CIMdata PLM Industry Summary Online Archive

28 October 2008

Financial News

SAP Announces 2008 Third Quarter and Nine Month Results

SAP AG announced its preliminary financial results for the third quarter and nine months ended September 30, 2008.

View the Detailed Results (PDF)

Presentation (PDF)

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HIGHLIGHTS – Third Quarter2008

SAP - Third Quarter2008*

U.S. GAAP

Non-GAAP**

€ million

Q3 2008

Q3 2007

% change

Q3 2008

Q3 2007

% change

% change constant currency***

Software revenues

763

714

7

763

714

7

11

Software and software-related service revenues

1,994

1,735

15

2,035

1,735

17

22

Total revenues

2,761

2,419

14

2,802

2,419

16

20

Operating income

614

606

1

731

624

17

23

Operating margin (%)

22.2

25.1

-2.9pp

26.1

25.8

0.3pp

0.5pp

Income from continuing operations

409

414

-1

496

425

17

_

Net income

388

408

-5

475

419

13

_

Basic EPS from cont. operations (€)

0.35

0.35

0

0.41

0.36

14

_

*All figures are preliminary and unaudited and are based on the current status of the purchase price allocation for the Business Objects acquisition which is not yet final.

** Revenue line items are adjusted for the Business Objects support revenue that Business Objects would have recognized had it remained a standalone entity but that SAP is not permitted to recognize as revenue under U.S. GAAP as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges. See Appendix at the end of the financial section of the press release for explanations of the Non-GAAP measures used in this press release and for related reconciliations to U.S. GAAP.

*** Constant currency Non-GAAP revenue and operating income figures are calculated by translating Non-GAAP revenue and Non-GAAP operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's Non-GAAP constant currency numbers with the Non-GAAP number of the previous year's respective period. See Appendix at the end of the financial section of press release for details.

Revenues

Third quarter 2008 U.S. GAAP software and software-related service revenues were €1.99 billion (2007: €1.74 billion), representing an increase of 15% compared to the third quarter of 2007. Non-GAAP software and software-related service revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €41 million, for the third quarter of 2008 were €2.04 billion (2007: €1.74 billion). This represents an increase of 17% (22% at constant currencies) compared to the third quarter of 2007. If SAP’s reporting currency was the U.S. Dollar, Non-GAAP software and software-related service revenues for the third quarter would have increased 26% compared to the same period one year ago.

Excluding the contribution from Business Objects, SAP’s business contributed 7 percentage points to the constant currency growth of the Non-GAAP software and software-related service revenues for the third quarter of 2008.

U.S. GAAP total revenues for the 2008 third quarter were €2.76 billion (2007: €2.42 billion), which was a year-over-year increase of 14%. Non-GAAP total revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €41 million for the third quarter of 2008, were €2.80 billion (2007: €2.42 billion), which is an increase of 16% (20% at constant currencies) compared to the third quarter of 2007.

Third quarter 2008 U.S. GAAP software revenues were €763 million (2007: €714 million), representing an increase of 7% (11% at constant currencies) compared to the third quarter of 2007.

Income

U.S. GAAP operating income for the third quarter was €614 million (2007: €606 million), which was an increase of 1% compared to the third quarter of 2007. Third quarter Non-GAAP operating income, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling €117 million, was €731 million (2007: €624 million), which was an increase of 17% (23% at constant currencies) compared to the third quarter of 2007.

The U.S. GAAP operating margin for the third quarter of 2008 was 22.2% (2007: 25.1%). The third quarter Non-GAAP operating margin was 26.1% (2007: 25.8%), or 26.3% at constant currencies. Both the U.S. GAAP and the Non-GAAP operating margins were impacted by one-time expenses associated with the integration of Business Objects (which are not acquisition-related charges) of approximately €14 million.

U.S. GAAP income from continuing operations for the third quarter of 2008 was €409 million (2007: €414 million), representing a decrease of 1% compared to the third quarter of 2007. Non-GAAP income from continuing operations, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling €87 million, was €496 million (2007: €425 million), representing an increase of 17% compared to the third quarter of 2007.

U.S. GAAP basic earnings per share from continuing operations for the third quarter of 2008 was €0.35 (2007: €0.35), which was flat compared to the same period in 2007. Non-GAAP earnings per share from continuing operations for the third quarter of 2008 was €0.41 (2007: €0.36), which was an increase of 14% compared to the same period in 2007.

