.
•  Net income for the 2004 six month period was euro 478 million (2003: euro 405 million), or euro 1.54 per share (2003: euro 1.31 per share), representing an increase of 18% compared to the 2003 six month period. Pro forma net income(2) was euro 502 million (2003: euro 453 million), or pro forma euro 1.61 earnings per share(2) (2003: euro 1.45 per share), representing an increase of 11% compared to 2003.

Cash Flow

•  Operating cash flow was euro 1.2 billion (2003: euro 804 million), which was an increase of 45% compared to last year. Free cash flow (2) as a percentage of total revenues was 33% (2003: 23%). At June 30, 2004, the Company had euro 2.8 billion in liquid assets (June 30, 2003: euro 1.8 billion), representing a 55% increase compared to last year.

"We are seeing a clear trend in the industry. Customers are demanding reliability, financial strength, innovative capabilities and a broad product portfolio from their software partners. Our ability to deliver on all four of these qualities along with the investments we have made in expanding our product offerings and technology have all contributed to our continued share gains against our peer group," said Henning Kagermann, CEO of SAP. "We continue to experience a sound economic environment in the U.S. while our European business is showing signs of stabilization in a more subdued economy. We remain committed to investing in R&D and strengthening our sales force with the expectation of turning additional market opportunities into further share gains."

BUSINESS OUTLOOK

SAP has not changed its outlook for 2004, which is as follows:

•  Software revenues are expected to increase by around 10% compared to 2003.
•  The pro forma operating margin, which excludes stock-based compensation and acquisition-related charges, is expected to increase by around one percentage point compared to 2003.
•  Pro forma earnings per share, which excludes stock-based compensation, acquisition-related charges and impairment-related charges, are expected to be in the range of euro 4.20 to euro 4.30 per share.
•  The outlook is based on an assumed U.S. Dollar to Euro exchange rate of $1.25 per euro 1.00.

The Americas region, specifically the U.S., continued to be the growth driver for SAP in the second quarter. Software revenues in the U.S. increased 63% year-over-year, but at constant currencies(1) U.S. software revenues were 70% higher. The Company believes that it continued to significantly outperform its U.S. based peer group in the U.S. In the EMEA region, the Company is experiencing a slow, but stable recovery as demonstrated by the 2% increase (1% at constant currencies1) in software revenues for the second quarter. Germany trended upward from the first quarter to the second quarter with a strong 10% year-over-year growth in software revenues. The APA region reported a 19% increase (17% at constant currencies(1)) in software revenues for the second quarter with another quarter of solid growth coming from the emerging market countries of China and India. Japan, like EMEA, saw a better performance in the second quarter indicating some stabilization in that country. Software revenues in Japan grew 8% (5% at constant currencies1) compared to the second quarter of 2003.

