SAP Announces 2003 Fourth Quarter and Full Year Results

Company Reports Record Operating Income and Earnings Per Share for 2003
Company Continued to Gain Market Share in 2003
Company Expects Software Revenues to Increase by Around 10% in 2004

WALLDORF - January 22, 2004 - SAP AG (NYSE: SAP) today announced its preliminary financial results for the fourth quarter and full year ended December 31, 2003. Highlights of the results are as follows.

HIGHLIGHTS

Full Year 2003

• Operating income was a record €1.7 billion (2002: €1.6 billion), which was an increase of 6% compared to last year. Pro forma operating income¹ was €1.9 billion (2002: €1.7 billion), representing an increase of 12% from 2002.
• Net income was a record €1.1 billion (2002: €509 million), or €3.48 per share (2002: €1.63 per share), and pro forma net income¹ was €1.2 billion (2002: €964 million), or pro forma €3.84 per share¹ (2002: €3.08 per share). Full year 2002 net income and earnings per share were impacted by impairment charges related to the Commerce One write down of €297 million.
• The operating margin was 25%, which was up three percentage points year-over-year. The pro forma operating margin¹ was 27%, which represented an increase of 4 percentage points compared to 2002.
• Software revenues were €2.1 billion (2002: €2.3 billion), representing a decrease of 6% compared to 2002. At constant currency⁴, software revenues increased 1% year-over-year.
• Once again, SAP gained significant share against its four largest competitors. On a rolling four quarter basis, the Company’s worldwide share of the market against its four largest competitors (defined as SAP and the four companies mentioned in footnote 2) based on software revenues was 59% at the end of the fourth quarter of 2003 compared to 58% at the end of the third quarter of 2003 and 51% at the end of the fourth quarter of 2002.
• SAP’s U.S. organization achieved a strong turnaround in 2003 with substantial increases in both software revenues and profitability compared to 2002. Software revenues in U.S. dollars increased by 23% year-over-year.
• The Company now considers itself to be the largest CRM application software vendor when measuring its CRM software revenues against its competitors on a rolling four quarter basis.
• Total revenues were €7.0 billion (2002: €7.4 billion), down 5% compared to 2002. At constant currency⁴, total revenues increased 3% compared to 2002.

Fourth Quarter 2003

• Net income was €423 million (2002: €474 million), or €1.36 per share (2002: €1.52 per share), and pro forma net income¹ was €481 (2002: €493), or €1.55 per share (2002: €1.58 per share).
• Software revenues were €931 million (2002: €958 million), down 3% from the same period last year but increased by 3.5% at constant currency⁴.
• Total revenues were €2.2 billion (2002: €2.3 billion), representing a decrease of 3% compared to the same period last year but increased by 4% at constant currency⁴.

“2003 was a challenging but excellent year for SAP, as we reported record operating income, earnings per share, margin growth and gains in share against our next four largest competitors,” said Henning Kagermann, Chief Executive Officer of SAP. “Additionally, both software and total revenues grew year-over-year on a constant currency basis, outperforming our competitors.”

BUSINESS OUTLOOK

SAP is providing the following outlook for the full year 2004.

• Software revenues are expected to increase by around 10% compared to 2003.
• The pro forma operating margin, which excludes stock-based compensation and acquisition-related charges, is expected to increase by around one percentage point compared to 2003.
• Pro forma earnings per share, which excludes stock-based compensation, acquisition-related charges and impairment-related charges, are expected to be in the range of €4.20 to €4.30 per share.
• The outlook is based on an assumed U.S. Dollar to Euro exchange rate of $1.25 per €1.00.

Mr. Kagermann continued, “Our more closely aligned development and field organizations, the success of launches like SAP NetWeaver and our undisputed industry leadership with our innovative product offerings have prepared us well for 2004. We believe 2004 will demonstrate the continuation of a trend that we saw evolve in the second half of 2003: clear signs that companies started picking up the pace of their software investments. Our pipeline is strong, and with our unmatched product portfolio and an expected rebound in the economy in the second half of 2004, our sales, marketing and R&D efforts will be focused on the growth opportunities we see for 2004.”

BUSINESS REVIEW – Full Year 2003

Key figures at a glance (in € millions)

Full Year Software Revenue by Region (in € millions)

For 2003, the 19% constant currency⁴ software revenues growth in the Americas region was mainly the result of a strong performance in the U.S. At constant currencies⁴, the U.S. increased software revenues 23% which was a significant rebound from 2002. The EMEA region, which was relatively weak for most of the year, improved substantially in the fourth quarter of 2003 with software revenues growing 2% (3% at constant currencies⁴). The APA region finished the year up 11% at constant currencies⁴, with much of the growth coming from high potential geographies such as China and India.