“The third quarter 2008 was SAP’s 19th consecutive quarter of double-digit growth in software and software-related service revenues at constant currencies. This was an achievement in a period where the global financial crisis had a significant impact on customer decisions towards quarter end,” said Henning Kagermann, co-CEO of SAP. “Customers are continuing to spend on our products, but the economic and business environment is uncertain. Our business model is flexible, and we are focusing on protecting our operating margins and earnings.”

Mr. Kagermann continued, “We are assessing business activity continuously, and we are balancing the need for greater efficiencies with steady advancements in our products, customer services and technologies, while addressing customers’ most critical business issues. This approach has worked well for customers and SAP throughout the up and down economic cycles of the past, and has contributed to SAP’s market leadership. We’ve been through uncertainty before, and have always emerged as a better, stronger and more efficient company.”

Core Enterprise Applications Vendor Share
Based on U.S. GAAP third quarter 2008 software and software-related service revenues on a rolling four-quarter basis, SAP’s worldwide share of Core Enterprise Applications vendors, which account for approximately $38.7 billion in software and software-related service revenues as defined by the Company based on industry analyst research, was 33.4% for the four-quarter period ended September 30, 2008. This represents a 6.5 percentage point increase compared to the four quarter period ended September 30, 2007, of which approximately 3.3 percentage points came from organic growth and 3.2 percentage points from the acquisition of Business Objects.

Cash Flow
Operating cash flow from continuing operations for the first nine months of 2008 was €1.97 billion (2007: €1.34 billion). Free cash flow for the first nine months of 2008 was €1.73 billion (2007: €1.05 billion), which was 21% of total revenues (2007: 15%). At September 30, 2008, the Company had total group liquidity of €1.6 billion (December 31, 2007: €2.8 billion), which includes cash and cash equivalents, restricted cash and short term investments.

Share Buyback
In the third quarter of 2008 the Company bought back 2.8 million shares at an average price of €37.75 (€104.2 million). Of the total shares purchased in the third quarter, 983,153 shares were subsequently acquired from the Company by employees who exercised stock options under SAP's share-based compensation programs. The number of shares bought back in the third quarter of 2008 represented 0.23% of the total shares outstanding. At September 30, 2008, the Company held treasury stock in the amount of 38.7 million shares (approximately 3.15% of total shares outstanding) at an average price of €35.43. For the first nine months of 2008, the Company invested €486.8 million buying back approximately 14.6 million shares at an average price of €33.34.

HIGHLIGHTS – Nine Months 2008

SAP - Nine Months 2008*

U.S. GAAP

Non-GAAP**

€ million

9M 2008

9M 2007

% change

9M 2008

9M 2007

% change

% change constant currency***

Software revenues

2,283

1,992

15

2,283

1,992

15

21

Software and software-related service revenues

5,791

4,954

17

5,931

4,954

20

26

Total revenues

8,079

7,002

15

8,219

7,002

17

24

Operating income

1,566

1,623

-4

1,931

1,665

16

25

Operating margin (%)

19.4

23.2

-3.8pp

23.5

23.8

-0.3pp

0.2pp

Income from continuing operations

1,067

1,179

-9

1,338

1,205

11

Net income

1,038

1,167

-11

1,309

1,193

10

Basic EPS from cont. operations (€)

0.90

0.98

-8

1.12

1.00

12

*All figures are preliminary and unaudited and are based on the current status of the purchase price allocation for the Business Objects acquisition which is not yet final.
** Revenue line items are adjusted for the Business Objects support revenue that Business Objects would have recognized had it remained a standalone entity but that SAP is not permitted to recognize as revenue under U.S. GAAP as a result of business combination accounting rules. Adjustments in the operating expense line items are for acquisition-related charges. See Appendix at the end of the financial section of the press release for explanations of the Non-GAAP measures used in this press release and for related reconciliations to U.S. GAAP.
*** Constant currency Non-GAAP revenue and operating income figures are calculated by translating Non-GAAP revenue and Non-GAAP operating income of the current period using the average exchange rates from the previous year's respective period instead of the current period. Constant currency period-over-period changes are calculated by comparing the current year's Non-GAAP constant currency numbers with the Non-GAAP number of the previous year's respective period. See Appendix at the end of the financial section of press release for details.

Revenues

Nine-month 2008 U.S. GAAP software and software-related service revenues were €5.79 billion (2007: €4.95 billion), representing an increase of 17% compared to the first nine months of 2007. Non-GAAP software and software-related service revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €140 million, for the first nine months of 2008 were €5.93 billion (2007: €4.95 billion). This represents an increase of 20% (26% at constant currencies) compared to the first nine months of 2007. If SAP’s reporting currency was the U.S. Dollar, Non-GAAP software and software-related service revenues for the first nine months would have increased 35% compared to the same period one year ago.

