SAP continued to gain market share for the first quarter of this year. Based on software and software related service revenues, SAP's worldwide share of core enterprise applications vendors (which account for approximately $34.8 billion in software and software related service revenues) increased to 25.1 percent for the quarter ending March 31 compared to 24.5 percent for the period ending Dec. 31, 2006. Compared to the quarter ending March 31, 2006, the year-over-year share gain was 2.4 percent.
"We are pleased with our first quarter results. On a constant currency basis, we achieved a strong increase in software and software related service revenues and reported double digit growth rates in each region," said Henning Kagermann, CEO of SAP. Kagermann continued, "As we enter the SAPPHIRE season, we look forward to building on the success we have already achieved in our established business for both the large enterprise and small businesses and midsized companies. The traction we have seen in our flagship solution SAP ERP has been tremendous, and the adoption of our Enterprise Services Oriented Architecture continues to grow as measured by the strong acceptance of the Business Process Platform (BPP).
"To gauge the wide acceptance of the BPP you only need to look at the robust pace of SAP ERP and SAP NetWeaver sales. At the end of the first quarter, we had over 8,500 customers on SAP ERP, which is an increase of 122 percent compared to the same time last year and SAP NetWeaver sales were EUR156 million in the first quarter, which represented a gain of over 40percent compared to the first quarter of 2006. Additionally, we are right on schedule with our roadmap to deliver the entire SAP Business Suite on the BPP by the end of this year and we expect to continue to bring additional enterprise services to market throughout the year on top of the 1,000 already delivered."
Cash Flow
Operating cash flow for the first quarter was EUR848 million (2006: EUR858 million). Free cash flow(1) for first quarter of 2007 was EUR769 million (2006: EUR795 million), which was 36 percent of total revenues (2006: 39percent). At March 31, 2007, the Company had EUR3.8 billion in cash and cash equivalents and short-term investments (March 31, 2006: EUR4.2 billion). The year-over-year decrease is primarily the result of increased share buy-backs in 2006.
Share Buy-Back
In the first quarter of 2007, the Company bought back 9.6 million shares at an average price of EUR35.16 (total amount: EUR339 million).This compares to 10.1 million shares (total amount: EUR423 million) bought back in the first quarter of 2006. Of the total shares purchased in the first quarter of 2007, approximately 0.6 million shares were used to serve exercises under SAP's share based compensation programs. The number of shares bought back in the first quarter of 2007 represented 0.76percent of the total shares outstanding. As of March 31, 2007, the Company held Treasury stock in the amount of 58.3 million shares (approximately 4.6percent of total shares outstanding) at an average price of EUR35.33. SAP's current share buy-back program allows the Company to purchase up to 120 million shares. All prior year 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 SAP's strong free cash flow(1) generation, the Company plans to further evaluate opportunities to buy back shares in the future.
BUSINESS OUTLOOK
The Company continues to provide the following outlook for the full-year 2007 as described in its January 24, 2007 fourth quarter results press release. The Company expects full-year 2007 software and software related service revenues to increase in a range of 12percent - 14percent at constant currencies(1) compared to 2006 growth of 12 percent at constant currencies(1).In order to address additional growth opportunities in new, untapped segments in the midmarket, the Company will invest an additional EUR300 million - EUR400 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 percent to 27 percent compared to the 2006 operating margin of 27.3percent.
The Company is projecting an effective tax rate of 32.5 percent û 33 percent for 2007.
KEY EVENTS - First Quarter 2007
In the first quarter of 2007, SAP announced major contracts: Adobe Systems, Inc., Diblo Corporativo, S.A. de C.V., INFRA S.A., Lojas Quero Quero S.A., Northwest Natural Gas, Public Service Enterprise Group, Inc. in the Americas; Bobst SA, Coop Norge AS, Deutsche Lufthansa AG, Grundfos Management A/S, Service Birmingham Ltd., Swiss Re, Wartsila Oyj Abp., in EMEA and Alaska Milk Corporation, Fittec Electronics Co., Ltd.GMR Group, KOBE STEEL, Ltd., Marubeni-Itochu Steel, Inc., The Hong Kong and China Gas, Welspun India Limited in Asia-Pacific Japan region.
