SAP lifts 2006 forecasts after strong year

The German giant is in good shape as it faces a renewed challenge from Oracle.

FROM FINANCIAL TIMES

By Jonathan Loades-Carter

SAP, the world’s largest business software group, issued a strong outlook for next year as it beat expectations for license sales during 2005, gaining market share from its rivals.

The German-based company forecast full-year 2006 product revenues to increase in a range of 13 per cent to 15 per cent compared to 2005, based on its expectation for software revenue growth in a range of 15 per cent to 17 per cent compared to 2005.

SAP also predicted the full-year 2006 pro forma operating margin, which excludes stock-based compensation and acquisition-related charges, would increase in a range of 0.5-1.0 percentage points compared to the previous year’s 28.3 per cent.

In a further sign of confidence, the company said it was planning to hire around 3,500 extra staff this year, slightly fewer than the 3,668 it added to its headcount last year, while raising its share buyback programme to €500m from €417m in 2005.

The news sent shares 8.5 per cent higher to €159.43 in morning trade.

“We expect 2006 to be a cornerstone year for SAP characterised by a series of new product launches,” said Henning Kagermann, chief executive.

Mr Kagermann described SAP’s product pipeline as “one of the strongest in our history”. He said new products would support SAP’s Enterprise Services Architecture Roadmap, place more emphasis on the small business user.

”These products will be the foundation from which we expand from our current $30bn addressable market to a $70bn addressable market by 2010,” he added.

The new product line is part of its arsenal to fight back against rival Oracle which is preparing an assault on SAP’s core big business market.

The better outlook for 2006 followed a strong performance in 2005. The company reported software revenues of €2.78bn, an increase of 18 per cent compared to the same period in 2004 and exceeding its guidance of an increase in a range of 12 per cent to 14 per cent. This helped lift total revenues 13 per cent to €8.51bn.

With software revenues rising across the globe, SAP extended its market share to 62 per cent by the end of the fourth quarter - a gain of 2 per cent on the preceding quarter and 7 per cent on the same quarter in 2004.

In the US, Oracle’s home turf, SAP took advantage of disruption at its rival which is reorganising after snapping up most of its smaller opposition in a $19bn shopping spree. SAP increased US market share to 47 per cent, a 10 per cent higher than a year ago.

“2005 was an excellent year for SAP...We continued to demonstrate that organic growth is a very effective way to achieve success in this industry, and that it benefits our customers, partners and shareholders,” said Mr Kagermann.

Net income for 2005 was €1.5bn, or €4.83 per share, representing an increase of 14 per cent compared to 2004.

Source: Financial Times