You are here
SAP headed for revamp after Q4 shows some weakness
BUSINESS software company SAP said on Tuesday it would undertake a company-wide restructuring to accelerate its business transformation as it reported results that showed slowing growth in new orders for its cloud products.
SAP, Europe's most valuable technology company said it would take restructuring charges of 800 to 950 million euros (S$1.2 billion to S$1.5 billion), mainly in the first quarter.
It sees a minor cost benefit in 2019 and savings of 750 to 850 million euros from 2020.
Walldorf, Germany-based SAP will reassign some employees and offer early retirement to others, but still expects its overall head count to be higher at the end of this year, finance chief Luka Mucic told journalists on a call.
"This is not a cost-cutting programme - it's a fitness programme and a simplification," said Mr Mucic.
The shake-up comes as SAP announced 2018 results that chief executive Bill McDermott called "outstanding". They came in within the range of the company's guidance on total revenues and operating profits at constant currencies, which the company had raised when it published its third-quarter results.
The fourth quarter showed some signs of weakness, though, with growth in new cloud bookings, an order-entry measure, slowing to 23 per cent from 37 per cent in the third quarter. Underlying non-IFRS operating margins, at constant currency, were squeezed by 1.5 percentage points in the quarter to 33.2 per cent as SAP implemented hyperinflation accounting for crisis-hit markets in Latin America such as Venezuela.
Shares fell 2.2 per cent to 90.33 euros by 0810 GMT, making them the weakest performers on the German blue-chip DAX index.
SAP, which has just closed its US$8 billion takeover of Qualtrics, a US company that tracks customer sentiment online, baked the impact of that deal into raised 2019 revenue guidance of 28.6 to 29.2 billion euros.
But it kept its forecast of non-IFRS operating profit unchanged at 8.5 to 9.0 billion euros, up 7.5 to 11.5 per cent year on year.
Giving its first forecasts for 2023 ahead of a capital markets day in New York on Feb 7, SAP said it expected to more than triple cloud subscription and support revenues, hit total revenues of 35 billion euros and expand operating profit at an annual growth rate of 7.5 to 10 per cent.
"The one surprise for us is the announcement of a major restructuring programme in FY19," analysts at Credit Suisse said. "It seems likely that the vast majority (of cost savings) will be reinvested back in the business," they added. REUTERS