At the CeBIT 2007 trade fair in Hanover, Germany, SAP made several announcements underlying its continuing commitment to empowering midmarket customers with new ways to leverage software for business growth and success. SAP announced more than 80 new additions to its portfolio of qualified SAP All-in-One industry solutions offered by SAP partners. SAP also announced enhancement packages for SAP Business One, a new series of downloadable packages as part of SAP standard support that offer customers faster and more frequent access to new functionality, best practice tools and maintenance updates. The downloadable update model dramatically shortens to a matter of months the software industry's typical multiyear cycle for introducing new functionality.
At CeBIT, SAP unveiled the next wave of business innovation with radio frequency identification (RFID) and other auto-identification technologies, enabling companies across many industries to apply the technology in unprecedented ways to solve pressing business challenges. Product tracking and authentication (PTA) marks the first in this new generation of business processes that tap into the new SAP object event repository.
Further empowering customers to make governance, risk and compliance (GRC) management an integral part of their business and IT strategies, SAP announced new GRC products and initiatives at the CeBIT trade fair. New software in the portfolio of SAP(R) solutions for GRC will help companies comply with newly mandated electronic customs procedures in Europe, and a joint solution with partner TechniData AG addresses customer needs to comply with the newly enacted legislation impacting the chemicals sector. Building on growing partner support for SAP solutions for GRC, SAP announced its plans to create an executive advisory council to increase GRC collaboration with partners and customers.
SAP announced the acquisition of Pilot Software, a privately-held company specializing in strategy management software on February 20, 2007. With this "tuck-in" acquisition, SAP added a critical piece to its portfolio of analytic applications and furthering its commitment to provide C-level executives with the tools necessary for effective performance management by fostering alignment across their organizations.
On January 31, 2007, SAP announced executive appointments in its newly formed global organization responsible for overseeing sales, marketing, operations and the alignment of resources to small businesses and midsize companies. Under the leadership of Hans-Peter Klaey, president of SAP's SME organization, SAP has aligned its team to support a growing focus on the market segment over the years come and to create additional opportunities for both customers and partners.
On January 30, 2007, SAP announced that more than 1,000 customers are live on SAP ERP 2005-the latest release of SAP's enterprise resource planning (ERP) application. The milestone marks the fastest adoption rate of an ERP release in the Company's history.
On January 24, 2007, SAP revealed plans for a next-generation solution designed to reshape the way midsize companies purchase, adopt and finance software applications. Complementing SAP's existing portfolio for midsize companies, the solution will leverage "enterprise SOA by design" and will be available to customers through on-demand and hosted delivery. To more efficiently reach untapped midmarket segments, SAP announced plans to invest in an additional business model that will operate in parallel with its established business.
On January 16, 2007, SAP introduced the next version of its SAP All-in- One solutions, with significant enhancements to provide midsize companies with greater agility in managing their businesses. SAP also introduced programs and tools to make it easier for its worldwide network of channel partners to immediately evolve existing SAP All-in- One solutions and build new solutions to address additional industry segments.
Supplementary financial information pertaining to the quarterly results can be found at http://www.sap.com/investor.
About SAP
SAP is a leading provider of business software. More than 39,000 customers in more than 120 countries run SAP applications-from distinct solutions addressing the needs of small and midsize enterprises to suite offerings for global organizations. Powered by the SAP NetWeaver platform to drive innovation and enable business change, SAP software helps enterprises of all sizes around the world improve customer relationships, enhance partner collaboration and create efficiencies across their supply chains and business operations. SAP solution portfolios support the unique business processes of more than 25 industries, including high tech, retail, financial services, healthcare and the public sector. With subsidiaries in more than 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol "SAP." (Additional information at http://www.sap.com/) SAP defines business software as comprising enterprise resource planning and related applications such as supply chain management, customer relationship management, product life-cycle management and supplier relationship management.
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