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July 20, 1998

ASIA & RECRUITMENT PROGRAM TAKE TOLL ON SAP

By CBR Staff Writer

The second-quarter and first-half figures from German ERP vendor SAP AG confirmed what the company had already announced earlier this month (CI No 3,450). Namely that the Asian economic crisis, together with the increased costs resulting from a major recruitment program and an employee incentive scheme, took their toll on its profitability during the period. The company reported pre-tax profits for the second quarter up 30%, at the equivalent of $288m on sales up 59% at $1.2m. Mid-term, pre-tax profits, meanwhile, were up 43% at $460m, on revenues that in turn, rose 61% to $2.1m. The values were calculated at DM 1.8 to the dollar. Asia is by no means the major source of SAP’s revenue, of course, the $376m of sales generated there during the period representing no more than 9.5% of the company’s total. However, the 5% downturn in sales in the second quarter compared to the same period last year has impacted the bottom line, while a growing trend for investments by its Japanese customers to go on to a backburner is a worrying development for the rest of the year. The company also admits it underestimated the scale of the Asian crisis’ impact on its business in the region. On the positive side, first-half revenues were up 72% in the Americas, now on a par with Europe (including Germany) as a source of business for SAP. Germany itself was up 53% and the rest of Europe, 72%. Meanwhile its 70% increase in costs was the result, primarily, of hefty outlays on increased staffing, with an additional 5,900 people on the payroll now compared to a year ago. There is also the STAR employee incentive program, by which staff members are encouraged to take long-term stock in the company, which wiped nine percentage points off the company’s pre-tax profit growth during the first six months of the year. The company published neither net profits nor earnings per share. A spokesperson for SAP said it would begin to do so only in 1999, when its reports will start to conform to US accounting procedures. None of the information published came as a surprise to the market, the company having forewarned it over a week earlier. SAP’s stock was down 0.93% at DM 1,166 ($647) in late afternoon trading in Frankfurt.

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