SAP Reports 2003 Third Quarter and Nine Months Results

Company Reports Strong Software Revenues
Operating Income Increased 23% to €413 Million
U.S. Software Revenues Increased 35%

WALLDORF - October 16, 2003 - SAP AG (NYSE: SAP) today announced its preliminary financial results for the third quarter and nine months ended September 30, 2003.

Operational Performance
Software revenues for the 2003 third quarter were €433 million (2002: €435 million), which was relatively flat compared to the third quarter of 2002. However, on a constant currency basis, software revenues were up 7% compared to last year.

The Company believes that, based on software revenues, it continued to gain additional market share in the third quarter of 2003. On a rolling four quarter basis, the Company’s worldwide share of the market (defined as SAP and the four companies mentioned in footnote 2) based on software revenues was 57% at the end of the third quarter of 2003 compared to 55% at the end of the second quarter of 2003 and 48% at the end of the third quarter of 2002.

For the third quarter of 2003, operating income increased 23% to €413 million (2002: €336 million). Pro forma operating income¹, excluding stock-based compensation and acquisition-related charges, increased 33% to €423 million (2002: €319 million). The operating margin for the third quarter of 2003 was up 5 percentage points to 25% compared to the third quarter of last year. The pro forma operating margin¹, before stock-based compensation and acquisition related charges, was up 7 percentage points to 26% compared to same period last year.

Total revenues for the third quarter of 2003 were down 3% to €1.65 billion (2002: €1.70 billion). At constant currency rates, however, total revenues for the 2003 third quarter increased by 3% compared to the third quarter of 2002. Product revenues, which include software and maintenance revenues, for the third quarter were €1.1 billion (2002: €1.0 billion). Maintenance revenues were €655 million (2002: €603 million). Consulting and training revenues were €479 million (2002: €545 million) and €71 million (2002: €97 million), respectively.

Net income for the third quarter of 2003 increased 25% to €252 million (2002: €202 million), or €0.81 per share (2002: €0.65 per share). Excluding stock-based compensation, acquisition-related charges and impairment-related charges, pro forma net income¹ for the third quarter of 2003 increased 26% to €260 million (2002: €207 million), or €0.84 per share (2002: €0.66 per share).

The Company had 29,165 full-time equivalent employees at September 30, 2003. This represents an increase of 204 full-time equivalent employees since June 30, 2003.

Regional Performance
For the third quarter of 2003, revenues in the Americas region were down 2% to €572 million (2002: €586 million). At constant currency rates, revenues in the Americas were up 11%. The Americas results were helped by strong software revenues in the U.S., which experienced better closure rates in the third quarter. U.S. software revenues increased 35% in the third quarter compared to the same period last year. At constant currency rates, software revenues in the U.S. rose 54%. On a rolling four quarter basis, the Company believes it continued to gain market share in the U.S. and strengthened its number one position as the largest business software vendor in terms of market share in the U.S. based on software revenues.³ Third quarter revenues in the Europe, Middle East and Africa (EMEA) region decreased 4% to €877 million (2002: €913 million). Revenues in Germany decreased 4%. Most of Europe continued to face a tough economic environment. Revenues in the Asia-Pacific region (APA) for the third quarter of 2003 were flat at €203 million (2002: €203 million). At constant currency rates APA revenues increased 9%.

“SAP delivered strong results despite a continued tough market environment,” said Henning Kagermann, Chief Executive Officer, SAP AG. “Our success was the result of excellent sales execution, particularly in the U.S., combined with a continued focus on improving operating efficiencies. At the same time, we remain committed to investing in strategic areas to help drive innovation and continue to create real value for our customers.”

