SAP cuts 2020 earnings guidance as virus puts orders on hold

Frankfurt

BUSINESS software maker SAP cut its full-year earnings guidance after the coronavirus pandemic caused customers to put orders on hold, saying it now expects a single-digit decline after earlier forecasting 10 per cent growth.

The German company said it now sees operating profit, adjusted for special items, in a range of 8.1 billion euros (S$12.5 billion) to 8.7 billion euros, a fall of 1-6 per cent at constant currencies.

Many listed companies have abandoned guidance due to the coronavirus pandemic but SAP, Europe's most valuable technology company, has more visibility than most, as it makes most of its revenue from subscriptions and software support that are predictable.

SAP stood by its mid-term growth forecasts that foresee an expansion of its profit margins of one percentage point per year till 2023 as it focuses on shifting its business model to cloud subscriptions and away from software licences.

"Our multi-year emphasis on building a strong base of more predictable revenue has made SAP more resilient than ever," CFO Luka Mucic said in a statement.

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"We will weather the Covid-19 crisis and emerge stronger than before as we have done in past downturns. Our updated guidance demonstrates that even in this challenging environment, SAP remains healthy and stable."

Prompted by German stock exchange rules that require listed companies to report material divergences in results or changes to guidance, SAP said that its adjusted operating profit edged 1 per cent higher to 1.48 billion euros in the first quarter.

It said that as the impact of the Covid-19 crisis rapidly intensified towards the end of the first quarter, a significant amount of new business was postponed.

This was reflected in a 31 per cent decline in revenue from software licences - SAP's cash cow business that generates much of its profits but is "lumpy" because revenue is recognised up front. By contrast, cloud revenue grew by 29 per cent on an adjusted basis at constant currencies.

The share of predictable revenue overall grew to 76 per cent, up by 4 per cent year on year. REUTERS