SAP Reports Strong Growth in Software and Software Related Service Revenues for 2007

by SAP

Another Good Year for SAP's Established Business

Company Achieves Double Digit Revenue Growth at Constant Currencies in All Regions

SAP AG announced its preliminary financial results for the fourth quarter and full year ended December 31, 2007.

HIGHLIGHTS - Full-Year 2007

Revenues

• Software and software related service revenues for 2007 were euro 7.43 billion (2006: euro 6.60 billion), which is an increase of 13% (17% at constant currencies(2)) compared to 2006.
• Software revenues for 2007 were euro 3.41 billion (2006: euro 3.00 billion), representing an increase of 13% (18% at constant currencies (2)) compared to 2006.
• Total revenues were euro 10.25 billion for 2007 (2006: euro 9.39 billion), which represented an increase of 9% (13% at constant currencies(2)) compared to 2006.

Income

• Operating income for 2007 was euro 2.74 billion (2006: euro 2.58 billion), which was an increase of 6% compared to 2006.
• The operating margin for 2007 was 26.7% compared to 27.4% for 2006. The 2007 operating margin was impacted by investments of approximately euro 125 million to build a business around the new SAP(R) Business ByDesign(TM) solution to address new untapped segments in the midmarket as announced by the Company at the beginning of 2007.
• Income from continuing operations for 2007 was euro 1.94 billion (2006: euro 1.88 billion), representing an increase of 3% compared to 2006.
• Earnings per share from continuing operations for 2007 was euro 1.60 (2006: euro 1.53), which was an increase of 5% compared to 2006. Income and earnings per share from continuing operations for 2006 was positively impacted by a non-recurring extraordinary tax benefit of approximately euro 85 million, which reduced the 2006 tax rate by 3.2 percentage points. The 2007 effective tax rate from continuing operations was 32.2% (2006: 29.9%).

Core Enterprise Applications Vendor Share

SAP reported its eighth consecutive quarter of share gains. Based on 2007 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, was 28.4% for the four quarter period ended December 31, 2007 compared to 26.9% for the four quarter period ended September 30, 2007, and 24.4% for the four quarter period ended December 31, 2006, representing a year-over-year share gain of 4.0 percentage points.

"2007 represented another good year for SAP with strong growth in software and software related services," said Henning Kagermann, CEO of SAP. "The outstanding performance reflects the continued success we are seeing in SAP's established business, which will continue to be the foundation for growth heading into 2008 and beyond. We expect new innovations like SAP Business ByDesign to help us capture tremendous opportunities in untapped segments in the midmarket, to augment growth going forward. In addition, the recent acquisition of Business Objects makes us the clear leader in business performance optimization products. This will help us further penetrate the fast-growing business user segment and will be another driver of growth as we move ahead."

HIGHLIGHTS - Fourth Quarter 2007

Revenues

• Software and software related service revenues for the 2007 fourth quarter were euro 2.47 billion (2006: euro 2.19 billion), which is an increase of 13% (17% at constant currencies(2)) compared to the same period of 2006.
• Software revenues for the fourth quarter of 2007 were euro 1.42 billion (2006: euro 1.24 billion), representing an increase of 14% (18% at constant currencies(2)) compared to the fourth quarter of 2006.
• Total revenues were euro 3.24 billion for the 2007 fourth quarter (2006: euro 2.95 billion), which represented an increase of 10% (14% at constant currencies(2)) compared to the same period of 2006.

Income

• Operating income for the 2007 fourth quarter was euro 1.11 billion (2006: euro 1.09 billion), which was an increase of 2% compared to the fourth quarter of 2006.
• The operating margin for the fourth quarter of 2007 was 34.3% compared to 36.9% for the same period last year. The 2007 fourth quarter operating margin was impacted by investments of approximately euro 40 million 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 2007.
• Income from continuing operations for the 2007 fourth quarter was euro 758 million (2006: euro 808 million), representing a decrease of 6% compared to the same period of 2006.
• Earnings per share from continuing operations for the fourth quarter of 2007 was euro 0.63 (2006: euro 0.66).

Cash Flow

Operating cash flow from continuing operations for 2007 was euro 1.99 billion (2006: euro 1.86 billion). Free cash flow(2) for 2007 was euro 1.58 billion (2006: euro 1.49 billion), which was 15% of total revenues (2006: 16%). At December 31, 2007, the Company had euro 2.8 billion in cash and cash equivalents, including restricted cash, and short term investments (December 31, 2006: euro 3.3 billion).

