SAP chief cannot rule out job cuts

FRANKFURT: Europe's biggest software maker SAP cannot rule out job cuts this year as the global software sector remained fragile, the group's co-chief executive said in a German newspaper interview released on Saturday.

SAP co-CEO Hennig Kagermann said in an article to appear in Sunday newspaper Welt am Sonntag and released ahead of publication that the group planned to reach this year's targets without job cuts. "All planning for this year envisages that we will reach our targets without layoffs. But I have to say, we cannot guarantee that," Kagermann was quoted as saying.

As global software industry growth waned, SAP has avoided the mass layoffs carried out by some of its U.S. rivals and the overall headcount at the end of the third quarter was still up two percent over the first nine months of the year at 28,909.

SAP, which makes business software, has been squeezing travel, slowing hiring and cutting research and administrative costs, bringing total costs down by eight percent to 1.366 billion euros in the third quarter.

In a separate newspaper interview, SAP's chief financial officer said the group wanted to increase its free cash flow to lift margins and will only fall back on outside financing as a last resort. Financial daily Boersen-Zeitung quoted SAP CFO Werner Brandt as saying the group's management was also seeking to further reduce working capital and raise its capital ratio nearer to that of peers Oracle and Microsoft.

Although SAP's capital ratio, its capital expressed as a percentage of assets, were at a record 49 percent, Brandt said the group wanted to increase this further. "We have to align ourselves to our peers. Microsoft and Oracle traditionally operates with a constant high ratio," Brandt told Boersen-Zeitung. Microsoft operated with a capital ratio of around 76 percent and Oracle at 56 percent, the newspaper said.

Brandt said free cash flow had shown a marked increase this year. After the first nine months, free cash flow out of operations was just over one billion euros with investments of 203 million euros. SAP saw its free cash flow dropping into the red in the past fiscal year after its takeover of software firm Top Tier and taking a 20 percent stake in loss-making Commerce One.

Brandt said he expected full-year free cash flow to exceed the one billion euros mark with current net cash standing at 600 million euros with another 150 million euros in stocks, which can be liquidated at short notice.

SAP will only seek other financing methods if all else fails, Brandt said, adding that a convertible bond issue will only be an option when it was really necessary. The use of outside capital to beef up the balance sheet was seen as an option "at the end of the chain of financing instruments," Brandt said.

SAP abandoned its 2002 sales forecast last month but its third quarter results was lifted by vigorous cost cutting. Like its rivals, SAP has been hit by a sharp slowdown in spending on information technology this year as confidence in economic recovery has crumbled.

(C) Reuters Ltd.