SAP's new leadership duo delivers in-line results, lifts guidance

[January 28, 2020]  By Douglas Busvine

WALLDORF, Germany (Reuters) - SAP raised its revenue and profit outlook on Tuesday as new co-CEOs Jennifer Morgan and Christian Klein delivered a solid first set of quarterly results at the leading provider of business software.

Morgan and Klein took over in October from long-time CEO Bill McDermott, who in his final year in charge let go of 4% of SAP's staff and launched a new long-term strategy focused on organic growth and improvements in efficiency.

That put the emphasis for the new leadership team on execution, in particular encouraging SAP's customers to adopt its latest S/4HANA database and switch to subscription-based services hosted at remote datacenters.

"We are seeing a huge acceleration into the cloud," Klein told reporters on a conference call.

Europe's most valuable technology company now expects adjusted operating profit to grow by between 8% and 13% in 2020, while confirming its ambition of achieving 35 billion euros ($38.8 billion) in revenue in 2023.

SAP, based in the small Rhineland town of Walldorf, has set a target of boosting margins by one percentage point a year. Acquisition-related costs slowed progress in 2019, but margin boosting should accelerate this year.

"We have great expectations for continued efficiency gains and expansion of our profitability in 2020," said Chief Financial Officer Luka Mucic.

SAP SE co-CEO Jennifer Morgan attends the company's annual results press conference in Walldorf, Germany, January 28, 2020. REUTERS/Ralph Orlowski

SAP forecast that non-IFRS operating profit will reach 8.9-9.3 billion euros in 2020, while revenues are expected to gain 6-8% to 29.2-29.7 billion euros.

At the mid-point of that guidance, margins would increase by 120 basis points to 30.9% in 2020, compared to an 80 basis point gain last year, he told reporters.

In the fourth quarter, non-IFRS operating margin at constant currency was 35.2%, up a percentage point from a year earlier, and just above a median forecast of 35% in a poll of analysts by Vara Research.

Non-IFRS operating profits, which strip out one-off items such as restructuring charges, gained by 9% to 2.8 billion euros in the fourth quarter at constant currency, in line with analyst expectations.

Unadjusted profit fell, however, by 11% on account of the restructuring exercise and costs related to the $8 billion takeover in 2018 of Qualtrics, which specializes in measuring customer sentiment.

(Reporting by Douglas Busvine; Editing by Michelle Martin)

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