Share Buyback

In the fourth quarter of 2007, the Company bought back 6.9 million shares at an average price of euro 36.25 (total amount: euro 249 million). As of December 31, 2007, the Company held treasury stock in the amount of 48.1 million shares (approximately 3.9% of total shares outstanding) at an average price of euro 36.07. For the full year 2007, the company invested euro 1 billion buying back approximately 27.3 million shares (2.19% of the total shares outstanding) at an average price of euro 36.85. For 2008, the Company expects to invest approximately euro 500 million buying back shares.

BUSINESS OUTLOOK

The Company provided the following outlook for the full-year 2008:

• The Company expects full-year 2008 Non-GAAP software and software related service revenue, which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects of approximately euro 180 million, to increase in a range of 24% - 27% at constant currencies(2) (2007: euro 7.428 billion). SAP's business, excluding the contribution from Business Objects, is expected to contribute 12 - 14 percentage points to this growth.
• The Company expects the full-year 2008 Non-GAAP operating margin at constant currencies(2), which excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition related charges, to be in the range of 27.5% - 28.0% (2007 Non-GAAP operating margin: 27.3%). The 2008 Non-GAAP operating margin outlook includes accelerated investments of euro 175 to euro 225 million (2007: euro 125 million) in order to build a business around the new SAP Business ByDesign solution to address new, untapped segments in the midmarket.
• The Company is projecting an effective tax rate of 31.0% to 31.5% (based on U.S. GAAP income from continuing operations) for 2008.

KEY EVENTS - Fourth Quarter 2007

• In the fourth quarter of 2007, SAP announced major contracts in several key regions: Biomerieux SA, Intersport France, MGI METRO Group Information Technology GmbH, Munchener Hypothekenbank eG, Nationwide Building Society, Saudi Arabian Airlines, and Telekomunikacja Polska S.A. in the EMEA; Foundation Coal, GCC Cemento , S.A. de C.V., GT Solar, Magnesita S.A., Sara Lee Corporation, Tyco Electronics and U. S. Navy in the Americas; China Tobacco Guangdong Industrial, HCL Technologies Ltd, MediaCorp Pte Ltd., Ministry of Finance, New Zealand, Sharp Corporation, Sysmex Corporation, United India Insurance Company Ltd, and Woolworths Limited in Asia Pacific Japan.
• In the fourth quarter of 2007, three Global Enterprise Agreements (GEAs) were signed, including Lockheed Martin and Nestle, all of them operating at the most strategic levels with SAP. For Lockheed Martin, SAP has been a strategic software partner since 1997. Lockheed Martin has deployed significant portions of SAP(R) ERP and is now engaged in several implementations to further leverage and optimize SAP software across the corporation. By signing a GEA, Nestle, the world's largest food and beverage company, and SAP have decided to extend their successful collaboration. The GEA with Nestle, which replaces an earlier subscription agreement between Nestle and SAP, enables Nestle to make use of SAP's current and future solutions to accompany its business strategy and will continue to leverage the SAP(R) NetWeaver technology platform to support their core business areas.
• On December 4, 2007, SAP introduced the next evolution of SAP(R) Customer Relationship Management (SAP CRM), an important application in SAP(R) Business Suite. With an eye toward empowering the growing business user market, this breakthrough new product was co-innovated with leading customers and partners, and is designed to be simple and powerful to solve real business problems.
• Continuing its focus on providing banks the flexibility they need to integrate, migrate and update application functionality based on an integrated platform, SAP announced on November 14, 2007, an alliance with Computer Sciences Corporation (CSC). The alliance will address the growing need for banks to differentiate themselves through strategically optimized product pricing.
• SAP announced on October 17, 2007, the intent to acquire YASU Technologies, a privately held vendor of business rules management systems. SAP will embed YASU Technologies solutions into its market-leading technology platform, SAP NetWeaver(R), to provide the business rules infrastructure that allows companies to move their strategies forward and better maintain compliance while saving time, resources and money.
• On October 7, 2007, SAP and Business Objects S.A. announced that the companies have reached an agreement for SAP to acquire Business Objects in a friendly takeover.