Excluding the contribution from Business Objects, SAP’s business contributed 12 percentage points to the constant currency growth of the Non-GAAP software and software-related service revenues for the 2008 nine-month period.

U.S. GAAP total revenues for the 2008 nine-month period were €8.08 billion (2007: €7.00 billion), which was a year-over-year increase of 15%. Non-GAAP total revenues, which exclude a non-recurring deferred support revenue write-down from the acquisition of Business Objects of €140 million for the first nine months of 2008, were €8.22 billion (2007: €7.00 billion), which was an increase of 17% (24% at constant currencies) compared to the first nine months of 2007.

Nine-month 2008 U.S. GAAP software revenues were €2.28 billion (2007: €1.99 billion), representing an increase of 15% (21% at constant currencies) compared to the same period in 2007.

Income

U.S. GAAP operating income for the 2008 nine-month period was €1.57 billion (2007: €1.62 billion), which was a decrease of 4% compared to the same period in 2007. The nine-month Non-GAAP operating income, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling €365 million, was €1.93 billion (2007: €1.67 billion), which was an increase of 16% (25% at constant currencies) compared to the first nine months of 2007.

The U.S. GAAP operating margin for the 2008 nine-month period was 19.4% (2007: 23.2%). The nine-month Non-GAAP operating margin was 23.5% (2007: 23.8%), or 24.0% at constant currencies. Both the U.S. GAAP and the Non-GAAP operating margins were impacted by 1) €24 million expensed in the second quarter of 2008 for the settlement of a litigation and, 2) one-time expenses associated with the integration of Business Objects (which are not acquisition-related charges) of approximately €33 million.

U.S. GAAP income from continuing operations for the nine-month period of 2008 was €1.07 billion (2007: €1.18 billion), representing a decrease of 9% compared to the same period in 2007. Non-GAAP income from continuing operations, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition-related charges totaling €271 million, was €1.34 billion (2007: €1.21 billion), representing an increase of 11% compared to the 2007 nine-month period. Nine-month 2007 U.S. GAAP and Non-GAAP income from continuing operations were positively impacted by a 2007 second quarter effective tax rate of 25.5% and 25.8%, respectively, partly resulting from non-recurring tax effects.

U.S. GAAP earnings per share from continuing operations for the first nine months of 2008 was €0.90 (2007: €0.98), which was a decrease of 8% compared to the same period in 2007. Non-GAAP earnings per share from continuing operations for the 2008 nine-month period was €1.12 (2007: €1.00), which was an increase of 12% compared to the same period in 2007.

BUSINESS OUTLOOK

In its previous outlook provided on July 29, 2008, the Company had expected full-year 2008 Non-GAAP software and software-related service revenues to increase at the upper end of the range of 24% – 27% at constant currencies and full-year 2008 Non-GAAP operating margin to be at the upper end of the range of 28.5% – 29.0% at constant currencies.

In light of the uncertainties surrounding the current economic and business environment, the Company decided to no longer provide a specific outlook for Non-GAAP software and software-related service revenues for the full-year 2008. However, with recent cost savings initiatives in place, the Company expects the full-year 2008 Non-GAAP operating margin, which excludes a non-recurring deferred support revenue write-down of €180 million from the acquisition of Business Objects and acquisition-related charges, to be around 28% at constant currencies if the Company can increase Non-GAAP software and software-related service revenues, excluding a non-recurring deferred support revenue write-down from the acquisition of Business Objects, in a range between 20% – 22% at constant currencies for the full year 2008.

The Company continues to project an effective tax rate of 31.0% - 31.5% (based on U.S. GAAP income from continuing operations) for 2008.

KEY EVENTS – Third Quarter 2008

In the third quarter of 2008, SAP closed major contracts in several key regions including Bundesagentur für Arbeit, CENEXI, DTEK, Imperial Bank Limited, and TD Perekrestok in EMEA; Callaway Golf Company, Loblaw Companies Limited, Municipio de Medellin, Servicios Liverpool, and Southern California Edison in Americas; and China Telecom System Integration Co., Ltd, Gansu Electric Power Corp., Tomen Electronics Corp., Universal Scientific Industrial Co., Ltd., and Wuthelam Holdings Pte Ltd in the Asia Pacific Japan region.

In the third quarter, SAP signed a Global Enterprise Agreement (GEA) with Procter & Gamble. The GEA with P&G extends SAP’s position as a leader in providing comprehensive enterprise software for the consumer products industry.

