Business Context and Reporting Period
This Form 6-K filing by SAP SE (SAP AG) reports preliminary financial results for the fourth quarter and full year ended December 31, 2007. The filing incorporates a press release issued on January 30, 2008, detailing strong growth in software and software-related service revenues. SAP defines its core business as enterprise resource planning and related applications, serving over 46,100 customers in more than 120 countries.
Key Financial Metrics
Full Year 2007 Performance
- Total Revenue: €10.25 billion (up 9% from 2006; up 13% at constant currencies).
- Software & Software-Related Service Revenue: €7.43 billion (up 13% from 2006; up 17% at constant currencies).
- Operating Income: €2.74 billion (up 6% from 2006).
- Operating Margin: 26.7% (down from 27.4% in 2006).
- Net Income (Continuing Operations): €1.94 billion (up 3% from 2006).
- Earnings Per Share (Continuing Operations): €1.60 (up 5% from 2006).
- Operating Cash Flow: €1.99 billion.
- Free Cash Flow: €1.58 billion (15% of total revenue).
- Liquidity: Cash, cash equivalents, and short-term investments totaled €2.8 billion as of December 31, 2007.
Fourth Quarter 2007 Performance
- Total Revenue: €3.24 billion (up 10% from Q4 2006; up 14% at constant currencies).
- Software & Software-Related Service Revenue: €2.47 billion (up 13% from Q4 2006; up 17% at constant currencies).
- Operating Income: €1.11 billion (up 2% from Q4 2006).
- Operating Margin: 34.3% (down from 36.9% in Q4 2006).
- Net Income (Continuing Operations): €758 million (down 6% from Q4 2006).
- Earnings Per Share (Continuing Operations): €0.63 (down from €0.66 in Q4 2006).
Material Changes vs. Prior Period
- Revenue Growth: SAP achieved double-digit revenue growth at constant currencies in all regions (EMEA, Americas, Asia Pacific Japan) for both the quarter and the full year.
- Margin Compression: Operating margins declined in both the full year and Q4 2007 compared to the prior year. This was primarily due to approximately €125 million in investments (€40 million in Q4) to build the business around the new SAP Business ByDesign solution for the midmarket.
- Tax Rate Impact: The 2007 effective tax rate was 32.2%, compared to 29.9% in 2006. The 2006 rate was artificially lowered by a non-recurring extraordinary tax benefit of approximately €85 million.
- Market Share: SAP reported its eighth consecutive quarter of share gains, increasing its worldwide share of Core Enterprise Applications vendors to 28.4% (up 4.0 percentage points year-over-year).
- Share Repurchases: In 2007, SAP invested €1 billion to buy back approximately 27.3 million shares. In Q4 2007 alone, 6.9 million shares were repurchased for €249 million.
Guidance, Outlook, and Risks
2008 Outlook
- Revenue: Non-GAAP software and software-related service revenue is expected to increase by 24% to 27% at constant currencies. This excludes a non-recurring deferred support revenue write-down of approximately €180 million related to the Business Objects acquisition.
- Operating Margin: Non-GAAP operating margin is projected to be in the range of 27.5% to 28.0% at constant currencies. This outlook includes accelerated investments of €175 million to €225 million for the SAP Business ByDesign solution.
- Tax Rate: The projected effective tax rate for 2008 is 31.0% to 31.5%.
Key Events and Risks
- Acquisitions: SAP announced the acquisition of Business Objects (completed in Q4 2007) and YASU Technologies. The Business Objects deal positions SAP as a leader in business performance optimization.
- Strategic Investments: Continued heavy investment in the midmarket segment via SAP Business ByDesign.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from expectations due to various risks and uncertainties, including currency fluctuations and market conditions.
Investor Verification Checklist
- Verify the reconciliation of Non-GAAP revenue and operating margin to U.S. GAAP figures, specifically regarding the €180 million deferred support revenue write-down from the Business Objects acquisition.
- Confirm the impact of the €125 million (2007) and projected €175-225 million (2008) investments in SAP Business ByDesign on future profitability.
- Review the effective tax rate assumptions for 2008 (31.0% - 31.5%) compared to the 2007 rate of 32.2%.
- Assess the sustainability of the 24-27% revenue growth guidance for 2008, noting that the core business (excluding Business Objects) is expected to contribute only 12-14 percentage points.
- Monitor the execution of the share buyback program, with an expected €500 million investment in 2008.