SAP’s second-quarter 2019 financial results indicate cloud revenue at 26% of total, and 600 new customers for S/4 Hana. The US-China trade war has adversely affected results
SAP has announced total revenues of €6.63bn for the second quarter of 2019, and an operating profit of €827bn – a year-on-year drop of 21%. The US-China trade war has had a negative impact on the supplier’s performance.
In the results statement, the company said: “Software licences revenue was down 5% year over year to €948m (IFRS), down 5% (non-IFRS) and down 6% (non-IFRS at constant currencies), affected by recent macro uncertainties, particularly in Asia.”
SAP CEO Bill McDermott said, during a financial analyst call, that the long-term health of the Chinese economy was secure, and that the “sales pipeline is robust for SAP”.
“China is not as strong as we are used to seeing,” he said, adding that SAP had seen “postponed decisions” in China, and that some supply chain and manufacturing companies had been shifting to “Malaysia, Vietnam and Mexico”, due to the current trade war between the US and China.
Cloud revenue was €1.69bn for the quarter, accounting for 25.6% of the total. Customer numbers for the supplier’s flagship S/4 Hana ERP (enterprise resource planning) system were reported as 11,500 – 600 more than in the first quarter.
Revenues for the first half of the year were €12.72bn, of which €3.25bn was in the cloud, again around 26%.
Growth in experience management
As in the previous quarter, SAP emphasised its $8bn acquisition of Qualtrics, an “experience management” (EM) software-as-a-service supplier.
On the call, McDermott said Qualtrics had created the category of “experience management”, and that it had been the “growth catalyst we expected it to be”. In the statement, the company reported that luxury goods retailer Chalhoub Group and the US Department of State had selected Qualtrics during the quarter.
“Our non-IFRS operating profit and margin performance is remarkable considering the margin headwinds from our latest acquisition and the recent short-term trade-related uncertainty in Asia that impacted our software revenue performance in the region”
Luka Mucic, SAP
In the results statement, McDermott said: “SAP delivered double-digit growth in total revenue, cloud revenue and non-IFRS operating income. Qualtrics is growing fast as the global standard in the experience management category. As shown by our rising cloud gross margins, we are progressing nicely on our ambition to be the best-run SAP. With XM driving the CEO digital transformation agenda, we resolutely reaffirm our full-year guidance.”
SAP’s chief financial officer, Luka Mucic, said he was pleased that the supplier’s operational excellence measures were already showing effect.
“Our non-IFRS operating profit and margin performance is remarkable considering the margin headwinds from our latest acquisition and the recent short-term trade-related uncertainty in Asia that impacted our software revenue performance in the region,” he said.
“With continued strong customer demand and our tight focus on profitability, we remain as confident in our 2019 outlook as we are in our mid-term ambition,” added Mucic.
McDermott told financial analysts “not to worry about Asia” and that the company was “positioned positively in China”. He also sought to reassure investors that it would “manage headcount with an iron fist”. SAP had a restructure earlier this year. “We cleaned up the business model and have consumed great company in Qualtrics,” said McDermott.
S/4 Hana performing well
SAP’s chief operating officer, Christian Klein, described, on the analyst call, the quarter as one of the best for S/4 Hana in the cloud.
“S/4 Hana Cloud is not a small business any more. In terms of new cloud bookings, it had the most after Concur [a travel and expenses software-as-a-service product]. It has a high share of new customers and 17 industries are being served by it,” he said.
The results statement said: “Mercedes-Benz EQ Formula-E Team have chosen S/4 Hana in the cloud. [And] Hitachi, Colgate-Palmolive, and Deloitte and Touche Southern Africa have gone live on S/4 Hana Cloud.
“SAP had a solid performance in the EMEA [Europe, the Middle East and Africa] region, with cloud and software revenue increasing 9% (IFRS) and 8% (non-IFRS at constant currencies). Cloud revenue increased 46% (IFRS) and 44% (non-IFRS at constant currencies), with Germany and Spain being highlights. In addition, Germany had a solid quarter in software licence revenue. France and Italy had a strong quarter in software licence revenue.
“In the Americas, cloud and software revenues increased 15% (IFRS) and 10% (non-IFRS at constant currencies) respectively. Cloud revenue increased by 36% (IFRS) and 30% (non-IFRS at constant currencies), with the US, Canada and Brazil being highlights. In addition, the US had a solid quarter in software licence revenue and Canada had a strong quarter.”
Meanwhile, in the Asia-Pacific region, the supplier reported solid performance despite trade-related macro headwinds. “Cloud and software revenues were up 8% (IFRS) and 6% (non-IFRS at constant currencies). Cloud revenue increased 41% (IFRS) and 37% (non-IFRS at constant currencies), with Japan being a highlight. For software licence revenue, Australia and India had a strong quarter,” it said.
