Germany’s SAP to restructure after 2018 profits slowdown

The logo of German software group SAP is pictured at its headquarters in Walldorf, Germany, May 12, 2016. — Reuters pic
The logo of German software group SAP is pictured at its headquarters in Walldorf, Germany, May 12, 2016. — Reuters pic

FRANKFURT AM MAIN, Jan 29 — German software giant SAP said today it would launch a billion-euro restructuring plan after profits stagnated in 2018, while insisting it was on track to grow revenues and earnings this year.

Net profit added just one per cent last year to some €4.1 billion (US$4.7 billion).

But operating, or underlying profit at the Walldorf-based group surged 17 per cent, to €5.7 billion, on revenues up 5.0 per cent at €24.7 billion.

The result “sets us up perfectly for continued strong profitable growth in 2019 and beyond,” chief financial officer Luka Mucic said in a statement.

SAP said it plans to spend between €800 million and €950 million “to further simplify company structures and processes”.

Executives aim to realise “a minor cost benefit” this year, before slashing annual outgoings by up to €850 million from 2020.

The programme comes on top of the group’s recent US$8 billion acquisition of Qualtrics, which chief executive Bill McDermott said meant SAP was “poised to revolutionise the business software industry”.

The Californian firm is an industry leader in the comparatively new field of experience management.

Invented in the 1990s, the technique calls for collecting data on customers, employees, brands and products, aiming to sharpen firms’ understanding of how they are perceived.

In 2018, SAP continued its transformation away from traditional one-off sales of business software to cloud computing, under which it charges customers a subscription fee to process data on the firm’s computers.

Revenue from cloud subscriptions and support grew 32 per cent over the year, to almost €3.8 billion.

Meanwhile software licenses and support revenue shrank one per cent, although it remains a far bigger source of income for now at almost €15.8 billion.

Across the whole group, SAP aims to increase revenue from its cloud and software activities to between 22.4 and 22.7 billion euros in 2019 — up from 20.66 billion booked last year under non-IFRS accounting standards, which exclude some costs.

Still in non-IFRS terms, the group aims for operating profit of 7.7 to 8.0 billion euros this year, up from 7.16 billion euros in 2018.

Investors appeared unmoved by SAP’s upbeat tone, with the firm’s stock shedding 2.6 per cent to trade at €89.96 in Frankfurt by 9.30am (0830 GMT), making it the worst performer on the DAX index of blue-chip shares. — AFP

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