CIMdata PLM Industry Summary Online Archive
24 January 2007
Financial News
SAP Announces Preliminary 2006 Fourth Quarter and Year-End Results
SAP AG announced its preliminary financial results for the fourth quarter and year ended December 31, 2006.
HIGHLIGHTS - Fourth Quarter 2006
Revenues
• Product revenues for the 2006 fourth quarter were euro 2.2 billion (2005: euro 2.0 billion), which is an increase of 8% (12% at constant currencies)(1) compared to the same period in 2005.
• Software revenues for the fourth quarter of 2006 were euro 1.3 billion (2005: euro 1.2 billion), representing an increase of 7% (12% at constant currencies)(1) compared to the fourth quarter of 2005.
• Total revenues were euro 3.0 billion for the fourth quarter of 2006 (2005: euro 2.8 billion), which represented an increase of 7% (12% at constant currencies)(1) compared to the fourth quarter of 2005.
Income
• Operating income for the fourth quarter of 2006 was euro 1.1 billion (2005: euro 980 million), which was an increase of 10% compared to the fourth quarter of 2005. Adjusted operating income(1) was euro 1.1 billion (2005: euro 1.0 billion) for the 2006 fourth quarter, representing an increase of 10% compared to the same period last year.
• The operating margin for the fourth quarter of 2006 was 36.6%, which was an increase of 1.0 percentage points compared to the fourth quarter of 2005. The adjusted operating margin(1) for the 2006 fourth quarter was 37.7%, which was an increase of 0.9 percentage points compared to the 2005 fourth quarter.
• Net income for the 2006 fourth quarter was euro 799 million (2005: euro 619 million), or euro 0.66 per share (2005: euro 0.50 per share), representing an increase of 29% compared to the fourth quarter of 2005. Fourth quarter 2006 adjusted net income(1) was euro 822 million (2005: euro 642 million), or adjusted euro 0.67 earnings per share(1)(2005: euro 0.52 per share), representing an increase of 28% compared to the fourth quarter of 2005. Fourth quarter 2006 net income, earnings per share, adjusted net income(1) and adjusted earnings per share(1) were positively impacted by approximately euro 55 million, or euro 0.045 per share, from a reduced fourth quarter effective tax rate primarily due to various settlements with fiscal authorities in different countries on different items.
HIGHLIGHTS - Full-Year 2006
Software revenues and certain other full year 2006 financial data in this press release differ from the software revenues and certain other financial data originally provided in SAP's January 11, 2007 press release titled "SAP Announces 2006 Preliminary Results." The changes are due to the reduction of software revenue by euro 30 million in the third quarter of 2006 resulting from the modification of contracts from prior years to accommodate one individual customer. The modification occurred in the third quarter of 2006. (for more information, see footnote 2).
Revenues
• Product revenues increased to euro 6.6 billion (2005: euro 6.0 billion) for the year-ended December 31, 2006, representing an increase of 11% (12% at constant currencies)(1) compared to the full-year 2005.
• Software revenues increased 10% (12% at constant currencies)(1) to euro 3.1 billion (2005: euro 2.8 billion) for the full-year 2006 compared to the same period last year.
• Total revenues were euro 9.4 billion (2005: euro 8.5 billion) for the 2006 full-year, which was an increase of 10% (11% at constant currencies)(1) compared to the same period last year.
Core Enterprise Applications Vendor Share(3)
2006 represented another year of strong share gains for SAP. Based on software revenues on a rolling four quarter basis, SAP's worldwide share of Core Enterprise Applications vendors(3), which account for approximately $16.4 billion in software revenues as defined by the Company based on industry analyst research, increased to 24.0% for the year ended December 31, 2006. This represented a gain of 2.8 percentage points for the full-year, and SAP continued to maintain more than twice the share of the next largest vendor.
Income
• Operating income for 2006 was euro 2.6 billion(4)(2005: euro 2.3 billion), which was an increase of 10% compared to the same period last year. Adjusted operating income(1) for 2006 was euro 2.7 billion (2005: euro 2.4 billion), representing an increase of 12% compared to 2005.
• The operating margin for 2006 was 27.3%, which was down 0.1 percentage points compared to 2005. The adjusted operating margin(1) was 28.8% for 2006, which was an increase of 0.5 percentage points compared to 2005.
• Net income for 2006 was euro 1.9 billion (2005: euro 1.5 billion), or euro 1.52 per share (2005: euro 1.21 per share), representing an increase of 25% compared to 2005. Adjusted net income(1) for 2006 was euro 2.0 billion (2005: euro 1.6 billion), or adjusted euro 1.60 per share(1) (2005: euro 1.25 per share), representing an increase of 27% compared to 2005. Full-Year 2006 net income, earnings per share, adjusted net income(1) and adjusted earnings per share(1) were positively impacted by approximately euro 85 million, or euro 0.07 per share, from reduced second and fourth quarter effective tax rates primarily due to various settlements with fiscal authorities in different countries on different items.
