Software giant SAP sees silver lining in global upheaval

[BERLIN] Software giant SAP said Tuesday that Brexit and geopolitical upheaval would boost rather than hinder future growth as it upped sales and profit targets for the next few years.

SAP, the German Dax index's biggest company by market capitalisation, said demand for its cloud services in a changing world would provide the bulk of coming growth.

The company made the forecast as it released its 2016 results, which showed net profit at 3.6 billion euros (S$5.489 billion), up 18 per cent on 2015's figure, as revenues grew six per cent to 22 billion euros.

In a conference call on Tuesday, CEO Bill McDermott disagreed with analysts' fears that geopolitical turbulence, especially Brexit, could lower corporate spending on IT.

"Public or private sector entities, they are going to need digital transformation to handle new processes and new outcomes" in a changing world, he said.

In a separate statement, Mr McDermott pointed to "strong software sales, fast cloud growth and operating income expansion" as factors giving him "enormous confidence in our accelerated 2020 ambition".

Using non-IFRS accounting rules - excluding certain costs but always used by SAP to provide forecasts - the firm increased underlying, or operating, profit four per cent to 6.6 billion euros.

Revenues on software and cloud services grew eight per cent at constant exchange rates, close to the upper bound of SAP's guidance.

"Cloud growth and software revenue remain robust," DZ Bank analyst Harald Schnitzer commented on the figures, applauding "remarkable" growth in cloud sales which saw SAP outstrip competitors.

The German company has been elbowing its way into the cloud computing sector - managing customers' digital information at a distance for a monthly fee - for several years.

Such relationships contrast with its classic software business, under which clients buy a license for an SAP programme once at high cost and then manage their own data on their own servers.

Revenues from cloud subscriptions and associated support services remain five times smaller than software in SAP's books.

But the newer business area grew 31 per cent in 2016, compared with four per cent for classical software sales.

Looking forward, the firm hopes cloud subscriptions will prove a more predictable source of revenue and outpace software income in 2018.

Finance director Luka Mucic looked forward to "yet another year of profitable growth in 2017," with "high level 2020 ambition" in the firm's statement.

SAP forecasts that its revenues from the cloud will reach between 3.8 and four billion euros in 2017, up from three billion euros last year.

Total revenues would reach as high as 23.6 billion euros, compared with 22 billion in 2016, the firm continued, for an operating profit of up to seven billion - up from 6.6 in 2016.

The company offered all its forecasts under non-IFRS accounting and at constant exchange rates.

By 2020, SAP hopes to hit 28-29 billion euros in revenue - an increase from its previous prediction of 26-28 billion - with an operating profit of between 8.5 and nine billion, upping the lower bound by 500 million euros.

AFP