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After a bad third quarter: SAP boss Klein has to cancel the goals again

2020-10-26T12:50:57.931Z


For the second time this year, SAP boss Christian Klein has to reduce the forecast - and the medium-term goals can no longer be achieved. The share collapses in double digits.


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SAP boss Christian Klein: "For companies, the switch to the cloud, combined with a real realignment of their business, has become essential"

Photo: Malte Ossowski / SVEN SIMON / imago images / Sven Simon

The corona pandemic is shaking up the plans of Europe's largest software manufacturer SAP more than previously thought.

Because the demand was more restrained than expected, the management around CEO

Christian Klein

(40) is now assuming less sales and profits this year, as the group announced on Monday.

In April, SAP lowered its outlook for the first time.

In addition, Klein questioned the medium-term goals.

The result: The share fell by almost 20 percent, the market value of Germany's most valuable corporation plummeted by around 30 billion euros.

According to SAP, CEO Klein bought shares on Monday for more than 102,000 euros, at a price of 102.28 euros each.

CFO

Luka Mucic

(49) invested around 75,000 euros at a price of more than 104 euros per paper.

SAP expects the infectious disease to have a negative impact by the middle of next year, which will also postpone the medium-term targets set for 2023 by one to two years.

Because of the even faster switch to cloud software, investors now have to be prepared for the fact that SAP will hardly make any progress in terms of profitability by then, as Klein announced.

Ex-boss

Bill McDermott

(59) had promised that after years of shrinking margins: That SAP will finally reap the benefits and the adjusted operating margin (adjusted EBIT) in 2023 should be around 5 percentage points above that of 2018 (29 percent).

Nothing will come of that, SAP adjusted the financial market to the fact that the strong growth of the cloud offerings will probably cost 4 to 5 percentage points in the operating margin.

Software for Internet use is growing rapidly, but it is still not as profitable as selling software for one-time license fees.

Cloud software is paid for either through subscriptions over the term or for a usage fee.

SAP estimates that software licenses are likely to decline in the coming years compared to 2020 levels.

US subsidiary Concur is suffering from the pandemic

For growth with cloud software, SAP must also continue to invest money in the technical infrastructure, so additional investments will probably be required in the coming year and the year after next, it said.

"Our accelerated move to the cloud will ensure we continue on our path as a cloud growth company while we continue to focus on cost savings," said CFO Mucic.

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This year, SAP expects total sales of 27.2 to 27.8 billion euros based on constant exchange rates - that is, at exchange rates from last year.

If the strong euro has a particularly hard impact on the conversion of foreign revenues, values ​​below this are also possible.

Previously, 27.8 to 28.5 billion were targeted.

Above all, revenue from cloud software is likely to be weaker, at 8.0 to 8.2 billion euros, whereas 8.3 to 8.7 billion euros were previously planned.

The US subsidiary Concur, which offers customers travel expense management, is particularly suffering from the crisis.

The operating result should now land between 8.1 and 8.5 billion euros instead of between 8.1 and 8.7 billion.

SAP had already reduced its original annual targets in April due to the Corona crisis.

Because the group stepped on the brakes on costs, things are looking better this year in terms of the development of the cash situation.

Instead of around four billion euros in free cash flow, Mucic now calculates an inflow of over 4.5 billion euros into the till.

Revenue down in the third quarter

In the third quarter it became clear how badly the crisis is also hurting SAP - with management remaining optimistic that the value of digitization will become more visible for companies in the crisis.

"For companies, the move to the cloud, combined with a real realignment of their business, has become essential," said Klein.

"Because only in this way can they become more resilient and create the conditions so that they can emerge stronger from the crisis."

Total sales shrank between July and the end of September by 4 percent year-on-year to 6.54 billion euros, with the strong euro causing the decline.

Adjusted for currency effects, revenues would have remained stable.

Earnings before interest and taxes adjusted for special costs were 2.07 billion euros, one percent below the previous year's figure, but would have grown by 4 percent, according to SAP calculations, if the exchange rate had not been affected.

Net profit increased significantly

The bottom line is that Mucic was able to show a significant increase in profits of 31 percent to 1.65 billion euros.

This was primarily due to a valuation effect at the subsidiary Sapphire Venturs, which invests mainly in start-ups.

With the values ​​of sales and operating profit, SAP was clearly below the estimates of analysts.

In the next two years, SAP anticipates subdued growth in sales, and adjusted operating profit is likely to stagnate or even decline.

From 2023, sales are expected to grow faster and the operating result to increase by a double-digit percentage.

In 2025, SAP aims to break the EUR 22 billion mark in cloud revenues and achieve total sales of over 36 billion.

85 percent of sales should then be easier to plan, which means that they either come from cloud subscriptions or from maintenance contracts and do not depend solely on sales success.

The operating result should then be over 11.5 billion euros.

So far, SAP had expected cloud sales of more than 15 billion euros in 2023.

Equity analysts reacted negatively to the news from SAP: JPMorgan expert Stacy Pollard canceled her recommendation and also removed the papers from the investment bank's "Analyst Focus List".

DZ Bank removed the SAP papers from its global investment ideas.

Expert Harald Schnitzer also expects the share price to develop below average in the coming weeks.

mg / dpa-afx / Reuters

Source: spiegel

All news articles on 2020-10-26

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