"While we did not achieve all of our targets in 2006, we ended with solid growth at constant currencies for both product revenues and software revenues -- the fourth quarter alone marked our 12th consecutive quarter of double digit growth in software revenues at constant currencies -- and at the same time we improved our profitability," said Henning Kagermann, CEO of SAP. "Regional performance for the year was also strong -- we reported double digit software revenue growth at constant currencies in each region, the first time we have accomplished such a strong, well-balanced, regional performance since the year 2000. On top of this, we continued to gain significant worldwide share among Core Enterprise Applications vendors. Our share increased by 2.8 percentage points to 24.0% for 2006."
Cash Flow
Operating cash flow for 2006 was euro 1.8 billion (2005: euro 1.6 billion). Free cash flow(1) for 2006 was euro 1.5 billion (2005: euro 1.3 billion), which was 16% of total revenues for the year (2005: 16%). At December 31, 2006, the Company had euro 3.3 billion in cash and cash equivalents and short-term investments (December 31, 2005: euro 3.8 billion). The year-over-year decrease is primarily the result of an increase in share buybacks in 2006, expenditures on acquisitions and increased dividend payments.
Share Buy-Back Program
• For 2006, the Company bought back 27.9 million shares at an average price of euro 40.97 (total amount: euro 1.1 billion). This compares to 12.9 million shares bought back in 2005. At December 31, 2006, treasury stock stood at 49.25 million shares at an average price of euro 35.37. SAP's current share buy-back program allows the Company to purchase up to 120 million shares. All 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. Given the Company's strong free cash flow(1) generation, SAP plans to further evaluate opportunities to buy back shares in the future.
"2006 was a cornerstone year for SAP, a year of significant innovation that led to the launch of many new products during the year, including CRM on-Demand, Duet, Analytics, and the first services enabled ERP solution in the industry," said Mr. Kagermann. "We have already seen rapid adoption of mySAP ERP, with over 4,000 productive customers at year-end 2006. Initial customer feedback has been very positive on our new products."
Mr. Kagermann continued, "2007 will be the year in which we successfully complete our roadmap by delivering services-enabled versions of the mySAP Business Suite and our established mid-market solution SAP All-in-One. Also in 2007, we will begin delivering on what we believe is the most innovative solution in the industry designed specifically for new segments in the midmarket -- a consumption ready solution that provides our customers with fast time-to-value, quick and easy user adoption, high flexibility, low TCO, and is built by design on a fully-enabled enterprise services oriented architecture."
BUSINESS OUTLOOK
Beginning in the first quarter of 2007, and also provided for the full-year 2006 for comparative purposes, the Company will realign its income statement to provide additional transparency for reporting potential new product revenue streams. Although currently not material, the Company added a new revenue line item called "subscription and other software related services revenue" as the basis of the realignment, in addition to changing the name of the line item "product revenues" to "software and software related services revenue." Therefore, "software and software related services revenue" equals the total of "software revenue" plus "support revenue" (formerly called "maintenance revenue") plus "subscription and other software related services revenue." Total software and software related services revenue in 2006 were euro 6,605 million. SAP's 2007 outlook is based on this realignment. In addition, the operating margin outlook for 2007 is based on U.S. GAAP numbers. In previous years, SAP provided its outlook for operating margin on an adjusted basis.
The Company provided the following outlook for the full-year 2007.
• The Company expects full-year 2007 software and software related services revenue to increase in a range of 12%-14% at constant currencies(1) compared to 2006 growth of 12% at constant currencies(1).
• In order to address additional growth opportunities in new, untapped segments in the midmarket, the Company will invest an additional euro 300 million - euro 400 million over eight quarters to build up a new business. 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.
