Cloud uptake returns SAP Australia to profit

SAP Australia has reported that it returned to profit during the 2020 financial year as more customers bought its cloud products.

For the period to 31 December 2020, the Australian arm of the German software giant recorded after-tax profit of AU$46.3 million, a significant boost from the AU$20.4 million after-tax loss recorded during the 2019 financial year.

The company attributed this uplift to the company's growth in cloud-based customers.

"The company has delivered growth and is returning to profitability from total revenues as it continues to transition from upfront software revenue to subscription-based cloud revenue," the company stated in its annual report to the Australian Securities and Investments Commissions.

"In support of customer success, and in order to deliver increased profitability, the company continues to invest in its cloud capability."

This growth was reflected in its cloud and software revenue that came in at AU$750 million, AU$36.5 million more than what was recorded in the previous year. Meanwhile, services revenue was just shy of AU$399 million, lower than the AU$475 million recorded last year. In total, the company's revenue came in at AU$1.15 billion, slightly lower than the AU$1.19 billion last year.

During the 2020 financial year, SAP Australia recorded an income tax benefit of AU$540,000, after it received used AU$17.7 million in unrecognised deferred tax. The company also had a withholding tax benefit of AU$506,000 compared to the AU$838,000 withholding tax expense recorded last year.

SAP said the amount it spent on its 1,198 employees reduced by AU$9 million year on year to AU$379 million. During the year, the company saved on travel expenses, which dropped to AU$7.74 million, nearly a fifth of the AU$35.7 million the company had spent in 2019. Similarly, entertainment expenses also dropped sharply from AU$2.68 million to just AU$612,000.

Looking ahead, the company stated it expects revenue from the sale of SAP core products and the rendering of SAP services to continue to be strong.

It added the cloud infrastructure modernisation program that its ultimate controlling party, SAP, is undertaking is likely to impact the company locally. SAP Australia said it expects that asset impairments of data centres and related assets will come at a cost of approximately AU$11 million, which will be recorded in future financial years. It noted, however, that SAP will reimburse the total amount of restructuring costs as a result of the program to SAP Australia.

The modernisation program kicked off in Q1 2021 and is expected to be completed at the end of 2022. 

Meanwhile, Verizon Australia did not have as much luck during the same period, reporting last week an after-tax net loss of AU$122,402, following the AU$3.92 million profit during 2019. It was mainly impacted by AU$11 million in finance costs, associated with foreign exchange loss and interest on lease liabilities.

But it was not all bad news for Verizon Australia. Total revenue came in at AU$183 million, of which AU$115.8 million was made up of rendering of services, AU$10 million from sales of goods, and the remaining AU$57.7 million was revenue from its global network support.

For the period, the tech giant had a current income tax expense of AU$1.25 million, which was cancelled out by AU$1.87 million in deferred taxes. This resulted in an income tax benefit of AU$529,000. Last year it received a benefit of AU$606,000.

During the year, Verizon Australia had 309 employees and spent AU$81.5 million on them, an increase on the AU$76.3 million last year.

Like SAP, Verizon Australia's spend on employee travel and entertainment slipped from AU$2.27 million to AU$645,000 year on year.

Updated 3 May 2021, 11.42am (AEST): Verizon Australia 2020 financial year results added. 

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