CORPORATESSECTOR IN-DEPTH 28 OCTOBER 2015TABLE OF CONTENTSRecurring revenues are above the market average for all companies, which will support continued predictable and stable revenues3Acquisition activity is expected to continue, focused primarily on smaller scale bolt-ons5The transition to cloud-based services is a key strategic challenge but an opportunity for growth6Recurring revenues are a key metric and expected to show faster organic growth7US dollar appreciation has hit several European ERP companies and we expect currency movements to drive continued earnings volatility8ANALYST CONTACTSMario Santangelo 4420-7772-8623 Associate Managing Director mario.santangelo@moodys.comMartin Hallmark 4420-7772-1953 VP-Senior Analyst martin.hallmark@moodys.comDavid Beadle 4420-7772-5390VP-Senior Analyst david.beadle@moodys.comFrederic Duranson 44-20-7772-1950 Analyst frederic.duranson@moodys.comERP Software - EuropeEuropean ERP Software Companies well placed to accelerate growth ¯ Recurring revenues are above the market average and growing for all companies, which will support continued predictable and stable earnings. Levels of recurringmaintenance and subscription revenues are above the software market average for all the six companies we reviewed. These revenues deliver very high profit margins and contribute a substantial proportion of earnings and cashflow, which supports the resilience and predictability of the sector. Recurring revenues are a key indicator of underlying performance, given the greater volatility of new installation activity, and we expect them to steadily increase.¯ Acquisition activity is expected to continue, focused primarily on smaller scale bolt-ons. We expect European Enterprise Resource Planning (ERP) software companies to reduce their acquisition activity in the next 1-2 years as they focus on completing the integration of past transactions and optimising performance. Nevertheless, acquisitions will remain an important strategic objective given their role in expanding product, geographic and industry reach, and smaller bolt-on deals will continue.¯ The transition to cloud-based services represents a strategic challenge but also an opportunity for growth. Technological advances in processing, data capacity and cloud computing are favourable to the sector in enhancing software capabilities and broadening the customer base. Cloud computing has the potential to open up software services to a new user group of smaller customers, with software companies serving the SME market most likely to benefit. Developing fully cloud-enabled products, investing in processing capacity and the potential for new market entrants are key strategic challenges to be addressed.¯ US dollar appreciation has hit several European ERP software companies and we expect currency movements to drive continued earnings volatility. Most companies in the sector are overweight in US dollar debt as they have exploited stronger US investo...
