SAP Falls On TomorrowNow Charges - Analyst Blog

SAP AG (SAP) reported fourth quarter 2010 earnings per share of €0.37 (50 cents) compared to €0.57 (77 cents) in the prior-year quarter due to charges of €933 million and associated income taxes of €359 million related to TomorrowNow litigation.

Excluding these charges, SAP's EPS from continuing operations was €0.93 ($1.26), which exceeded the Zacks Consensus Estimate of $1.19.

Total revenue was €4.06 billion ($5.5 billion), an increase of 27% year over year.  Software revenue was € 1.51 billion, an increase of 35% while software and software-related service revenue was € 3.27 billion, an increase of 28%.

Operating profit was €543 million, a decrease of 47% year over year. In the fourth quarter of 2010, operating profit was negatively impacted by €933 million, resulting from an increase in the provision for the TomorrowNow litigation.

Operating margin was 13.4%, a decrease of 18.6% year over year.

Profit after tax was € 437 million, a decrease of 36% year over year. In the fourth quarter of 2010, earnings per share were negatively impacted by €0.49, resulting from an increase in the provision for the TomorrowNow litigation.

Operating cash flow for FY 2010 was €2.95 billion.  Free cash flow was €2.62 billion, a decrease of 6%. Free cash flow was 21% of total revenue. At the end of the year, SAP had a total group liquidity of €3.53 billion, which includes cash and cash equivalents and short term investments. The company had a total of €4.38 billion of debt, of which €2.20 billion came from two bond placements.

The company expects full-year 2011 software and software-related service revenue to increase in a range of 10% - 14% at constant currencies.

SAP is the leader in the worldwide enterprise applications market with the largest market share. Its primary focus is on high-margin software license sales, since this category benefits the most from the improving information technology (IT) spending environment. The company is poised to benefit as the market environment is improving.

The company remains best positioned in the European software space, given its top-tier positioning, strong service-oriented architecture (SOA) adoption trends and its diversified industry and geographic footprint.  The company is entering the on-demand market, with SAP Business ByDesign being the most important innovation. 

SAP Business ByDesign is a next generation on-demand technology platform, and the company is confident of rolling out the product in 2010.  The company is also innovating products in the area of mobility which would provide SAP solutions that can be accessed from all leading mobile platforms, like RIM, Nokia, Apple, Google Android, etc.

Headquartered in Walldorf, Germany, SAP AG is one of the largest independent software vendors in the world and the leading provider of enterprise resource planning (ERP) software. Its solutions are designed to cater to the needs of organizations, ranging from small and medium businesses to large, global enterprises.

SAP's business suite solutions help clients improve customer relationships, enhance collaboration, and improve efficiencies across their supply chains and business operations. International Business Machines Corp (IBM) and Microsoft Corporation (MSFT) are major competitors.

We currently have a Neutral recommendation on SAP AG.

 
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