Fonterra deal creates revenue spike for software giant

By ADAM GIFFORD

If drinking milk makes you strong, selling software to milk processors will make you even stronger, SAP's latest figures show.

Results filed with the Companies Office show that in the year to December 31, SAP New Zealand increased revenue 45 per cent, from $27.7 million to $40.4 million.

But its after-tax profits went backwards, from almost $3.4 million in 2002 to just shy of $3 million last year.

The revenue spike comes down to one word - Fonterra. SAP is expected to derive a large chunk of its revenue from Fonterra over the next couple of years with industry sources suggesting SAP's project with the dairy giant could be worth up to $120 million.

SAP New Zealand managing director Ian Black would not comment before the release of the German business software giant's global second-quarter results this week.

Although large customers such as Air New Zealand and Carter Holt Harvey did have some SAP-related projects last year, Fonterra's Jedi project, using SAP technology to automate its supply chain, required up to 400 staff and consultants.

As prime contractor, SAP billed for all the consultants, then passed on most of the fees to its consortium partners - CGNZ, Intelligroup, Oxygen and RealTec.

There were also intercompany payables of $6.8 million, much of it for SAP staff from Germany, the United States and elsewhere for the Fonterra project.

Although it boosted revenue, the activity didn't contribute as much to the bottom line as the licence sale component of the deal.

How big those sales were isn't clear - unlike its filing in Australia, SAP New Zealand's accounts do not separate software and services revenue.

SAP's policy is to include licence revenue when the software has been delivered. That means some of it would have been booked in 2003, even though the first part of Jedi did not go live until last month.

Where licence revenue is paid in instalments, the present value of future instalments is recognised as a trade debtor in the books. That amounts to $19.7 million, a massive $12.7 million up on 2002.

The huge project also appears to have produced $1.4 million in accrued bonuses to be paid when milestones are reached.

The profit would also have been affected by restructuring costs. Under the new direction set by Australia and New Zealand head Geraldine McBride, Black cleared out many of the staff who were with the company during the post-Y2K slump, when it concentrated on sales to existing customers, and hired some high-powered new talent.

He also created new business units to target small and medium-sized businesses, which won't show up on the revenue side of the ledger until this year.

In January, McBride predicted a 9 per cent revenue rise and 12 per cent profit jump across Australia and New Zealand.

As it happened, Australian revenue rose just 1.8 per cent to A$206.9 million, or $236 million at December's exchange rate, and the combined Australasian revenue rose just over 6 per cent. Profit fell on both sides of the Tasman.

SAP's strong result will buoy its New Zealand partners.

Oxygen chief executive Mike Smith said his company had retained and solidified its position as SAP's number one partner here, increasing staff from 220 to 350 over the past two years.

He said that although Oxygen benefited from Fonterra, it was also able to bring other business to SAP, including Farmers and Tenon.

During the year it did new projects in parent Carter Holt, including installing an SAP customer management module.

It would open a Sydney office next month to handle the increasing amount of implementation and support work it is winning over there.