On September 16, 2008, SAP and The Hong Kong and Shanghai Banking Corporation announced that the HSBC Group (HSBC) will create a leading edge bank-client integration solution using the SAP NetWeaver technology platform to streamline and automate the bank’s communications for the delivery of banking services to its corporate banking clients.

On September 9, 2008, Business Objects announced the availability of BusinessObjects Metadata Management XI 3.0, software that enables organizations to support data governance by providing a central view of metadata assets and their relationships.

On September 9, 2008, SAP announced a SAP NetWeaver Fund investment in InnoCentive, Inc., a global online open innovation marketplace. The addition of InnoCentive to the SAP ecosystem further fosters co-innovation by providing a global platform in which solution-providers are financially rewarded for offering solutions to complex business challenges.

This year’s SAP TechEd 2008 event season is driven by the theme “Connect, Collaborate, Co-Innovate,” bringing together the worldwide technical community to harness the collective knowledge and resources of the SAP ecosystem, helping them enhance their skills, get their jobs done with efficiency and provide added benefit to their companies. Now in its 12th year, SAP TechEd 2008 took place in Las Vegas on September 8-12 with 6,000 attendees, Berlin on October 14-16 with 4,500 attendees, and will take place in Shanghai on November 5-6 and Bangalore on November 12-14.

Based on the resolutions of the SAP AG Annual General Meetings of Shareholders on May 9, 2006 and May 10, 2007, on September 3, 2008 the Executive Board of SAP AG resolved to decrease the Company’s capital stock from €1,246,683,912.00 (represented by 1,246,683,912 no-par shares, each with an attributable subscribed capital of €1) to €1,225,683,912.00 (represented by 1,225,683,912 no-par shares, each with an attributable subscribed capital of €1) by cancelling 21,000,000 treasury shares, representing 1.68% of the capital stock before this corporate action.

On August 12, 2008, Business Objects announced the latest versions of its solutions for enterprise performance management (EPM), which will provide customers with improved control and agility, enabling them to enhance performance across both finance and operations. Additionally, Business Objects announced the availability of BusinessObjects Xcelsius Present. Xcelsius Present is a data-visualization tool that transforms ordinary, static Microsoft Office Excel spreadsheets into captivating visuals and allows business users to share them via Microsoft PowerPoint or Adobe PDF files.

On July 16, 2008, SAP announced the availability of SAP Enterprise Support to all customers, as of January 1, 2009, further demonstrating a dedication to providing solutions and support offerings that meet the evolving needs of customers.

On July 15, 2008, SAP announced the 20,000th customer for SAP Business One, its integrated business management application for small businesses, proving the rapid market adoption rate of the application, for which SAP has been able to double its customer base in less than two years.

Effective July 1, 2008, the Supervisory Board of SAP AG appointed Erwin Gunst, Bill McDermott and Jim Hagemann Snabe as three new members of the SAP Executive Board. McDermott is responsible for all sales regions worldwide: Snabe has full development responsibility for SAP Business Suite and the SAP NetWeaver technology platform and Gunst is charged with further improving the company’s operations and process efficiency in the newly created position of chief operating officer (COO).

Use of Non-GAAP Financial Measures
This press release contains certain financial measures such as Non-GAAP revenues, Non-GAAP operating income, Non-GAAP operating margin, free cash flow, constant currency revenue and operating income measures, as well as U.S. Dollar based Non-GAAP revenue numbers. These measures are not prepared in accordance with U.S. GAAP and therefore are considered non-GAAP financial measures. Our non-GAAP financial measures may not correspond to non-GAAP financial measures that other companies report. The non-GAAP financial measures that we report should be considered as additional to, and not as a substitute for or superior to revenue, operating margin or our other measures of financial performance prepared in accordance with U.S. GAAP. See the Appendix at the end of the financial section of this press release for additional information regarding the Non-GAAP measures included in this press release and for the reconciliations to the corresponding U.S. GAAP measures.

Core Enterprise Applications Vendor Share
The Company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $38.7 billion in software and software-related service revenues as defined by the Company based on industry analyst research. For 2008, industry analysts project approximately 7% year-on-year growth for Core Enterprise Applications vendors. For its quarterly share calculation, SAP assumes that this approximate 7% growth will not be linear throughout the year. Instead, quarterly adjustments are made based on the financial performance of a sub set of (approximately 25) Core Enterprise Application vendors.

Webcast/Supplementary Financial Information
SAP senior management will host a conference call on Tuesday, October 28th at 3:00 pm (CET) / 2:00 pm (GMT) / 10:00 am (EDT) / 7:00 am (PDT). The conference call will be Webcast live on the Company’s Web site at <http://www.sap.com/investor> and will be available for replay. Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.

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