Germany based enterprise, ERP and supply chain management  software applications technology provider SAP SE today announced preliminary first quarter financial results. The headline for the press release declared a stellar start to the year along with the: “fastest growth in new cloud business in five years.

Financial performance specifics included:

Total Revenues declining 3 percent year-over-year to €6.35 billion (IFRS and non-IFRS).

IFRS Cloud Revenue increasing 7 percent to €2.2 billion; Non-IFRS Cloud Revenues were up 13 percent at constant currencies.

IFRS Software Licenses Revenue increasing 7 percent to €0.48 billion; Non-IFRS Software Licenses Revenue up 11 percent at constant currencies, This was cited as the fastest growth in five years.

IFRS Cloud & Software Revenue up 1 percent to €5.43 billion; Non-IFRS Cloud & Software Revenue up 6 percent at constant currencies.

Recurring revenue as a percentage of total revenues, referred to as share of more predictable revenue reportedly grew 2 percent points year-over-year to approximately 78 percent.

IFRS Operating Profit down 21 percent; Non-IFRS Operating Profit reported sharply up 24 percent at constant currencies. IFRS Operating Margin was down 3.4pp; Non-IFRS Operating Margin up 4.9pp at constant currencies. The margin decrease was attributed primarily to Qualtrics IPO awards as well as restructuring expenses related to the accelerated harmonization of the provider’s Cloud delivery infrastructure. SAP initially positioned to host its own Cloud infrastructure but has since pursued a strategy for select Cloud infrastructure partners to host SAP technology. Regarding expense levels, there was specific mention of natural savings of €36 million related to the cancellation of the in-person Annual Sapphire customer conference, other in-person customer events along with decreased overall employee travel expenses.

SAP CEO Christian Klein’s commentary related to today’s pre-announcement indicates strong growth across all application areas and especially cited the recently announced ‘RISE with SAP’ initiative as a “massive accelerator” to customer business transformations. No other specifics were shared quantifying the program’s boost.

SAP CFO Luka Mucic cited the highest order entry growth across Cloud and software segments in five years.

Related commentary indicated significant competitive wins in ERP, digital supply chain and across the provider’s broader applications portfolio. Supply Chain Matters could not help but to hone-in on this statement, given archrival Oracle’s recent quarterly financial performance report. In the investor briefing, Oracle Chairman and CTO Larry Ellison specifically named upwards of 100 specific company names that have either elected to fully replace SAP technology or initiate partial replacement. SAP obviously is taking efforts to change that stated Oracle observation.

SAP SE performance

Business Outlook

The enterprise technology provider raised its full-year 2021 outlook based on the strong Q1 financial and operating performance. The company reportedly continues to expect a software licenses revenue decline for the full year as more customers turn to the “RISE with SAP” subscription offering for their mission-critical core processes. The current outlook also continues to assume the COVID-19 pandemic will begin to recede as vaccine programs roll out globally, leading to a gradually improving global demand environment in the second half of 2021.

As for specifics, the technology provider’s current outlook expects:

Non-IFRS Cloud revenue at constant currencies €9.2 – 9.5 billion (2020: €8.09 billion), up 14 percent to 18 percent at constant currencies. The previous range was €9.1 – 9.5 billion at constant currencies.

Non-IFRS Cloud and Software Revenue at constant currencies €23.4 – 23.8 billion (2020: €23.23 billion), up 1 percent to 2 percent at constant currencies. The previous range was €23.3 – 23.8 billion at constant currencies.

Non-IFRS Operating Profit at constant currencies €7.8 – 8.2 billion (2020: €8.28 billion), down 1 percent to 6 percent at constant currencies.

 

Formal reporting of SAP’s financial performance will reportedly be published on April 22, coupled with a financial analyst conference call.

Supply Chain Matters suspects that financial analyst’s and investors will be seeking a lot more detail relative to customer sales momentum, including specific customer names, along with more quantitative details relative to the ‘RISE with SAP’ customer uptake. We would not be surprised as to other announcements related to boosting operating profitability.

Our focus will be on added detail related to the reported customer uptake of digital supply chain applications and why in the SaaS/PaaS Cloud revenue segment growth, the Intelligent Spend segment (SAP Ariba) was excluded.

 

Bob Ferrari

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