SAP fails to raise Diagonal's profit

Diagonal Group's profit slump may have had less to do with the millennium spending freeze than its SAP division's confused web strategy, Diagonal management has hinted.

Diagonal Group's profit slump may have had less to do with the millennium spending freeze than its SAP division's confused web strategy, Diagonal management has hinted.

The company announced that pre-tax profit for the half year to 28 May had plunged to £1.7m from £4.6m in the previous six months. Profit more than halved, while turnover was more or less flat, falling from £37.5m to £37.1m.

Diagonal made 35 per cent of its turnover from selling enterprise resource planning (ERP) services around SAP software.

Mark Samuels, Diagonal Group chairman, told analysts that the SAP market had "paused for breath", while Graham Creswick, chief executive, admitted that the company made nothing from SAP sales in the first quarter of the financial year.

But Creswick denied that its SAP division had stopped breathing altogether. "We started to make a reasonable profit in the second quarter, and we have some major deals that are about to come to fruition," he said.

He hinted that SAP deals are not as potentially profitable as they were. "When SAP was firing on all cylinders, it was very profitable. Now we are finding that we have to put a lot more work up front into winning business for SAP," he said.

"SAP sent out very strange messages to the market over its internet strategy. End-users lost confidence in the product and we are just about moving out of that now. We really shot ourselves in the foot," he added.

Despite the renewed confidence in its ERP business, Diagonal is keen to acquire companies to expand its solutions business. Networking and ecommerce projects have been its most profitable business in the first half of this year. Samuels reportedly wants internet security and networking consultancy to be at least on a par with the company's SAP business by the end of the year.

However, Creswick denied reports that the company's ebusiness division is developing an alternative ERP solution to SAP's. "We will continue to work closely with SAP, although it did not help itself," he said.

First published in Computer Reseller News