SAP reduces earnings guidance by 2020, as consumers delay business

Business software supplier SAP cut its full-year earnings outlook after the coronavirus pandemic forced customers to shut down orders, saying it now expects a one-digit decline following a 10 per cent growth estimate earlier

The German corporation said it now sees net income, adjusted for special products, ranging from € 8.1 billion ($8.8 billion) to € 8.7 billion, a 1 per cent -6 per cent decrease in constant currencies.Most listed firms have given up advice due to coronavirus but SAP, the most popular technology firm in Europe, has more exposure than most as it makes reliable much of the sales from subscriptions and software support.

SAP stood by its mid-term growth estimates that expect an increase of its profit margins from one percentage point per annum to 2023 as it focuses on changing its business model to cloud subscriptions and away from software licences.

“Our multi-year emphasis on building a strong base of more predictable revenue has made SAP more resilient than ever,” said CFO Luka Mucic in a statement. 

“We will weather the COVID-19 crisis and emerge stronger than before as we have done in past downturns. Our updated guidance demonstrates that even in this challenging environment SAP remains healthy and stable.”

Shares of the company were reported to open up 1.3 percent, having declined by 13 percent to date in the current year. Prompted by German stock exchange rules requiring listed companies to announce significant divergences in performance or adjustments in guidance, SAP said its adjusted operating income in the first quarter amounted to 1 per cent higher than EUR 1,48 billion.

This said a large amount of new business was delayed, as the effects of the COVID-19 crisis quickly escalated towards the end of the first quarter. It was expressed in a 31 per cent decrease in revenue from software licenses — the cash cow company of SAP that produces most of its income but is 'lumpy' because revenue is recognized up front.

In comparison, cloud sales increased at constant currencies in 29 per cent on an adjusted basis. Overall, the share of predictable sales rose to 76 per cent, up year on year by 4 per cent.