Software Revenue by Solution
For the third quarter of 2003, software revenues related to mySAP CRM (Customer Relationship Management) reached approximately €89 million, down 4% from the same period last year (€93 million) and represented 21% of total software revenues. The Company believes that it is now equal with its largest CRM competitor when measuring its CRM market share against its competitors on a rolling four quarter basis. SCM (Supply Chain Management) related third quarter 2003 software revenues totaled approximately €102 million, up 7% from the third quarter of 2002 (€95 million) and represented 23% of total software revenues. These figures include revenues from designated solution contracts, as well as figures from integrated solution contracts, which are allocated based on usage surveys.

Nine Months Results
For the nine months ended September 30, 2003, total revenues decreased 6% to €4.8 billion (2002: €5.1 billion). On a constant currency basis, total revenues for the first nine months increased 2% compared to the same period last year.

For the first nine months of 2003, operating income increased 25% to €1.1 billion (2002: €842 million). Pro forma operating income,¹ excluding stock-based compensation and acquisition-related charges, for the 2003 nine month period increased 27% to €1.1 billion (2002: €881 million).

For the 2003 nine month period, software revenues decreased 9% to €1.2 billion (2002: €1.3 billion). On a constant currency basis, software revenues for the nine month period decreased 1% compared to the same period last year. Consulting revenues for the 2003 nine month period were €1.4 billion (2002: €1.6 billion) and training revenues were €223 million (2002: €322 million).

Net income for the nine months ended September 30, 2003, increased 1,777% to €657 million (2002: €35 million), or €2.11 per share (2002: €0.11 per share). The respective 2002 net income included impairment charges posted in the second quarter related to the Commerce One write down of €297 million. Excluding stock-based compensation, acquisition-related charges and impairment-related charges, pro forma net income¹ for the 2003 nine month period increased 51% to €711 million (2002: €471 million), or €2.29 per share (2002: €1.50 per share).

For the nine months ended September 30, 2003, total revenues in the EMEA region decreased 4% to €2.7 billion (2002: €2.8 billion). Revenues in the Americas declined 12% to €1.5 billion (2002: €1.8 billion) and in the APA region revenues were down 1% to €591 million (2002: €597 million). At constant currencies, however, sales in the Americas and APA were up 6% and 11% respectively.

For the 2003 nine month period, the Company generated €899 million of free cash flow¹ (calculated as operating cash flow less capital expenditures, which were €142 million for the 2003 nine month period), and at September 30, 2003, the Company had €1.8 billion of liquid assets.

Outlook
The Company has increased its target for pro forma operating margin, excluding stock-based compensation and acquisition-related charges. Previously, the Company expected its 2003 pro forma operating margin to be between 1 and 1.5 percentage points higher than the level achieved in 2002. The Company now expects its 2003 pro forma operating margin to increase by approximately 2 percentage points compared to 2002. As a result of the expected improvement in the pro forma operating margin, SAP expects pro forma earnings per share for 2003, excluding stock-based compensation, acquisition-related charges and impairment-related charges, to be in the higher end of the range of its previously issued outlook of €3.45 per share to €3.60 per share.

Third Quarter Highlights

• SAP continued to gain market share and win key competitive deals. Notable contracts in the third quarter include Brookshire Grocery Company, Medtronics Inc., and The Washington Post in the Americas region; Linde Gas, Portugal Telecom Group and the Czech Ministry of Agriculture in the EMEA region; Hyundai Motor Company, Japan Tobacco Inc., and Olympus Korea Co. Ltd., in the Asia/Pacific region.
• 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 launched the “Powered by SAP NetWeaver” Initiative, a new program designed to empower SAP partners and independent software vendors (ISVs) with the SAP NetWeaver technology platform to build new business applications. The new program builds upon the already successful SAP NetWeaver Partner Initiative, with more than 200 partner companies participating.
• SAP and Accenture signed an agreement to develop and deliver information technology (IT) solutions for banks and insurance companies worldwide. Together, the two companies will offer financial services companies expanded options for the delivery of IT products and services, including standard solutions, custom solutions and business process outsourcing.

