SAP is the world's third-largest software company, although it is not widely known. The company specialises in writing and installing business management software.

The company is still reporting strong sales and profits growth, but at a lower level than in past years because of reduced demand for millennium bug products.

The group said a worse-than-feared fourth-quarter performance in Japan was largely responsible for limiting the predicted increase in 1998 pre-tax profits to 15%, below the group's targets.

"In Japan we will have a loss" in the fourth quarter of 1998, SAP co-chief executive Henning Kagermann warned. "It will be small (but) I cannot say exactly what it will be."

He said the situation in Japan was not expected to improve in the short term, although SAP continued to see solid growth in the United States and Europe.

Sales up 40%

The group gave no detailed earnings figures but said sales last year rose about 40% to 8.4bn Deutschmarks ($5.08bn). This was within expectations.

SAP was surprised by a slowdown in sales in Japan

Unfavourable currency exchange movements wiped 4% off the expected sales growth.

For 1999 SAP forecast its sales were likely to continue to rise but at a slower rate of 20-25%.

Analysts said that the year 2000 computer compatibility issue had boosted SAP's sales in recent years, but by now anyone who wanted a new system had it. Nonetheless, the results were much worse than the market had expected.

SAP's heavily traded preference shares fell 13.57% to 334.50 euros after falling to 308 euros in early trade, their lowest price since last October. "Its a real shock," said one German trader.