SAP Q1 2014: Cloud on the rise, strong euro a concern

SAP says it is fully on track to meet the outlook for the business year, but warns a strong euro may hamper results.

German software maker SAP reported on Thursday a Q1 2014 net income of €534 million with earnings of €0.45 per share, up approximately three percent year-over-year, an increase from 520 million euros, or €0.44 euros per share, in the year-ago period (statement)
. Non-IFRS earnings were €0.56 a share on revenue of €667 million.

IFRS total revenue was reported to be 3.69 billion euros in Q1 2014, up 3 percent from Q1 2013.

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Operating profit rose two percent to 919 million euros, below analysts' expectations of 961 million euros in a Reuters poll.

Sales of new software licenses fell five percent to 623 million euros, in comparison to 657 million euros in the previous year. Cloud subscriptions rose 32 percent to 221 million euros, in comparison to 167 million euros in Q1 2013.

SAP HANA saw strong adoption rates in Q1 2014, accounting for over 3,200 customers since market launch in June 2011 and close to 1,000 customers for SAP Business Suite powered by SAP HANA, which was launched a year ago. According to the company, SAP HANA applications are being built by 1,200 startups worldwide.

"Our 9 percent constant currency growth in non-IFRS software and software-related service revenue puts us ahead of our annual outlook growth range," said Werner Brandt, CFO of SAP in prepared remarks. "We slightly increased our operating margin while accelerating our cloud business. Operating profit was up 7 percent on a non-IFRS constant currency basis in the quarter driving strong operating cash flow, which increased by 9 percent to €2.35 billion. This result brought us back to positive net liquidity in a relatively short time frame after sizable acquisitions in the past two years."

SAP says it has seen solid regional performance in EMEA, despite uncertainties due to the Crimea-Russia crisis. The American region reported growth of ten percent, and while Japan's business was below expectations, China SAP achieved double-digit software revenue growth at constant currencies.

The software maker also said it has entered into a new "strategic partnership" with Adobe, which combines Adobe Marketing Cloud with the SAP Hybris Commerce Suite and the SAP HANA platform.

The German software and cloud provider reiterated its outlook for the full business year, which remains unchanged from the outlook provided on January 21, 2014 at constant currencies. The company expects 2014 non-IFRS cloud subscriptions and support revenue to be in a range of €950-€1,000 million, an increase from €757 million in 2013 due to the predicted growth rate of over 32 percent.

SAP expects 2014 non-IFRS software and software-related service revenue to increase by six percent, and non-IFRS operating profit to be in a range of €5.8 billion-€6 billion, a predicted rise from 2013's €5.51 billion. However, the firm says that currency fluctuations are affecting reported numbers negatively.

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