German company SAP (Systems, Applications and Products in Data Processing), a global provider of client/server business applications, raised the curtain for a preview of its 1998 figures this week, with sales less than expected.
While official publication is scheduled for January 26, SAP revealed a sales increase of 40 percent up to DEM 8.4 billion ($5.3 billion). However, pre-tax results for the year were 15 percent below expectations, largely due to an ongoing decline in the Group’s Japanese business.
Q4 pre-tax profits were negatively affected by a software revenue shortfall of around DEM 200 million ($125 million) in Japan. As a result of the decreased activity levels and more protracted market stagnation, SAP has begun re-organization of its Japanese business.
Pre-tax results were also adversely affected by the instability of the Russian market, where the company has switched to business on a cash basis. This has meant a drop of DEM 40 million ($25 million). However, business in key American and European markets was up by 50 percent and 40 percent respectively.
The group made considerable long-term investment in its overall workforce, hiring around 6,500 new employees worldwide in 1998. This will enable it to reach its goal of doubling its revenue over the next three years.
The board expects 1999 revenues to increase between 20 and 25 percent with a pre-tax profit margin improving slightly over 1998.
The Japanese chill was expected. It was nevertheless a severe one and it is significant that its extent should only have become clear at the end of the business year. This should be a warning to the board that its perception of developments left something to be desired. Return on sales was down from a gross 27 percent to 23 percent.
