SAP lowers profit outlook due to cost of Russian withdrawal

Sticker shock: Russia, Belarus withdraw to cost it more than initially thought.


SAP is downgrading its outlook for the current financial year, saying its decision to withdraw from both Russia and Belarus following the conflict in Ukraine is going to cost it more than initially thought.

In results announced today, the German application software giant said operating profit was hit by restructuring expenses of around €120 million ($122 million) incurred due to severance payments to employees in Russia and Belarus and “further impairments of assets”.

New guidance cuts expectations of adjusted operating profits to between €7.6 billion ($7.74 billion) and €7.9 billion ($8.05 billion) for the financial year 2022, down from the previously stated guidance of €7.8 billion to €8.25 billion.

“Other impacts due to this rapidly evolving situation are currently unknown and could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope,” the company statement said.

Elsewhere, SAP results were a mixed bag. Second quarter total revenues hit €7.5 billion, up 13 percent on a year earlier. Meanwhile operating profit fell to €673 million, down 32 percent from €984 million.

In the autumn of 2020, SAP executed a hand-break turn on its guidance, sending its share price crashing.

Since then its plan has been to accelerate the shift to the cloud via its RISE with SAP programme, which promises to make SAP responsible for the transition.

The plan seems to be working. Cloud revenue grew 34 per cent in Q2 to €3.1 billion from €2.3 billion in the second quarter of 2021.

CEO Christian Klein said: “As our Q2 results demonstrate, SAP’s portfolio is more relevant than ever. Our transition to the cloud is ahead of schedule and we have exceeded top-line expectations, with cloud revenue becoming SAP’s largest revenue stream.”

The company trumpeted new customers including PC maker ASUS, telecoms provider Ericsson, and drinks company Moët Hennessy, although these could have picked any of SAP’s enterprise applications, not necessarily transitioning their core ERP.

Analyst firm Megabyte said the shift to subscription streams in the cloud had implications for SAP's integrator and reseller community that are driven on-off license fees, big projects and never-ending support deals.

“The move away from one-off initial licensing rebates and chunky implementations to remain relevant in SAPs future. This could be to the detriment of the long tail of sub-scale players that haven’t invested in developing expertise around SAPs Cloud solutions, but presents significant opportunities to the few who are making the transition,” it said.

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