SAP raises its rev­enue out­look for 2017

The Star Early Edition - - BUSINESS REPORT - Aaron Ri­cadela

SAP RAISED its out­look for rev­enue af­ter re­port­ing a better-than-ex­pected 10 per­cent quar­terly sales jump, as it kept at­tract­ing cus­tomers to a new ver­sion of its flag­ship soft­ware.

The Ger­man soft­ware firm is now pro­ject­ing sales of €23.3 bil­lion (R347bn) to €23.7bn for the year, based on con­stant cur­ren­cies and up about a €100 mil­lion on both ends of its pre­vi­ous pre­dic­tion. And it’s rais­ing its out­look on cloud and soft­ware rev­enue for the year to 6.5 per­cent to 8.5 per­cent growth, up from 6 to 8 per­cent. SAP also an­nounced a share buy­back of up to €500m this year.

Chief ex­ec­u­tive Bill McDer­mott is at­tract­ing new cus­tomers through a ma­jor up­date of SAP’s ac­count­ing, manufacturing and lo­gis­tics soft­ware called S/4 Hana. The sys­tem had 6 300 users at the end of June, an ac­cel­er­a­tion of sales com­pared with 5 800 cus­tomers at the close of March, when growth had tailed off.

S/4 lets busi­nesses run soft­ware tasks on their own ma­chines, or in a cloud-com­put­ing ar­range­ment hosted by SAP or one of its part­ners.

Sec­ond-quar­ter rev­enue rose to €5.78bn, SAP re­ported yes­ter­day, com­pared with the €5.67bn es­ti­mate of an­a­lysts sur­veyed.

Profit

Op­er­at­ing profit, ex­clud­ing share-based com­pen­sa­tion, amor­ti­sa­tion and other charges, was €1.57bn, com­pared with the av­er­age es­ti­mate of 1.58 bil­lion eu­ros.

SAP is in­vest­ing heav­ily in re­search and de­vel­op­ment and sales of its busi­ness apps, data anal­y­sis and In­ter­net of things soft­ware, which means profit – up 4 per­cent – isn’t grow­ing nearly as quickly as sales. It hired nearly 3 000 people in the first half of the year.

Profit mar­gin at the Wall­dorf, Ger­many-based com­pany re­mained sup­pressed as it spends to build cloud-com­put­ing ca­pac­ity. Op­er­at­ing mar­gin was 27.2 per­cent, com­pared to an­a­lysts’ 28.1 per­cent av­er­age es­ti­mate. In­vestors are look­ing for mar­gins above 30 per­cent start­ing next year.

“If you in­vest in the cloud, you ex­pand quickly – you will look at a mar­gin im­pact,” McDer­mott said. “But here’s the good news. Be­cause we did the hir­ing in the first half of the year we’ll get the lever­age of that in the back half” and in 2018.

While it raised its out­look on over­all rev­enue, SAP stuck to a fore­cast first is­sued in Jan­uary for 2017 op­er­at­ing profit of €6.8bn to €7bn. It ex­pects 2017 cloud sub­scrip­tions and sup­port rev­enue of be­tween €3.8bn and €4bn at con­stant cur­ren­cies, up as much as 34 per­cent from 2016’s €2.99bn. – Bloomberg

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