SAP cuts profit outlook for 2022 as Ukraine war impacts sales
Withdrawal from Russia and Belarus has led to losses of nearly €120 million
German business software maker SAP has beating analysts' estimates in its Q2 financial results thanks to a boost to its cloud business - although the firm lowered its profit outlook for the full year, due to the impact of the war in Ukraine.
At constant currency, total quarterly sales rose 13% year-on-year to €7.5 billion, from €7.1 billion, beating analyst predictions of €7.3 billion.
The cloud segment, which increased sales 34% to €3.1 billion, was the main driver behind SAP's results.
Software licencing revenue fell from €650 million to €426 million during the same period. SAP is in the middle of a transition its traditional business of software licencing to a subscription model for cloud-based computing services.
"As our Q2 results demonstrate, SAP's portfolio is more relevant than ever," said CEO Christian Klein.
"Our transition to the cloud is ahead of schedule and we have exceeded topline expectations, with cloud revenue becoming SAP's largest revenue stream. Our pipeline is strong, and we are winning market share underpinned by the very strong 100% growth of S/4HANA current cloud backlog."
However, SAP did reduce its projected adjusted profit for 2022, from a range of €7.8 billion - €8.3 billion to €7.6 billion - €7.9 billion.
Ukraine war hits bottom line
As SAP continues to wind down its operations in Russia and Belarus, the firm has predicted its operating profit will fall by €350 million this year. That is down to a combination of lost sales, restructuring expenses, and bad debt payments resulting from the Ukraine war.
The company's withdrawal from Russia and Belarus has also required severance payments to workers and asset losses of roughly €120 million.
"The exit is still ongoing. We have notified our employees and they will leave the company over the course of 2022," Klein said on a call with journalists.
"There's also a number of employees who might work for us from other locations, but by the end of the year we will have completed the exit and I don't expect a higher number than €350 million."
SAP CFO Luka Mucic said the company will begin a €500 million share buyback between August and December: about half the size of a similar scheme in 2012.
Mucic said the company intends to make the most of lower stock prices.
"This quarter again proves that our strategy is resonating, even in an increasingly challenging external environment," he added.
"We believe that we are now able to capitalise on our substantial growth investments of the last 18 months, by delivering sustained growth and profitability expansion."