SAP Q1 Profit Weak, While Revenues Rise; Adjusts FY23 View

German software major SAP AG reported Friday lower profit in its first quarter amid higher expenses, even as revenues were higher with improved performance in cloud and software revenue. Further, the company lifted its dividend, and updated its fiscal 2023 outlook to reflect the expected Qualtrics divestiture. Meanwhile, outlook for continuing operations including anticipated acceleration of topline and operating profit growth has been reaffirmed.

Dominik Asam, CFO, said, “The year is off to a good start. ..We have accelerated topline growth and have already achieved double-digit non-IFRS operating profit growth in Q1. Our results set solid groundwork for our full year outlook, thereby pivoting back to profitable growth in 2023.”

For 2023, reflecting the expected Qualtrics divestiture, the company now expects non-IFRS operating profit from continuing operations to be in the range of 8.6 billion euros to 8.9 billion euros, up 8 percent to 11 percent at constant currencies. Previously, it expected annual adjusted operating profit of 8.8 billion euros to 9.1 billion euros, up 10 percent to 13 percent at constant currencies. Adjusted operating profit in 2022 was 7.99 billion euros.

The company now projects cloud revenue of 14.0 billion euros to 14.4 billion euros, up 23 percent to 26 percent, and cloud and software revenue of 26.9 billion euros to 27.4 billion euros, up 6 percent to 8 percent, both at constant currencies.

Previously, the company projected 15.3 billion euros to 15.7 billion euros cloud revenue, and 28.2 billion euros to 28.7 billion euros cloud and software revenue.

SAP expects to update its mid-term ambition as part of its financial analyst conference at Sapphire on May 16, 2023.

Further, SAP proposed a dividend of 2.05 euros per share for fiscal year 2022 representing a year-over-year increase of 5 percent. The dividend is subject to shareholder approval at the upcoming AGM scheduled for May 11.

For the first quarter, profit after tax declined 19 percent to 509 million euros from last year’s 632 million euros, with earnings per share decreasing 35 percent to 0.41 euros from 0.63 euros in the previous year.

Profit after tax from continuing operations dropped 60 percent to 403 million euros. Earnings per share from continuing operations were 0.35 euro, down from 0.87 euro a year ago.

Adjusted profit was 1.59 billion euros, compared to prior year’s 1.17 billion euros. Adjusted earnings per basic share were 1.27 euros, compared to 1.00 euros last year. Adjusted earnings per share from continuing operations were 1.08 euros.

IFRS operating profit decreased 45 percent from the prior year to 803 million euros. The decrease was mainly driven by the increase in share-based compensation. Adjusted operating profit was 1.88 billion euros, up 12 percent from last year.

Total revenues for the first quarter rose 10 percent to 7.44 billion euros from 6.77 billion euros in the prior year. At constant currency rates, revenues grew 9 percent.

Cloud revenue was 3.18 billion euros, up 24 percent on a reported basis and 22 percent at constant currencies from last year. SAP S/4HANA Cloud revenue climbed 77 percent, while Software licenses and support revenue fell 2 percent.

Cloud and software revenue was 6.36 billion euros, up 10 percent from the prior year.

The company noted that current cloud backlog went up 25 percent, both at nominal and constant currencies.

In Germany, SAP shares were trading at 115.76 euros, up 0.14 percent. In pre-market activity on the NYSE, the shares were down 0.12 percent to trade at $126.71.

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