SAP Profit Down 23 Percent But S4/HANA Bookings “More Than Expected”

German software maker SAP has announced a 23 percent fall in net profit year-over-year, down from €534m (£384m) to €414 million (£298m).

But total revenues were up 24 percent to €4.5bn (£3.2bn), with a 131 percent jump in cloud subscriptions.

“We are pleased to report triple-digit growth in both cloud and our business network segment which started on a high note,” said Bill McDermott, CEO of SAP.

Robust

“SAP S/4HANA saw robust early traction and is catalysing momentum across SAP. We are a strong growth company with every region growing in double digits in cloud and software revenue this quarter. We remain ever focused on seamless execution of our consistent, customer-driven strategy.”

SAP’s results come in contrast to IBM’s, which posted its twelfth consecutive quarter of revenue decline on Monday.

SAP’s quarterly success was greatly helped by a cheap euro, despite moves to cloud subscription models tightening profit margins compared to software license models.

The firm showed a fairly strong performance in EMEA in both the core and the cloud business. The company said its 114 percent rise in support revenue was helped by a “strong performance” in the UK.

“SAP’s customer centricity and commitment to investing in innovation are paying off”, said Luka Mucic, CFO of SAP. “We grew our cloud and software revenue by 24% and increased our operating profit by 15% surpassing €1 billion (£720m) in a first quarter for the first time as currency shifted to a tailwind.”

In January, SAP cut its 2017 operating outlook, pinning the blame on the shift to a cloud-based software delivery model that will nip away at its profit margins until a turnaround in 2018.

SAP admitted that its 2017 operating profit will be between £4.8bn and £5.4bn.

The German giant had previously predicted an operating margin of 35 percent on revenues up to £16.9bn, providing an operating profit of about £5.9bn, but that’s now dropped to 33.3 percent.

An “expected” fall

TechWeekEurope spoke to Darren Roos, general manager for Northern Europe at SAP, to find out more about SAP’s Q1 results. He said that the 23 percent fall in net profit was expected, with the company warning investors over the last few quarters.

Roos said: “Last year we were pretty clear on the fact that we were going to be investing more on cloud infrastructure in preparation for the growth, it’s the impact of exactly that investment.

“The growth is positive in that it gets us to where we need to be from a scale perspective. But by the same token we’ve had a short term impact on the valuation of the margins. Overall we’re pleased and it bodes well for the future.”

Roos pointed out how the cloud is SAP’s revenue for the future, so the large increase in cloud bookings is a reassuring figure.

“The one part of the business where the margins are not as good, and again it’s a scale issue, is our HANA enterprise cloud. The way that we’re dealing with that, is that a lot that infrastructure is now being hosted by partners. The move is now towards the partnerships we have with IBM and HP.”

Roos also said that the 370 customers now on S4/HANA is “more than expected” for SAP. He commented: “Uptake has been incredibly positive. Our message is resonating with customers. I think we will see that number grow exponentially rather than gradually.”

Roos also pointed to structural changes and management re-shuffling as being one of the reasons for strong UK performance this quarter, as well as the healthy appetite for cloud in the market.

“The UK continues to be a bit of a beachhead for any of the international companies bringing cloud solutions into Europe. The UK is where they touchdown and that’s having a very positive impact for us,” Roos said.