Full Year Total Revenue by Region (in € millions)

Full Year Software Revenue by Solution (in € millions)⁵

BUSINESS REVIEW - Fourth Quarter 2003

Key figures at a glance (in € millions)

Fourth Quarter Software Revenue by Region (in € millions)

Fourth Quarter Total Revenue by Region (in € millions)

KEY EVENTS IN 2003

• SAP continues to strengthen its leading position in the business applications software market. Major contracts in the fourth quarter include Raytheon, Schwan Food, and Suncor in the Americas; Airbus, Deutsche Bahn, and Rexam in EMEA; and Asian Airlines, New China Life Insurance, and Yamaha in APA.
• The Company announced the launch of the next evolutionary step of its industry-leading integration and application platform, SAP NetWeaver. SAP takes the technology high ground by designing SAP NetWeaver to be fully interoperable with Microsoft .NET and IBM WebSphere (J2EE). The new platform enables organizations to integrate people, information, and business processes across technologies and organizations.
• SAP announced the Enterprise Services Architecture (ESA), the blueprint for complete, services-based business solutions, allowing companies to drive additional business value from existing technology investments and enabling, for the first time, enterprise-scale usage of Web services. Going forward, all SAP solutions will be developed using the ESA blueprint, and are expected to set new standards in usability, scalability, adaptability, and extensibility.
• SAP realigned its development organization and created Business Solution Groups (BSGs) and Application Platform & Architecture (AP&A) group, to strengthen the ability of its development and industry business units to more effectively meet evolving and demanding customer needs, to improve agility and speed, and to provide SAP with an effective and coordinated platform for continuous innovation.
• SAP held its Annual General Meeting in May. Hasso Plattner, former Co-Chairman and CEO of the SAP Executive Board, was elected as a member of the Supervisory Board and then elected Chairman by that Board. A dividend in the amount of €0.60 per non-par value share was paid to SAP shareholders.
• SAP began shipping SAP Master Data Management (SAP MDM), a new offering that enables companies to harmonize data across diverse applications and IT landscapes, solving the common problems generated by similar but different customer, product or vendor information stored across multiple systems.
• SAP completed development of SAP for Banking, banking industry's most comprehensive standard solution to streamline and cut costs of core banking processes on single banking platform. Deutsche Postbank AG, Germany's largest retail bank, went live with enhanced transaction banking functionality from the SAP for Banking portfolio of solutions. The go-live at Postbank marked the successful completion of an extensive development effort at SAP that extends the functionality in SAP for Banking to enable large banks and financial service providers to run their comprehensive core banking processes on a single IT platform.

Press Conference / Investor Conference / Webcast
SAP senior management will host a press conference in Frankfurt today at 10:00 AM (CET) / 9:00 AM (GMT) / 4:00 AM (Eastern) / 1:00 AM (Pacific), followed by an investor conference at 2:00 PM (CET) / 1:00 PM (GMT) / 8:00 AM (Eastern) / 5:00 AM (Pacific). Both conferences will be web cast live at and will be available for replay purposes as well.

Footnotes
1) The press release discloses certain financial measures, such as pro forma EBITDA, free cash flow, pro forma operating income, pro forma net income and pro forma EPS, that are considered non-GAAP financial measures. The non-GAAP measures included in our press release have been reconciled to the nearest GAAP measure as is required under SEC rules regarding the use of non-GAAP financial measures. Pro forma operating income and pro forma operating margin exclude stock-based compensation and acquisition-related charges. Pro forma net income and pro forma earnings per share exclude stock-based compensation, acquisition-related charges and impairment-related charges.
2) Worldwide market share based on comparable software revenues in U.S. dollars of i2 Technologies, Inc., Oracle Corporation, PeopleSoft, Inc. and Siebel Systems, Inc., who SAP considers to be its four largest competitors (for vendors that did not yet announce or pre-announce software revenues, analyst estimates were used). SAP's results have been converted into U.S. dollars.
3) U.S. market share based on comparable U.S. software revenues in U.S. dollars of i2 Technologies, Inc., Oracle Corporation, PeopleSoft, Inc. and Siebel Systems, Inc., who SAP considers to be its four largest competitors (for vendors that did not yet announce or pre-announce software revenues, analyst estimates were used and for some vendors, U.S. software revenues are estimated). SAP's results have been converted into U.S. dollars.
4) Constant currency data excludes the impact of currency exchange rates.
5) These figures include revenues from designated solution contracts, as well as figures from integrated solution contracts, which are allocated based on usage surveys provided by SAP's customers.