KEY EVENTS IN THE SECOND QUARTER OF 2004

•  In the second quarter, SAP announced major deals in all key regions. These included in the Americas: Adobe System, Citrix, Massachusetts Mutual Life Insurance and Pepsi Co (all in the US), Petroflex Industria e Comercia (Brazil); in EMEA: Akzo Nobel (Netherlands), Swarovski (Austria), Thyssen Krupp and Vodafone (Germany), Yves Rocher (France), Mediaset (Italy) and South African Post Office (South Africa); and in Asia Pacific: NEC Micro Systems, Cosmo Oil, Yokohama Rubber (all Japan), National Australian Bank (Australia), Hyundai Heavy Industries (Korea), Shanghai Municipal Electric Power (China), and Jet Airways and Tata Motors (both India).
•  SAP hosted its annual SAPPHIRE conferences in North America (New Orleans), Australia (Brisbane) and Japan (Tokyo). The conferences attracted in total more than ten thousand customers, prospects, and partners, and served as forums in which SAP presented new products and developments. SAP's NetWeaver integration and applications platform was a focal point at the SAPPHIRE conferences this year. During SAPPHIRE '04 in New Orleans, SAP introduced new adaptive computing capabilities for NetWeaver. The new functionalities are designed to help customers leverage existing investments, drive enhanced customer efficiencies and improve flexibility.
•  SAP and IBM announced a major retail partnership in May during the SAPPHIRE conference in New Orleans. The deal is an expansion of a global strategic alliance aimed at enabling leading retailers to strategically transform their businesses to meet changing consumer demands and global competition. SAP and IBM jointly agreed to promote the end-to-end retail offering comprised of SAP and IBM retail solutions and technologies, leveraging in particular IBM store capabilities and SAP retail business solutions.
•  SAP and Microsoft also announced a significant expansion of their long-standing relationship during SAPPHIRE '04 in New Orleans. The partnership is based on a shared commitment to Web services as the foundation for the next generation of enterprise software. The two companies detailed a road map for deeper integration between Microsoft® .NET and SAP NetWeaverT, the companies' respective strategic platform initiatives, allowing customers to get more out of business-critical SAP® applications and technologies running in collaboration with Microsoft .NET. The jointly developed solutions will greatly enhance access to SAP NetWeaver functionality for developers using Microsoft Visual Studio® .NET and will increase the interoperability between SAP solutions and the Microsoft Office System.
•  SAP acquired A2i, Inc., a privately held software company, to broaden master data management capabilities of the SAP NetWeaver open integration and applications platform. The acquisition was part of SAP's continuing strategy to identify and acquire businesses that can enhance SAP's ability to deliver the most innovative suite of products available, helping customers address specific business challenges for competitive advantage.

Investor Conference / Webcast

SAP senior management will host an investor conference in New York today at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). The conference will be web cast live at http://www.sap.com/investor and will be available for replay purposes as well.

Footnotes

1) Constant currency data excludes the impact of currency exchange rates.

2) The press release discloses certain financial measures, such as pro forma EBITDA, free cash flow, pro forma operating income, pro forma net income and pro forma EPS, that are considered non-GAAP financial measures. The non-GAAP measures included in our press release have been reconciled to the nearest GAAP measure as is required under SEC rules regarding the use of non-GAAP financial measures. Pro forma operating income and pro forma operating margin exclude stock-based compensation and acquisition-related charges. Pro forma net income and pro forma earnings per share exclude stock-based compensation, acquisition-related charges and impairment-related charges.

3) Beginning in the first quarter of 2004, the Company's peer group changed, better reflecting what SAP believes it to be its peer group of major global business applications providers. Worldwide share of what SAP considers to be its peer group of Microsoft Corp. (Business Solutions segment only), Oracle Corp. (business applications only), PeopleSoft, Inc. 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. Until the end of 2003, SAP considered its peer group to be i2 Technologies, Inc., Oracle Corp. (business applications only), PeopleSoft, Inc. and Siebel Systems, Inc. Based on the peer group used in 2003, SAP's share would have been 61% in the second quarter of 2004.

4) Beginning in the first quarter of 2004, the Company's peer group changed, better reflecting what SAP believes it to be its peer group of major global business applications providers. U.S. share of what SAP considers to be its peer group of Microsoft Corp. (business solutions segment only), Oracle Corp. (business applications only), PeopleSoft, Inc. 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. Until the end of 2003, SAP considered its peer group to be i2 Technologies, Inc., Oracle Corp. (business applications only), PeopleSoft, Inc. and Siebel Systems, Inc. Based on the peer group used in 2003, SAP's share would have been 42% in the second quarter of 2004.

5) 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. Beginning in 2004, the Company changed its usage surveys for determining software revenues by solution. The usage surveys no longer include certain technology components, including BI and Portals since all technology components are now integrated with SAP NetWeaver. No prior comparable figures are available using the new method. For prior years' information under the old method, please refer to SAP's annual report on Form 20F.

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. 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 Annual Report on Form 20-F for 2003 filed with the SEC on March 23, 2004. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

 

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