Fourth Quarter 2006 Software Revenue by Region (in €millions, unaudited) -- SAP Group
|
Software Revenue Q4 2006 |
Software Revenue Q4 2005 |
Change |
% Change |
Total |
1,262 |
1,183 |
+79 |
+7% |
- at constant currency rates |
+12% |
|||
EMEA |
705 |
626 |
+79 |
+13% |
- at constant currency rates |
+14% |
|||
Asia Pacific |
134 |
132 |
+2 |
+2% |
- at constant currency rates |
+9% |
|||
Americas |
423 |
425 |
-2 |
0% |
- at constant currency rates |
+10% |
|||
Fourth Quarter 2006 Total Revenue by Region (in €millions, unaudited) -- SAP Group
|
Revenue Q4 2006 |
Revenue Q4 2005 |
Change |
% Change |
Total |
2,952 |
2,754 |
+198 |
+7% |
- at constant currency rates |
+12% |
|||
EMEA |
1,631 |
1,483 |
+148 |
+10% |
- at constant currency rates |
+11% |
|||
Asia Pacific |
329 |
301 |
+28 |
+9% |
- at constant currency rates |
+16% |
|||
Americas |
992 |
970 |
+22 |
+2% |
- at constant currency rates |
+12% |
|||
Full-Year 2006 Software Revenue by Region (in €millions, unaudited) -- SAP Group
|
Software Revenue FY 2006 |
Software Revenue FY 2005 |
Change |
% Change |
Total |
3,071 |
2,783 |
+288 |
+10% |
- at constant currency rates |
+12% |
|||
EMEA |
1,531 |
1,393 |
+138 |
+10% |
- at constant currency rates |
+10% |
|||
Asia Pacific |
391 |
363 |
+28 |
+8% |
- at constant currency rates |
+12% |
|||
Americas |
1,149 |
1,027 |
+122 |
+12% |
- at constant currency rates |
+15% |
|||
Full-Year 2006 Total Revenue by Region (in €millions, unaudited) -- SAP Group
|
Revenue FY 2006 |
Revenue FY 2005 |
Change |
% Change |
Total |
9,402 |
8,513 |
+889 |
+10% |
- at constant currency rates |
+11% |
|||
EMEA |
4,895 |
4,513 |
+382 |
+8% |
- at constant currency rates |
+9% |
|||
Asia Pacific |
1,114 |
1,000 |
+114 |
+11% |
- at constant currency rates |
+15% |
|||
Americas |
3,393 |
3,000 |
+393 |
+13% |
KEY EVENTS - Fourth Quarter 2006
• In the fourth quarter of 2006, SAP demonstrated strong momentum, announcing or closing major contracts with numerous companies in all key regions. In the EMEA region: Vodafone Group Plc, ESPRIT, Bundesamt fur Informationsmanagement, Krones AG, Moscow Heat Supply Company (MOEC); in the Americas region: Ace Hardware Company, Anheuser-Busch Companies, FirstEnergy, Cementos Mexicanos, S.A. de C.V., Neoenergia S/A; in the Asia Pacific region: E&E Linen(Hangzhou) Co., Ltd., Kawai Musical Instruments, Matsushita Electric Industrial, Shanghai Pudong Development Bank, United Group Limited.
• A major milestone in Q4 was the signature of a Global Enterprise Agreement with Unilever. Unilever is the first Consumer Packaged Goods (CPG) Company to sign such an agreement with SAP. With this agreement SAP strengthens its position as the strategic platform at the heart of Unilever's destination architecture acting as a key IT partner to aide and accelerate Unilever's business transformation.
• On December 15, 2006, SAP announced it had entered in the commercial register the resolution of the May 9, 2006 Annual General Meeting of Shareholders to increase the company's subscribed capital from corporate funds. For each share held, shareholders received three additional shares after the close of stock exchange business on Wednesday, December 20, 2006.
• On December 4, 2006, SAP launched the Industry Value Network (IVN) for mill products, a sector forum for the forest and paper industries. During 2006, IVNs were launched for the chemicals, consumer products, high tech, public sector and retail industries.
• On December 4, 2006, SAP announced the availability of the first SAP enhancement package for mySAPT ERP. The delivery of SAP enhancement packages for mySAP ERP meets customer requirements for innovation without disruption by making it simpler and faster to adopt new product functionality, industry-specific features and enterprise services while shielding them from the complexity of multiple upgrades.
• On November 15, 2006, Microsoft and SAP announced they had sold more than 200,000 Duet licenses in just three months. The companies also announced they would provide Duet support for Office 2007 and that plans are in place for the release of Duet 1.5 in the summer of 2007.
• Marking the third investment for SAP's global $125 million SAP NetWeaver® Fund to fuel the development of innovative solutions built on the SAP NetWeaver® platform, SAP announced on November 8, 2006 a minority investment in Visiprise, a leading provider of business solutions for integrated manufacturing operations. The second investment was a minority investment in ArisGlobal, thereby strengthening SAP's Life Sciences software development partnership.
• On November 6, 2006, SAP announced the general availability of more than 100 analytic composites in the SAP® xAppT Analytics composite application.
• SAP announced plans to unify its various partner programs under SAP Partner Edge, making SAP the ideal partner for ISVs, system integrators and resellers demonstrating its focus on building, nurturing and supporting a broad ecosystem of partners around its solutions for small, midsize and large customers.
• SAP cemented its market leadership position by announcing the accumulation of more than 10,000 HCM customers in 110 countries worldwide.
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 1:30 PM (CET) / 12:30 PM (GMT) / 7:30 AM (Eastern) / 4:30 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 and the realigned income statement can be found at http://www.sap.com/investor .
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