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SAP offers mixed preliminary results at the 'top end' of its downwardly revised outlook

Uphill battle shifting business applications to the cloud laid bare

SAP today reported preliminary results for 2020, showing the German enterprise software vendor serving up flat revenue and slightly improving profits, along with a worryingly notable drop in licence sales.

For the full year ending December 31, total revenue was down 1 per cent year-on-year year to €27.34bn. Within that, cloud revenue grew 17 per cent to €8.08bn, but software licences revenue was down by a fifth to €3.64bn. Support revenue was more or less unchanged at €11.5bn.

Operating profit climbed 48 per cent year-on-year to €6.62bn, largely down to lower restructuring charges as well as lower share-based compensation expenses compared to 2019.

In preliminary results for the fourth quarter, total revenue was down 6 per cent to €7.54: cloud revenue increased 8 per cent to €2.04bn; software licences fell 15 per cent to €1.7bn; support fell 4 per cent to €2.38. Operating profit increased 26 per cent to €2.65bn.

In October, SAP produced a forecast for the year so abysmal it caused the share price to crash, wiping 23 per cent off the company's value.

After filing Q3 results, SAP "adjusted" its guidance and said it would focus on migrating customers to its cloud solutions.

The new preliminary profits have hit the "high end of revised outlook range", the enterprise application specialist said.

The company said "business performance [had] sequentially improved in the fourth quarter even as the COVID-19 crisis persisted and lockdowns were reintroduced in many regions".

One does not simply move to the cloud

But the results for software licences show signs of the 48-year-old SAP's ongoing challenge in shifting business applications to the cloud.

In December, SAP made it clear that moving to the cloud was anything but a simple technical migration. Any on-prem software modifications should be abandoned, with user organisations having to adopt more standardised processes. "You cannot have these modifications that you had in the on-premises world, that's not how the cloud works," Oliver Betz, SVP head of product management for SAP S/4HANA, told an UK and Ireland SAP User Group meeting at the time.

For the full year 2021, SAP said it expects operating profit in the range of €7.8bn to €8.2bn, down between 1 and 6 per cent at constant currencies. Combined cloud and software revenue would be between €23.3bn and €23.8bn, flat or up 2 per cent. This is what would happen in a scenario with successful vaccination campaigns in key territories, however.

"This outlook assumes the COVID-19 crisis will begin to recede as vaccine programs roll out globally, leading to a gradually improving demand environment in the second half of 2021," the company said.

In a statement, CEO Christian Klein said: "SAP's expedited shift to the cloud will drive long-term, sustainable growth while significantly increasing the resiliency and predictability of our business." ®

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