CIMdata PLM Industry Summary Online Archive
14 January 2008
Financial News
SAP Announces 2007 Preliminary Results
SAP AG announced that after a preliminary review of its 2007 fourth quarter results, it expects fourth quarter software and software related service revenues(1) to be approximately 2.48 billion euro (2006: 2.20 billion euro), representing an increase of around 13% (around 17% at constant currencies(2)) compared to the fourth quarter of 2006. Full-year 2007 software and software related service revenues(1) are expected to be approximately 7.44 billion euro (2006: 6.61 billion euro), representing an increase of around 13% (around 17% at constant currencies(2)) compared to the full-year 2006. The Company's full-year software and software related service revenue growth at constant currencies exceeded its previously published outlook.
SAP turned in another year of very strong share gains. Based on 2007 preliminary software and software related service revenues on a rolling four quarter basis, SAP's worldwide share of Core Enterprise Applications vendors(3), which account for approximately $36.7 billion in software and software related service revenues as defined by the Company based on industry analyst research, is expected to be around 28.5% for the four quarter period ended December 31, 2007 compared to 27.0% for the four quarter period ended September 30, 2007, and 24.5% for the four quarter period ended December 31, 2006, representing a year-over-year share gain of 4.0 percentage points.
The strong performance in the fourth quarter represents the 16th consecutive quarter of double digit growth in software and software related service revenues at constant currencies(2). It resulted from a well-balanced contribution from all regions and solid performances from SAP's traditional as well as its focus industries.
Fourth quarter 2007 software revenues(1) are expected to be approximately 1.41 billion euro (2006: 1.24 billion euro), representing an increase of around 14% (around 18% at constant currencies(2)) compared to the fourth quarter of 2006. Full-year 2007 software revenues(1) are expected to be approximately 3.40 billion euro (2006: 3.00 billion euro), representing an increase of around 13% (around 18% at constant currencies(2)) compared to the full-year 2006. This represents the strongest constant currency increase in software revenue since 2000.
Total revenues(1) for the fourth quarter of 2007 are expected to be approximately 3.25 billion euro (2006: 2.95 billion euro), which is an increase of around 10% (around 14% at constant currencies(2)) compared to the fourth quarter of 2006. Total revenues(1) for the full-year 2007 are expected to be approximately 10.26 billion euro (2006: 9.40 billion euro), which is an increase of around 9% (around 13% at constant currencies(2)) compared to the full-year 2006.
Despite negative currency effects of approximately 30 basis points, SAP expects its full-year 2007 operating margin to be around 26.5% (2006: 27.3%) which is in the middle of the previously published outlook range. The 2007 operating margin was mainly impacted by accelerated investments to build a business around the new SAP Business ByDesign solution to address new untapped segments in the midmarket as announced by the Company at the beginning of the year. Excluding these investments, SAP's operating margin for 2007 would have been approximately 120 basis points higher. This result demonstrates the underlying margin strength of SAP's established business.
SAP will provide further details of its 2007 preliminary results and outlook for the full-year 2008 on January 30th.
Regional Performance
In the Americas region, software and software related service revenues(1) for the fourth quarter of 2007 are expected to be approximately 0.78 billion euro, which represents an increase of around 7% (around 16% at constant currencies(2)). For the full-year of 2007, software and software related service revenues(1) in the Americas region are expected to be approximately 2.50 billion euro, which is an increase of around 9% (around 18% at constant currencies(2)).
In the EMEA region, software and software related service revenues(1) for the fourth quarter of 2007 are expected to be approximately 1.40 billion euro, which represents an increase of around 13% (around 14% at constant currencies(2)). For the full-year of 2007, software and software related service revenues(1) in the EMEA region are expected to be approximately 3.98 billion euro, which is an increase of around 13% (around 14% at constant currencies(2)).
In the Asia Pacific Japan region, software and software related service revenues(1) for the fourth quarter of 2007 are expected to be approximately 0.30 billion euro, which represents an increase of around 27% (around 32% at constant currencies(2)). For the full-year of 2007, software and software related service revenues(1) in the Asia Pacific Japan region are expected to be approximately 0.96 billion euro, which is an increase of around 19% (around 24% at constant currencies(2)).
Footnotes
1) Under US GAAP SAP is required to present its results of discontinued operations (TomorrowNow) separately from its results from continuing operations. The preliminary figures contained in this release include results of both continuing and discontinued operations as a single line item. Separate presentation will be included in SAP's release on January 30. Software and software related service as well as total revenues (for the fourth quarter and the full year 2007) in the aggregate and per region are not expected to decrease (by more than €15 million) after excluding discontinued operations. SAP's operating margin for 2007 is expected to be higher by 0.3 percentage points (2006: lower by 0.1 percentage points) than reported in this press release after separation of discontinued operations.
2) Non-GAAP Measures
This press release may disclose certain financial measures, such as constant currency period-over-period changes, in revenue and operating income (as well as those described in footnote 1 above), that are not prepared in accordance with U.S. GAAP and are therefore considered non-GAAP measures. Our non-GAAP measures may not correspond to non-GAAP measures that other companies report. The non-GAAP measures that we report should be considered as additional to, and not as substitutes for or superior to, revenue, operating income, cash flows, or other measures of financial performance prepared in accordance with U.S. GAAP. Our non-GAAP measures are reconciled to the nearest U.S. GAAP measure in this press release.
CONSTANT CURRENCY PERIOD-OVER-PERIOD CHANGES
We believe it is important for investors to have information that provides insight into our sales growth. Revenue measures determined under U.S. GAAP provide information that is useful in this regard. However, both growth in sales volume and currency effects impact period-over-period changes in sales revenue. We do not sell standardized units of products and services, so we cannot provide relevant information on sales volume growth by providing data on the growth in product and service units sold. To provide additional information that may be useful to investors in breaking down and evaluating sales volume growth, we present information about our revenue growth and various values and components relating to operating income that are adjusted for foreign currency effects. We calculate constant currency year-over-year changes in revenue and operating income by translating foreign currencies using the average exchange rates from the previous (comparator) year instead of the report year.
Constant currency period-over-period changes should be considered in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP. We believe that data on constant currency period-over-period changes have limitations, particularly as the currency effects that are eliminated constitute a significant element of our revenues and expenses and may severely impact our performance. We therefore limit our use of constant currency period-over-period changes to the analysis of changes in volume as one element of the full change in a financial measure. We do not evaluate our growth and performance without considering both constant currency period-over-period changes on the one hand and changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP on the other. We caution the readers of this press release to follow a similar approach by considering data on constant currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenues, expenses, income, or other measures of financial performance prepared in accordance with U.S. GAAP.
3) Core Enterprise Applications Vendor Share
Beginning in the first quarter of 2007, the Company began using software and software related service revenues for defining Core Enterprise Application Vendor Share because the Company believes that this is the most important indicator for vendor share oriented analysis with the realignment of its income statement structure. Prior to the first quarter of 2007, the Company had been using software revenues for defining Core Enterprise Application Vendor Share.
The Company provides share data based on the vendors of Core Enterprise Applications solutions, which account for approximately $36.7 billion in software and software related service revenues as defined by the Company based on industry analyst research. For 2007, 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 (approximately 25) of Core Enterprise Application vendors.
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