SAP Announces 2004 Fourth Quarter and Year-End Results

CIMdata PLM Industry Summary Online Archive

26 January 2005

Financial News

SAP Announces 2004 Fourth Quarter and Year-End Results

SAP AG announced its preliminary financial results for the fourth quarter and year ended December 31, 2004. Highlights of the results are as follows.

HIGHLIGHTS-Full-Year 2004

Revenues

Software revenues were euro 2.4 billion for 2004 (2003: euro 2.1 billion), representing an increase of 10% compared to the same period in 2003. These strong results enabled the Company to continue to gain worldwide share against its peer group(3) in 2004, and the Company achieved this double-digit growth in software revenues despite the negative impact of the currency translation resulting from the strong Euro against the U.S. dollar in 2004. At constant currencies(1), software revenues increased 13% year-over-year.

Software revenues in the U.S. increased 27% to euro 625 million for 2004 (2003: euro 491 million). At constant currencies(1), software revenues in the U.S. increased 38% year-over-year. This strong growth in software revenues helped the U.S. organization gain significant share against its peer group(4) in the U.S. for the second consecutive year.

Total revenues for the full-year 2004 were euro 7.5 billion (2003: euro 7.0 billion), which was an increase of 7% compared to 2003. At constant currencies(1), total revenues increased 10% for the year.

Income

Operating income for the full-year 2004 was euro 2.0 billion (2003: euro 1.7 billion), which was an increase of 17% compared to 2003. Pro forma operating income(2) was euro 2.1 billion (2003: euro 1.9 billion) for the year, representing an increase of 11% compared to the same period in 2003.

The operating margin for the year ended December 31, 2004 was 27%, which was up 2 percentage points compared to the year ended December 31, 2003. The pro forma operating margin(2) for the full-year 2004 was 28%, which represented an increase of 1 percentage point compared to the same period in 2003. SAP once again successfully grew its pro forma operating margin while at the same time making significant investments in research and development as well as sales and marketing to help it capitalize on future growth opportunities. SAP has now increased its operating margin by 9 percentage points and its pro forma operating margin(2) by 8 percentage points over the past three years.

Net income for 2004 was euro 1.3 billion (2003: euro 1.1 billion), or euro 4.22 per share (2003: euro 3.47 per share), representing an increase of 22% compared to 2003. Pro forma net income(2) was euro 1.4 billion (2003: euro 1.2 billion), or pro forma euro 4.37 earnings per share(2) (2003: euro 3.84 per share), representing an increase of 14% compared to 2003.

HIGHLIGHTS-Fourth Quarter 2004

Revenues

Software revenues increased 8% to euro 1.0 billion (2003: euro 931 million) for the fourth quarter of 2004. At constant currencies(1), software revenues increased 11% year-over-year.

Fourth quarter 2004 total revenues were euro 2.4 billion (2003: euro 2.2 billion), which was an increase of 8% compared to the fourth quarter of 2003. At constant currencies(1), total revenues increased 12% year- over-year.

Income

Operating income for the 2004 fourth quarter was euro 833 million (2003: euro 673 million), which was an increase of 24% compared to the same period last year. Pro forma operating income(2) was euro 851 million (2003: euro 765 million), representing an increase of 11% year-over-year.

The operating margin for the fourth quarter of 2004 was 34.7%, which was up 4.3 percentage points year-over-year. The pro forma operating margin(2) was 35.4%, which increased by around 1 percentage point compared to the fourth quarter of 2003.

Net income for the fourth quarter of 2004 was euro 542 million (2003: euro 420 million), or euro 1.74 per share (2003: euro 1.35 per share), representing an increase of 29% compared to the fourth quarter of 2003. Pro forma net income(2) was euro 554 million (2003: euro 481 million), or pro forma euro 1.78 per share(2) (2003: euro 1.55 per share), for the fourth quarter of 2004, representing an increase of 15% compared to the same period in 2003.

