Public services sector revenue boost
Despite currency effects and the difficult economy, in 2003 revenue from the public services sector increased 13%. In an environment typified by exchange-rate movement, all other sectors lost revenue ground. Revenue from the process industries sector declined the most. That sector’s contribution to SAP’s total revenues decreased around one percentage point in 2003. As in 2002, service industries was the sector in which SAP generated most revenue – €1,655 million in 2003.

Operating margin impresses again
In 2003, SAP continued to focus on managing costs and realizing efficiency potential to improve profitability from operations. SAP measures profitability from operations using pro-forma operating margin, which expresses the ratio between operating income before stock-based compensation expenses and acquisition-related charges (pro-forma operating income) and total revenue. Pro-forma operating income is management’s key internal profitability figure and a parameter in management compensation.

For 2003, the pro-forma operating margin was approximately 27%. SAP thus clearly exceeded its own original target of a one percentage point improvement on 2002 pro-forma operating margin of 23%. The success was achieved thanks to strict cost control and despite the fact that the target was set on the assumption of a moderate improvement in total revenue, an assumption that was realized only after adjusting for currency effects. Operating margin without adjustments for stock-based compensation and acquisition-related charges was approximately 25% (22% in 2002).

As in the previous year, major factors in driving up the operating margin were restraint in recruitment, fewer thirdparty services, stringent travel-expense management, efficiency gains in global infrastructures, and streamlined processes.