With its cloud business zooming 38 percent, SAP easily beats forecast.

by: ArabianBusiness:
The German company said it is on track to meet full-year guidance; total revenue grew 5 percent in currency-adjusted terms to 7.84 billion euros. German software maker SAP posted better-than-expected numbers, riding high on its cloud business.

SAP said in a filing that it was on track to meet full-year guidance after its cloud business grew at a rapid pace, rising 38 percent in the third quarter to 3.29 billion euros ($3.25 billion).

Total revenue grew 5 percent in currency-adjusted terms to 7.84 billion euros, beating analyst expectations of 7.62 billion euros. The company stuck with its full-year operating profit forecast, made in July, of between 7.6 billion and 7.9 billion euros.

The company also revealed an impact of nearly 250 million euros due to the war in Ukraine. Under the leadership of CEO Christian Klein, SAP has focused on cloud operations. It has adopted a subscription-based service model that generates predictable revenue over time rather than the lump-sum mostly annual cash flows through software licences and renewals.

Klein said: “Our cloud solutions are the answer, as customers turn to us to help them future-proof their businesses. This trust in SAP is reflected in our accelerating cloud momentum. With a recurring revenue share of more than 80 percent, it’s clear that our transformation has reached an important inflexion point, paving the way for continued growth in the future.”

Klein had envisaged total adjusted revenue of 36 billion euros in 2025, with 22 billion euros of that coming from the cloud business, and was quoted by Reuters as saying: “We are looking at our plan right now… we are very confident that we are going to over-achieve our 2025 vision.”

Luke Mucic, CFO, of SAP, added: “We have delivered a strong cloud quarter with accelerating momentum across all key cloud indicators. We’re at an important inflexion point in our transformation which we anticipate will lead to accelerating revenue growth and double-digit operating profit growth in 2023.”

Impact of war in Ukraine
In the first nine months, SAP’s business was impacted by the war in Ukraine and its decision to wind down its business operations in Russia and Belarus.
At the end of the third-quarter current cloud, the backlog was approximately 64 million euros lower due to the termination of existing cloud engagements in Russia and Belarus, reducing current cloud backlog growth by approximately 1 percentage point at constant currencies.

The impact on third quarter IFRS (International Financial Reporting Standards) operating profit was approximately 20 million euros (first nine months: approximately 370 million euros) and approximately 20 million euros (first nine months: approximately 250 million euros) on non-IFRS operating profit, mainly due to reduced revenues.

In its filing, SAP said: “For the full year, we expect a total revenue impact of approximately 250 million euros at constant currencies from lack of new business and discontinuation of existing business. For non-IFRS operating profit we expect an impact of approximately 300 million euros at constant currencies from the revenue gaps mentioned above and other expense items.”


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