SAP SI Exceeds Expectations

Feature Article | February 2, 2004 by admin

According to the preliminary figures presented today for the past fiscal year, consolidated earnings before interest and tax (EBIT) increased by 76.6 per cent to EUR 40.4 million (previous year: EUR 22.9 million). The EBIT margin was almost doubled, growing from 7.8 per cent to 14.4 per cent. In spite of continued reluctance to invest and the weakness of the US dollar, consolidated revenues only decreased by 4.4 per cent, from EUR 293.2 million to EUR 280.3 million. Consolidated net income amounted to EUR 26.4 million following EUR 14.8 million in the previous year (+78.0 per cent). The earnings per share totalled EUR 0.74 (previous year: EUR 0.41).
“We succeeded in making it clear to our customers that the services provided by SAP SI lead to a considerable return on investment. A service portfolio that meets market needs on the one hand and action taken to increase efficiency on the other were the main reasons for the good results achieved in the fiscal year”, says SAP SI Chief Executive Officer Dr Bernd-Michael Rumpf. He is expecting substantial revenue growth of 8 to 12 per cent in 2004.

77 per cent increase in profitability

SAP SIs consolidated revenues decreased slightly to EUR 280.3 million (previous year: EUR 293.2 million) due to the economic situation and exchange rate fluctuations. Even if the acquisitions SLI and SPM are disregarded, revenues were considerably higher (10 per cent) in the second half of the year than in the first half and increased steadily overall from quarter to quarter. The Hosting/Application Management (Managed Services) business developed particularly positively: at EUR 32.3 million, its share of total annual revenues increased to 11.5 per cent following 9.4 per cent in the previous year.
EBIT for the year rose by 76.6 per cent, from EUR 22.9 million in 2002 to EUR 40.4 million. The EBIT margin was much higher too, increasing from 7.8 per cent in the previous year to 14.4 per cent. “This significant increase is attributable to high utilisation of consultants capacity, systematic cost-cutting and the restructuring costs that were incurred in 2002 but not in 2003 and means that SAP SI is one of the most profitable international players”, says Joachim Müller, the Company’s Chief Financial Officer.
In spite of a definite market downtrend, revenues in the core market of Germany/Switzerland were only 2.6 per cent lower than in the previous year, decreasing from EUR 257.5 million to EUR 250.8 million. EBIT in Germany/Switzerland were EUR 36.3 million, which corresponds to a margin of 14.5 per cent, following EUR 19.3 million and a margin of 7.5 per cent in the previous year.
On the US market, there were already clear signs of an economic recovery, which led to a significant increase in revenues in the course of the year. The overall contribution made to consolidated revenues by the US business was, however, depressed by the weak dollar: SAP SI generated annual revenues of EUR 29.5 million in America, compared with EUR 35.7 million in the previous year (- 17.5 per cent). The decrease was, however, only 1.4 per cent in constant currency terms. EBIT totalled EUR 4.1 million (margin: 14 per cent) after EUR 3.6 million (10.1 per cent) in 2002.
Consolidated net income amounted to EUR 26.4 million and was thus 78 per cent higher than in 2002 (EUR 14.8 million). This corresponds to earnings per share of EUR 0.74 after EUR 0.41 in the previous year. The volume of orders on hand on December 31, 2003 increased from EUR 157 million in the previous year and EUR 147 million in the previous quarter to EUR 163 million. The number of employees at the end of the year – including the 240 at SLI and SPM – was 1,859 (previous year: 1,744).

Organic growth again for the first time in 2003

The SAP SI Group generated revenues of EUR 79.3 million in the fourth quarter, the highest quarterly figure since the Company was established in 2000. This means that SAP SI performed considerably better than in the previous quarter (EUR 70.6 million) and the previous year (EUR 74.0 million). If the SLI and SPM acquisitions are disregarded, SAP SIs revenues in the fourth quarter were EUR 74.8 million, so that organic growth was achieved again for the first time in 2003 too. EBIT increased from EUR 12.0 million in 2002 to EUR 13.3 million and the EBIT margin reached the excellent level of 16.8 per cent (previous year: 16.2 per cent).
Quarterly revenues in Germany/Switzerland amounted to EUR 70.7 million, compared with EUR 65.2 million in the same period the previous year. EBIT totalled EUR 12.0 million, while the margin was 17 per cent. In the same period the previous year, EBIT were EUR 10.8 million and the margin 16.6 per cent.
A comparison reveals that the weak US dollar depressed the encouraging revenue development in the USA in the quarter as well: while the revenues decreased by 2.1 per cent from EUR 8.8 million to EUR 8.6 million, they increased by 16.1 per cent over the same period the previous year at constant exchange rates. The revenues reported were 12.2 per cent higher than in the third quarter of 2003 (constant currency: 18.6 per cent). EBIT were also better than in the previous year, improving from EUR 1.2 million (margin: 13.7 per cent) to EUR 1.3 million (margin: 15.4 per cent).

Strategic acquisitions

SAP SI continued its policy of strategic growth and ongoing development of the value chain of a full-service IT service provider systematically with two acquisitions in fiscal 2003: SPM Technologies Deutschland GmbH, Berlin, one of the leading German providers of IT architecture consulting services, was taken over in December. The company represents a major element in SAP SIs strategy: SPM provided advice on the design and development of the SAP NetWeaver application and integration platform and also has in-depth know-how about the implementation of service-oriented IT architectures (SOA). Already in September, SAP SI had taken over SLI Consulting AG, Regensdorf, Switzerland. By making this acquisition, SAP SI has broadened its access to the Swiss market considerably and has taken a further step in corporate internationalisation. International business is to be expanded from less than 20 per cent of revenues now to more than 30 per cent by 2006. Integration of both companies is going according to plan. SLI and SPM contributed EUR 6.6 million to the revenues in the fiscal year and EUR 1.3 million to the EBIT.

Outlook: profitable growth in 2004

Market research institutes are in the meantime noting initial signs of an economic recovery in Germany in 2004 too and now anticipate that the German IT services market will grow slightly as well. SAP SI does, however, still expect the market to develop slowly in the first half of the year, with an improvement in the second half. “We are working on the assumption of revenue growth between 8 and 12 per cent for the year as a whole as well as maintenance of a high EBIT margin of 14 to 15 per cent”, explained Müller. “Although experts do not anticipate any significant growth in the global IT services market in 2004 either, we are convinced that we are excellently equipped to be able to reach these targets with the strategic expansion of our service portfolio and SAP NetWeaver as the technological basis for comprehensive integration projects”, said Chief Executive Officer Rumpf.

Source: SAP SI AG

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