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UPDATE 2-Software AG shares slump after warning of project delays
July 15, 2014 / 8:01 AM / 3 years ago

UPDATE 2-Software AG shares slump after warning of project delays

* Software AG sees 2014 sales flat in BPE unit

* Previously saw the figure up 12-18 percent

* Q2 BPE sales down 7 percent to 85 million euros

* Sees 2014 operating margin of 26-28 pct

* Shares drop 17 pct to lowest level since Nov 2009 (Adds further CEO comments, details)

By Maria Sheahan and Ludwig Burger

FRANKFURT, July 15 (Reuters) - German business software maker Software AG has warned that sales growth in its biggest business would fall short of expectations this year as clients delay signing major contracts, sending its shares to their lowest in almost five years.

As the software industry switches to charging regular subscription payments rather than selling software, Software AG is having a hard time persuading customers to buy its data infrastructure products for up-front payments.

“Users increasingly want to pay as they use, instead of (making) large payments in advance for something they will use over the next few years,” Chief Executive Karl-Heinz Streibich told a conference call.

Software AG said it now saw 2014 revenue from its largest unit, known as Business Process Excellence (BPE) and which sells process management products, stagnating from a year earlier, compared with a previous outlook for growth of between 12 and 18 percent at constant currency rates.

In the second quarter, sales from BPE, which generated almost half of group revenue last year, fell 7 percent to 85 million euros.

Software AG serves companies including U.S. drugmaker Johnson & Johnson and German rail operator Deutsche Bahn . Its BPE unit helps customers keep inventories at ideal levels, monitor in real time how fast clients are being served, and helps retrieve data from outdated software systems, among hundreds of other functions.

SURPRISING RELUCTANCE

Expecting swift growth, the group - Germany’s second-largest business software supplier after SAP SE - last year invested 50 million euros in BPE, hiring 200 sales and marketing employees, making the latest slowdown particularly disappointing.

“The BPE business line was marked by a surprising reluctance by customers to commit to major infrastructure projects,” the company said.

It sees its 2014 operating margin at between 26 and 28 percent, against 26.8 percent a year earlier and a previous outlook for an improved margin.

“In absolute terms that leads us to fear a decline in earnings,” analyst Mirko Maier at banking group LBBW said.

Software AG previously said it saw operating earnings rising by between 2 and 7 percent from 260.7 million euros ($356 million) last year, but did not repeat that forecast on Tuesday. Instead, it said operating earnings would be between 26 and 28 percent of sales this year, compared with 26.8 percent last year.

Its stock was down 17 percent at 20.47 euros by 0948 GMT, having fallen as low as 19.99 euros, its lowest since November 2009.

The company is due to publish full quarterly financial results on July 24.

$1 = 0.7331 Euros Editing by David Holmes

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