SAP relies fully on the cloud and spends a lot of money on the growth strategy. First of all, this reduces profits. Withdrawing from Russia also costs money.
Europe’s largest software group SAP is making progress with the targeted growth in business with so-called cloud software.
However, the investments in the expansion of the business with software for use over the network (cloud) and the withdrawal from Russia had a greater impact on the result at the start of the year than expected.
CEO Christian Klein announced in autumn 2020 that he would initially prioritize growth over higher profitability. Since then, the group has had a difficult time on the financial market. The figures for the first quarter did not brighten the mood – on the contrary. The share price of the Dax heavyweight fell at times to its lowest level in around a year and a half.
Group exceeds expert expectations in terms of revenue
The operating result adjusted for special effects fell in the first three months of the year compared to the same period last year by four percent to almost 1.7 billion euros, as announced by SAP in Walldorf. Sales, on the other hand, rose by 11 percent to almost 7.1 billion euros, while revenue in the cloud increased by 31 percent to 2.8 billion euros. The group thus exceeded the experts’ expectations in terms of revenue, but missed them significantly in terms of earnings. The forecasts for the current year have been confirmed.
Accordingly, sales of cloud software this year are expected to increase by 23 to 26 percent to up to 11.85 billion euros after currency adjustments. Currency-adjusted earnings before interest and taxes (EBIT), adjusted for special effects, are likely to remain stable or even shrink by up to five percent.
With the increased focus on the cloud in his strategy swing, group leader Klein also conceded the profit expectations of his predecessor. The operating result is not expected to increase again until 2023. In terms of product sales from license programs, maintenance contracts and cloud software, SAP expects a currency-adjusted increase of four to six percent to between EUR 25 billion and EUR 25.5 billion in 2022.
Profit collapses by 41 percent to 632 million euros
In the first three months, not only investments in the expansion of the cloud business weighed, but also the withdrawal from business in Russia after the country attacked Ukraine. The bottom line is that profits fell by 41 percent to 632 million euros.
SAP stopped all new sales in Belarus and Russia in early March. A start has also been made on ending cloud operations in Russia. In addition, it is planned to end support and maintenance of the on-premise products in Russia. SAP put the burden on the adjusted operating result in the first quarter at 70 million euros. For the financial year as a whole, the group expects the withdrawal from Russia to impact operating profit by around EUR 350 million.
The share has meanwhile dropped by 5.5 percent to EUR 94.04, making it cheaper than it has been since November 2020. Recently, however, the share was able to recover at least somewhat, but remained in the red. Since the record high in September 2020 of just over 143 euros, the paper has fallen sharply to less than 100 euros. Since then, the market value has fallen by almost 60 billion euros to just under 120 billion euros. As a result, SAP also lost the rank of the most valuable German listed company – that is now the industrial gas manufacturer Linde.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
