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Business at SAP
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Continued success in managing costs
Cost of product was €804 million, 4% lower than in 2003,
reflecting the more advantageous cost structure for the
purchase of third-party licenses and greater efficiency in the
support organization. The Company reduced pro-forma cost
of product, which excludes costs for stock-based compensation
and acquisition-related charges, 3% to €782 million. The
product margin climbed two percentage points to 84 %.
Cost of service was €1,784 million, 5% higher than in 2003.
Pro-forma cost of service, which excludes expenses for stock-based
compensation and acquisition-related charges, was
€1,759 million, an increase of 6% on the previous year’s figure.
The service margin decreased three percentage points to 22 %.
One substantial component in the cost of service increase and
the related service margin decline was the recruitment of new
consultants, who did not reach full productivity in 2004. The
percentage increase in cost of service was kept down to slightly
less than the 6% increase in headcount (expressed in full-time
equivalents – FTEs). The margin was also impacted by growing
pressure on prices in the consulting market.
In the course of the year, SAP built new development
capacity, and developer headcount (in FTEs) increased 12 %.
However, research and development expenses rose only 2%
in 2004, from €996 million to €1,020 million. This was chiefly
because development capacity was stepped up more in key
emerging economies where salary levels are lower. Excluding
expenses for stock-based compensation and acquisition-related
charges, research and development expenses rose 6% to
€1,011 million in 2004.
Sales and marketing expenses increased 8% to
€1,524 million in 2004. Pro-forma sales and marketing expenses
(that is, excluding expenses for stock-based compensation and
acquisition-related charges) increased 10 % to €1,515 million.
Sales and marketing expenses equaled 20 % of total revenue,
which was the same ratio as in 2003.
General and administration expenses increased only
3% to €366 million, despite the investment in setting up a
European shared service center. General and administration
expenses represented 5% of total revenue, as they did in the
previous year. Pro-forma general and administration expenses
(that is, excluding expenses for stock-based compensation
and acquisition-related charges) increased 7% to €363 million. |
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