Peer Group Share

With approximately $1.366 billion in fourth quarter 2004 software revenues on a quarter-end U.S. dollar exchange rate basis, SAP continued to gain worldwide share against its peer group (defined as SAP and the four companies mentioned in footnote 3). On a rolling four quarter basis, the Company's worldwide share against its peer group based on software revenues was 57% at the end of the fourth quarter of 2004 compared to 56% at the end of the third quarter of 2004 and 53% at the end of the fourth 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 38% at the end of the fourth quarter of 2004 compared to 37% at the end of the third quarter of 2004 and 32% at the end of the fourth quarter of 2003. The Company gained 6 percentage points of share against its peer group in the U.S. in 2004.

"2004 was another outstanding year for SAP," said Henning Kagermann, CEO of SAP. "As promised we delivered a year of double-digit growth in software revenues, far exceeding our peer group, and we continued to improve our profitability as demonstrated by additional operating margin gains. Moreover, we were able to achieve these strong results while continuing to invest in technology to help drive innovation and growth at SAP."

Mr. Kagermann continued, "Companies across all sectors and geographies are focusing on innovative business models as the driver of competitive advantage, rather than products and services, as in the past. IT is seen as critical to companies' ability to adapt and execute on innovative new business models. I believe we are finally at a turning point in the IT industry where IT is understood and used as a competitive tool rather than simply a driver of cost efficiency. Key examples of the innovations we are developing to help shape the industry landscape are SAP NetWeaver and the Enterprise Services Architecture. Proof of this concept is mySAP ERP, which exceeded our expectations in 2004 and is the first application based on the Enterprise Services Architecture."

Cash Flow

Operating cash flow for the year ended December 31, 2004 was euro 1.8 billion (2003: euro 1.5 billion), which was an increase of 21% compared to 2003. Free cash flow(2) as a percentage of total revenues was 22% in 2004 (2003: 18%). At December 31, 2004, the Company had euro 3.2 billion in liquid assets (December 31, 2003: euro 2.1 billion).

BUSINESS OUTLOOK

The Company provided the following outlook for the full year of 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 euro 4.70 to euro 4.80 per share.

The outlook is based on an assumed U.S. Dollar to Euro exchange rate of $1.30 per euro 1.00.

"SAP is leading the way with its Business Process Platform by enriching the SAP NetWeaver composition platform with ready-to-run business processes which are accessible through Enterprise Services," said Mr. Kagermann. "The Business Process Platform provides speed to market, efficiency and scalability for SAP and gives our customers a platform that supports business flexibility, agility and a competitive advantage in a demand driven environment where customers can more easily align business processes with their business needs. We believe we own a substantial lead against our peers in time to market and customer and partner support in the development of our Business Process Platform. We expect that the Business Process Platform will help attract independent software providers and partners to extend SAP solutions into new markets, acquiring new users and thereby generating excellent opportunities for growth for SAP. As we have previously stated, 2005 will be a year of investment for SAP, which will help drive growth and efficiency for our company."

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 2004, the Company bought back 1.14 million shares at an average price of euro 125.58 (total amount: euro 143 million). At the end of 2004, treasury stock stood at 5.36 million shares.

Starting in March 2005, stock options granted as part of the Company's SOP 2002 stock option program will become exercisable over a period of three years. SAP plans to use primarily treasury shares to service the subscription rights under the stock option plan. At the same time, SAP intends to buy back up to an equivalent amount of shares, which would replenish its treasury stock.

Given the Company's strong free cash flow generation, SAP plans to continue to evaluate opportunities to buy back shares in the future beyond the expected share purchases associated with the above mentioned stock option exercises. As in the past, the Company will conduct all of its share repurchases in accordance with applicable laws and regulations, especially in a manner that should not materially impact the share price as required under German laws.

