Status: 10/25/2022 1:29 p.m
SAP actually wanted to withdraw completely from Russia by the end of the year. Giving the business to third parties is currently not feasible, according to CFO Mucic. In Russia, the DAX group still employs 600 people.
The German software giant SAP has postponed its complete exit from the Russian business. In a conference call, SAP CFO Luka Mucic blamed legal requirements that exist for customers and employees. Actually, the DAX company wanted to get out of the Russian business by the end of the year. The company does not currently have its sights set on a new point in time when activities in Russia should be completely ended.
Europe’s largest software manufacturer currently employs around 600 people in Russia, originally there were 1250. By the end of the year there should still be around 100 employees. “Giving the (business) to third parties is difficult and currently not feasible,” said Mucic.
Cost of going out of business
In April, after allegations of hesitation, SAP announced that it would withdraw completely from Russia and Belarus because of the war of aggression against Ukraine, thereby also terminating the contracts of existing customers.
For the discontinuation of business in Russia and Belarus, only small costs of around 20 million euros were incurred for SAP in the third quarter. Overall, Mucic estimates the burden on the adjusted operating result this year at a total of 300 million euros. Three months ago, SAP had factored in 50 million euros more.
profit plummeted
SAP reported both strong growth numbers and a slump in profits from the third quarter. Although the turnover of the group grew by 15 percent to 7.84 billion euros. On the other hand, the net profit has collapsed – that is, what is left on the bottom line. Compared to the same quarter of the previous year, this fell by 61 percent to 547 million euros. A year ago, equity results from venture capital fund Sapphire Ventures boosted profits as stock markets rallied as start-up companies rose in value. Due to the current situation on the financial markets, this did not happen this time.
The company came through the difficult third quarter better than experts had feared, also because the conversion of foreign business into euros improved the results significantly. Two-thirds of the sales growth came from currency effects.
Strong cloud business
While the lucrative software licenses were once again weaker than expected, SAP was able to show a 38 percent increase in sales in the declared growth area from the cloud. Currency-adjusted, there was an increase of 25 percent to 3.29 billion euros – driven by the cloud version of the important core software S/4 Hana.
SAP boss Christian Klein is pushing growth here in particular, also because the big US rivals are threatening to dig the water out of Baden in their original domain, the programs for controlling general company operations.
In view of the first problems and warnings from other software providers, the increase in cloud orders from SAP is impressive, wrote analyst Toby Ogg from the American bank JPMorgan. Orders for S/4 Hana from the cloud suggested that customers continued to migrate to this program – despite the economic situation. “We are very confident that we will exceed our goals for 2025,” said the SAP boss Reuters.
Inflation compensation for employees
Noting high inflation, Klein said his company was raising prices. However, inflation is not fully passed on to customers. In addition, the management is discussing a certain amount of compensation for inflation for the employees, for example a bonus payment.
Earnings per share collapsed by 36 percent to EUR 1.12. Here the weaker financial result of the venture capital division Sapphire Ventures burden. According to the data provider Refinitiv, analysts had hoped for an increase in total revenues of 7.622 billion euros and a surplus of 1.25 euros per share. A drop of bitterness is the lowered forecast for cash inflow for the full year to around 4.5 billion euros from previously more than 4.5 billion euros, commented analyst Charles Brennan.
Record result in prospect
Mucic promised record results for the fourth quarter that had just started. Among other things, lower investments and lower tax payments would have a positive impact. In addition, SAP is intensifying its savings efforts. Mucic added that growth will accelerate in the coming year. Then the operating result will also increase in double digits. The SAP figures were positively received on the stock exchange. The stock was up 3.2 percent by midday.