• SAP hosted its annual TechEd conferences in Las Vegas and Basel, Switzerland attracting more than 7,000 delegates and offered a variety of educational forums including lecture sessions, hands-on workshops and one-on-one expert discussions providing developers from companies of all sizes the opportunity to learn more about the innovations and latest technology developments at SAP.
• SAP held its first European Innovation Congress outlining the cutting-edge technology innovations that will change the way companies do business in the near future. The congress served as a platform for SAP’s global research and development network including educators and globally recognized researchers, to discuss their applied research into next-generation technologies such as radio frequency identification technology (RFID), grid technology, Web services, security and voice-enabled portals. SAP also introduced the first SAP Innovation Report, illustrating the innovative concepts that have already become reality in SAP’s business solutions today and the company’s vision of the technologies that will drive its customers’ success in the future.
• 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.

  Conference Call / Webcast
  SAP senior management will host a conference call today at 3:00 PM (CET) / 2:00 PM (GMT) / 9:00 AM (Eastern) / 6:00 AM (Pacific). The conference call will be web cast live at http://www.sap.com/investor and will be available for replay 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.
  
  2) Worldwide market share based on 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).
  
  3) U.S. market share based on 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).

  Revenue by Region (in € millions)
  SAP Group

  	Revenue 3Q 2003	Revenue 3Q 2002	Change	% Change
  Total	1,652	1,702	-50	-3%
  - at constant currency rates				+3%
  EMEA	877	913	-36	-4%
  - at constant currency rates				-3%
  Asia Pacific	203	203	0	0%
  - at constant currency rates				+9%
  Americas	572	586	-14	-2%
  - at constant currency rates				+11%

  Key figures at a glance (in € millions)
  SAP Group

  	3Q 2003	3Q 2002	Change	% Change
  Revenues	1,652	1,702	-50	-3%
  Software revenues	433	435	-2	0%
  Income before taxes	425	298	+127	+43%
  Net income	252	202	+50	+25%
  Headcount, in FTE(Sept 30)	29,165	28,909	256	+1%

  View the Detailed Results (PDF, 50 KB)

  View the Detailed Spreadsheet (XLS, 130 KB)

  Download the Press Conference Presentation (PPT, 643 KB)

  About SAP
  SAP is the world's leading provider of business software solutions. Through mySAP™ Business Suite, people in businesses around the globe are improving relationships with customers and partners, streamlining operations and achieving significant efficiencies throughout their supply chains. The unique core processes of various industries, from aerospace to utilities, are supported effectively by SAP’s 23 industry solution portfolios. Today, more than 20,500 customers in over 120 countries run more than 67,500 installations of SAP® software. With subsidiaries in over 50 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE under the symbol “SAP.” (Additional information at http://www.sap.com)

  Any statements contained in this document that are not historical facts are forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “predict,” “should” and “will” and similar expressions as they relate to SAP are intended to identify such forward-looking statements. SAP undertakes no obligation to publicly update or revise any forward-looking statements. All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect SAP’s future financial results are discussed more fully in SAP’s filings with the U.S. Securities and Exchange Commission (“SEC”), including SAP’s most recent Annual Report on Form 20-F filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.

  Copyright © 2003 SAP AG
  SAP, the SAP logo, mySAP.com, mySAP, and all other SAP products and services mentioned herein are trademarks or registered trademarks of SAP AG in Germany and several other countries. Other product or service names mentioned herein are the trademarks of their respective owners.

  For more information, press only:
  Herbert Heitmann, +49 6227 7-61137, herbert.heitmann@sap.com, CET
  Laurie Doyle Kelly, +49 6227 7-61136 , laurie.doyle.kelly@sap.com, CET
  Markus Berner, +49 6227 7-42548, markus.berner@sap.com, CET
  
  For more information, financial community only:
  Stefan Gruber, +49 (6227) 7-44872, investor@sap.com, CET
  Martin Cohen, +1 (212) 653-9619, investor@sap.com, EDT