BUSINESS REVIEW-Full Year and Fourth Quarter 2004

The Americas region, particularly the U.S., was the largest growth driver for software revenues for 2004. Excellent sales execution produced an increase in software revenues of 34% at constant currencies for the Americas region and 38% at constant currencies for the U.S. The U.S. experienced strong growth in every quarter despite tough year-over-year comparisons heading into the second half of the year. After a stronger second half, as was expected, software revenues in the EMEA region grew 4% in 2004. Software revenues in Germany increased 5% in 2004. In the APA region, where software revenues increased 9% at constant currencies in 2004, emerging markets such as China and India experienced very strong growth. Due to a challenging macro economic environment and internal execution issues Japan experienced a 15% decline in software revenues at constant currencies.

KEY EVENTS IN THE FOURTH QUARTER OF 2004

• In the fourth quarter, SAP demonstrated strong momentum, announcing major deals in all key regions. These included in the Americas: Duke University, EarthLink, Limited Brands and U.S. Customs and Border Protection; in EMEA: Danisco, Deutsche Borse, European Commission and Schneider Electric; and in Asia Pacific: Air New Zealand, Fuji Photo Film, Mitsubishi, and Oil India.

• German Chancellor Gerhard Schroder was the honorary speaker at the SAP Forum "Developing the Future through Cooperation and Informatization" held in Changchun, China, on December 8, 2004.

• On November 11, 2004, SAP and Accenture introduced a software solution designed to help energy companies more efficiently manage their upstream asset portfolios to improve operations. Accenture and SAP jointly designed and developed the composite application SAP® xAppT Integrated Exploration and Production (SAP xIEP), which is powered by the SAP NetWeaverT technology platform. SAP xIEP allows upstream energy companies to integrate critical knowledge, data and applications- including those for development, production, operations and maintenance activities-to better execute key upstream oil and gas processes.

• SAP successfully established its first syndicated multi-currency revolving credit facility in the amount of euro 1 billion through a group of banks led by ABN AMRO Bank, BNP Paribas, Deutsche Bank and JP Morgan. This credit facility is intended to provide greater financial flexibility to SAP, but the Company does not currently intend to draw down the facility. The planned credit facility has a five-year maturity and is arranged in addition to the existing short-term credit facilities of SAP AG.

• On October 4, 2004, SAP announced the launch of SAP for Wholesale Distribution, a new industry solution comprising SAP's core enterprise software and new tailored applications to help wholesale distribution companies improve operational excellence and profitability. SAP also announced the creation of a dedicated business unit, Wholesale & Trade, which will focus on the unique requirements of midsize and large companies in the wholesale distribution sector.

• SAP announced a comprehensive update to SAP® Master Data Management (SAP MDM), a component of the SAP NetWeaverT technology platform. The new capabilities-which include a broad array of Web services, a new object modeling framework and extensive new data normalization and performance updates-make SAP MDM the first offering that can manage customer, product and vendor information in heterogeneous IT systems.

• SAP unveiled the latest version of SAP® Business One for Small and Midsize Businesses on October 12, 2004. The latest version of SAP® Business One, will be available in more than 37 countries internationally and eliminates the need for businesses to manage multiple unrelated applications by providing a single, integrated software solution that delivers a unified view of up-to-the-minute information for greater control and profitability across the entire business. The solution will be offered through SAP's growing global network of more than 650 channel partners.

Webcast/Supplementary Financial Information

SAP senior management will host a press conference in Frankfurt today at 10:00 AM (CET) / 9:00 AM (GMT) / 4:00 AM (Eastern) / 1:00 AM (Pacific), followed by an investor conference at 2:00 PM (CET) / 1:00 PM (GMT) / 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 .

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 63% in the fourth 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 44% in the fourth 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.

(*) 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.

Become a member of the CIMdata PLM Community to receive your daily PLM news and much more.

Tell us what you think of the CIMdata Newsletter. Send your feedback.

CIMdata is committed to your privacy. Your personal information will never be sold or shared outside of CIMdata without your express permission.